Financial year 2006-07 has provided some breathing space for the MMA government because of the higher than budgeted fiscal transfers by the centre.
NWFP which drives over 90 per cent revenues from fiscal transfers has always been short of cash to maintain expenditures for the required level of development.
However, the financial mangers say that the improved fiscal transfers eased the financial stress during the first three quarters of the current financial year--thanks to the interim National Finance Commission (NFC) award announced last year. Some also attribute better financial management as a contributing factor that obviated the need for any major bank overdraft.
The budget 2007 set total current revenue receipts target at Rs67.54 billion -- three per cent higher than the revised receipts of 2006.
The estimated revenue receipts included Rs36.994 billion from net proceeds of federal divisible pool, Rs2.333 billion from straight transfers and Rs9.712 billion as special grant-in-aid. Officials at the provincial finance department say over Rs31 billion have been received as net proceeds of federal divisible pool.
This is mainly because the overall CBR tax collection has improved and the financial managers expect that the actual receipts will surpass the budget estimates. Last year’s receipts were at Rs35.494 billion- Rs595.814 million higher than the original estimates.
Straight transfers, mainly comprising royalty on crude oil and gas, gas development surcharge and excise duty on natural gas are important sources of income for the province which are growing each year, enlarging fiscal space for it.
This is mainly because of increase in the overall production of gas and oil fields located in the southern districts of the province. Major oil and gas fields included are Chanda (Kohat), Manzalai and Makori Karak). Last year, straight transfers amounted to Rs1823.512 million as against budgeted Rs979.497 million.
The province has already surpassed the estimated receipts during first nine months and net recovery will grow further by year-end. The province is receiving grant-in aid as envisaged under interim NFC award.
Despite getting the budgeted federal revenue transfers, the province has not been able to manage the widening fiscal deficit because of lower receipts on accounts of net hydro profit and provincial own receipts (PoR) in the first three quarters.
The net hydro profit was projected at Rs8 billion in the current budget against Rs6 billion, which Wapda paid to the province since 1991-92.
The utility makes irregular payments. Against the expectations of Rs4.5 billion by March, the province had received Rs3 billion only. The government is also finding it difficult to mobilise its tax collection machinery for widening the overall tax net, which is one of the major conditions of the World Bank for providing more credit facility for reform initiatives in NWFP.
The government set Rs5.2 billion target for provincial revenues that includes both tax and non-tax revenue without imposing any new tax. The province’s own share in revenue receipts is not more than eight per cent of the total current revenue receipts.
The Excise and Taxation Department (E&TD) and the Board of Revenue (BoR) failed to expand the tax net; rather they fail to achieve the set targets. This may affect the overall performance of the provincial government and disturb the projections under Medium -Term Budgetary Framework (MTBF)," an official at finance department said.
There are many gaps in the overall tax collections and more efforts are needed to improve the tax administration and management. The tax collecting agencies, however, attribute concessions given to general public, industry and agriculture sector under the head of property tax, agriculture income tax etc as the major constraints in boosting tax revenues.
Budgeted revenue shortfall for this year has been estimated at Rs3.837 billion that is Rs1.5 billion higher than the projected deficit of the outgoing fiscal year. But, lower than budgeted revenue receipts on the accounts of net hydro profit and PoR will increase the budget deficit significantly. On development side, the funds utilisation has improved.
A record Annual Development Programme (ADP) at Rs26.63 billion, 26.8 per cent higher than the allocation for the last fiscal, is under implementation.
With an eye on elections due this year, the MMA government iskeen to complete a maximum number of projects. In nine months, the expenditure has been reported at Rs15 billion against projected annualtarget of Rs26.63 billion.
Though the performance of the development agencies has improved, the overall impact of uplift programme on the living standard of the majority of the population is still a question mark. So far, no significant improvement in the social delivery has been achieved The expected federal transfers in next financial year 2007-08 is not yet known. But the province will continue to rely heavily on the federal tax assignment and proceeds on account of net hydro profit. In view of a weak tax base, the government is expected to put province’s own revenue target at Rs5.52 billion for the next year.
The tax administration will have to improve its efficiency as the ruling alliance is unlikely to impose any new tax ahead of next general elections.
The province expects $130 million loan from the World Bank as Development Policy Credit (DPC-II) to finance three-year Provincial Reform Programme (PRP-II).
The World Bank had earlier launched the first phase of the multi-sectoral reform initiatives through $270 million Structural Adjustment Credit SAC).
The higher NFC transfers next year will have a positive impact on the financial health of the 24 district governments and 61 Tehsil and Municipal Administrations (TMAs) next year.
The provincial government intends to increase the share of district governments under salary, non-salary and development heads in the Provincial Finance Commission (PFC) award. The PFC award was announced last year for a period of three years. However, it can be revised on an annual basis.
Sources in finance department say that the district governments are likely to get Rs28.807 billion next year, which will include Rs23.680 billion for salary, Rs2.740 billion for non-salary, Rs1.156 billion for development and Rs1.231 billion as Octroi and zilla tax grant.
Expected transfers to the districts under PFC will be around Rs25 billion this year. The government will increase the salary component by 10 per cent, non-salary by 27 per cent, development by 20 per cent and zilla tax grant by 20 per cent. About 70-80 per cent funds are earmarked for infrastructure related projects in ADP 2007.
But budget-making is an exclusive domain of the executive. So far no consultation with the civil society, citizen groups and even the members of the provincial assembly have been undertaken.
One of the big worries that the financial managers may face is the raise in salaries and pension of the public sector employees which the prime minister has promised in the next budget.
The province is committed not to let its wage bill go beyond four per cent of the provincial GDP under MTBF, prepared in line with the conditionalities of the World Bank.
The salary bill for this year comes to Rs23 billion, while it is likely to grow to Rs25 billion on the basis of 10 per cent incremental increase. Besides, the contribution towards General Provident Fund and Pension Fund will also grow substantially.
