PESHAWAR: Has Khyber Pakhtunkhwa run its course of financial sustainability? Is the bubble about to burst? On the face of it, this may seem unlikely but dig deeper into the budget for 2015-2016 and it stares you right in the face.

KP’s finance department is a remarkable place where officials have been deftly and routinely churning out cyclostyled copies of budgets, changing and ratcheting figures here and there. Any wonder, why KP’s budgets have been looking and sounding strikingly similar over the years?

Let there be no illusions. There are no professionals at the helm to craft the budget, to order comprehensive spending reviews and apply brakes to the government’s ever growing penchant for spending.

Instead there are wizards, who make things happen, produce a rabbit out of a hat and create a make believe world for their political masters to pull wool over the eyes of all and sundry.

Forgive the public, for they know not, what this jugglery of numbers is all about. Even the lawmakers, who pass the budgets, hardly make any effort to understand the number game beyond looking for their schemes included in the Annual Development Programme.

But there is a limit to stretch one’s imagination, particularly, when the wizards are no Archimedes. A time comes when reality starts staring you in the face and that moment of reckoning for KP, perhaps, could be round the corner soon, if sanity does not prevail and political astuteness does not give way to political expediency.

What therefore, was the need for deliberately and artificially inflating figures to ‘balance’ the budget, considering the resource constraints? There are so many ‘ifs’ in the budget for the next Bubble of fiscal sustainability of KP about to burst? financial year that if any of the ‘ifs’ does not materialise, KP would either have to go for drastic budgetary cuts or go for borrowing.

Historically, there have been shortfalls on the receivables side from federal tax assignments which were always met through internal cushions. The large cushion available with KP, having been absorbed in the current financial year due to shortfall in revenue from federal as well as provincial resources, has left little space for the budget in 2015-16.

No professionals at the helm to craft budget

Consider KP’s budget for 2015-16. Our budget has been pitched at Rs487.884 billion, showing a 21 per cent increase over current year, with a development budget of Rs174.88 billion and outlay of Rs142 billion from own resources and Rs38.88 billion from foreign sources.

General Sales Tax on Services (Provincial) has been pitched at Rs14 billion, Rs2 billion more than current year’s estimate. Considering that KP would not be able to even achieve the current year’s target, the projected figure seems ambitious enough to leave a budgetary gap of at least Rs5 billion by the end of the next financial year.

The receipts from Provincial Own Receipts (Tax & Non Tax) are more mind-boggling. Pitched at Rs 37.12 billion for the next financial year as against Rs13.93 billion, the budget shows a staggering increase of 166 per cent. Taxes levied in the new budget just do not correspond to such a phenomenal increase.

The finance department, however, argues that the projected increase is on account of the proposed sale of dry windfall of forests and penalty recovered from permission to sell illegally cut timber (a controversial decision nonetheless) and revenue collected from outsourcing of development of model city in Peshawar and towns in other districts to the private sector in the next financial year.

Similarly, net hydel profit for the next financial year has been pitched at Rs17 billion, currently capped at Rs6 billion. There is going to be a shortfall of Rs11 billion, unless of course, as promised, the federal government yield to KP’s long standing demand of uncapping the amount.

Likewise, the revenue expected on account of arrears of net hydel profit has been pitched at Rs51.87 billion. It is all the more mind-boggling as not a dime came through against the projected amount of Rs32.27 billion in the current year.

The government is optimistic though that the federal government will follow through on its commitment to pay the arrears and that a Memorandum of Understanding is expected to be signed soon to the effect to put to rest a long standing issue.

Federal Minister for Water Khwaja Asif told the National Assembly the other day that a draft was currently being vetted by the Law Division and he too was optimistic of resolving what he described as a just issue.

There have been false starts in the past with federal government reneging on promises and if KP is able to get the NHP uncapped and recover its arrears, it would be a big achievement. But if, like the past, the federal government drags its feet, this would leave a gaping hole of Rs51.87 billion in the budget and literally leave KP’s financial kitty in tatters.

What, however, is more ominous and arguably the most alarming aspect of the next financial budget is the amount shown as “Recoveries of Investment of Hydel Development”, projected at Rs15 billion. On the face of it, it has been made to look like profit accruing from Rs27.56 billion Hydel Development Fund. The profit from this investment could not under any imagination be more than Rs2 billion. Depicting the sum under the receivables, it seems, the government has decided to blow away the fund, meant exclusively for the development on hydel energy, on brick and mortar and inflate the budget.

The finance department claims that the money shown in receivables would be spent on the development of hydel generation does not hold any water, since projects worth Rs3.4 billion have been allocated for the purpose, the rest of the amount -- Rs11.6 billion -- will be fritted away on other expenditures. This is a major reversal of a policy decision of the past government.

The total shortfall, thus, if calculated would come a whooping Rs93 billion. Our entire budget thus hinges on the federal government commitment to pay up arrears and uncapping of net profits and a host of other projections. A shortfall in one receivable and we will have to resort to budgetary cuts and borrowing. Not a good omen for the ruling coalition in KP.

But, even if we do somehow survive this bubble burst, the yet more ominous sign is the spiraling salary and pension bill that now consumes 71 per cent of our budget, leaving a paltry 29 per cent for development.

Although, there has been some increase in O&M, but the amount is not enough to ensure good service delivery in the education and health sectors.

Politics and finances do not go hand in hand. The decision to grant across the board up-gradation to various segments of the civil dispensation has added Rs20 billion to the salary bill.

One would have expected Pakistan Tehreek-i-Insaf to do a better job at budget-making to do away with regional disparities and to invest in KP’s core strengths to generate not just more revenue but also more employment. Alas, it too, like its predecessors, relied on a visionless and toothless planning department and finance department for a bail out.

Published in Dawn, June 29th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play