Punjab’s economic performance

By Dr Pervez Tahir

How will the voting public judge the economic performance of a provincial government in the coming elections? In the case of the coalition government at the federal level, voters will have information on macroeconomic indicators like GDP growth rate, fiscal deficit, current account deficit and inflation. The statistical system of the country is geared towards producing these aggregate numbers, as the macroeconomy is the domain of the federal government. Provincial statistical systems feed into the federal system data on agricultural production in its entirety and on large-scale manufacturing to the extent of around 15 per cent of the Quantum Index of the Large Scale Manufacturing. However, they do not attempt to arrive at the provincial equivalent of the GDP. Such an exercise is hard to carry out for a number of technical reasons, but not impossible. The Institute of Public Policy (IPP) in Lahore has done the estimation for Punjab. According to these estimates, the annual growth rate in the province during 2006-07 and 2010-11 was a mere two-and-a-half per cent. It was lower than the average of 2.9 per cent for Pakistan and far below the average of 3.4 per cent for the rest of Pakistan. As a result, the size of Punjab’s economy shrank relative to the rest of Pakistan, as did its income per capita. Three out of the five years of estimation belong to the PML-N government.
Besides growth rate, a second indicator of interest is the gap between the revenues and expenditure, or the budgetary deficit. This analysis is possible from 2008-09 to 2011-12, i.e., the four years of the PML-N government. In the first two years, the gap was 4.9 per cent and 7.8 per cent. There was a surplus in the third year, attributable largely to the significant jump in the revenue under the new National Finance Commission award. But the overspending returned in the following year with a deficit of one-and-a-half per cent. Compared with a rising share in federal revenues, the effort to mobilise provincial revenues was non-existent. In fact, there was an absolute decline in provincial revenues from Rs99.2 billion in 2008-09 to Rs76.6 billion in the following year and further to Rs70.2 billion in 2010-11. As a percentage of total revenue, the provincial revenues have witnessed a sharp reduction from 27.2 per cent in 2008-09 to 12.7 per cent in 2011-12.
The gap between revenue and expenditure has not resulted from a larger development expenditure, which has decreased from 27.9 per cent of the total expenditure in 2008-09 to 26.2 per cent in 2011-12. Rather, it is the outcome of the failure to mobilise additional provincial revenue. Lower development expenditure is an important reason for the lower growth in Punjab. Total expenditure on education and health has been increasing but the development component decreased. In the case of education, it was seven-and-a-half per cent in 2008-09, 6.7 per cent in 2009-10 and 7.1 per cent in 2010-11. Development expenditure on health as a proportion of total health expenditure was slashed from 15.8 per cent in 2008-09 to nine per cent in 2010-11. Regional distribution of development expenditure has been uneven. The above-mentioned IPP study constructed a composite development index. All three divisions of South Punjab — Multan, Bahawalpur and Dera Ghazi Khan — were ranked at the bottom.
In terms of growth, financial management, development in general and regional development in particular, the record of the PML-N in government in Punjab creates doubts about the future promises being made by the PML-N in opposition.                         
pervez.tahir@tribune.com.pk
Published in The Express Tribune, September 14th, 2012.