Coverage of the provincial budget announced by Khyber-Pakhtunkhwa Finance Minister Humayun Khan on Saturday has been dominated by the theme of ‘balanced budget’: Rs294bn of expenditure matched by Rs294bn of revenue. At first blush, this may seem to be a good thing. But scratch below the surface and serious problems become apparent. First, the province’s revenue projection relies heavily on money flowing from the centre as promised — a pledge that is already looking shaky. For example, if the Rs25bn in hydel power profit arrears is not forthcoming, a serious hole will appear in Khyber Pakhtunkhwa’s finances. The sum is part of Rs110bn that was awarded to it in an arbitration with the centre and is to be released to the province over four years. Yet, privately provincial officials are pessimistic that the arrears will be released, pointing to the fact that the province has only been allocated Rs6bn as hydel generation profits for the next fiscal year — several times lower than what they believe is owed.
Next, on the expenditure side of things, while the NFC award last year has increased transfers to the province and therefore improved the fiscal space, a majority of the money is to be spent on salaries, and a great many of those salaries are paid to employees who are not needed. It seems that in a war-torn, recession-hit economy, provincial administrators have struck upon a favourite ploy to appease voters: giving them jobs in government agencies. At least three new government departments have been created rather than trying to encourage job creation in the private sector.
The main challenge, then, for the government going forward will be to mobilise its own resources. Relying on uncertain federal receipts and making unnecessary provincial expenditures will only destabilise its finances. For example, the Rs21bn allocated to the police has more than doubled the present year’s outlay — arguably a necessary step — but the centre cannot be relied on to keep footing the bill. To be sure, Khyber Pakhtunkhwa has suffered disproportionately over the last years from militancy; however, that should not be used as an excuse to further delay reform.
Next, on the expenditure side of things, while the NFC award last year has increased transfers to the province and therefore improved the fiscal space, a majority of the money is to be spent on salaries, and a great many of those salaries are paid to employees who are not needed. It seems that in a war-torn, recession-hit economy, provincial administrators have struck upon a favourite ploy to appease voters: giving them jobs in government agencies. At least three new government departments have been created rather than trying to encourage job creation in the private sector.
The main challenge, then, for the government going forward will be to mobilise its own resources. Relying on uncertain federal receipts and making unnecessary provincial expenditures will only destabilise its finances. For example, the Rs21bn allocated to the police has more than doubled the present year’s outlay — arguably a necessary step — but the centre cannot be relied on to keep footing the bill. To be sure, Khyber Pakhtunkhwa has suffered disproportionately over the last years from militancy; however, that should not be used as an excuse to further delay reform.
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