ISLAMABAD: The government was compelled to sanction about Rs259 billion in supplementary grants just two working days before the fiscal year ends, mainly because of massive expen­diture overruns by the Khyber Pakhtunkhwa government.

The decision was taken at a meeting of the cabinet’s Eco­nomic Coordination Commi­ttee (ECC) that approved Rs250bn supplementary funds for the provinces besides allowing the export of 32,000 tonnes of sugar by selected mills in Sindh.

Presided over by Finance Minister Ishaq Dar, the committee approved six supplementary grants worth Rs258.74bn, including Rs250bn for provinces that claimed this would not increase the fiscal deficit.

The meeting was informed an allocation of Rs10bn had been made for ‘Ways and Means Advances to Provinces’ under Federal Investment, other loans and advances during the outgoing fiscal year (2022-23).

ECC allows mills in Sindh to export 32,000 tonnes of sugar

However, the finance secretary told the participants that the KP government had availed advances of Rs224bn from the ways and means advances from July 2022 to May 24 this year.

He said that to adjust the expenditure of Rs214bn incurred in excess of the allocated budget and the likely future requirements of the provinces during the fiscal year, supplementary grants of Rs250bn were required.

He said the schedule for Rs214bn would be issued immediately, while the schedule for the balance payment would be issued as and when further advances are availed by the provinces. It was claimed that the said “expenditures would have no impact on the overall fiscal deficit of the federal government as the advances are availed for a brief period and the SBP reverses the transactions together with markup as when sufficient cash balance is available in the provincial governments’ accounts which is then booked as capital receipts or non-tax receipts of the federal government”.

The meeting was told that the ways and means advances availed so far during the fiscal year had already been replenished. Federal transfers under the National Finance Commi­ssion Award are the main sources of revenue for the provinces, which are paid on a fortnightly basis. At times, the provinces need additional funds for an intervention period. To meet that shortfall, they have recourse to borrowing from the SBP through an overdraft facility.

However, as part of financial reforms under the instructions of the International Monetary Fund (IMF), the previous government approved a new mechanism in June 2020 for borrowing by provinces from the federal government instead of the SBP.

Accordingly, tripartite agreements were signed by the federal government, provincial governments and the central bank in 2020, putting in place terms for borrowing and replenishment transactions along with the maximum ways and means advances.

The existing limits on provincial’ ways and means’ advance stand at Rs164.3bn, including Rs77bn for Punjab, Rs39bn for Sindh, Rs31.3bn for KP, and Rs17bn for Balochistan.

The ECC also approved a summary of the Ministry of Commerce to extend the period for the export of sugar quota by mills in Sindh and allowed them to export the remaining sugar quota of 32,000 tonnes within 60 days with effect from June 12 as per a Sindh High Court (SHC) decision.

The meeting was told that the Centre had allowed the export of 250,000 tonnes of sugar in the first week of January this year with a 61pc quota for Punjab, 32pc for Sindh and 7pc for KP with a deadline of 45 days, which was later extended to 60 days.

Sindh’s 80,000 tonnes of export quota allocated to sugar mills was stayed by the SHC, which cleared 48,000 tonnes of export quota to 32 mills in the first part of March. The court also cleared 32,000 tonnes and set criteria for exports on May 30 and directed the authorities to facilitate exports by mills by “condoning the expiration of any deadline previously set for the export”. The ECC completed the formality.

The Economic Coordination Committee also approved a summary of the Ministry of Railways to provide additional funds in grant-in-aid to Pakistan Railways for discharging pending liabilities, including salaries and pensions of its workers.

Published in Dawn, June 24th, 2023