Punjab’s budget for 2022-23 is finally out, but not before President Parvez Elahi used his office to block its presentation for two days last week and the PML-N-led ruling coalition government has withdrawn its powers to convene or prorogue the sessions of the assembly by an ordinance.

In a highly polarized political environment, with one eye on upcoming by-votes in 20 provincial seats next month – the outcome of which will determine whether the coalition or PTI has a simple majority of 186 members in the full House and probably the time of the next general elections in the country — it was natural for the nascent administration of Hamza Shehbaz to offer a fiscally flexible budget to please the electorate under the sway of the PML-N.

Although many expected the Hamza Shehbaz government to distribute gifts to different segments of the population, it limited itself to increasing public sector development spending and dramatically increasing allocations for subsidized wheat flour, public transport, food, etc.

No wonder, the government has since trumpeted the “highest ever” provincial development plan of Rs 685 billion and its Rs 392.08 billion “aid package” to protect poor to middle households from the negative impact of the sharp rise in price inflation. . The allocations for these two heads constitute one-third of the proposed total consolidated fund of Rs 3.23 trillion for next year.

Following the Centre’s scenario of unrealistic figures, Punjab opted for benevolent but mostly unnecessary subsidies

Allocations for the next fiscal year’s Annual Development Program (ADP) represent a 22% increase over initial estimates for the current fiscal year, but less than 6% over actual funding of Rs 647 billion.

The government says it could have increased funding for its public sector development stimulus to around Rs 800 billion had it not decided to divert available resources to provide subsidized wheat flour to segments of the low to middle income society hit by inflation at 25% below its market rates of Rs 65 per kilo at a high cost of Rs 200 billion over the next 12 months, starting July 1.

The massive spike in Punjab’s grant bill has pushed current expenditure estimates by a fifth to Rs1.71tr over the current financial year.

A closer look at the many budget documents reveals that apart from increasing development allocations and announcing the relief package, the government has not taken any significant governance or financial reform initiatives, nor even attempted to define the orientation of its economic policies.

Thus, the budget can be safely hailed as an election-focused plan aimed at short-term electoral gains through populist but mostly wasteful subsidies. None of the documents help their readers get a true picture of the provincial economy.

Nor do they analyze the potential impact of the expected economic slowdown following the fiscal consolidation that the federal government will implement to restore the suspended International Monetary Fund program, on the province’s revenues from the both transfers under the National Finance Commission grant or the province’s own fiscal and non-fiscal resources and expenditures.

It is natural that the nascent administration of Hamza Shehbaz offers a fiscally flexible budget to please the electorate under the influence of the PML-N

The documents show that the nascent government of Chief Minister Hamza Shehbaz has based its spending and revenue projections on the assumptions that a) the economy will grow by 5%, b) the Federal Board of Revenue (FBR) will see its target rate of Rs7t and inflation will remain low at 11.5 pc.

If things develop according to the federal scenario, Punjab would have no trouble meeting its large tax and non-tax revenue targets of Rs2.52bn, including federal transfers of Rs2.02bn and provincial tax of Rs337bn, for finance its development program and its massive current expenditures, including flour and other subsidies. But in a constrained fiscal and external environment, independent economists suggest, the country is unlikely to meet its macroeconomic targets.

With economic growth widely projected to remain below 4%, the RBF will struggle to withdraw its targeted tax revenues despite inflation well above 11.5% due to rising domestic fuel and electricity prices. and high global commodity rates. Punjab and other federated units will be forced to drastically revise their inflated and unrealistic preliminary estimates of revenue and expenditure.

The real estate and construction market, a major driver of growth, has already slowed down. The past few years have been very difficult for most people, especially lower-middle income households, pushing them to breaking point. They need a break from rising price inflation.

Grants or cash distributions can help, but these initiatives cannot replace the long-term reforms and policies needed to create new jobs, support micro and small businesses, and increase household incomes.

Punjab should focus on sound fiscal management to prepare budgets based on realistic projections and targets for the long-term prosperity of its people.

Posted in Dawn, The Business and Finance Weekly, June 20, 2022