Punjab’s budgetary borrowing jumps 145pc

Punjab has witnessed a staggering increase in budgetary borrowing from banks, surging by more than 145% in the first seven weeks of the current fiscal year, according to State Bank data. The province borrowed Rs753.4 billion, compared to Rs306.8 billion during the same period last fiscal year. This borrowing surge indicates growing liquidity pressures in the country's largest province. Punjab's borrowing, however, pales in comparison to the federal government's own borrowing of Rs571 billion during the same period.

Provinces are mandated to generate fiscal surpluses, which they then share with the federal government. However, the federal government's expenditure continues to rise, despite its reliance on bank borrowing to meet financing needs. The World Bank's recent report highlights that while the federal government transfers a larger share of revenues to provinces, it does not reduce its own expenditure accordingly.

The divisible pool for determining federal and provincial shares remains frozen at Rs13.35 trillion for strategic national requirements.

Tax collection for FY27 is projected at Rs15.264 trillion, leaving around Rs1.9 trillion available to the federal government beyond the frozen divisible pool. Yet, provincial spending has shifted away from service-delivery needs, with the largest increase in expenditure since 2010 being on administrative costs rather than education or health.

A significant portion of provincial expenditure remains absorbed by recurrent costs, while local governments' share in total public spending has declined from around 10% in 2005 to less than 5% currently.

The federal government's borrowing for budgetary support during the same period was Rs571 billion, significantly less than Punjab's borrowing. Provincial governments heavily rely on federal transfers, accounting for up to 78% of their revenues, rather than raising a larger share through their own tax bases. This dependence leaves provincial finances vulnerable when larger cash surplays are required for the Centre, potentially squeezing resources for essential services like education, healthcare, and local infrastructure.

Agriculture, which accounts for more than 20% of GDP, remains a low-revenue area, with no province generating significant revenue from agricultural income tax. Consequently, Pakistan's tax-to-GDP ratio remains low.