BUDGET STRATEGY PAPER 2018-19 to 2020-21

March 2018

FINANCE DEPARTMENT GOVERNMENT OF SINDH

Table of Contents

TITLE PAGE NUMBER ACKNOWDLEDGEMENT………………………………………………………………………………………………………………2 EXECUTIVE SUMMARY………………………………………………………………………………………………………………..3 INTRODUCTION ………………………………………………………………………………………………….……………………..5 ECONOMIC AND SOCIAL DEVELOPMENT IN SINDH…………………………………………………………………………….5 ECONOMIC DEVELOPMENT………………………………………………………..………………………………………………..5 SOCIAL INDICATORS ………………………………………………………………………………………………………………….7 MEDIUM TERM FISCAL FRAMEWORK…………………………………………………………………………………………….11 RENVENUE OF THE PROVINCE…………………………………………………………………………………………………….13 FEDERAL TRANSFERS………………………………………………………………………………………………………………14 PROVINCIAL OWN REVENUE……………………………………………………………………………………………………….18 EXPENDITURE OF THE PROVINCE……...... 19 CURRENT REVENUE EXPENDITURE………………………………………………………………………………………………20 DEVELOPMENT EXPENDITURE ...... 24 SECTORAL DEVELOPMENT AND BUDGET PRIORITIES ...... 27 NET LENDING ...... 38 FINANCING ...... 39 DEBT AND CONTINGENT LIABILITIES ...... 40 INVESTMENTS & FUND MANAGEMENT ...... 44 GOVERNANCE ...... 45 RISKS TO BUDGETARY PROJECTIONS AND MITIGATION STRATEGIES ...... 49 ANNEX 1MULTIYEAR GLANCE ...... 51 ACRONYMS ...... 53 ENDNOTES ...... 55

EXECUTIVE SUMMARY

Finance Department, Government of Sindh, on 29.03.2018, presented Budget Strategy Paper 2018-21 to the Provincial Cabinet for its approval. The objectives of the paper are to strengthen planning, budgeting and macro fiscal forecasting processes in the province that are responsive to the financial requirements of the departments/ government entities; to make budget making process participative; and to enhance transparency. Budget Strategy Paper (BSP) is three year rolling plan that sets policies and priorities of the government. This paper outlines key macro-economic assumptions, socio-economic indicators, medium term fiscal framework, key sectoral plans, debt management, investments and financial management reforms in the province. The important section of the paper is Medium Term Fiscal Framework (MTFF), and its key elements including tax and non-tax revenues, current and development expenditure, financing and lending arrangements. The process of preparation of Budget Strategy Paper starts with review of existing policies of government and determination of the future requirements of departments with focus on service delivery and development needs of the province. After the priorities are identified and proposals get firmed up in a consultative process amongst the government departments, the Paper is drafted and presented to provincial cabinet for its input, recommendations and approval. The BSP, after its approval by the cabinet, becomes the guiding policy document for consolidation of budgetary proposals. This is a leap forward in the realism of transparency in the formulation of fiscal policy, embodying the spirit of participation and ownership of the stakeholders. As per BSP, revenue of the province comprising federal transfers and provincial own tax and non-tax receipts witnessed the shortfall of 0.5% in year 2015-16 and 6.3% in year 2016-17, against the budget estimates. The variation is mainly attributable to shortfall in federal transfers, provincial own tax and non-tax revenues, and federal developmental grants. Other factors contributing to shortfall in revenues include the sluggish economic growth rate, inefficiencies in tax administration and tax collection, and ban on disposal of government land. In the Current Financial Year 2017-18, the revenue of the government is expected to witness decline of 9%, compared to the budget estimates. Over the next three years, the revenue of the province is expected to grow at the annual accumulated growth rate of 14% ― with growth of 14% in Revenue Assignment and Straight Transfers, 14% in federal PSDP, 10% in provincial revenues and 7% on Other Grants (OZT). The total expenditure of the province, excluding debt repayment and investments, registered decline of 15.6% in 2015-16 - with actual expenditure of Rs.592.4 billion against budget estimates of Rs.702 billion. Almost similar trend followed in 2016-17, when the expenditure dropped by 9.3%, actualizing at Rs.761 billion against budget estimates of Rs.838.75 billion. The variation was seen in development expenditure, with

actual expenditure recording (-) variance of 31% in 2015-16 and 21% in 2016-17, vis-à-vis the budget

estimates. The actual Current Revenue Expenditure witnessed (-) variance of 9.6% and 3.8% against budget estimates of 2015- 16 and 2016-17 respectively. The BSP projections are based on historical financial & non-financial trends, new policy intervention, sector strategies and commitments. The financial trends mainly pertain to last 3-5 years and current 6 months expenditures / revenue collection. The BSP gets developed during October – February each year, which may not cover some unforeseen expenditure occurred in running financial year.

1. INTRODUCTION Budget Strategy Paper (BSP) is a strategic document that represents policies and priorities of the Government spanning over the next three financial years in terms of public sector growth. The Paper provides fiscal analysis of the government during last two years and examines fiscal performance of Current Financial Year as well. Based on policies, priorities and trends, BSP projects the estimates of provincial receipts & development and non-development expenditure for next three years. The Paper considers various sub-national macro-economic indicators, need of people and institutions, and capacity of the government to achieve its goals. It is a tool available with the public administration to plan their course of action to synchronize their respective departmental targets with the vision of the government. BSP also assists the legislature to gauge the performance of the Government as well as to suggest improvements in financial management. BSP is an integral part of Public Finance Management systems. This paper is based upon the social and economic developments in Sindh including macro-economic assumptions, and socio-economic indicators; medium term fiscal framework providing forecasts of revenue, expenditure and the fiscal balance; short term financing arrangements and details of the current debt; performance on investments and fund management; and presentation of the status of ongoing public financial management reforms. Overall, the entire financial progress of the province is captured in this document. The Budget Strategy Paper is an evolving document as it builds upon the assumptions made in the Budget Strategy Paper published during last two financial years. It is pertinent to mention that the information available on account of socio-economic indicators is deficient as well as not updated due to lack of latest surveys. It is expected that in the years to come, the quality of data would be considerably improved. 2. ECONOMIC AND SOCIAL DEVELOPMENT IN SINDH

2.1 ECONOMIC DEVELOPMENT

Home to 47.886i million inhabitants (2017), Sindh is the second largest province, with 23 percent of the total population and 17.7 percent of total land area of Pakistan. As an industrial, commercial and financial hub of Pakistan, Sindh plays a pivotal role in the national economic and development. Endowed with coastal access, Sindh is a major center of economic activity in Pakistan and has a highly diversified economy, ranging from heavy industry, manufacturing, services sector and agriculture. The most of growth in the provincial economy can be attributed to the services sector, followed by the industry. The province has two seaports, handling majority of country’s exports and imports, and its vibrant stock exchange and the most resilient business community have been the driving force behind country's economic activity.

Gross Domestic Product On a long-term basis, over a period of 27 years from 1972-73 to 1999-2000, Provincial economics of Punjab, Sindh and KPK have grown at virtually the same rate of close to 5%. The only Province which has shown a significantly lower growth rate is Balochistan. Punjab is the largest provincial economy with a share of over 54% in 2014-15. The next economy is that of Sindh with a share of 30% in 2014-15. Punjab dominates in agriculture, with a share of over 62%. It is significant to highlight that the industrial sector of Sindh, with a share of 42%, is even larger than that of Punjab (39.8%). In services, the ranking of size is the same as in agricultureii. Labor Force Human Capital and its rate of employment is of utmost importance. The labor force in Sindh is estimated at 13.99 million including 11.84 million males and 2.15 million females: the labour force in rural and urban areas is estimated at 7.69 million and 6.3 million respectivelyiii. The rate of unemployment in Sindh stood at 4.66% percent, which is lower than national average of 7.71%; the unemployment rate in rural areas is lower (2.46%) than urban areas (7.31%) and the same is lower for males (3.57%) than females (10.92%)iv.Agriculture, despite its declining share, is the largest employer with 39.28% labour force in the province, while manufacturing sector employs 15.17%, wholesale and retail trade 15.82%, construction 7%, and transport and storage 5.74%v. Agriculture Agriculture is the mainstay of our economy. However, in Sindh faces high degree of fluctuations and variations in annual output because of dependence on water availability and climatic conditions. Being the lower riparian, the flows into the canals and distributaries are erratic and unpredictable. In the last few years, the province has also been hit by natural disasters such as heavy floods and torrential rains. However, in the national context, 15-17 percent of Pakistan’s Wheat, 33-45 percent of Rice, 23 percent of Cotton and 25 percent of Sugarcane are produced in the provincevi. Natural Resources Natural resources of Sindh are yet to be fully discovered/utilized, such as oil, Gas and Coal. In a country, facing acute energy shortages, the substitution of country’s own natural resources over imported fuel oil needs to take priority. The provincial Government has made significant investment and involving private sector to exploit the potential of Thar Coal; however, the fruits of such investments are yet to materialize. Fiscal Position Since 2009 NFC Award, Sindh’s public finances have improved considerably. The General Provincial Revenue in FY 2016-17 stood at Rs.692.9 billion, of which Rs. 539.9 billion (78%) were transfers from the Federal

Divisible pool, straight transfers and grants, and remaining 22% amounting Rs.153 billion were collected as

Provincial taxes and non-tax revenues. Total Expenditure in LFY 2016-17 stood at Rs.761 billion out of which Rs. 550.9 billion (72%) were spent on non-development expenditure and Rs. 210.1 billion (28%) were for the development expenditure. 2.2 SOCIAL INDICATORS The province continues to grapple with low level of human development: low literacy level; poor health indicators; inadequate access to safe drinking water and sanitation. Besides that, poverty, hunger, regional, gender and income disparities, characterize our social underdevelopment. The table below shows comparison of social indicators in Sindh with rest of the three provinces of Pakistan:

Table 1: Human Development Index Indicators Pakistan Punjab Sindh KPK Baloch

Health

Maternal mortality rate per lac live birth (2012-13)vii 276 227 314 275 785

Infant mortality rate per 1000 live births, urban 45 & rural 74, (2012-13)viii 74 88 74 58 97

Mortality rate for children under-five per thousand live births in 2012-13ix 89 105 93 70 111

Water & Sanitation (percentage)

Access to tap water resources 2014-15x 27 18 41 44 33

Access to sanitation facilities (toilet with Flush) (2014-15)xi 73 79 67 76 31

Education (percentage)

Overall Literacy Rate (2015-16)xii 58 62 55 53 41

Net Enrollment Rate at primary level (5-9 years) 2015-16xiii (%) 54 59 48 53 33

Population aged 10 and above ever attended school (2014-15)xiv (%) 62 65 61 55 44

Rate of completion of Primary level or Higher 2014-15xv (%) 52 54 53 44 35

Poverty (per thousand)

Head Count Multidimensional Incidencexliii 38.8 31.5 43.2 49.1 71

Health Health system faces many challenges that are generally crosscutting in nature. Health- poverty-illiteracy nexus, coupled with gender inequality and regional disparities, results in uneven health coverage; inadequate supply of pure drinking water and sanitation services trigger the spread of communicable diseases. Though Sindh’s major health indicators have shown some improvement since 2006-07, they still remained short of MDG targets by 2015. The federal and provincial share in total public spending on health shows that major share of spending on health has been observed in Punjab followed by Sindh. The integrated Food Security

Phase Classification (IPC), analysis conducted in March-June 2015 has shown 29 districts out of 148 districts

in Pakistan as highly food insecure and require immediate attention while four of those districts have been identified with severely food insecure and need immediate response. The Districts / agencies which are severely food insecure include Tharparker in Sindh, Chaghi and Dera Bugti in Baluchistan, Torghar in Khyper Paktunkhwa and FR D.I. Khan, FR Tank, South Waziristan, North Waziristan, Orkazai, FR Kohat. According to Pakistan Economic Survey 2016-17, table 11.1 shows that only 2 polio cases were found in Pakistan. 1 was found in Punjab and 1 was from Gilgit-Baltistan while no case was reported from Sindh. These figures say it all regarding the Federal as well as Sindh governments' commitment for eradication of polio from Pakistan. Water and Sanitation Availability of better sanitation facility and safe drinking water is directly proportional to the health of the population, especially mothers and children. In Sindh, the access to tap water resources is available to 41% households compared to 27% in Pakistan, 18% in Punjab, 44% in KPK and 33% in Baluchistan in 2014-15.In the same year, 67% population, in Sindh, had access to sanitation facilities (Toilet with Flush), comparing 73% in Pakistan, 79% in Punjab, 76% in KPK and 31% in Baluchistanxvi. Education As per Economic Survey of Pakistan 2016-17, Sindh’s literacy rate improved from 56% in year 2013-14 to 60% in 2014-15, which is similar to national average (60%) but less than Punjab (63%) but it went down to 55% again in 2015-16xvii. There exists regional and gender disparities in the level of attainment of education in populace. The literacy rate in urban population of 10 years and above is 76 percent compared to only 40 percent of their rural compatriots. The female literacy rate among urban population is 65 percent – almost more than three times higher than that of the rural households that is as low as 19 percent in 2015-16. The net primary enrollment rate (5-9 years) in 2014-15 stood at 51% in Sindh as compared to the national average of 57% and 61% for Punjabxviii. Likewise, our gross enrollment rate in 2015-16 stood at 78%, which again was much below national average (87%) and Punjab (93%)xix. In 2014-15, 61% population aged 10 and above in Sindh had ever attended school as compared to 62% in Pakistan, 65% in Punjab, 55% in KPK and 44% in Baluchistan. The rate of completion of primary level or higher in Sindh stood at 53% in year 2014-15 as compared to 52% in Pakistan, 54% in Punjab, 44% in KPK and 35% in Baluchistan. Besides, the issue of access, the quality of instruction particularly in government schools is less than satisfactory, the teachers’ attendance is poor and their commitment to their profession is lacking. There is a dearth of basic facilities like science labs, library, play, electricity, toilets, boundary walls etc. in a large number of schools. According to Household Integrated Income and Consumption Survey (HICS) 2015-16 at National/Provincial levels with urban/rural breakdown, the literacy rate of the population (10 years and above) remained at 58% as compared to previous survey held in 2013-14. The data shows that literacy remains much higher in urban

areas (74%) than in rural areas (49%), with male percentage of 81 and female as 68 percent in urban areas.

