KHYBER Pakhtunkhwa has failed to announce a budget for the year 2018-19. Though the Pakistan Tehreek-i-Insaaf (PTI) government had declared laying out financial plans for the new fiscal year, political differences with coalition partners and new orders from the party leadership proved it would not be so.

Both Sindh and Balochistan have presented full-year budgets for the next fiscal year, while Punjab has laid out a budget for four months. KP remains the only province that has left the job to the caretaker set-up for the coming year.

KP’s budget for the next nine months of the year will be the responsibility of the newly-elected government following the general elections over the summer. The PTI’s failure to announce a budget will put the caretaker government in the unique position of formulating a four-month interim budget for the province under Article 126 of the Constitution.

The caretaker set-up can only allocate funds for ongoing projects that include both development programmes and current expenditures of the government. The interim government neither has the authority to start new development schemes, nor the right to increase government expenditure.

It was proposed that the total budget outlay will decline by Rs40bn to Rs563bn for the year 2018-19 as against the budget estimate of Rs603bn in the current fiscal year

There are concerns about how the caretaker government will include the 10 per cent increase in salary and pensions announced earlier by the federal government. A summary will be sent to the caretaker chief minister, which will then be placed before the cabinet for approval. The decisions of the cabinet will come into effect from July 1, 2018.

Officials privy to the development told Dawn that the provincial finance department had already finalised the basic budget documents. However, the process of budget-making was halted after the party chief Imran Khan announcement that no budget will be presented.

On May 28, the assembly will complete its five years and will stand dissolved.

Ahead of the completion of its tenure, the PTI-led coalition government has already approved a three-year rolling plan that sets medium-term targets for macroeconomic indicators. The projections for development expenditures for the next three years reveal a downward revision.

The Budget Strategy Paper, prepared by the KP Finance Department, estimates revenue receipts and expenditures for the next three years: 2018-19, 2019-20 and 2020-21.

It was proposed that the total budget outlay will decline by Rs40bn to Rs563bn for the year 2018-19 as against the budget estimate of Rs603bn in the current fiscal year. The reason cited in the document is the foreign project assistance for bus rapid transit, ambitious own source revenue target and borrowings during the year 2017-18.

In the first year of the PTI government, the total budget outlay was projected at Rs344bn in 2013-14, followed by Rs405bn in 2014-15, Rs488bn in 2015-16, Rs505bn in 2016-17 and Rs603bn in 2017-18. It shows the total budget outlay increases over the past five years by almost 76pc or Rs259bn.

The most concerning part of the document is the upward trend in the size of the current expenditures. The current expenditure for the year 2018-19 is projected at Rs428bn. A major chunk of almost 26pc of these expenditures will go towards the payments of salaries, and 14pc for pensions.

The rest will go towards payment of non-salary expenditures, interest payments and federal and foreign debt repayments.

A substantial increase is projected in the current expenditure for the next two years. The increase in human resources through creations of new posts on political consideration will pose a serious threat to the fiscal health of the province in the years ahead.

In the last five years, KP’s own tax and non-tax revenues remained stagnant. No serious efforts were made to broaden the provincial tax base. Therefore, the dependency on the federal resource transferred has increased over the years, reaching almost 92pc.

This poor performance in revenue realisation and drops in federal transfer results in drastic cuts in the allocation for development works. The document projects development expenditure of Rs128bn for 2018-19, a substantial decline from budget estimated funds of Rs208bn for the current fiscal year.

The KP government’s budget estimate for development expenditure was Rs118bn in 2013-14, followed by Rs140bn in 2014-15, Rs175bn in 2015-16, Rs161 in 2016-17 and Rs208bn in 2017-18. The actual spending is lesser than the projected figures in all these five years.

Pursuing its agenda of devolving powers to the grassroots level, the KP government will earmark a lion’s share of its total budget for district development. The budget sets aside nearly Rs32.5bn for the three tiers of local governments against Rs28bn for the outgoing fiscal year.

The document also projects hefty allocation for health and education development in the next year’s budget.

Published in Dawn, The Business and Finance Weekly, May 28th, 2018

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