Govt pins higher provincial deficit blame on NFC awards

ISLAMABAD: The federal government has blamed the National Finance Commission (NFC) awards for the increasing trend of provincial deficits in Punjab and Sindh, with smaller Khyber Pakhtunkhwa and Balochistan provinces posting surplus budgets.

The centre also stressed upon the need to align increased revenues with better expenditure management and untapped revenue sources.

In its Fiscal Policy Statement for 2018-19 submitted before the National Assembly this week, the Ministry of Finance highlighted that the increasing trend of provincial deficit was passed on to the federal position because of the NFC awards.

“In addition, the federal government is liable to transfer funds through federal transfers and grants to the provinces. Therefore, the performance of provinces particularly, Sindh and Punjab, which experienced deficits, needs to be aligned through better expenditure management and tapping unexplored revenues sources,” the fiscal policy statement said.

It further said that the provinces posted overall deficit of around Rs18 billion during 2017-18 against the deficit of Rs16 billion recorded during the preceding year. The increase in deficit was largely attributed to the performance of Sindh and Punjab, at Rs35 billion, and Rs17 billion deficit, respectively.

On other hand, Khyber Pakhtunkhwa and Balochistan reported surpluses of Rs10 billion and Rs24 billion, respectively.

The provincial revenues grew by 21 percent and stood at Rs2,939 billion during 2017-18 against the growth of six percent during 2016-17. However, expenditure grew at a slower rate compared to last year.

Total provincial expenditure was recorded at Rs2,961 billion, and grew by 14 percent during 2017-18 against the growth of 20 percent during 2016-17.

Although, the gap between revenue and expenditure has been reduced during 2017-18, the time lag involved in the realisation and settlement of funds allocated for spending purposes during 2017-18, led overall provinces to be net borrowers by the end of June 2018.

The higher pace of growth in overall provincial revenue reflects the efforts of provinces to improve their own revenue collection. One of the major contributing factors for the increase in pace of revenue collection was the sustained increase in sales tax on services (GST) by 31 percent during 2017-18.

However, the major revenue spinner in terms of growth proved to be stamp duties, which grew by 64 percent, particularly from the introduction of new services of e-stamping in Punjab.

Although higher revenues were collected from stamp duties, the fiscal statement highlighted that property taxes declined by 21 percent, mainly because of lower collection in Punjab.

In addition, higher collection was witnessed from provincial non-tax revenue, which grew by almost 85 percent and stood at Rs147 billion. This was mainly because of profits generated from hydroelectricity from Khyber Pakhtunkhwa and Punjab.

Development expenditure witnessed growth of three percent to record at Rs880 billion during 2017-18, provinces spent more on agriculture, livestock, manufacturing, and construction.

Mark-up payments and other current expenditures posted growths of around 19 percent and 20 percent, respectively, the fiscal policy statement said.