Province wise data suggests that Punjab and Sindh lead with 62 percent and 55 percent respectively followed by Khyber Pakhtunkhwa with 53 percent and Balochistan with 41 percent. The overall Net Enrollment Ratio at the primary level remained stable only in Sindh with 48 percent while that of Punjab and Khyber Pakhtunkhwa declined from 64 percent to 59 percent and 54 percent to 53 percent. Baluchistan has witnessed a significant decline from 39 percent in 2013-14 to 33 percent in 2015-16xx.Female literacy rate in 2015-16 showed improvement in Sindh compared to 2013-14. It stood at 44% compared to the national average (48%) and 10 times less than Punjab (54%), but 12 times better than KPK (36%) and 20 times better than Baluchistan (24%).The urban female literacy rate in Sindh(65%) is quite close to the national(68%) and far more than KPK(52%) and that of Baluchistan(44%),while rural female literacy rate(19%) is only better than that of Baluchistan(15%)xxi. Poverty Using PSLM data, the headcount of multidimensional poverty in FY14/15 was 38.8 percent while the intensity of deprivation is 51 percent. Since FY04/05, multidimensional poverty has continuously reduced in Pakistan. The headcount reduced from 55.2 percent to 38.8 percent between FY04/05 and FY14/15. However, the intensity of deprivation reduced only slightly over the same time period (from 52.9 percent to 50.9 percent). This means that majority of the multi-dimensionally poor people continue to experience deprivation in the same number of weighted indicators. Similar trends also followed across all provinces. Table-1 gives province-wise MPI headcount. As the numbers show, there are stark regional disparities in Pakistan. The poverty in rural areas is higher than urban areas. Similarly, at province level, Punjab has the lowest multidimensional poverty while Balochistan has the highest incidencexxii. It is also important to study the progress made by provinces in reducing poverty over the period under analysis. PRSP 2015-16 demonstrates the relative change in MPI at national and province level. Punjab accounts for the highest relative reduction in MPI (39.8 percent) while Balochistan showed the slowest progress in reducing multidimensional poverty with a relative change of only 18 percentxxiii. In Pakistan, the challenge of inequality is equally daunting. According to figures released by the Planning Commission while consumption-based poverty dropped from 57.9 percent to 29.5 percent between FY98-99 and FY13/14, and multidimensional poverty - which includes health, education and living standards -fell from 55.2 percent to 38.8 percent between FY04/05 and FY14/15, inequality has grown. In 1987-88 the Gini coefficient, which measures income inequality, was 0.35; by FY13/14 it had risen to 0.41. Pakistan's richest 20 percent now consume seven times more than the poorest 20 percent. The value of Gini-Coefficient has increased in all provinces during the comparison period indicating a rise in income inequality. In Punjab this value increased from 0.35 in 1987-88 to 0.43 in FY13/14, in Sindh it increased from 0.34 to 0.38, in KP this

number rose from 0.31 to 0.36 and in Balochistan the Gini-coefficient increased from 0.32 to 0.38.

Deteriorations in income distribution are significantly higher in rural areas of Punjab and Sindh provinces during the same period, while in contrast urban inequality has significantly worsened in KP and Balochistan provincesxxiv. Disparities across Regions and Districts Severe disparities exist between rural and urban centers. Inequality among households in rural areas is also highxxv. As per multidimensional head count index in 2014-15, the incidence of poverty in rural Sindh was 75.7%, which was much higher than the national average of 38.8%xxvi. Multidimensional poverty incidence is highest in Baluchistan province, where about 84.5 percent rural population is multi-dimensionally poor, followed by rural Sindh with an estimate of 75.7 percent as compared to 54.6% in Pakistanxxvii.Also vast disparities exist across the districts in Sindh in provision of access to education, health services, clean drinking water and sanitation facilities. Social Indicators and provision of facilities in predominantly urban districts are far better than rural districts in Sindh.Within the province, the districts with top multidimensional poverty index (MPI) ranking are Karachi, Hyderabad, Larkana, Sukkur and Dadu with their respective MPI scores as 0.019, 0.129, 0.194, 0.197 & 0.247. The districts with bottom MPI ranking are Thatta, Sujawal, Tando Muhammad Khan, Tharparkar and umerkot with their respective MPI scores as 0.437, 0.447, 0.455, 0.481 & 0.504xxviii. Natural Disasters The lack of preparedness to cope with natural disasters has taken its toll further adding to the miseries of people of Sindh. The unprecedeted floods in 2010 wrought destruction to public and private property, displacing people, disrupting schools, spreading diseases and depriving thousands of people of their livelihood. As per preliminary estimates, 11 percent of public healthcare infrastructure and 5,655 primary schools in the province suffered partial or complete physical destructionxxix. Paksitan has witnessed spate of terrorism disturbing life in major urban centers especially Karachi since 9/11. Besides, political polarization i.e. urban-rural divide is more pronounced in Sindh, which is cause of political instability and violence. Public Sector Reform to improve service delivery and Public Infrastructure In order to improve service delivery, Government of Sindh has embarked upon public sector reforms in public financial management, education and health sector to improve governance, access and quality of service delivery. Through public private partnership interventions guided by public private partnership Act, private sector and non- governmental organizations have been involved in service delivery, especially in Health, Works and Services and Education Departments.

3. MEDIUM TERM FISCAL FRAMEWORK

The Medium Term Fiscal Framework provides the details of receipts and expenditure in the multiyear perspective, including actual receipts and expenditures accrued in previous two years, budget and revised estimates for Current Financial Year and projections over next three years. The previous trend, especially of the last two financial years, indicate total revenue of the province declining, against the budget estimates, by 0.5% in year 2015-16 and 6.3% in year 2016-17, more so of total expenditure dropping by even higher percentile of 15.6% in 2015-16 and 9.3% in 2016-17 – turning deficit budgets into surplus cash balances. Because of delayed execution of projects – partly for lack of project management capacity and partly for belated releases – this trend is likely to continue in near future, till the reforms initiated for improved planning, budgeting, forecasting techniques for cash flow management, and project management capacity, bear fruits. Therefore, in the medium term – except FY 2020-21 – an operational deficit, total revenue minus total expenditure, is forecasted since projected revenue fall short of the expenditure demand. The negative operating balance is reduced each year and turns positive in 2020-21. The net lending items (balances of the food account and the public account are slightly positive, but the fiscal balance (operating balance minus net lending items) shows the same trend as the operating balance is negative for the period 2018-20 but turns positive in 2020-21.

FIGURE 1: EXPENDITURE AND FINANCING SHARE (RS. IN BILLION)

Total Expenditure Rs.1,093 billion Total Revenue and Financing Rs.1,093 billion

Net Financing 11%

Develop. Expenditure Provincial 32% Revenues Federal Recurent 21% Expenditure Transfers 68% 68%

Federal Transfers Provincial Revenues Net Financing Recurent Expenditure Development Expenditure

The following table (Table-1) shows the figures of Medium Terms Fiscal Framework. Table.1 Medium Term Fiscal Framework 2018-21 (FD Scenario) Amounts in Billion Rs. Revised Actual Actual Budget Forecast Forecast Forecast Description Forecast 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2017-18 TOTAL REVENUE (A=B+C) 650.9 692.9 854.3 773.4 972.7 1,109.4 1,265.4 Federal Transfers (B) 518.0 539.9 654.6 579.4 743.1 845.4 961.8 Revenue Assignment 425.0 437.1 547.4 489.5 624.1 711.4 811.0 Straight Transfers 63.6 80.4 65.2 65.2 74.3 84.7 96.5 Development Grants (PSDP) 16.7 10.7 27.3 11.8 30.1 33.1 36.4 Other Grants (OZT) 12.6 11.8 14.7 13.0 14.7 16.2 17.8 Provincial Revenue (C) 132.8 153.0 199.6 194.0 229.6 264.0 303.6 Sales Tax on Services 61.5 78.5 100.0 100.0 115.0 132.3 152.1 Other Tax Receipts 61.2 65.9 85.6 80.0 98.5 113.2 130.2 Non-Tax Revenue 10.1 8.6 14.0 14.0 16.1 18.5 21.3 TOTAL EXPENDITURE (D=E+F) 592.4 761.0 1,010.5 891.6 1,093.0 1,175.4 1,263.6 Current Revenue Expenditure (E) 455.0 550.9 666.5 651.6 743.9 793.9 847.0 Employee related expenses 214.5 234.1 300.5 284.9 340.5 367.8 396.0 Pension payments 52.8 70.0 76.0 86.0 94.6 104.1 114.5 Operating and Maintenance Expenses 68.4 105.2 114.4 114.2 118.7 121.2 123.8 Grants, Subsidies and write off loan 98.9 119.2 148.1 139.0 157.2 166.1 175.8 Interest 14.3 15.3 17.4 17.4 18.3 19.2 20.2 Physical Assets & Project Pre-Investment 6.1 7.0 9.9 10.1 0.1 0.1 0.1 Discretionary Space / SNE 14.6 15.6 16.6 Development Expenditure (F) 137.4 210.1 344.1 240.0 349.1 381.5 416.6 Provincial ADP 99.6 170.8 244.0 185.2 244.0 268.4 295.2 On-going 84.9 136.8 151.8 135.2 195.0 214.5 236.0 New Schemes 14.7 34.0 92.2 50.0 49.0 53.9 59.3 District ADP 18.3 23.7 30.0 29.0 30.0 30.0 30.0 Federal PSDP 16.5 8.7 27.3 11.8 30.1 33.1 36.4 Foreign Projects Assistance 3.0 6.9 42.7 14.0 45.0 50.0 55.0 OPERATING BALANCE (G) 58.5 -68.1 -156.3 -118.1 -120.3 -66.0 1.7 NET LENDING ITEMS (H) 19.6 9.8 10.3 29.9 33.4 33.0 32.6 Net Food Account - State Trading -6.8 -19.0 -4.0 -2.4 -2.7 -3.1 -3.6 Net Public Account 26.4 28.8 14.3 32.3 36.1 36.1 36.1 FISCAL BALANCE (I=G+H) 78.0 -58.3 -146.0 -88.3 -86.9 -33.0 34.3 FINANCING (J=K+L+M) 10.1 76.9 127.6 77.5 69.1 22.1 14.0 Net Capital Receipts and Expenditure (K) -12.5 -11.2 67.6 58.9 79.9 39.9 24.9 General Capital Receipts 13.0 6.2 57.5 57.5 57.5 22.5 12.5 Current Capital Expenditure -25.5 -21.8 -32.6 -12.6 -22.6 -32.6 -42.6 Foreign Projects Assistance 4.4 42.7 14.0 45.0 50.0 55.0 Carry Over Cash Balance (Opening) (L) 22.6 88.1 60.0 18.7 -10.8 -17.8 -10.9 Statistical Discrepancies (M) 0.0 0.0 0.0 0.0 0.0

CLOSING BALANCE (N=I+J) 88.1 18.7 -18.4 -10.8 -17.8 -10.9 48.3

FIGURE 2: TOTAL PROVINCIAL REVENUES AND EXPENDITURE (RS. IN BILLION) TOTAL PROVINCIAL REVENUES & EXPENDITURE 1400

1264 1200 1265 1175 1093 1109 1000 1011 973 892 800 854 773 761 693 600 651 592

400

200

0 Actual Actual Budget Revised Forecast Forecast Forecast Forecast 2015-16 2016-17 2017-18 2017-18 2018-19 2019-20 2020-21

TOTAL REVENUE TOTAL EXPENDITURE

4. REVENUES OF THE PROVINCE

Revenue of the province comprises federal transfers and provincial own tax and non-tax receipts. It witnessed shortfall of 0.5% in year 2015-16 and 6.3% in year 2016-17, against the budget estimates. The variation is mainly attributable to shortfall in federal transfers, provincial own tax and non-tax revenues, and federal developmental grants. Other factors contributing to shortfall in revenues include the sluggish economic growth rate, inefficiencies in tax administration and tax collection, and ban on disposal of government land. In the Current Financial Year 2017-18, the revenue of the government is expected to witness decline of 9%, compared to the budget estimates. Over the next three years, the revenue of the province is expected to grow at the annual accumulated growth rate of 14% ― with growth of 14% in Revenue Assignment and Straight

Transfers, 14% in federal PSDP, 10% in provincial revenues and 7% in Other Grants (OZT).

The graph below shows trend of gross provincial revenues (Federal transfers and provincial revenues) for actual in FY 2015-16 and 2016-17, Budget and Revised Estimates of CFY and projections for the next three years.

FIGURE 3: TOTAL REVENUES OF THE PROVINCE (RS. IN BILLION) TOTAL REVENUES OF THE PROVINCE 1400 1265 1200 1109 962 1000 973 845 854 743 800 773 655 693 651 579 600 518 540

400 304 264 200 194 230 200 133 153

0 Actual Actual Budget Revised Forecast Forecast Forecast 2015-16 2016-17 2017-18 Forecast 2018-19 2019-20 2020-21 2017-18

Federal Transfers Provincial Revenue Total Revenues of the Province

The revenue transfers from federal divisible pool, straight transfer and grants constituted 80% of total provincial revenues in year 2015-16and 78% in year 2016-17. While in current financial year and over the period of next three years, share of federal transfers would be around 76% of total provincial revenue receipts. While the efforts are in place to reduce dependence on federal transfers with focus on own resource generation through Sindh Tax Revenue Mobilization Plan, the province would still largely depend on federal transfers given the limited scope of provincial taxes.

