The reduced federal transfer of funds may increase Khyber Pakhtunkhwa’s budget deficit to over Rs30bn this year, but the final figure will depend on the staggered disbursements of committed amounts and revenue inflows.

The province depends on the federal government for over 92pc of its revenue. In case the Federal Board of Revenue (FBR) misses the revenue target of Rs3620.8bn, the financial flows to the province will be further squeezed.

In the first six months of the current fiscal year, KP has received Rs136.785bn from the federal divisible pool as against the annual target of Rs293bn. Similarly, an amount of Rs17.704bn was received as net hydro profits and past arrears as against the total target of Rs33bn for the whole year.

While the provincial development budget has increased over time, the limited capacity of the implementation agencies needs to be improved

An official of the KP finance department said the gap in revenue and expenditure will be bridged through non-revenue measures like earnings from tourism, selling of licenses for mines and minerals and austerity measures.

The cuts and delays in federal transfers hit the pace of progress in the province.

KP also projected collecting Rs18.17bn from provincial taxes and Rs31.4bn from non-tax revenue. In the first half year, the revenue from both accounts is Rs10.785bn.

The revenue from GST has hovered around Rs7bn for the past few years owing to capacity issues faced by the KP Revenue Authority.

The provincial government lacks an effective strategy for tapping into revenue potential from agriculture and real estate. Less than 100 people pay the agriculture income tax.

KP has also failed in curtailing current account expenditures which have soared by over 26pc in the past three years, mainly owing to revised pay scale for employees and increased number of posts in the departments of education, health, and law and order.

Official data shows that the KP government has revised upward its ADP allocations from Rs160.397bn for 2016-17 to Rs182.081bn mainly because of more allocations for district roads, highways and health facilities within the province.

Until March 31, the finance department released Rs116bn, or 64pc of the total ADP allocations. Rs27bn was earmarked for district roads and highways. Of these Rs21bn has been released by the finance department until March 2017, making it the single most important priority of the province.

The social sector received a higher allocation this year: Rs22.529bn, or 12.37pc, for the education sector and Rs19.735bn, or 10.84pc, for the health sector. In the education sector, Rs12.518bn has so far been released for elementary and secondary education and Rs3.439bn for higher education.

Of the allocation of Rs33.961bn for the 24 districts ADPs, an amount of Rs21.672bn was already released to districts until March. Besides this another amount of Rs7.511bn was received by local governments as against the total financial target of Rs11.292bn.

To complete 356 micro and medium sized hydro-power plants an amount of Rs7bn was provided until March.

The project implementation depends on timely release of the federal funds. Often funds given at the fag end of the fiscal year, result in significant cost overruns.

While the provincial development budget has increased over time, the limited capacity of the implementation agencies needs to be improved, an official said.

Published in Dawn, Business & Finance weekly, April 24th, 2017