Punjab government staring default in the face

[Naveed Yaseen]

* Provincial government in financial mess even after conversion of SBP OD into loan
* Punjab government facing monthly deficit of between Rs 10 billion and Rs 12 billion
* Provincial finance minister says discontinuation of food stamp scheme can provide a Rs 15 billion leverage

By Nauman Tasleem

LAHORE: The possibility of a default is looming over the Punjab government, as its financial woes are likely to worsen in the coming days.

Sources in the Punjab Finance Department told Daily Times that the financial mess had been created by the provincial government’s mismanagement of funds, heavy subsidies and meagre recoveries.

They said the federal government was fully supporting the Punjab government in overcoming the budget deficit, but the financial managers in Punjab were not paying proper attention to the matter seriously and continued to take inappropriate steps like closing revenue streams, and giving subsidies.

The federal government had helped the provincial government by increasing its threshold to Rs 27 billion, which allowed Punjab to have the said amount in its account maintained with the State Bank of Pakistan (SBP).

Earlier, the threshold amount was Rs 13 billion, which had been raised to help the province overcome the threats of default.

Until a few weeks ago, the Punjab government was running a Rs 70 billion overdraft (OD) with the SBP and had managed to secure the conversion of Rs 60 billion OD into loan.

But the gap in provincial expenditures and revenue is still indicating the possibilities of Punjab defaulting on its payments.

Deficit: The provincial government has a monthly deficit of between Rs 10 billion and Rs 12 billion. It receives between Rs 12 billion to Rs 14 billion from the federal government monthly, but tax revenue only add another Rs 2.5 billion per month to the provincial government’s account.

The Punjab government still needs to pay Rs 15 billion in pays and pensions and Rs 10 billion for various ongoing development projects in the province, while more than a billion rupees needs to be paid to the SBP per month against an instalment of its OD converted into loan by the state bank.

The provincial government, therefore, owes more than Rs 26 billion per month to various stakeholders, but its monthly revenue only amounts Rs 16.5 billion.

A Finance Department official said the government was still short of Rs 10 billion even after the conversion of the SBP OD into loan.

He said the government was Rs 17 billion away from its threshold level, and as soon as the amount touched Rs 27 billion, the SBP would refuse to entertain the provincial government’s cheques.

The official said the present situation indicated that the provincial government would cross its threshold mark by November, leading to a default.

“Earlier, the federal and provincial governments were allowed ODs and their cheques were entertained when they crossed the set limits, but after meetings with the International Monetary Fund (IMF), it is clear that none of the governments would be allowed to do that,” he said.

In recent months, the Punjab government has announced measures like subsidies on flour and sugar and doubling the salaries of the provincial police departments, which have, and will further add to the Punjab government’s worries.

Leverage: Punjab Finance Minister Tanveer Ashraf Kaira said if the current deficit-financing situation prevailed in Punjab, the provincial government would have to cut its development expenditures.

Kaira said the government was also reviewing the Food Support Programme and the province was likely to get a fiscal space of between Rs 14 billion to Rs 15 billion if the programme was stopped.

“The situation will improve if these steps are taken,” he added.

http://www.dailytimes.com.pk/default.asp...009_pg7_15