4.1 FEDERAL TRANSFERS

Federal Transfers comprises of the revenue assignment, straight transfers, PSDP related development grants

and OZT grants. The table, below, provide insight in the Federal Transfers:

TABLE 2: FEDERAL TRANSFERS (RS. IN BILLION) Revised Actual Actual Budget Forecast Forecast Forecast Description Forecast 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2017-18 Federal Transfers (B) 518.0 539.9 654.6 579.4 743.1 845.4 961.8 Revenue Assignment 425.0 437.1 547.4 489.5 624.1 711.4 811.0 Straight Transfers 63.6 80.4 65.2 65.2 74.3 84.7 96.5 Development Grants (PSDP) 16.7 10.7 27.3 11.8 30.1 33.1 36.4 Other Grants (OZT) 12.6 11.8 14.7 13.0 14.7 16.2 17.8

The largest component of the revenue received from Federal Level is the transfer of the divisible pool of taxes according to the 7thaward of the National Finance Committee. The vertical distribution of the pool is fixed at 44% for the Federation and 56% for the Provinces. The vertical distribution across the provinces is based on four criteria of which population is the most important one. The distribution criteria of the NFC Award formula and the provincial share in the divisible pool of taxes is presented in the table below.

TABLE 4A: NFC AWARD FORMULA TABLE 4B: PROVINCIAL SHARE

Criteria Relative Share Province Relative Share

Population 82.0% Punjab 51.74%

Poverty Level 10.3% Sindh 24.55%

Revenue Generation 5.0% Khyber Pakhtunkhuwa 14.62%

Inverse Population Density 2.7% Baluchistan 9.09%

Revenue Assignment Revenue Assignments refers to those federal transfers to the provinces that form part of federal divisible pool taxes. The divisible pool taxes comprise of tax on income, sales tax, central excise, custom duties, wealth tax, and capital value tax. These taxes are collected by the Federal Government and are distributed between Federal Government and Provincial Governments (vertical distribution), and also among the provinces (horizontal distribution) as per formula determined by the National Finance Commission. Article 160 of the Constitution of Islamic Republic of Pakistan lays down the provision for the establishment of NFC at a regular interval of every five years. National Finance Commission comprises Federal and Provincial Finance Ministers

and other persons appointed by the President.

The 7th NFC was an historical achievement, breaking the status quo of sole criterion of population for resource distribution among the provinces that remained the case with all six NFC Awards under 1973 constitution. All the four provinces unanimously agreed on a multiple criterion, based on population, backwardness, geographic size, and revenue collection/generation. Another landmark achievement of the 7th NFC Award for Sindh was the right of collection of sales tax on services. The Provincial Government also managed to get the right to receive service taxes, which were till then collected by the Federal Government erroneously in the excise mode, thus depriving the provinces of their due shares of this tax. The Government of Sindh established a separate department, Sindh Revenue Board (SRB), for the collection of Sales Tax on Services during 2011-12. Besides, setting out multiple criteria for resource distribution amongst the provinces, the 7th NFC Award reduced collection charges to just 1 percent from the previous level of 5 percent, further boosting the real transfers to the provinces from the divisible pool. The revenue assignment, the Federal Transfers out of federal divisible pool, is a single most important contributor towards provincial revenues, accounting for 75-85% of all the federal transfers to the province. The provincial government received Rs. 425.0 billion in 2015-16, 11.4% less than the budget estimates and Rs.437.1 billion in 2016-17 in actual. In current financial year, Rs.547.4 billion is anticipated as per revised estimates, which is 11% less than budgeted allocation. For next financial year 2018-19, revenues out of divisible pool taxes are projected at Rs.624.1 billion ― that is 27.5% higher than revised estimates, and 14% higher than budget estimates of current financial year ― and for the next two years, these receipts are expected to grow at the annual accumulated growth rate of 14%. Straight Transfers The straight transfers are the net proceeds of the Federal duty of excise on natural gas, development surcharge on gas and the royalties on natural gas/oil. Under the Article 161 of Islamic Republic of Pakistan, these duties and royalties are not part of the Federal Consolidated Fund, hence these are rights of the province where well-head of natural gas/oil is situated. These are provincial receipts, which are collected by the Federal Government and transferred to Sindh, after deduction of 2% collection charges. Straight transfers from federal government  including net proceeds of federal excise on gas, development surcharge on gas, royalties on crude oil and natural gas  witnessed significant increase of 3.5% over budget estimates in year 2015-16, and the straight transfers registered 7% growth in financial year 2016-17, following the change in the pricing mechanism by the federal government. In current financial year, straight transfers are anticipated to remain at the budgeted level of Rs.65.2 billion, while for next three years they are projected to grow at annual accumulated growth of 14%.

Development Grants (PSDP & Foreign Grants) Development Grants (PSDP & foreign Grants) consist of transfers from federal government on account of Federal funded projects and donor grants for development projects implemented by the provincial government. The allocations for development grants are kept in Federal Public Sector Development Program (PSDP). In years 2015-16 and 2016-17, Transfers on account of development grants (PSDP & Foreign Grants) remained at Rs.16.7 Billion and Rs.10.7 Billion indicating 72.5% increase in 2015-16 and 12.3% decline in 2016-17 against budget estimates. In current financial year, allocations under development grant (PSDP & Foreign Grants) have been kept at Rs.11.8 billion indicating 10.3% growth against previous allocation of Rs.10.7 billion. For the next financial year 2017-18, development grants are projected at Rs.30.1 billion growing at the rate of 10% annually over next two years. Other Grants Other grant from federal government is OZT grant received at the rate of 0.66% of Provincial allocable amount to offset the losses of the abolition of OZT Grant. Provincial government received Rs.12.6 billion in 2015-16 and Rs.11.8 in 2016-17 and in current financial year, the province is expected to receive Rs.13.0 billion.

FIGURE 4: FEDERAL TRANSFERS AND COMPOSITION OF REVENUE ASSIGNMENT (RS. IN BILLION) FEDERAL TRANSFERS REVENUE ASSIGNMENT 2%2% 5%0% 15%

40% 40%

81% 15% Revenue Assignment Straight Transfers Income Tax Custom Duty Sales Tax Development Grants (PSDP & Foreign) Federal Excise Duty Capital Value Tax Other Grants (OZT)

4.2 PROVINCIAL OWN REVENUES

Provincial own revenues include tax and non-tax receipts. Major Provincial Tax receipts include sales tax on services, infrastructure development cess, stamp duty, registration, provincial excise, motor vehicle, capital value tax, agriculture income tax, cotton fee, and electricity duty. Major Non-Tax receipts include sale proceeds of government land, interest income, fees/charges from education, health, works, police, irrigation, mines and minerals, extraordinary and miscellaneous receipts. The provincial government collected Rs.132.8 Billion from its own sources in year 2015-16, which was 7.8% less than budget estimates, while in year 2016-17, Rs.153.0 Billion was collected indicating an increase of 15.2% over previous year collection, but 8% less than budget estimates. The provincial own source revenues are projected to grow at the annual accumulated growth rate of 15% on budgeted estimates this year - with sales tax growing at a 15%, other taxes’ revenue at 15% and non-tax revenue at 15%. Revised forecast for provincial revenues for current financial year are anticipated as 194 billion, which are almost 3% less than its budgeted estimates of 199.6 billion. Although the accumulated growth rate for next three financial years for the provincial revenues is anticipated to be 15% from FYs 2018 to 2012.

TABLE 5: PROVINCIAL OWN REVENUES (RS. IN BILLION) Revised Actual Actual Budget Forecast Forecast Forecast Description Forecast 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2017-18

Provincial Revenue (C) 132.8 153.0 199.6 194.0 229.6 264.0 303.6 Sales Tax on Services 61.5 78.5 100.0 100.0 115.0 132.3 152.1 Other Tax Receipts 61.2 65.9 85.6 80.0 98.5 113.2 130.2 Non-Tax Revenue 10.1 8.6 14.0 14.0 16.1 18.5 21.3

FIGURE 5: PROVINCIAL OWN REVENUES (RS. IN BILLION) PROVINCIAL OWN REVENUES 160 152 140 132 130 120 115 113 100 100 100 98 80 86 79 80 60 61 61 66 40

20 21 16 19 10 9 14 14 0 Actual Actual Budget Revised Forecast Forecast Forecast 2015-16 2016-17 2017-18 Forecast 2018-19 2019-20 2020-21 2017-18

SALES TAX ON SERVICES OTHER TAX RECEIPTS NON-TAX REVENUE

5. EXPENDITURE OF THE PROVINCE The total expenditure of the province, excluding debt repayment and investments, registered decline of 15.6% in 2015-16 - with actual expenditure of Rs.592.4 billion against budget estimates of Rs.702 billion. Almost similar trend followed in 2016-17, when the expenditure dropped by 9.3%, actualizing at Rs.761 billion against budget estimates of Rs.838.75 billion. The variation was seen in development expenditure, with actual expenditure recording (-) variance of 31% in 2015-16 and 21% in 2016-17, vis-à-vis the budget estimates. The actual Current Revenue Expenditure witnessed (-) variance of 9.6% and 3.8% against budget estimates of 2015- 16 and 2016-17 respectively. The total expenditure of current financial year, excluding current capital expenditure, is anticipated to slide by 12% to Rs.891.6 billion from budget estimates of Rs.1010.54 billion. Continuing the previous trajectory, the development expenditure is anticipated to shrink by 30% during current financial year from budgeted amount of Rs.344 billion to Rs.240 billion. However, the Current Revenue Expenditure is expected to remain within the budgeted limits of Rs.666.474 billion - at Rs.651.6 billion in the revised estimates.

FIGURE 6: TOTAL EXPENDITURE OF THE PROVINCE (RS. IN BILLION) EXPENDITURE OF THE PROVINCE

Development Expenditure Current Revenue Expenditure

1,400

1,200

1,000

800

600

400

200

- AC T U AL AC T U AL BUDGET R E V I SE D FO R E C AST FO R E C AST FORECAST 2015- 16 2016- 17 2017- 18 FO R E C AST 2018- 19 2019- 20 2020- 21 2017- 18

The shortfall in provincial revenues mainly upset provincial development expenditure and investments; whereas the current revenue expenditure, mainly comprising salaries, pension, grants and operating expenses, remains inflexible despite volatility of or fluctuations in revenues. Over the next years, the total expenditure of the Province, excluding current capital expenditure, is projected to grow at annual accumulated growth rate of 12% on the revised estimates of current financial year and subsequent two years on 9% - with development expenditure and current revenue expenditure growing at 20% and 9% respectively over revised estimates of current financial year. The graph above shows trend of total provincial expenditure, current revenue expenditure, and development expenditure of the province of previous two years, budget and revised estimates of CFY and projections for the next three years.

5.1 CURRENT REVENUE EXPENDITURE

Current Revenue Expenditure ― non-development expenditure – comprises employees related expenses (salaries), employees’ retirement benefits (pension and gratuity), operating expenses, grants and subsidies, interest payments, transfer payments, physical assets, civil works, and repair maintenance expenses. It

accounts for 66% of total expenditure of the province (revenue and development). Table-6 below shows major

object wise details of Current Revenue Expenditure of FY 2015-16 and FY 2016-17 (actual), budget and revised forecast for CFY 2017-18 and projections for next three years (2018-19 to 2020-21):

TABLE 6: MAJOR OBJECT WISE – CURRENT REVENUE EXPENDITURE Revised Actual Actual Budget Forecast Forecast Forecast Description Forecast 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2017-18 Current Revenue Expenditure (E) 455.0 550.9 666.5 651.6 743.9 793.9 847.0 Employee related expenses 214.5 234.1 300.5 284.9 340.5 367.8 396.0 Project Pre-Investment Analysis 0.0 0.0 0.1 0.1 0.1 0.1 0.1 Operating Expenses 54.9 85.8 87.9 87.3 92.0 94.3 96.8 Employee Retirement Benefits 52.8 70.0 76.0 86.0 94.6 104.1 114.5 Grants, Subsidies and write off loan 90.9 111.4 135.1 125.9 144.1 153.0 162.7 Transfer Payments 8.0 7.9 13.0 13.1 13.1 13.1 13.1 Interest Payment 14.3 15.3 17.4 17.4 18.3 19.2 20.2 Physical Assets 6.1 7.0 9.9 10.1 0.1 0.1 0.1 Repair & Maintenance 13.5 18.8 26.6 26.8 26.7 26.9 27.0 Discretionary Space / SNE 14.6 15.6 16.6

