May 26 - June 01, 2008

Balochistan is going to face serious financial difficulties in preparing its budget for the next fiscal year. The province is trapped in debt servicing liabilities. Law & order situation is also not satisfactory. The gas development surcharge (GDS) issue still remains unresolved. The province's financial position has critically been weak during the last five years. The reasons behind this weakness have been the lawlessness, cash strapped resources and recent drought.

The former PML-MMA coalition government in Balochistan had always come across deficit budget. While Rs 63.27 Balochistan budget for the fiscal year 2007-08 had a deficit of over Rs.10 billion, the budget for the year 2006-07 was with an overall deficit of Rs10.96 billion. Like previous four budgets, the provincial budget for the year 2007-08 was also a deficit budget. The budget for the year 2006-07 had envisaged a total outlay of Rs 59.696 billion with Rs 37.453 billion as current expenditure, Rs 7 billion as provincial public sector development program and capital expenditure of Rs 15.184 billion. The provincial government already carried a deficit of Rs8.47 billion from the 2005-06 budget. In the FY2006-07, there was a deficit of Rs 2.309 billion in case of current expenditure and Rs 1.747 billion in case of capital expenditure. The Rs7.05 billion provincial share in the development outlay was entirely unfunded. The deficit was to be met from other resources like unfunded receipts and loans from the federal government.

For the last five years, the Balochistan budget amply revealed how an impoverished, heavily indebted and ever-neglected federating unit managed to run its affairs on loans and subventions and hopes and promises. It always exposed the severe resource constraints of a province on the country's political periphery and its sole dependence on the centre to meet its financial needs. Ironically, the provincial Annual Development Plan (ADP) has been a borrowed or managed program. For instance, the total outlay of ADP was Rs.9.3 billion during FY 2003-04. Originally the budget had spared only Rs.2.0363 billion for ADP 2003-04. Prime Minister special package of Rs.1 billion had also been included in the PSDP. It also contained foreign assistance of Rs.1.1926 billion. Federal government had launched a Resource Management Program from Asian Development Bank to provide Rs.2.8 billion to finance development schemes in Balochistan. No doubt, Rs.2.8 billion was a loan, not the grant; hence it further increased the debt servicing liabilities of Balochistan government. Fact of the matter was that out of the $100 million Resource Development credit from the Asian Development Bank, Rs 3 billion was to be used for retiring costly debts and remaining Rs 2.8 billion for financing the development projects in the budget.

It is worth mentioning that during the FY 2005-06, Rs11.76 billion had been allocated for ADP, which included Rs2.76 billion foreign assistance, Rs2.70 billion as second tranche of Balochistan Resource Management Program (BRMP) and Rs600 million in technical assistance from Asian Development Bank. The last fiscal year's Rs 59.69 billion budget showed a staggering shortfall of Rs 10.96 billion. The provincial government ever tried to bridge the gap through austerity measures, local resource generators and federal grants. The incidents of terrorism and subversion and cash strapped resources further burdened the province's fragile financial resources.

Though, the province had been benefited by an increase of about Rs 4 billion in its federal divisible pool share from the federal government under an interim NFC award announced by President Pervez Musharraf, yet bulk of this had been eaten away by additional expenditures on law and order in the province. During the fiscal year 2006-07, more than Rs 800 million had reportedly been spent on setting up additional security posts in and around the gas producing areas. The security steps were taken to protect the natural fuel gas installation and prevent gas supply interruptions to consumers across the country from Bugti tribal area of the province. Being the poorest and least developed province and having a fragile fiscal base, Balochistan rightly qualifies for allocations from the PSDP even after its share in the divisible pool has been increased. The UNDP Pakistan National Human Development Report 2003 has found that out of Pakistan's top 20 most backward districts, 50 per cent are located in Balochistan. The province is in dire need of resources to combat backwardness and drawing out of the underdevelopment trap.

The province had also born a loss of Rs 1.7 billion in the royalty and gas development surcharge proceeds during the last fiscal year due to much lower gas production, and gas supply interruptions from gas fields at Sui, Loti and Pirokh. The decrease of Rs 1.7 billion under the head of royalty and gas development surcharge and increase of Rs 1.6 billion in pays and pensions for serving and retired provincial government employees during the last financial year had further weakened the fragile financial base of the province.

For the past many years Balochistan has been reeling under the devastating impacts of natural calamities like drought, flashfloods and heavy rains. Before 2003, eight year long spell of drought had brought disaster to agriculture and livestock. All the districts except two were officially declared calamity hit regions in the province. Nearly 1.2 million fruit trees were totally and 0.8 million fruit trees were partially dried up by the drought. The population living below poverty line jumped from 50 percent to 70 percent in rural Balochistan. Agriculture in Balochistan always remains exposed to the threat of natural calamities like drought. The sector is the mainstay of provincial economy, as over 75 per cent of the population lives in rural areas. The crops contribute about 62 percent of gross farms income. In view of the looming water crisis, the allocations need to be made in the new budget to integrate risk reduction in development planning.

Balochistan has been heavily dependent on centre and thus, the highest recipient of the federal assistance in development. This dependence owes mainly to the political compulsions which are bound to remain unchanged for next few years. Any comparison on provincial basis for federal allocations in various sectors is considered irrelevant and inappropriate as requirements in each sector for every province varies.