May 25 - 31, 2009

Under one year of democratic government, Balochistan has witnessed no improvement in its financial position, which is fragile at its best on the eve of new budget for the fiscal year 2009-10. It has shown a poor budgetary performance in the current fiscal year largely due to the non-availability of funds for its development schemes. The province faced difficulties in achieving its development targets in the second half of the current fiscal year 2008-09, but it achieved its targets in the first half (July-December), according to the official sources.

For the current fiscal year budget, the total estimated receipts were 62.38 billion out of which Rs 3.47 billion as the province's own receipts, Rs 48.05 billion as federal transfer, capital receipt at Rs 6.22 billion, Rs 4.6 billion as foreign project assistance. One sign of how dependent the province is on the largesse of receipts from the centre in the Rs71.19 billion provincial budget for current fiscal year, the bulk of which was to come from the federal government under various heads

Provincial government had taken as its first priority those 173 schemes requiring Rs.732.5 million for their completion in the first half of the current fiscal year. Planning and Development Department (P&DD) authorized and the Finance department released funds for these schemes in July 2008. In fact, the government wanted to contain the growing amount of throw forward of development schemes. Swelling throw forward amount has been the disturbing trend of the budgets of last three years.

Under utilization of funds has also come to surface as an important issue related to the economic development of the province. Another issue is the law and order situation, which is essential to continue and complete a development program in the province. The development amid tight security arrangements brings an idea of development at gunpoint.

The under-utilization of the development budget in the past has been a reflection of poor fiscal planning and management due to lack of institutional and human capacity. Unfortunately, the concerned institutions have failed to grasp the constraints and snags impeding the development process in the province. The key role of the Planning and Development Department (P&DD) cannot be denied in the process. Despite financial and technical constraints, Balochistan has been lacking a strong, efficient, and well-coordinated institutional framework for its development.

The development planners in the province have been unable to lay foundations of their plans on sound footings. Non-existing or lack of infrastructure such as, roads, means of communication, water supply prove that there has been no proper planning for the socio-economic development in Balochistan in the past five decades.

The provincial government could not achieve the targets set for second half of the current fiscal year (January-June) so far, as FBR failed to meet its collection target because of a decline in production hit by the power crisis across the country.

For the past many years, the province is continuously presenting a deficit budget. While the provincial budget for financial year 2008-09 showed a deficit of Rs8.80 billion, the budget for 2007-08 showed a deficit of over Rs10 billion.. The next budget is likely to be a deficit budget. Financial mismanagement can not be tolerated in the given state of financial affairs of the province.

The constitution provides the flexibility of dynamically varying the distribution formulas in line with the changing needs of time. Unfortunately, the country has a checkered history of NFC and in 60 years it had less than half the NFC awards due. Fiscal federalism is yet to gain roots in the federation, which is one of the major causes of lack of harmony and stability in the country.

The National Finance Commission (NFC) award stalemate has been affecting the budgetary position of Balochistan for the past many years. Under the interim NFC award announced by former president Pervez Musharraf in 2006, the provincial share in the divisible pool was to be increased gradually from 41.5 percent in 2006-07 to 46.25 percent in 2010-11. The interim NFC award retains population as the sole basis for horizontal distribution without addressing the basic issues of IPD (area), HDI (backwardness) for horizontal fiscal equalization (HFE). It does not address the longstanding and sensitive Balochistan issue of Gas Development Surchrge (GDS).

GDS is the net difference between the total cost of gas (wellhead price, costs of utilities including operating charges, gas losses and return on assets) and end sale price of gas excluding GST. The GDS amount may vary slightly from year to year, but is targeted at around Rs.15 billion. The federal government deducts 2 percent as collection charges and distributes Rs.14.7 billion in the ratio of gas produced in the provinces. When this formula was first time introduced in the 1990 NFC award, Balochistan was producing about 70 percent gas and hence it was getting most of the GDS. Presently, the province is producing less than 25 percent gas, it is not satisfied with the formula and demands of taking into account the actual contribution to the GDS by provinces in the distribution formula.

In the current fiscal, Balochistan lost Rs1.50 billion in its direct transfers from federal government due to gas revenue-related cut of Rs3.25 billion in straight transfers. Presently, the centre has full control over the production, transmission, distribution and revenue generation of natural resources in the province. Surprisingly, the province has no representation in federal government agencies, involved in production, transmission and distribution of its gas to all parts of the country. In the 1991 NFC award, the province was forced to rely entirely on the data and information on oil and gas production and revenue given by the centre. The province makes the most contribution to the generation of total GDS, as the weighted average wellhead price of gas in the province is lowest among the four provinces. The province therefore deserves the biggest slice of the GDS instead of the present around 23 percent. Similarly, the Sui gas field wellhead price is notified by the federal government under the Gas Pricing Agreement signed in 1985. Under the accord, all the investments for development of the field after 1985 were to be made by the federal government. A major issue with Balochistan has been that the wellhead price notified by the federal government had been lower in comparison with the policy price of the later gas fields, which resulted in a low royalty amount.