Employees Related Expenses The employees’ related expenses accounted for 47% and 42% of total current revenue expenditure in year - 2015-16 and 2016-17 respectively, while the proportion of employees’ related expenditure during current year and over next three years is estimated to be at 45% to 46% on average. In current financial year, allocations for Employee Related Expenses have been revised downward by 05% from Rs.300.5 billion to Rs.284.9 billion. The employees’ related expenses are projected to grow at the annual growth rate of 13% on revised forecast of current financial year over the next three years. Employees’ Retirement Benefits Employees’ Retirement Benefits, comprising pension and gratuity amount paid to retired employees, is a liability of the government, growing increasingly fast with fresh retirements and increase in pension emoluments. In the last two financial years, the expenditure on employees’ retirement benefits accounted for 11.6% to 12.7% of total current revenue expenditure, while the share of employees’ retirement benefits during current financial year and over next three years is estimated to remain at 13% to 14% on average. Because of revision of pension emoluments and restoration of commutation amount in July 2017, allocations for employees’ retirement benefits are revised upward by 13% from Rs.76 billion to Rs.86 billion during

current financial year, soaring by 23% over actual expenditure of the preceding financial year. During the

next three years (2018-19 to 2020-21), expenditure under employees’ retirement benefits is projected to grow at annual accumulated growth rate of 8% to 10% on revised forecast of CFY 2017-18. Operating & Maintenance Expenses Expenditure on operating and maintenance heads is crucial to gear up the official structure/machinery for smooth functioning. The major expenses under this head include communication, utilities, transportation, maintenance of physical assets, and general expenses including medicines and lump sum provision for specific The operating and maintenance expenses accounted for 15% and 19% of total current revenue expenditure in FY 2015-16 and 2016-17 respectively, while in current financial year and next three years, the proportion of operating and maintenance expenses in the CRE have been purposefully enhanced to 4% of total current revenue expenditure due to increase rates for electricity payments, purchase of medicines, POL, repair & maintenance, etc. In the current financial year, allocations for operating and maintenance expenses has been slightly revised downward by less than 1% from 114.4 billion to Rs.114.2 billion that is 8.5% higher than actual expenditure of the last financial year. This is mainly because of substantial increase in allocations for drugs and medicine, electricity, repair and maintenance and lump sum provisions kept for specific purposes in health, education and security. With an objective to maintain service delivery, allocations for repair and maintenance budgets has been substantially maintained for repair and maintenance of existing infrastructure of roads and buildings and 5% for Transport, plants and machinery including hospitals and furniture & fixtures. During CFY 2017-18, an amount of Rs.26.8 billion has been earmarked for repair and maintenance of infrastructures, machinery & equipment, vehicles and furniture fixture, which is 42.5% more than actual expenditure of the last financial year. During the next three years (2018-19 to 2020-21), expenditure on operating and maintenance heads is projected to grow annually at 4% on budget estimates of CFY 2017-18. Grants, Subsidies and Write-off Payments Grant constitute grants to local bodies and non-financial institutions, subsidies and write-off loan; transfer payments include payments of financial assistance to the families of government servants, who die while in service, contribution to reserve funds for entertainment and gifts. Grants & Transfer Payments constitute 22% of CRE. In current financial year, allocations for grants and transfers have been revised downward by 6% from Rs.148.1 billion to Rs.139 billion, which is 16.6% higher than actual expenditure in FY 2016-17: grants to local bodies alone amount to Rs.66 billion in current financial year. In the next three years (2018-19 to 2020-21) projections, expenditure on the grants and transfer payments is projected to grow at annual accumulated growth rate of 8% on revised forecast of CFY 2017-18.

Interest Payment Interest Payment includes interest payment on foreign loans and Federal government loans but does not include interest payment made on commercial/floating loans, which are disbursed from food account. In CFY, an allocation of Rs.17.4 billion is kept for Interest Payment, which is 13.7% higher than actual expenditure of Rs.15.3 billion in FY 2016-17. Expenditure of interest payments in the current financial year and also for next three years (2018-19 to 2020-21) is expected to increase with 5%.

Physical Assets For purchase of physical assets, such as computers, I.T equipment, vehicles, plant & machinery, furniture & fixture, an allocation of Rs.9.9 billion is kept in CFY 2017-18, which is 41% more than actual expenditure in FY 2016-17. While an increase of 2% in revised estimates is anticipated over budget estimates 2017-18 due to significant release of funds outside budget to various departments for procurement of physical assets.

FIGURE 7: MAJOR OBJECT WISE - CURRENT REVENUE EXPENDITURE (RS. IN BILLION)

1% 1% 1% 2% 2% 2% 2% 100% 3% 3% 3% 3% 2% 2% 2% 90% 22% 22% 22% 21% 21% 21% 21% 80% 70% 15% 15% 19% 17% 18% 16% 15% 60% 14% 12% 11% 13% 13% 13% 50% 13% 40% 30% 47% 42% 45% 44% 46% 46% 47% 20% 10% 0% Actual Actual Budget Revised Forecast Forecast Forecast 2015-16 2016-17 2017-18 Forecast 2018-19 2019-20 2020-21 2017-18

Employee related expenses Pension payments Operating and Maintenance Expenses Grants, Subsidies and write off loan Interest Physical Assets & Project Pre-Investment Discretionary Space / SNE

5.2 DEVELOPMENT EXPENDITURE

Development Expenditure refers to the expenditure of the government to improve economic development by increasing not only production but also productivity of the economy. Development side of the budget is the government spending intended to create future benefits such as infrastructure investments in transports, education, health and other social sectors to improve quality of life of the people. It is comprised of Provincial ADP, Federal Public Sector Development Program (PSDP), and foreign project assistance (project loans & grants). Over the span of past three years it has been observed that the actual development expenditure remained much less than budgeted expenditure – contributed by shortfall in federal transfers and receipts from own sources of the province and some of the onus lies on executing agencies due to the lack of project implementation capacity including foreign funded projects. The actual development expenditure remained at Rs.137.3 billion in year 2015-16, against budget estimates of Rs.198.7 billion diminishing by 31%, and Rs.210 billion in year 2016-17 against budget estimates of Rs. 266 billion, shrinking by 21%. During the current financial year, allocations for development expenditure have been revised downward to Rs.240 billion against the budget estimates of Rs.344 billion keeping in view the available fiscal space of the province. In the next three years projections, development expenditure is expected to grow at the accumulated growth rate of 20% on revised forecast of CFY. The table and figure below show trend of total development expenditure of the province, provincial ADP, federal PSDP and foreign funded projects for the actual of last two years, budget and revised estimates of current financial year and projections of next three years:

Table 8: Total Development Expenditure (Rs.in billion) Description Actual Actual Budget Revised Forecast Forecast Forecast 2015-16 2016-17 2017-18 Forecast 2018-19 2019-20 2020-21 2017-18

Development 137.4 210.1 344.1 240.0 349.1 381.5 416.6 Expenditure Provincial ADP 99.6 170.8 244.0 185.2 244.0 268.4 295.2

On-going 84.9 155.0 151.8 135.2 195.0 214.5 236.0

14.7 15.8 92.2 50.0 49.0 53.9 59.3 New Schemes District ADP 18.3 23.7 30.0 29.0 30.0 30.0 30.0

Federal PSDP 16.5 8.7 27.3 11.8 30.1 33.1 36.4

Foreign Projects 3.0 6.9 42.7 14.0 45.0 50.0 55.0

Assistance

FIGURE 8: DEVELOPMENT OUTLAY (RS. IN BILLION)

450

400

350

300

250 295 268 200 244 244

150

185 100 171

100 50 55 50 43 45

3 14 30 33 36 17 7 27 - 9 12 Actual Actual Budget Revised Forecast Forecast Forecast Forecast 2015-16 2016-17 2017-18 2017-18 2018-19 2019-20 2020-21

Federal PSDP Foreign Projects Assistance Provincial ADP

Provincial ADP During 2015-16, the actual expenditure of provincial ADP remained at Rs.99.6 billion falling from Budget Estimates of Rs.142 billion as compared to the same remained at Rs.170.8 billion against Budget Estimates of Rs. 200 Billion during FY 2016-17. For the CFY 2017-18, size of provincial ADP has been kept at Rs. 244 billion (excluding District ADP), 22% more than the budget estimates of previous year, but it is revised downward to Rs.185.2 billion. This decline is attributable to slow pace of execution of development schemes as well as to the late approvals of new unapproved schemes included in the provincial ADP. In addition to that the timing of federal transfers to provinces and their shortfalls are main reasons for late releases or non- release of funds. Primarily, new schemes or unapproved schemes are affected due to such shortfalls followed by the on-going schemes which are planned to be completed in upcoming years. However, Finance Department has managed to release 100% of allocated amount against those on-going schemes that are likely

to be completed by the close of current financial year.

The fact that every year the actual development expenditure remains significantly lower than the budgeted estimates, it keeps piling up the throw forward amount of uncompleted schemes. The throw forward amount is the total amount required to complete all projects in the ADP, including the unreleased and unspent amount of allocation for development schemes in a year, which is transferred to the subsequent year, leaving a little space of new initiatives, policies and programs. Moreover, such uncontrollable delays also affect the policies of the government as the cost of the schemes increases due to inflationary impacts caused by extension in completion periods. During Current Year, the throw forward was of Rs. 683.189 billion against 2158 on-going development schemes for which Rs. 151.837 billion have been allocated during FY2017-18 as compared to Rs.119 billion for 1777 ongoing schemes in the previous year show the increase of 27.6% as compared to funds allocated during last year. Similarly, Rs. 92.162 billion have been allocated for 816 new schemes as compared to Rs.80.8 billion for 996 new schemes in the previous year. In terms of allocations, 60% amount has been earmarked for ongoing schemes as compared to 68% in the previous year. For the next three years, Provincial ADP is projected to grow at the accumulated growth rate of 17% on the revised forecast of CFY 2017-18. The Planning & Development Department’s policy of allocating 75-80% funds to on-going schemes would significantly, if not completely, eliminate the throw forward amount of provincial ADP in next three years. Government of Sindh has planned to build infrastructure in urban transport & communication, starting with introducing new BRTS lines, like Orange line and Yellow line in Karachi. The ongoing efforts are underway in implementation of major projects in Education, Health, Nutrition, Food security, Water supply and Sanitation sectors with the assistance of multibillion rupees projects. It is believed that people of the province will benefit from the outcome of these major projects being initiated and will complete in near future. During the FY 2016- 17, the Government of Sindh allocated Rs. 10.0 billion for Mega Projects for Karachi City and a similar package of Rs. 12.0 billion was allocated during current year which includes various schemes of roads and water supplies in order to improve the infrastructure of the metropolitan city. District ADP District ADP for the 29 districts of the province had the budgeted allocation of 30 billion in CFY 2017-18 with an accumulated growth rate of 16.6% on actual expenditure in last 3 financial years. The revised forecast for district ADP is anticipated as 29 billion for the CFY with decline of 3.3% from its budget estimate owing to the resulting impact of overall decline in the total development expenditure of the province. The projected forecast for NFY 2018-19 is 30 billion again with the same projection in next two financial years up to 2020-21.

Federal PSDP The expenditure on federal funded projects in year 2015-16 remained at Rs.16.5 billion, increased by 70% from the budget estimates of Rs. 9.7billion; whereas in year 2016-17, the actual expenditure stood at Rs.8.7 billion, shrinking by 28.6% from the allocated amount of Rs.12.18 billion. During current financial year, it is expected that expenditure on federal funded projects will remain close to Rs. 11.8 billion against the budgeted amount of Rs.27.3 billion; over the next three years, funding and expenditure for federal funded projects/grants has been optimally projected to grow by 10% on budget estimates. Foreign Funded Projects The actual expenditure on foreign funded projects shrunk by 89% from Rs.27 billion to Rs.3 billion in 2015-16; and it shrank by 76% from Rs.28.8 billion to Rs.6.9 billion in 2016-17. In current financial year – with the expenditure approximating to Rs. 14.0 billion vis-à-vis budget estimates of Rs.42.7 billion. Abysmally low level of expenditure on foreign funded projects vis-à-vis commitments of donors may be attributed to the slow pace of execution of foreign funded projects due to lack of capacity of executive agencies. Foreign Funded projects require high level of technical skills in terms of execution and reporting and other formalities which at times lack on part of execution agencies leading to slow disbursement. Over the next three years, keeping in view the upcoming disbursement plans, projected expenditure under foreign funded projects is expected to grow by 9% on budget estimates.

6. SECTORAL DEVELOPMENT AND BUDGET PRIORITIES

A Long-term development strategy is essential for allocating limited resources to the highest priorities of society and to support effective service delivery. In this regard, Government of Sindh has framed Vision 2025 to implement the development agenda of the government. The Medium to Long Term Provincial Development Plans presenting high level government priorities on socio economic development of province will also be established under Public Financial Management Strategy. Planning and Development Department, in collaboration with Administrative Departments, is engaged in development of such strategic plans for key sectors of Government of Sindh. These sectors include Education, Health, Energy, Communication & Mass Transit, Agriculture and Irrigation. These plans take stock of existing situation, stating their goals and objectives to be achieved and layout policies, priorities, programs, projects and schemes to be implemented in medium term framework. Efforts will be concentrated to integrate these plans into long-term provincial developmental strategy, setting un-ambiguous policies, clear priorities and

pragmatic programs in synchronization with resource availability to attain socio economic goals and improve

service delivery. Brief overview of key sectoral priorities is presented here: 1. Education Education is one of the priority areas of the Government which aims to improve access to equitable, inclusive and quality education to all the children of 5 to 16 years to realize their full potential and contribute to the development of society and economy thus creating sense of nationhood and inculcating values of tolerance, social justice and democracy. Government of Sindh despite its reformative efforts missed MDG target of 88% literacy rate by 2015. The literacy rate among 10+ years population has increased from 59% to 60% in 2015- 16. These are 2476 non-formal Basic Education Schools which have enrolment of 91,077 students. The literacy rate in rural areas and in female population is low indicating prevalence of regional and gender disparity. Sindh’s education system faces three basic challenges i.e. access, quality and governance. In order to address these challenges, the Government of Sindh is implementing Sindh Education Sector Plan (2014-18) approved by Chief Minister Sindh. The objectives of the plan are: (i) to increase equitable access to quality ECE (early childhood education), primary and secondary education with focus on eliminating social exclusion of marginalized segments of society, especially the girls, increasing primary and secondary and higher secondary enrollment, expanding provision of secondary and higher secondary education, increasing retention rate; (ii) to improve quality of education through merit based recruitment, teachers’ training, professional development, adoption of contextually relevant and broad based curriculum and quality standards for improved quality of learning outcomes; and (iii) to strengthen the governance and service delivery through increase in resource allocation, effectiveness of monitoring and control mechanism to eliminate high absenteeism, effectiveness of educational expenditure and enhanced credibility, transparency and accountability in use of public resources. The Government of Sindh is also implementing the Sindh Basic Education Program with its development partner i.e. USAID with total funding of 165 million USD with 155 million USD from USAID while 10 million USD is contributed by government of Sindh. The program is meant to re-construct 120 schools in the northern districts of Sindh– including reconstruction of 75 flood-affected schools and construction of 45 schools under consolidation. The merger & up-gradation policy is under progress across the province under the same program. The Government of Sindh is also putting in place a comprehensive Sindh Education Information and Management System based on Geographic Information System (GIS) to streamline the department on modern lines. Other initiatives to improve service delivery include consolidation / up-gradation / merger of schools for proper management and better access, community mobilization to increase enrolment, merit based teachers’

recruitment duly shortlisted after qualifying written tests, construction of buildings for shelter less schools,

public private partnership for operation and management of schools by taking credible Education Management Organizations (EMOs) on-board through a highly competitive procurement process and introducing uniform curriculum throughout the government schools. In terms of fiscal commitment, Rs.202.6 billion have been allocated in financial year 2017-18 for education sector including higher education (universities & boards), medical education, special education, and STEVTA of which Rs.181.5 billion are earmarked for current revenue expenditure, and Rs.21.128 billion for 461 development schemes, 329 on-going and 132 new schemes. The allocations for development projects also include funding of Rs.2.904 billion from foreign funded projects. For the next three years, budgetary allocations for education sector are anticipated to grow up to Rs.264.7 billion, involving current revenue expenditure of Rs.226.7 billion, and development expenditure of Rs.27 billion excluding foreign project assistance.

