Provinces allowed to borrow Rs250b
The ECC was informed that the K-P government had already borrowed Rs224 billion, exceeding its limit of Rs31.3 billion, as of a month ago. photo: FILE
The federal government, on Friday, granted permission to provincial governments to temporarily borrow Rs250 billion, as their current borrowing limits have been exhausted due to increased spending in preparation for the upcoming general elections and a significant shortfall in federal tax receipts.
With only three working days remaining in the fiscal year before the Eid holidays, the Federal Board of Revenue (FBR) is falling short of its annual target of Rs774 billion, which will have a negative impact on provincial revenues. Despite the implementation of a mini-budget, the FBR has only collected Rs6.87 trillion as of Friday, compared to the annual target of Rs7.640 trillion.
The Economic Coordination Committee (ECC) of the Cabinet has approved a total of Rs258.6 billion in supplementary grants, including Rs250 billion for the provinces, according to the finance ministry.
The ECC has approved a Rs250 billion technical supplementary grant for the Finance Division, specifically for Ways & Means Advances availed by provinces to cover expenditures that exceeded the allocated budget and to meet the future requirements of the provinces during the current fiscal year, stated the Finance Ministry.
The borrowing limit has been relaxed just one week before the end of the fiscal year.
As per the fiscal management strategy, provincial governments are allowed to borrow a certain amount from the central bank to fulfil their immediate cash needs. These borrowings are then settled using the receipts they receive from the centre as their share in federal taxes.
The current cumulative borrowing limit for the four provinces is Rs164.3 billion, with Punjab having the highest share at Rs77 billion. Sindh’s borrowing limit is Rs39 billion, Khyber-Pakhtunkhwa (K-P)’s is Rs31.3 billion, and Balochistan’s is Rs17 billion.
The ECC was informed that the K-P government had already borrowed Rs224 billion, exceeding its limit of Rs31.3 billion, as of a month ago. The finance ministry requested the ECC to approve a total borrowing limit of Rs250 billion in order to accommodate the financial needs of the provinces until June 30th.
According to the budget agreed upon with the International Monetary Fund (IMF), provinces are expected to generate cash surpluses rather than running deficits. However, provincial governments have increased spending ahead of the upcoming elections, putting additional strain on their budgets.
Due to the FBR’s poor performance, the government has faced a tax shortfall of Rs430 billion during the first 11 months of the current fiscal year, which has also affected provincial revenues. Under the 7th National Finance Commission award, 57.5% of the gross federal taxes are allocated to the provinces as their share.
The FBR’s tax collection has only grown by 16% despite a 38% inflation rate. Sales tax collection has only grown by 1.2%, with the FBR collecting only Rs2.52 trillion as of Friday. The only positive aspect for the FBR is the growth of income tax collection, which has increased by 43% to nearly Rs3.1 trillion.
The ECC has also approved an extension for the export of 250,000 metric tonnes of sugar. This quantity was expected to be exported within 45 days of the government’s decision made in January of this year.
The ECC has approved a summary from the Ministry of Commerce regarding the extension of the period for sugar mills in Sindh to export the remaining quota of 32,000 metric tonnes of sugar within 60 days, starting from June 12th, in accordance with the Sindh High Court decision, according to the Finance Ministry.
Sindh-based sugar millers have been engaged in a dispute over acquiring a larger share of Sindh’s 80,000 metric tonnes quota. As they failed to resolve their differences, the matter was taken to the provincial court.
The ECC also considered a summary from the Ministry of Railways requesting additional funds to settle pending liabilities, including payment of salaries and pensions for staff. The ECC approved an additional Rs2.5 billion for the loss-making enterprise. With this fresh approval, taxpayers have contributed a total of Rs47.5 billion to sustain the loss-making Pakistan Railways.
The ECC also approved an additional budget of Rs4.8 billion for the Ministry of Housing and Works to execute development projects in all provinces, utilising the budget allocated for parliamentarians’ schemes.
Additionally, the ECC granted approval for an additional budget of Rs1.2 billion to honour the federal government’s commitment towards Balochistan Mineral Resources Limited’s obligatory contribution under the Reko-Diq Project.
Published in The Express Tribune, June 24th, 2023.
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