Wednesday September 27, 2023

The KP budget

June 29, 2021

On a positive note, the Khyber Pakhtunkhwa budget documents format has been added nuance with quality paper and infographic presentation.

The budget speech is a powerpoint presentation. The white paper, citizen’s guide and debt statistical bulletin have been upgraded and are easy to understand. The details of projected, revised and actual expenditure will hopefully facilitate democratic accountability and transparency.

Though the format has been improved through drastic changes, the substance remains more or less the same. The cliche of tax-free budget, people-friendly budget and historical budget could be heard ad nauseam from treasury benches during the budget debate. Budget estimates are based on exaggerated, inflated and notional projections. They are jubilant that the budget has crossed the one trillion figure and a whopping Rs371 billion has been allocated for the annual development programme. The finance minister says that development spending is proportionately the biggest as compared to other provinces and record high in the history of KP.

But if the past is any guide for the future, the projected estimates for FY 2020-21 were Rs927.4 billion but the actual revenues came down to Rs727.4 at the end of the year – and the annual development programme was the major victim. There was a shortfall of Rs200 billion. With this sad reality in hindsight, no miracles are expected in FY 2021-22 and the celebration seems premature. KP is hugely dependent on federal transfers. It could not expand its own fiscal space. The devolution of sales tax on services has huge potential but has not been utilized and tapped to the optimum. Though there has been marginal improvement this year, the province’s total own source revenues have hardly crossed the figure of Rs50 billion.

KP has received Rs19 billion net hydel profit against the projected amount of Rs58.3 billion in FY 2020-21 and budget estimates have projected Rs74.7 billion for FY 2021-22.

The biggest head is the federal tax assignment. KP received Rs395 billion in FY 2020-21 against the projected amount of Rs477.4 billion and budget estimates for FY 2021-22 are Rs559.3 billion. The government has projected Rs132.5 billion under some other head, details of which are not convincing. This can be seen as figure-fudging. The government received Rs56.7 billion against Rs86 billion in foreign project assistance and budget estimates for FY 2021-22 are Rs89.2 billion.

When projections are inflated, it not only disrupts service delivery but also results in inefficiency, weak financial discipline and bad governance. Its major casualty is always the annual development programme. In FY 2020-2021, the government could, therefore, spend only Rs168.8 billion against the projected amount of Rs317 billion. It has added exponentially to the through-forward of the annual development programme which is a whopping Rs974 billion.

The Newly Merged Areas (NMAs) have yet to receive the dividends of merger. Every year a huge amount is projected in the budget for their development but the funds remain unspent at the end of the year. The development expenditure was Rs76.6 billion in FY 2020-21 but the actual expenditure remained around Rs24 billion. In FY 2021-22, Rs100 billion has been projected for development. If spent fully and diligently, it can spur economic activity and reduce the growing resentment in the NMAS. But unfortunately, the government lacks vision, strategy and capacity to spend this money.

Setting aside all parliamentary norms, the government has introduced amendments in the Local Government Act and has reduced its development share from 30 percent of provincial ADP to 20 percent. Amending the Local Government Act through a finance bill is against the spirit of good legislation since such legislation does not come within the purview of Money Bills. Reducing the share of local government will also seriously hamper grassroots development, in complete disregard of the PTI’s election manifesto.

It is commendable that the government has published a debt statistical bulletin. KP has a huge debt portfolio of around Rs268.690 billion. But it is scary if Rs371.939 billion, which is in the pipeline, is added to it. Loans are not bad if invested in sectors with efficient, quick, and early pay back prospects. But the government has not used this money judiciously. Around Rs70 billion have been consumed by the controversial BRT.

Hydel power generation is one promising sector where loans will have a quick payback. But the PTI government in KP has not been able to exploit this potential to the optimum. The KP government’s projects are contributing 155 MWs to the national grid. Out of these projects, 81 MW Malakand iii, 36 MW Daral Khwar, 10.2 MW Jabori, 11.8 Karora and 3.6 MW Machi were all started, completed or conceived by the past governments. The current government could claim only 350 MHPs, an off-grid contribution of hardly 13 MW. Hydel power generation is a huge untapped resource, and investing loans in this promising sector will not only expand the revenue base of KP but also create further fiscal space for development.

The KP government has failed to effectively fight for KP’s constitutional rights with the center. For all practical purposes, the KP Net Hydel Profit case has been shelved by the current government. There is no progress on resolving this long-standing dispute and it has emboldened the center to disrupt the smooth flow of agreed and routine transfer of NHP. It could get only Rs19 billion out of Rs58.3 billion in FY 2020-21.

The failure to issue the NFC Award has consequences for all small federating units. But KP is paying a much bigger price due to the merger of erstwhile Fata and increase in population. Its share in horizontal distribution on the basis of population has increased from 14-19 percent as per KP’s finance department calculations but recalculation on the basis of the 2017 census has not been agitated forcefully with the federal government by the KP government.

Article 161-1(b) of the constitution says that federal excise duty on oil will not form part of the federal divisible pool and will be levied at well head, collected by the federal government, and paid to the province where the well head of oil is situated. Sadly, however, since 2010 KP has not been paid its rightful share. The budget document does mention this constitutional right but is not followed by concrete steps and strategy to get it from the federal government.

The CCI is the constitutionally mandated forum to resolve these issues. The KP chief minister can requisition CCI meetings on these issues but the KP government has not used this constitutional forum effectively to fight the case of KP. The KP Assembly has passed unanimous resolutions on all these issues to support the government but these resolutions have been ignored due to lack of will and courage on the part of the provincial government.

The incumbent government was voted to power with a mandate for change. It has, however, become part of the vicious cycle of the status-quo. With a huge mandate and a government at the center, the KP government has lost the case of KP’s constitutional rights. Even an articulate finance minister backed by a competent team of bureaucrats in finance and P&D have failed to make a difference.

Political expediency has led to clientelism and patrimonial tendencies. Discretion, inequitable distribution of resources and regional disparity are ills still plaguing our budget making. After its fourth budget, the countdown has begun and the people of KP will be in a much better position to make this government accountable in 2023 – if elections are fair and transparent.

The writer is a member of the Khyber Pakhtunkhwa Assembly.

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