2. Health Health Sector is substantially determined by provision and availability of quality of health care system. Our health indicators such as mortality rates for infants, children and mothers, nutrition specifically stunting rates and immunization demand emergent and well-coordinated steps to improve the situation. Despite having considerable public sector infrastructure in primary, secondary and tertiary healthcare systems, less than 25% of the population in Sindh access to these services. The key challenges to Health sector include; (i) system challenges such as high out-of-pocket expenditure (ii) governance challenges such as weak monitoring, evaluation and accountability, shortage of specialists and female staff in rural areas, transitional issues of devolution (iii) service delivery challenges such as high rate of children under-nutrition (Stunting at 48%), low contraceptive prevalence rate (33%), less than encouraging rate of immunization (57%), less coverage by lady health workers (around 41%) and shortage of nurses, paramedic and pharmacists. In order to provide access to quality health care services and extend the outreach, Government of Sindh has made significant investment on strengthening, upgrading, and rehabilitation of Teaching Hospitals, District and Taluka Hospitals and establishment of new health facilities. A State-of-the-Art new 133 bedded Jacobabad Institute of Medical Sciences (JIMS) is built with the support of USAID and made operational, 14 storied Shaheed Benazir Bhutto Accident Emergency & Ancillary Services Complex at Civil Hospital Karachi has been completed; 200 bedded Children Hospital at North Karachi completed with Japanese grant assistance and is made operational through Public Private Partnership, Rehabilitation and expansion of 10 District Headquarter Hospitals and Up-gradation of 07 Taluka Headquarter Hospitals to the level of DHQ Hospital at the cost of Rs.14.937 billion is under expeditious completion, Renovation & Rehabilitation of 41 THQ Hospitals including establishment of 39 Accident cum Emergency centers with an

investment of Rs.3334.161 million is being pursued, plan to improve ‘Provincial Health Services Center

(PHDC)’ to the level of ‘Provincial Health Research & Training Institute (PHRTI)’ at Jamshoro, Sindh, establishment of ASV/ARV Laboratory; 03 Medical Colleges at Karachi, Hyderabad and Mirpurkhas; establishment of Pediatric Cardiology Services at National Institute of Cardiovascular Diseases (NICVD) is underway. Besides, 05 satellite stations of NICVD i.e. at Tando Muhammad Khan, Larkana, Sehwan, Hyderabad and Sukkur have been established to make services more accessible for cardiac patients. With an objective to ensure effective monitoring, the Government of Sindh, with the assistance of JSI/USAID Mother Child Health Care (MCH) Program, has established a ‘Dashboard’ wherein system data is readily available and Monitoring & Evaluation Cell in the office of Director General, Health Services, Sindh has been established whereas establishment of such units at the district level is under process. Nutrition Support Program has been launched, in 9 Districts with the support of the World Bank whereas with technical and financial support extended by other development partners including European Union, World Food Program, USAID, UNICEF, interventions to address malnutrition in various districts of Sindh are under implementation. Moreover, a multi sectoral plan to address the issue of Stunting and Malnutrition is also under implementation wherein active involvement of all relevant sectors like Health, Agriculture, Livestock and Fisheries, Population Welfare, Local Government/ PHED and Education is inculcated in the interventional design. Moreover, an innovative step towards creating a mechanism of ‘Conditional Cash Transfer Program’ would also be installed. The entire program would be financed through provincial public exchequer for which a sum of Rs. 2.40 billion had been allocated for current financial year, which would also be continued in forthcoming years. The Government of Sindh had also approved the plan to expand LHW coverage with addition of 2,160 LHWs and 223 Lady Health Supervisors along with continuation of other preventive programs such as Hepatitis Prevention and Control, Malaria Control, TB Control, MNCH Program, Immunization and AIDS Control. With an aim to improve service delivery at basic health units and rural health centers, Government of Sindh has increased the participation of the private sectors for operation and management of health facilities. In this context management and operation of 1213 health facilities including Dispensaries, Basic Health Units, Rural Health Centers, Mother and Child Health Care Centers along with few THQ and DHQ Hospitals have been entrusted to PPHI and other non-governmental organizations. The Government of Sindh would also address other system needs such as ensuring more effectiveness and efficiencies in implementation of plans/programs; create more balance in the budgetary allocations for preventive and curative cure, which will lessen the burden on tertiary care hospitals; expanding the scope and inclusion of more facilities under Public Private Partnership, Promoting & strengthening of referral care system, Operationalization of Health Care Commission to regulate private sector health units, Development and implementation of Health Management Cadre and installation of a more robust accountability mechanism.

The Government of Sindh, in recent years has significantly increased resource allocation for development and

non-development expenditure of health sector and has also made significant investment on construction, strengthening, up-gradation and rehabilitation of health facilities. In current financial year Rs.100.30 billion have been allocated for health sector, involving the current revenue budget of Rs.84.80 billion and development expenditure of Rs.15.50 billion covering 107 on-going and 101 new schemes in Provincial ADP 2017-18. The allocations for development expenditure include funding of Rs.3.319 billion from foreign funded projects. In next three years, budgetary allocations for health sector are projected to grow up to Rs.121.65 billion including current revenue expenditure of Rs. 99.15 billion and development expenditure of Rs.22.50 billion by 2020-21 except the foreign project assistance.

3. Energy To augment the national efforts to enhance production of electricity, Government of Sindh has heavily invested on development of infrastructure to exploit Thar Coal Reserves and tap alternative energy sources, such as wind and solar power. To attract foreign direct investment in Thar Coal, the Government is creating conducive environment through development of physical infrastructure for power generation, mining and provision of institutional infrastructure necessary for setting up tariff, pricing and other concessions. The Government of Sindh is also focusing on alternative resources including wind, solar, gas, oil, and shale gas for power generation to cater the energy demands of the country. Huge reserves of shale gas / oil are available in Sindh and the wind corridor at Keti Bander and Jhampir will be exploited for power generation. The wind corridor is 80 km long along the coast and 170 km deep towards land with potential wind power generation capacity of 60,000 MW. Government of Sindh has already spent billions of rupees for Thar Coal infrastructure development and invited private sector investment at Thar coal field. At present, road access, water supply, airport, Reverse Osmosis plants, and other facilities have been completed. However, further works on installing transmission line for power evacuation from the Thar field, constructing railway track for transportation of coal to different power plants and for exporting coal, exploring indigenous resources at Thar and other fields and prioritizing the Thar coal for use in local coal-based power plants are in the pipeline and would require Federal Government’s support and more investment from Private sector. Government of Sindh has injected equity into the Sindh Engro Coal Mining Company (SECMC) of Rs. 11,561 million while of Rs. 1,550 million into Sindh Energy Holding Company Pvt. Ltd. In terms of resource allocation from Provincial budget, Rs.16.18 billion were allocated for Energy Sector including Thar Coal Infrastructure during financial year 2017-18 for development of infrastructure in energy sector. In next three years, resource allocations from provincial budget for energy sector are projected to grow up to Rs. 37.97 billion including

current revenue expenditure of Rs. 16.29 billion and development expenditure of 21.68 billion by 2020-21.

4. Communication & Mass Transit Government of Sindh aims to develop safe, swift and reliable transportation infrastructure to enhance inter and intra district/division mobility, increase farm to market road access to improve farm income, reduce poverty, diminish rural-urban migration and alleviate phenomena of rapid urbanization. At present, Sindh has road infrastructure of 47000 Kilometers. The construction of new road network with asphalt surface, rehabilitation/reconstruction/improvement/ widening of existing inter and intra city road network and development of mass transit system in Karachi to ensure safe comfortable and efficient public transport service at affordable fare on sustainable basis are the most important priority areas for government. In the context of mass transit system in Karachi, the work on Green Line BRT–17.80 km (funded by Federal Government), Orange Line BRT-4.77 Km long (funded under ADP Scheme) has already been started and is on-going in current financial year, while proposals are on cards for other BRTs, such as Red Line BRT-21.5 km and BRT Blue Line from Sohrab Goth. In terms of fiscal commitment for development expenditure, Rs.58.258 billion including Rs.9.215 billion from foreign projects assistance (FPA) have been allocated in Provincial ADP 2017-18 for total 761 schemes under Communication and Mass Transit Sector. This includes 488 schemes of Works and Services Department, 227 Road schemes under Local Government Department, 29 Road schemes under Mega Projects for Karachi City and 17 schemes of Transport and Mass Transit Department. For the next three years, allocations for development budget for Communication and Mass Transit sector are anticipated to grow from Rs.49.043 billion to Rs.59.30 billion in provincial ADP with the increase of 20% excluding foreign projects assistance.

Name of Sector / Department No. of Schemes Budget Allocation in CFY 2017-18 On-Going New Total W&S Department 396 92 488 Rs.25.772 billion

Local Government Dept. 169 58 227 Rs.8.076 billion

Mega Projects for Karachi 15 14 29 Rs.12.00 billion

Transport and Mass Transit 7 10 17 Rs.3.195 billion

Total 587 174 761 Rs.49.043 billion

5. Agriculture Agriculture Sector in Sindh has significant potential for increasing agricultural productivity to reduce poverty

and improve food security. The sector contributes 24 percent towards GDP, provide food to whole population

of the province, employment to 50 percent of the total work force, main source of livelihood for the rural population and provides raw materials for many industries and a market for many locally produced industrial products. In Sindh Wheat, Cotton, Rice and Sugarcane are the major field crops, which constitute 68% of the total cropped area, while Mango, Banana and Chilies are the major horticultural crops. Sindh produces 36% Rice, 29% of the Sugarcane, 34% Cotton, and 21% of the Wheat of total production in the country. Among the horticultural crops, Sindh produces 73% Banana, 34% Mangoes, and 88% of the Chilies grown in the country. Major crops like Cotton and Rice with value addition are main foreign exchange earners for Pakistan, which are responsible for moving the economic wheel. Economy of Sindh has been historically based on a well-developed agriculture supported by an effective irrigation network therefore growth of agriculture sector is essential. The Government of Sindh therefore, considered agriculture sector among the priority sectors to enhance agricultural, dairy and fisheries production. Priority areas include enhancement of meat, milk and dairy farm production, research and extension, production of quality seed, water conservation, farm mechanization and agro-based industrial processing for value addition to meet the challenges of food and nutrition security. World Bank through two development projects is providing financial assistance to the growers for increasing agricultural productivity in Sindh. 1st project, worth Rs.8.867 billion, provide assistance to small and medium sized growers for improving the productivity, market access in important commodity value chains (Onion, Chilies, Dates & Rice) and also strengthening public sector institutions to enhance the enabling environment for sustained sectoral growth. Whereas second project worth Rs.30.139 billion is providing assistance for improvement in agricultural productivity of small and medium size farmers with major emphasis on improvement of water courses, mitigation of flood risks, introducing high efficiency irrigation system and improved agricultural practices. The department is also engaged in the promotion of mechanized farming with provision of subsidy on Tractors and agricultural implements including tillage, seedbed preparation, planting, inter-culture, fertilizer & chemical application equipment and machinery for reducing post-harvest-losses. Key Opportunities for agriculture sector in Sindh include availability of 5.08 million hectares cultivable land for livelihood of rural population, availability of longest irrigation network and human resources for agricultural production, diversified climate for cultivation of different crops, vegetables and fruits, increasing farmer’s income through post-harvest losses management & value addition, Public Private Partnership for quality seed production and increasing job opportunities in seed, fertilizer, pesticides, value addition, marketing & export. As per long term planning for Sindh Agriculture, the productivity will be enhanced by 30% through improved crop production technologies, conservation of water through lining of remaining 17000 watercourses,

installation of Solar Powered 3,000 Tube Wells & high efficiency irrigation systems on 50,000 acres,

