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June 17, 2019

Punjab and Sindh budgets


June 17, 2019

In times of austerity, can the provinces do more to advance development and social mobility? Punjab and Sindh answered with their budgets this past Friday, and both were underwhelming. When the federal budget was announced, we were told that there was a 32 percent increase in federal transfers to provinces, via the NFC award. In numbers, this means around Rs3,255 billion will be transferred from the federal government to the provincial governments. However, this rather sizable increase is not reflected in both budgets. Punjab has announced a Rs2,300 billion budget, which is only three percent higher than last year. Sindh has presented a Rs1,217 billion budget, which shows around a 12 percent increase from last year. Neither number corresponds to the fairly significant increase in provincial receipts, but both provinces will be able to explain it away by claiming that they have been able to reduce their budget deficits. In the case of the Sindh government, they have managed to announce a deficit-free budget, with the likelihood that they will end up with a surplus given their record of spending. The Punjab government will run a cash surplus of Rs232.9 billion to help the government keep the national deficit low.

The Punjab government has followed the tenor of the federal government by focusing on revenue generation, combined with selective austerity. While the Punjab government has announced a welcome 47 percent increase in development spending to around Rs350 billion, it has also announced a 17 percent cut in environmental spending. This shows a case of mistaken priorities, as we live in a time where environmental protection and development are considered to be linked rather intricately. Not only that, Punjab has been suffering most from the debilitating issue of smog, which should mean a massive increase, rather than decrease in environmental spending.

The Sindh government, on its part, has reduced the province’s development budget from Rs343 billion last year to Rs284 billion this year. Sindh has managed to up the game on populism by announcing a 15 percent hike in salaries and pensions, which could cause Punjab some comparison problems since it has kept the government salary increase under 10 percent. The Punjab government’s decision to produce a cash surplus should raise a question over why it is accepting foreign project assistance of around Rs18 billion. Neither of the budgets shows a growth-friendly approach, which suggests that provincial governments are toeing the federal line. If the provincial governments could be expected to cushion the public against the punitive federal budget, this is not going to happen. Instead, the provincial budgets seem more designed to cushion the federal government. Perhaps this is the need of the hour, but these measures will likely not translate into much public support.

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