Mr Sethi, please!

If Sethi wants to end up as honest caretaker, then his economic priority should be to ensure zero overdraft with SBP.

Mr Sethi, the caretaker chief minister of Punjab, was spot on when he said that his one and only job was to facilitate elections, not make policy or launch projects. A clear statement like this is particularly important when it comes to the economy. In the very next instant, he diluted the statement by making promises to the poor. His heart is in the right place, but that is not the point. A caretaker set-up has neither the time nor the mandate to start anything new. Indeed, if Mr Sethi, who has kept the portfolio of finance with him, has had a chance to look into his vault, there is no money left after the spending spree in the month of March.

This should be his main worry. If he wants to end up as an honest caretaker rather than Pushkin’s undertaker, then his number one economic priority should be to ensure a zero overdraft with the State Bank of Pakistan. Data has not yet been made public for the month of March, but a sizeable overdraft may not be an unsafe guess. In the province, this overdraft is the equivalent of fiscal deficit at the national level. Its size shows the quality of fiscal management of a provincial government. Maintaining fiscal responsibility at the provincial level has assumed greater significance after the generous Seventh NFC Award and the devolution under the Eighteenth Amendment. The change, however, has not sunk into the provincial financial culture. In 2010-11 — the first year reflecting the full effect of the change — an unprepared Punjab spent Rs48 billion less than the total revenue. In the following year, it overspent to the tune of Rs9 billion. In the current year, total expenditure has been budgeted in excess of total receipts to the extent of Rs3 billion. The civil accounts up to February show that the provision for the development budget has been increased from Rs250 billion to Rs 261 billion. But beware The Ides of March. The expenditure may overshoot the revenue by miles.



What is to be done? Nothing can be done on the revenue side in such a short period. For years, the provincial revenues have been negligible and the incentive for further mobilisation has been weakened by the increase in the provincial share of the divisible pool of federal taxes to 57.5 per cent. Although Punjab’s relative share in the total provincial share at 51.74 per cent is less than before, due to the reduced weightage given to population in the new formula, the absolute increase in its share has been more than 100 per cent. However, given the state of play at the federal level, Punjab is unlikely to receive the budgeted amount of Rs650 billion in the current year. All the action, therefore, is on the expenditure side. Even here, the current budget is tougher to cut than the development budget. A smaller cabinet, laying off the fat of hangers-on and an austere style may go some distance, but only some. There will, however, be a lot of fat in the development budget.

Therefore, the following must be adhered to. First, no new scheme should be initiated and the chief minister should avoid the temptation of making announcements of packages or grants of any sort. Second, any scheme not approved in the budgeted annual development programme need not be funded. Third, schemes having utilised 80 per cent of the allocation should be provided their budgeted funding. All token allocations should be scrapped. In the projects requiring public-private partnership, the private should be emphasised more than the public. Finally, and as a rule, revenue for April and May should be forecast and the expenditure pitched accordingly.

Published in The Express Tribune, April 5^th, 2013.