introducing farm mechanization and provision of 2,500 laser leveling equipment for mechanized farming and establishment of four new agriculture research institutions (Arid, Coastal, Horticulture and Rice). The Government of Sindh, in recent years, has significantly increased budget allocations for development and non-development expenditures for agriculture sector and made significant investment in farm mechanization, water conservation, agriculture research & extension services, livestock & fisheries and food storage facilities. In terms of fiscal commitment for development expenditure, Rs.15.328 billion including Rs.5.55 billion from foreign projects assistance (FPA) have been allocated in Provincial ADP 2017-18 for agriculture sector for 76 on-going schemes and 45 new schemes of Agriculture, Food, Forest, Wildlife, Livestock and Fisheries Departments. In next three years, allocation for development budget for agriculture sector are projected to anticipated to grow from Rs.9.778 billion to Rs.13.00 billion in provincial ADP with the increase of 30% excluding FPA while the non-development budget is projected to grow up to 9.8 billion by 2020-21. 6. Irrigation Sindh Province, a lower riparian in the country, is facing acute water shortage. Sindh’s irrigation system comprises three barrages (Guddu, Sukkur and Kotri) and fourteen major canals ¬with total command area of 13.2 million acres and designed capacity of 134,000 cusecs. The total length of irrigation canals, including distributaries and minors, is approximately 13,235 miles. There are 109 branch canals, 1400 distributaries and minors, and 42000 watercourses/outlets. In addition, the department owns and operates more than 6200 tube wells to utilize ground water, supplementing the irrigation water for enhanced agricultural production. Besides, the Irrigation department is responsible for flood protection, drainage and salinity control, rainwater harvesting, and maintenance of ground water table to an optimum level. At present, all the barrages and downstream irrigation systems - more than half century old have completed their useful life - require significant rehabilitation. The government attaches importance to rehabilitation of all the three barrages, Guddu, Sukkur & Kotri and old irrigation network systems. In the wake of energy crisis, government is pursuing conversion of diesel operated tube wells to solar/wind-power to bring the arable land under cultivation. Further, the government plans to develop high efficiency irrigation systems, conserving water to cultivate additional 30,000 acres of land. Initiatives have also been taken to revive the freshwater bodies, affected by salts or eutrophication, provide water for Thar Coal Projects for generation of electricity, improve water supply to urban cities, and strengthen flood mitigation measures. Irrigation Department’s short term & long term development plans include: Rehabilitation of Barrages, beginning with Guddu Barrage, Rehabilitation, Protection & Capacity Enhancement of Irrigation and Drainage Network, Restoration/Rehabilitation of Irrigation & Drainage Network affected by Flood 2010 & 2011,

Rehabilitation of LBOD System, Reduce Water-logging & Salinity, Land Reclamation through lowering the

Water table, Improve Water Sector Reforms through Sindh Water Sector Improvement Project (WSIP); Control on Sea Water Intrusion, Conservation of Water through Lining of Channels & building Small Dams. Sindh Province has geographical area of about 34 million acres, out of which 20 million acres are cultivable. Through Indus river source, only 13 million acres can be irrigated due to feasible levels, which have already been brought under command of surface irrigation system. For irrigating the remaining balance of 7 million acres, innovative means need to be explored. Irrigation department has worked on the sub sector and proposed rainwater harvesting to bring the un-irrigated land under cultivation. Small Dam Organization, under the department, has taken up feasibility study of 140 Small Dams and Detention Weir sites, out of which 80 sites have been found feasible for execution. These schemes will contribute to ground water recharge from rainwater to be feasible for tube well irrigation. Another avenue is water conservation, which can be achieved by Rehabilitation and Lining of Channels. The department proposes to line at least 50 Channels every year, which will prevent irrigation water from going wasted and conserve it for additional cultivation. In terms of fiscal commitment, irrigation sector has been allocated Rs.48.86 billion in financial year 2017-18, which includes Rs.22.0 billion for 287 on-going and 69 new schemes, Rs.15.0 billion for Lining of Main Canals and Rs.11.86 billion from foreign project assistance in Provincial ADP 2017-18. In addition, Rs. 4.4 billion has been provided from non-development expenditure for repair and maintenance of irrigation infrastructure out of total current revenue expenditure of Rs. 20 billion in current financial year. In next three years, allocations for development budget for Irrigation sector including allocation for lining of main canals are anticipated to grow from Rs.37.0 billion to Rs.44.00 billion with the increase of 20% excluding foreign projects assistance while the allocations for current revenue expenditure is projected to grow up to Rs. 25 billion by 2020-21. . 7. Water & Sewerage Sindh is densely populated and most urbanized province of the country having 23 percent of the country’s population. The trend of urbanization and growing population put consistent pressure on water supply, sewage effluent disposal and solid waste management services. According to Provisional Census Report of 2017, Population of Sindh is 47.886 million. The estimated demand of drinking water is 1538 MGD, including 802 MGD for Karachi @ 50 gallon / capita / day, 300 MGD for other urban areas of Sindh @ 30 gallon / capita / day and 436 MGD for rural areas of Sindh @ 20 gallon / capita / day. The waste water generation is estimated at 1076.6 MGD (@ 70% of water supplied), which includes 2.8 MGD of hospital waste of tertiary hospitals and 110 MGD of industrial waste. Water and sanitation have been and are the priority for the Government of Sindh particularly because of the arid and hot climate and brackish ground water spread over 83 percent of the total area of Sindh. Water

Supply and Sewerage are being managed by two departments/agencies - Public Health Engineering

Department (PHED), and Local Government Department through Karachi Water and Sewerage Board (KW&SB) and Water and Sanitation Agency (WASA), Hyderabad. The sector gained significant importance during recent years for provision of clean drinking water and safe disposal of sewage of in the Province. The Government of Sindh has therefore provided substantial allocation for water supply and sanitation schemes and allocated Rs.29.197 billion for 381 schemes of water supply and sewerage system in Provincial ADP 2017-18. This includes Rs.6.589 billion for 241 schemes of Public Health Engineering Department including 6 water supply schemes of defunct Special Initiatives Department and Rs.22.084 billion for 113 schemes of water supply and sewerage under Local Government Department. In addition, to improve the quality of natural water bodies and elimination of sewage being disposed-off in the fresh water bodies, the Government has initiated the scheme phase-I viz” “Elimination of Sewage Discharging in Irrigation Canals and lakes of Sindh” costing Rs.3.621 billion during current financial year and subsequent phase would be taken up during next financial year. In next three years, allocations for development budget for Water Supply and Sewerage sector would be substantially increased from Rs.28.673 billion at more than 30% in order to meet the demand of clean drinking water and safe disposal of sewage by 2020-21. Poverty Reduction in Sindh Since the improvements of public finances (2009), the Government of Sindh has substantially increased expenditure in sectors that contribute to poverty reduction. In close cooperation with development partners and civil society organizations, expenditure on health, education, water sanitation, and more specifically government investments, have increased substantially. Despite these considerable financial accomplishments, the province continues to grapple with a high incidence of poverty, low literacy, poor health indicators, inadequate access to drinking water and sanitation, and regional, gender, and income disparities. Furthermore, there are vast disparities in poverty between rural and urban centers, and between the districts of Sindh. Currently, government expenditure is not sufficiently aligned with these disparities. According to indicative analysis in the budget of Financial Year 2017-18 approximately 20 to 25 percent of the ADP budget and about 10 to 15 percent of the recurrent budget is allocated to pro-poor activities and schemes. The Government of Sindh is envisaging possibilities to further increase the shares of specific pro- poor expenditure over the coming years. The Government of Sindh is currently preparing a specific and targeted Poverty Reduction Strategy (PRS) and Community Driven Local Development Policy (CDLD), with technical assistance from the European Union. The strategy is being developed by building upon the Government of Sindh’s flagship Union Council Based Poverty

Reduction Program. The PRS and CDLD will be built on the selective definition of poverty reduction,

differentiating the efforts per district, and targeting the rural as well as urban areas with specific programs addressing specific poverty characteristics. The PRS continues to further strengthen partnership with civil society organizations and the private sector, building upon lessons learnt with this approach through the UCBPRP. Rationale for the partnership approach is that the government has the resources and can design programs on large scale; however, it has not been able to achieve the required level of community outreach needed to have a significant impact. Civil society organizations have the ability to reach out to the communities, but unable to scale up their programs. Herewith, the combination of government and civil society efforts under a Public-Private Partnership (PPP) framework with enhanced monitoring and evaluation mechanisms can help address various socio-economic challenges faced by the poor communities. Sustainable Development Goals (SDGs) Unit in Sindh Pakistan is a signatory to Agenda 2030 and has committed to mainstream and localize 17 Sustainable Development Goals in its plans, policies, and projects to achieve social, economic, and environmental prosperity. The agenda 2030 calls for keeping SDGs in sight, in designing and initiating policies, plans, and projects and putting in place transparent, participatory, and accountable mechanisms to ensure attainment of SDGs at both national and sub-national level. Budgetary frameworks need to be responsive to SDGs, whereby, adhering to the priority local issues, and resource requirements. To achieve this, it is important to review and track public finance, whereby, line departments need to align their salary and non-salary (development, non-development) to SDGs, and at the same time, Public Finance Commission Award needs to review the existing PFC arrangements in view of requirements of localization SDGs, and Public Finance Tracking Systems to be installed by Finance Department to ensure greater alignment of financial resources with SDGs. At the same time, data collection and monitoring mechanisms are to be put in place by Bureau of statistics and line departments to ensure regular tracking and monitoring of alignment of resource requirements if SDGs. To support coordination, monitoring and reporting, and provide technical assistance in mainstreaming and localizing SDGs, SDGs Support Unit has been established in Planning & Development Board, Government of Sindh with effect from May 2017 through partnership between Government of Sindh and UNDP, Pakistan. The SDG Support unit has been working with Government line departments, as well as UN Agencies, and other stakeholders to provide coordination, monitoring, knowledge and policy support to integrate policies and plans with the 2030 Agenda. Parliamentary task Force on SDGs has been notified by the Government of Sindh and Core Group has been formed to develop Sindh SDGs Framework. The Unit with line departments will prioritize the targets for each goal for bringing the development schemes of relevant department in the regular ADP to

achieve the targets of SDGs in Sindh.

7. NET LENDING

In addition to receipts and expenditures of provincial consolidated funds, the Provincial Government also maintains receipts and expenditures of Public Account and Food Account. The Public Account of the province is a sort of trust fund of which the provincial government is custodian. The transactions in Public Account include: the receipts and expenditures of court deposits, GP Fund, Benevolent Fund, Group Insurance, Income Tax Deductions, Foreign Assignment Accounts for donor funded projects, personal deposits, PWD deposits, revenue deposits, forest deposits, wage and cheque clearing accounts, adjustment accounts, food departments remittances which includes all the food account receipts and some of food account payments, etc. The net public account balance in actual remained positive at Rs.26.4 billion in FY 2015-16 and Rs.28.8 billion in FY 2016-17. The figure of Rs.32.3 billion for current financial year has been anticipated in revised forecast; however over next three years, it is expected that net public account balance would be around Rs.36. The detailed examination of transactions of public account shows that positive balance in public account is mostly because of food account.

TABLE 10: NET LENDING ITEMS (RS. IN BILLION) Revised Actual Actual Budget Forecast Forecast Forecast Description Forecast 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2017-18 NET LENDING ITEMS (H) 19.6 9.8 10.3 29.9 33.4 33.0 32.6

Net Food Account - State Trading -6.8 -19.0 -4.0 -2.4 -2.7 -3.1 -3.6 Net Public Account 26.4 28.8 14.3 32.3 36.1 36.1 36.1

Net Food Account- state trading refers to yearly operational deficit of cash payments and receipts (other than floating commercial loans) of the food account. Since, unlike food account receipts, all disbursements/payments of food account are not reflected in the Public Account, the remaining payments made from food account have been accounted for and impact of net state trading has been indicated. The positive impact of public account is largely offset by negative impact of state trading on net lending items. However net lending items reflect somewhat positive financing impact on overall resource position of the province.

8. FINANCING

Financing refers to raising of loans, recovery of loans extended by the government to institutions and individuals, and savings of the province (carryover cash balances), to provide funds for the specific programs, the development projects, investments, and repayment of outstanding loans. The receipts from domestic loans, budgetary support loans (foreign) and recoveries of outstanding loans, are categorized as current capital receipts; the receipts for foreign project assistance (loans for development projects) may be categorized as capital receipts. The repayment of outstanding loans (domestic & foreign) and investments are categorized as current capital expenditure; the expenditure on viability gap fund may be classified as capital expenditure or current capital expenditure, depending on the nature of expenditure. The net financing turned positive by Rs.10.1 billion in year 2015-16, and Rs.77 billion in year 2016-17. The net financing in current financial year is expected to remain positive, which is estimated at Rs.127.6 billion and for the next three

years, it is expected to reduce from Rs. 69.1 billion to Rs. 14 billion, mainly because of repayment of loans.

TABLE 11: FINANCING (RS. IN BILLION) Revised Actual Actual Budget Forecast Forecast Forecast Description Forecast 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2017-18 FINANCING (J=K+L+M) 10.1 76.9 127.6 77.5 69.1 22.1 14.0 Net Capital Receipts and Expenditure (K) -12.5 -11.2 67.6 58.9 79.9 39.9 24.9 General Capital Receipts 13.0 6.2 57.5 57.5 57.5 22.5 12.5 Current Capital Expenditure -25.5 -21.8 -32.6 -12.6 -22.6 -32.6 -42.6 Foreign Projects Assistance 4.4 42.7 14.0 45.0 50.0 55.0 Carry Over Cash Balance (Opening) (L) 22.6 88.1 60.0 18.7 -10.8 -17.8 -10.9 CLOSING BALANCE (N=I+J) 88.1 18.7 -18.4 -10.8 -17.8 -10.9 48.3

Current Capital Receipts The current capital receipts of the province comprise of budgetary support loans provided by the foreign donor agencies, domestic loans raised and recoveries of outstanding domestic loans extended to non-financial institutions and government servants. In year 2015-16 and 2016-17, substantial portion of current capital receipts came under budgetary support loans and grants and the same is expected in current financial year. Foreign Project Assistance Another source of financing for the province is Foreign Project Assistance (FPA), which includes foreign loans for development projects. In years 2014-15 and 2015-16, FPA receipts witnessed from range 70% - 80%

decrease against budget estimates because of slow implementation of development projects by the executive

agencies. In current financial year, it is estimated that Rs.14 billion will be received under FPA under revised estimates, indicating 67% decrease compared to budget estimates. Over the next three years, keeping in view the upcoming disbursement plans, projected receipt under foreign funded projects would reflect a nominal growth of 5%. Current Capital Expenditure The current capital expenditure mainly includes repayment of principal amount of foreign and domestic loans and investments in capital market. In year 2015-16 and 2016-17, current capital expenditure remained at Rs.25.5 billion and Rs.21.8 billion respectively, in current financial year it is expected to remain at Rs.12.6 billion and over next three years, the expenditure is expected to grow by 9%. Carryover Cash Carryover cash balance is another source of financing. It represents the net savings of province as on 30th June of previous financial year. The cash balance of the is reflected in Non-Food Account No.1 maintained with State Bank of Pakistan as on 30th June of the Fiscal Year.

9. DEBT AND CONTINGENT LIABILITIES

Introduction A Government has to utilize revenue surplus for the purpose, seek external aid, and pitch up its level of taxation and resort to public borrowing in addition, under expansionary fiscal policy approach. Central governments share different degrees of sovereignty with sub-national governments. As a consequence sub-national governments may encounter diverse fiscal situations. Liabilities from sub-national governments resulting from the need to finance deficits through borrowing are considered as debt of the sub-national governments. Debt Portfolio The public debt portfolio of the Government of Sindh comprises of Domestic debt and foreign debt. In domestic debt, currently Government of Sindh is not taking any normal CDLs however, the SCARP being routinely transferred from the Federal Government once completed and handed over to the Provincial Government. In addition, all foreign loans are procured under the guarantee of the Federal Government however, the exchange rate risk is borne by the respective Provincial Government. The total debt liability of the Government of Sindh as on 30th June 2017 comprising of foreign and domestic loans and GPF liability is given below:

Table 14: Debt Liability as on 30th June 2017 (Rs. in billion) Category Total Debt Percentage Liability Amount Total 324.283 100.0% Foreign Loans 200.492 61.83% Domestic Loans 123.791 38.17%

Cash Development Loans 15.295 4.72% (CDLs)

Accumulated GPF Liability 108.496 33.46%

Domestic Loans The Domestic debt portfolio comprises Cash Development Loans (CDLs) i.e Normal CDLs and SCARP CDLs. The CDLs Normal is a development loan extended by the Federal Government to the Province for financing its ADP (Annual Development Programme), and CDLs SCARP as per the routine feature channelized from Federal Government to WAPDA for the execution of different projects. The interest rate on CDLs ranges from 7.42% to 17.71% per annum and comprises of uniform amortization period of 25 (twenty five) years including a grace period of 05 (five) years. During the grace period, the interest charges on Original Loan are deducted and Principle Obligations thereafter. The WAIR (Weighted average interest rate) for the domestic portfolio(excluding 01 IDA loan in PKR) as of June 30, 2017 is 12.4% which is quite high when comparing the current bench mark interest rate for 5.75% and financial market activities in last few years. The reason for average rate on such a higher side is province reliance on these domestic loans before FY 2000-01, with closing debt stock of Rs. 43.775 billion as of June 30, 2001. Thus, the province bear a huge burden of cost of CDLs in terms of interest payments which constitutes approximately 42% of total interest cost when comparing the respective portfolio share of approximately 5.6% only in FY 2016-17. The table below shows the total outstanding loans on account of domestic debt as on 30th June 2017.

Table 15: Domestic Debts on 30th June 2017 (Rs. in billion)

Category Total Debt Percentage Liability Amount

Total 15.295 100.0% 38.17% Normal Cash Development Loans

1.571 10.27%

SCARP Cash Development Loans

13.724 89.73%

Foreign Loans The external funding mostly comprises of loans obtained from World Bank (WB) and Asian Development Bank (ADB), which constitute 51% and 43.2% respectively of the total foreign debt portfolio. The third major source of funding comes through JICA indicating a share of 5.4% and rest of the loans have almost negligible share. The foreign loans been procured on both concessional and commercial rates. IDA (World Bank) loans was taken on concessional lending rates while ADB loans are based on mixed mode i.e., concessional and commercial rates both, however its major portion is on concessional terms. The basic difference between these two kinds of lending is the rate of interest and the length of maturity. Usually in concessional lending, the maturity period indicates a longer span of time for the repayments of loan as compared to commercial lending. On the other hand, the commercial lending is usually based on London Inter-Bank Offered Rates (LIBOR) with shorter maturity period. The details of foreign loans are as under:

Table 16: Foreign Loans as on 30th June 2017 (Rs.Billion)

Type of Loans Interest Rate Outstanding Loans Total 200.492 World Bank/IDA 0.75% - 2% 102.162 Asian Development Bank 1.00% - 1.50% & 6M Libor +0.4 86.584 Japanese Loans 1.20% - 2.60% 10.784 IBRD 0.75% 0.292 IFAD 1.00% 0.228 OPEC 2.50% 0.442

In addition to Rs. 200.492 billion outstanding foreign debt stock in FY 2016-17, Active loans for amount of

Rs. 57.077 billion are also in process of Disbursement (disbursement not completed/principal servicing not

started yet). As per procedure, the share of above mentioned amount of active loans shall be included in a Sindh Debt Portfolio on the basis of each loan servicing plan in future. Debt Sustainability Debt sustainability is often defined as the ability of a country to meet its debt obligations without requiring debt relief or accumulating arrears. The concept of fiscal sustainability draws on the idea that public debt cannot keep on growing relative to national income because this would require governments to constantly increase taxes and reduce spending on goods and services. In general, it has been useful to monitor External debt and Debt services obligation measures in relation to GDP, Exports, and Fiscal Revenue. In most of the Countries, the need for such analysis may arise at national level as External borrowing and its Debt servicing remains with the Federal/Central level. Pakistan also comes under this category as Federation here is a Sovereign Guarantor; however recent 18th Amendment in Constitution authorizes the Province to opt for External borrowing through the forum of NEC (National Economic Council). Moreover, Debt Servicing Obligations for Domestic and Foreign Loans also been deducted through at source adjustment by Federal Government against its monthly share of divisible pool Tax Revenue. However, the payment on account of foreign debt servicing made directly to Donors from Federal Government. The Sindh Government uses Current Revenue Expenditure (CRE) ratio and the General Revenue Receipts (GRR) ratio to monitor debt sustainability. As earlier mentioned, the CRE includes all operational expenses of the Provincial Government and GRR includes divisible pool taxes, straight transfers and provincial own tax and non-tax revenues from Federal Government. Table 17 depicts the position of the debt sustainability ratios. The trend shows that in percentage term during 2015-16 and 2016-17 and in growth term estimation for revised forecast 2017-18 and forecast 2019-21, the debt sustainability of GoS does not pose any threat in near future.

(Rs. In Table 17: Debt Sustainability Ratio billion) Revised Actual Actual B.E Forecast Forecast Forecast Description Forecast 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2017-18

Current Revenue Expenditure 455.0 550.9 666.5 651.60 743.9 793.9 847.0

General Revenue Receipts 650.9 692.9 854.3 773.4 972.7 1,109.4 1,265.4

Domestic Stock 16.4 15.3 14.1 14.1 12.9 11.7 10.4

* Foreign Stock 175.1 200.5 215.9 221.3 237.8 254.8 272.3 Debt Stock 191.5 215.8 230.0 235.4 250.7 266.5 282.7

Debt Servicing (Principal) 8.00 8.30 14.52 14.52 11.40 13.80 15.30

Debt Servicing (Interest) 4.30 4.80 4.80 5.10 5.34 5.49 5.72 Total Debt Servicing (Principal + Interest) 12.30 13.10 19.32 19.62 16.74 19.29 21.02

Debt servicing as % of current revenue 2.7% 2.4% 2.9% 3.0% 2.3% 2.4% 2.5% expenditure Debt servicing as % of general revenue 1.9% 1.9% 2.3% 2.5% 1.7% 1.7% 1.7% receipts Note: Yearly interest on GPF liability and ways and means are not included in Debt servicing head *Note: In actuals 2016-17, amount of Rs. 57.07 billion against foreign loans under disbursement are not included in the stock.

10. INVESTMENTS & FUND MANAGEMENT

The Sindh Fund Management House (SFMH) continued its growth strategy for the year 2017-18. The total assets under management have increased significantly through releases and profit earned by virtue of the diligent investment policies adopted by the management team and respective Boards. The various investment funds cumulatively earned a return of Rs. 17.9 billion in the year ending 30th June, 2017. Largest contribution to overall profit was by the Sindh Province Pension Fund which alone earned Rs. 9 billion during the year, followed by the Sindh General Provident Investment Fund which earned an amount of 4.8 billion. This was mainly on account of capital gains that accrued from the portfolio of long-term Pakistan Investment Bonds (PIBs). Fresh investments have however, mostly been made into the National Savings Schemes, another safe investment avenue offering higher market rate of return to further increase the probability of the fund.

TABLE 16: SINDH INVESTMENT FUNDS (RS. IN BILLION) Description Actual Forecast Forecast Forecast Forecast 30 June 2017 30 Jun 2018 30 Jun 2018 30 Jun 2020 30 Jun 2021

Total Government Funds 190.2 218.4 268.4 327.3 395.6 Sindh Pension Fund 96.9 105.8 116.5 129.2 143.9

SASO Pensioners Fund 0.2 0.2 5.7 12.9 21.9

Sindh Government Employee Group Insurance 2.3 2.6 2.9 3.2 3.6 Fund

Sindh Social Relief Fund 19.2 20.2 21.2 22.3 23.3

Peoples Housing Cell 0.4 0.4 0.9 1.3 1.7

Sindh GP Investment Fund 52.8 58.9 63.2 67.8 72.5

Viability Gap Fund 7.8 16.1 16.9 17.8 18.7 Sindh Coal Development Fund 4.2 6.3 7.6 8.9 10.3

Sindh Project Development Facility 0.5 0.8 1.2 1.6 2.1

Endowment Fund for PPHI 0.6 0.6 25.4 55.2 90.2

Investment Fund for SCSHF 5.4 6.6 6.8 7.1 7.4

11. GOVERNANCE

Government of Sindh (GoS) is implementing Sindh Public Sector Reform Management Project with the support (Loan) of the World Bank and Public Financial Management (PFM) Support Program for Pakistan with technical assistance (Grant) of European Union. The overarching objectives of this project is to strengthen public sector performance in the province through improved revenue generation and expenditure management. The genesis of this project is based on the Provincial Public Financial Management Reform Strategy 2014-15 to 2019-20 that guides prioritization and sequencing of the targeted PFM reform while at the same time consolidating, deepening and widening the reform so as to reap the full benefits of improved PFM systems for economic development, strategic and social goals, and better service delivery. To roll out the strategy, two specific action plans viz: Sindh Tax Revenue Mobilization Plan and Public Financial Management Action Plan were developed and approved by the Government of Sindh. To coordinate different reform activities with the provincial stakeholders and donor partners, Economic Reform Unit (ERU) is the focal point to coordinate all the Project activities and other reforms-related activities. As reform activities significantly stress

on tax revenue generation, a Tax Reform Unit has also been established in Finance Department with the

purpose to coordinate with all the revenue collecting entities and to engage academia in evidence-based tax policy formulation. In addition to this the unit is responsible for conducting studies regarding Tax analysis for informed decision making. Moreover, Debt Management Unit has also been established in Finance Department to manage the debt system in the province. Public Financial Management Reform Strategy (PFMRS) through PFM Action Plan is underway and being implemented by GoS with the technical assistance of donor agencies i.e. European Union. The PFM Strategy will address systematic weakness and missing links in the Public Financial Management such as credibility of the budget, budget predictability, policy-based budgeting, transparency, predictability, accounting and reporting. The objectives of Public Financial Management Strategy are to improve financial management, improve efficiency, and enhance transparency and accountability. In this regard some areas for reforms have been identified.

BSP

PFMR Governance STRMP Reforms

MASTER/R ESTRUCTI NG

The identified core areas for reforms include: (i) Medium Term Budgetary Framework; (ii) Output Based Budgeting; (iii) Integration Between Current and Development budget; (iv) Participative Budgeting involving all the stakeholders; (v) User-friendly Budgeting Execution Reports for the policy makers to make strategic decision; (vi) Revenue Mobilization (vii) the system based audit for pay and pension and introduction of Direct Credit System for pension payment; (viii) Advanced in Procurement Practice Practices for harmonization of procurement laws and procedures and updating the rules and procedures in conformity with best practice and capacity building of SPPRA and procuring entities; (ix) Strengthening of Monitoring and Evaluation to provide feedback to the decision makers for better management for taking corrective actions, in time, to improve service delivery to the masses (x) Instituting Internal Audit Function (operational audit, managerial audit performance audit, systematic audit); (xi) An Effective Public Accounts Committee (PAC) to keep watch on Government’s performance.

Sindh Sales Tax on Services

Fiscal Excise , Taxation and Narcotics Reforms

Board of Revenue

The Internal Audit Function is new intervention and is essential to improve effectiveness of Governance, Risk Management, Control and Accountability process. Presently internal audit is being executed in four government department’s i-e Finance, Health, Home and School Education, under Legal and Regulatory Framework different rules are being revised and updated. Besides this the planning manual has also been developed to strengthen the planning process at line departments. Other activities which are conducted in current financial year through PFM reforms for Institutional framework and support systems include seminar on Chief Financial Officer (CFO) in public sector, submission of Capacity Development Strategy to the Chief Secretary Sindh, training on Budget Call Circular for Administrative Departments, training on PFM to Budget Officers at divisional level (three divisions were covered during the year in which more than hundred DDOs attended), training on Pension Rules & Regulations to Administrative Department and submission of draft Sindh Public Finance Administration Act to CM secretariat, submission of draft Sindh Financial Rules to Finance Department, submission of draft Treasury & Subsidiary Rules to Finance Department and Submission of draft Delegation of Financial Powers to Finance Department. To build capacity of employees of Government of Sindh, various trainings such as Computer (MS Office and Excel), SAP, BCC, PFM, Pension Rules, Procurement & Contract Management have been imparted and 300 officers/ officials from various government departments have been trained so for under aforementioned training programs. The trainings have been carried out by well reputed public/ private institutions, for instance, training for MS Excel (Basic & Advance Module) was carried out by IBA Karachi. The trainings on PFM and BCC were carried out at divisional level in which officers/ officials dealing with Budget & Accounts matters and working in Directorates/Field offices of different departments were trained in addition to Budget officers/ officials at Secretariat level. The training on pension and procurement rules has also been provided to the

abovementioned staff categories. The officers and officials of the Finance Department are also being imparted

professional training to have hands-on experience on SAP system to facilitate their Department in online monitoring and reporting through SAP system. Almost fifty employees of the Department are presently engaged in receiving this training in three different batches including officers from senior management, middle management and officials from the Sections. Besides this, phase-wise trainings on same lines are also planned in future. The above reforms are aimed at improving Governance in general and Public Financial Management in particular. The Sindh Tax Revenue Mobilization plan Government of Sindh is of the opinion that there is a significant potential to identify indigenous resources, which could be utilized for improved service delivery. Presently, Provincial Revenue of Sindh comprises roughly 20 percent of total gross revenue, which is too small in quantum and drive the attention of the Government of Sindh (GoS) towards resources mobilization. (STRMP) has been formulated to undertake wide-ranging tax reform in the province. The objectives of (STRMP) are to generate higher revenues for the Government of Sindh while lowering the costs of compliance for taxpayer and enhancing equity and efficiency of taxation. With the implementation of STMPR, tax collection is expected to increase up to Rs.200 billion in next three year. The purpose of this initiative is to improve not only the fiscal space but to pursue development goals through investment in human capital and public infrastructure for improved economic growth. The Key reform areas include: (i) institutionalizing evidence-led tax police and administration and coordination mechanism: (ii) Institutionalizing of IT-based business processes for efficient tax administration: (iii). Strengthening of tax facilitation and enhancement of taxpayer education for higher compliance and (iv). Generation of policy dialogue to create and sustain impetus for tax reforms seeking revenue adequacy, efficiency and equity in taxation. The tax collecting agencies have executed fascinating & purpose-oriented IT initiatives aimed at enhancing indigenous resources. Sindh Revenue Board (SRB) has very effectively deployed the FBR system for sales tax automation during the transition from Federal to province collection. At present it has sales tax collection automated through e-filing invoice cross-matching and payment reconciliation. The Excise &Taxation Department has a system for Motor Vehicle Registration since the early 1990s. This system has province-wide footprint and no motor vehicle transaction is done outside the system. In Karachi the property registration has been computerized and computer-generated demand notice (challans) are served as first step towards automating the Urban Property tax System. Board of Revenue (BOR) has made progress to ensure that land records since October 2010 are digitally scanned, indexed and stored securely. A system of land transaction registers (patwari registers) with elaborate SOPs on ensuring integrity and completeness of records has been

put in place. BOR is also implementing an ambitious project, i.e. Land Administration and Revenue

Management Information system (LARMIS). It will go a long way in preservation of the historical land records of Sindh through digital data. The data entry of land records is under process and the same will be completed soon. The registration and stamps wing of BOR has also initiated a scheme for automation of registration of documents.

12. RISKS TO BUDGETARY PROJECTIONS AND MITIGATION STRATEGIES

The Key risks to budget and their mitigation strategies are indicated hereunder. Federal Transfers Federal transfers have always remained uneven in past and mostly fall short of targets; however projections of receipts from government have been made keeping in view historical trend in federal transfer, which is a realistic basis of projections. The probability of actual receipts from federal transfers is more than 95%. Besides, Government of Sindh has started implementation of Sindh Tax Revenue Mobilization to generate own resources to ensure timely availability of resources for service delivery and development needs. Pay and Allowances increase by Federal Government The Government of Sindh has built in provision of 12% on gross salary bills in the projections for next three years, which is enough to absorb the impact of annual increments, pay increase and creation of new posts. Ways and Means clearance The release of funds by Finance Department is made in accordance with policy approved by the provincial government. Such policy is adopted keeping in view the utilization patterns of the executing agencies as well as the resource availability of the province. Past trends of transfers from federal Government and provincial own receipts are also kept in view and different scenarios for cash flows are discussed and weighted. Although the estimation for utilization of the funds released for development portfolio is always dependent on plethora of factors and therefore such estimations are purely subjective. Change of budget priorities during the year Significant in-year changes in budget priorities occasionally take place on account of external circumstances beyond the control of provincial government such as natural calamities - torrential rains, floods and drought, sluggish economic growth and law and order situation. Unfortunately, these incidents have been frequent in at least last five years. Special care has been taken for making provision for specific needs of the departments. However, for emergent and unforeseen expenditure of the departments, lumps sum provisions have also been kept in the projections.

Release management and project implementation capacity In addition to a revenue shortfall on an annual basis, in-year delays in receipts may jeopardize the in-year release and expenditure pattern. Weaknesses in project implementation capacity in administrative

departments may result in underutilization of allocated ADP resources.

ANNEX 1MULTIYEAR GLANCE

(Rs. in billion)

Revised Actual Actual Budget Forecast Forecast Forecast Classification Forecast 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2017-18

I – RECEIPTS

A. CURRENT REVENUE RECEIPTS

Federal Transfers 1. Revenue Assignment 425.0 437.1 547.4 489.5 624.1 711.4 811.0 2. Straight Transfers 63.6 80.4 65.2 65.2 74.3 84.7 96.5

3. Grants to offset losses of abolition of OZT- (0.66% of Provincial Share) - (Incl. others) 12.6 11.8 14.7 13.0 14.7 16.2 17.8 Total Federal Transfers 501.3 529.2 627.3 567.7 713.1 812.3 925.4

Provincial Revenues

4. Provincial Tax Receipts (Excl. GST on Services) 61.2 65.9 85.6 80.0 98.5 113.2 130.2 5. Provincial Sales Tax on Services 61.5 78.5 100.0 100.0 115.0 132.3 152.1 6. Provincial Non-Tax Receipts 10.1 8.6 14.0 14.0 16.1 18.5 21.3 Total Provincial Revenues 132.8 153.0 199.6 194.0 229.6 264.0 303.6

Total Current Revenue Receipts (A) 634.1 682.2 826.9 761.7 942.6 1,076.3 1,229.0

B. CURRENT CAPITAL RECEIPTS 1. Local Repayments/Loan 1.7 1.7 1.7 1.7 1.7 2. SERP-II & SPSMRP/IDA-WB 7.7 7.7 7.7 7.7 7.7

4. Sindh Global Partnership for Education Project/WB 1.6 1.6 1.6 1.6 1.6 5. Bank Borrowing 46.5 46.5 62.5 62.5 62.5

Total Current Capital Receipts (B) 13.0 6.2 57.5 57.5 57.5 22.5 12.5

C. OTHER RECEIPTS 1. Foreign Projects Assistance (FPA) 0.0 4.4 42.7 14.0 45.0 50.0 55.0 2. Other Federal Grants 16.7 10.7 27.3 11.8 30.1 33.1 36.4

Total Other Receipts (C) 16.7 15.1 70.1 25.8 75.1 83.1 91.4

D. CARRYOVER CASH BALANCE 22.6 88.1 60.0 18.7 -10.8 -17.8 -10.9

E. PUBLIC ACCOUNTS OF THE PROVINCE 1. Receipts 1.7 2. Disbursement -1.7

Net Public Accounts (E) 26.4 28.8 14.3 32.3 36.1 36.1 36.1

TOTAL RECEIPTS OF THE PROVINCE 712.9 820.5 1,028.9 895.9 1,100.6 1,200.2 1,358.1

II – EXPENDITURE

G. CURRENT REVENUE EXPENDITURE 455.0 550.9 666.5 651.6 743.9 793.9 847.0

H. CURRENT CAPITAL EXPENDITURE 25.5 21.8 32.6 12.6 22.6 32.6 42.6

I. DEVELOPMENT EXPENDITURE 1. Provincial ADP (excl. FPA & FERP) 99.6 170.8 244.0 185.2 244.0 268.4 295.2 2. Foreign Projects Assistance (FPA & FERP) 3.0 6.9 42.7 14.0 45.0 50.0 55.0 3. Other Federal Grants 16.5 8.7 27.3 11.8 30.1 33.1 36.4 4. District ADP 18.3 23.7 30.0 29.0 30.0 30.0 30.0

Total Development Expenditure (I) 137.4 210.1 344.1 240.0 349.1 381.5 416.6

TOTAL EXPENDITURE OF THE PROVINCE 617.9 782.8 1,043.2 904.2 1,115.6 1,208.0 1,306.3

Surplus (+) / Deficit (-) 95.0 37.7 -14.3 -8.4 -15.1 -7.8 51.8

ACRONYMS

ACGR Annual Compound Growth Rate ADB Asian Development Bank BHU Basic Health Unit BOR Board of Revenue CDL Cash Development Loan CE Current Expenditure CFY Current Fiscal Year CMW Community Midwifes CRE Commercial Real Estate / Corporate Real Estate CRG Core Reform Group CVT Capital Value Tax DeMPA Debt Management Performance Assessment DS Debt Servicing ECE Early Childhood Education EFA Education for All ET&N Excise Taxation and Narcotics EU European Union FMH Fund Management House FY Fiscal Year GDP Gross Domestic Product GDS Gas Development Surcharge GPF General Provident Fund GPP Gross Provincial Product GRR General Revenue Receipt GST General Sales Tax MCHC Mother and Child Healthcare Centers MCHS Maternal Child Health Services MDG Millennium Development Goal MNCH Maternal, Newborn and Child Health NEC National Economic Council NFC National Finance Commission ORG Operational Reform Group OSR Own Source Revenue OZT Octroi Zillah Tax

PAC Public Accounts Committee

PEFA Public Expenditure and Financial Accountability (Assessment) PFC Provincial Finance Commission PFMAA Public Financial Management and Accountability Assessment PFMAP Public Financial Management Action Plan PIB Pakistan Investment Bond PIFRA Project for Improvement of Financial Reporting and Auditing RHC Rural Health Centers SCARP Salinity Control and Reclamation Program SDM&I Sindh Development Maintenance of Infrastructure Cess SPPRA Sindh Public Procurement Regulatory Authority SRB Sindh Revenue Board SRG Strategic Reform Group STRMP Sindh Tax Revenue Mobilization Plan THQ Taluka Headquarters WB World Bank

ENDNOTES

iThe Daily Dawn Karachi, 25th August 2017 ii Growth of the Provincial Economies (2015), Dr. H A Pasha, Institute for Policy Reform iiiLabour Force Survey (Annual Report) 2014-15, Pakistan Bureau of Statistics, Table 11. ivLabour Force Survey 2014-15 (Statistical Tables), Pakistan Bureau of Statistics, Table 18.3. v Labour Force Survey 2014-15 (Statistical Tables), Pakistan Bureau of Statistics, Table 20.3. vi Economic Survey of Pakistan 2016-17 vii Pakistan Demography and Health Survey 2012-13, 129. viii Ibid, Table-8.2, 121. ix Ibid. x Ibid, Table 28, 94. xi Ibid, Table 28, 94. xii Government of Pakistan, Ministry of Finance, Economic Survey of Pakistan 2016-17,Table 10.1, Page 169. xiii Ibid, Table 10.3, 171 xiv Pakistan Social and Living Standards Measurement Survey (2014-15), Tables-2.1, page 16 - 20. xv Ibid, Tables 2.2, Page 21 - 24. xvi Pakistan Social and Living Standard Measurement Survey Report 2014-15, Table 4.5, Pages 381 - 401 . xvii Education, Economic Survey of Pakistan (2016-17), Chapter 10, Table 10.2, Page 172.

Xviii Ibid, Table 10.3 & 10.5, Page 173.

Xix Ibid. xx Chapter 10, Page 172-3, Economic Survey of Pakistan 2016-17. xxi Ibid Table 10.2: Literacy Rate (10 years and Above) - Pakistan and Provinces. xxii Poverty Reduction Strategy Paper 2015-16, Page 32, Table 2. xxiii Ibid, Page 33. xxiv Poverty Reduction Strategy Paper 2015-16, Page 26-27. xxv SPDC, The State of Social Development in Rural Pakistan (Annual Review 2012-13), 27. xxvi Economic Survey of Pakistan 2016-17, Headcount MPI Incidence Table 2 xxvii Ibid, Table 2. xxviii Poverty Reduction Strategy Paper 2015-16, Page 34, Table 3. xxix Government of Sindh, Report on Status of Millennium Development Goals Sindh, 2012, 31 & 54.