The Khyber Pakhtunkhwa government is expected to announce a populist budget with generous allocations for the social sector and grassroots development.
Other budget proposals are likely to reflect continuity rather than change.
Top priority has been accorded to the completion of ongoing development projects including a few big mega infrastructure projects ahead of the next general election.
The next year’s proposed budget outlay at Rs605 billion is up nearly 19pc over the current year’s budget of Rs505bn, assuming growth in federal transfers of 15pc.
Reliance on federal resource transfers has increased as very little effort has been made to broaden the provincial tax base. There is no substantive fiscal proposal on the table. Nearly 93pc of the KP budget relies on federal resource transfers.
Current expenditure is projected at Rs400bn, or nearly 67pc of the total budget outlay. Major chunks of these allocations go towards the payment of salaries, pensions, non-salary expenditures, interest payments and federal and foreign debt repayments.
An official privy to the initial provincial budget says salaries are expected to be raised by 10pc to 15pc while non-salary spending is expected to go up by 20pc against their average increase of around 13pc in the past four years.
Despite austerity measures, the number of government employees is on the rise in all provincial departments. New posts created on political consideration are posing a serious threat to the fiscal health of the provincial government. In the next fiscal year, it is projected that more new posts shall be created to accommodate people ahead of the next election.
Top priority has been accorded to the completion of ongoing development projects ahead of the next general election
As per initial estimates, the allocation for socio-economic development is expected to go up by 27pc to Rs205bn against the current year’s Rs161bn. The average increase in the past four development budgets was 14pc.
Pursuing its agenda of devolving powers to the grass root level, the KP government will earmark a lion’s share of its total budget for district development. The budget sets aside nearly Rs34bn for the three tiers of local governments against Rs28bn for the outgoing fiscal year.
The provincial component of the Annual Development Programme (ADP) is projected at Rs125bn. And the province will get a whooping Rs80bn as foreign aid, mostly for the China-Pakistan Economic Corridor related projects.
Priority has been accorded to completion of over 600 projects, along with over 5,000 in the health and education sectors ahead of the next year election.
In all, 26 new projects have been proposed in the energy and power sectors,12 for elementary and secondary education, 13 for higher education, 12 for drinking water and sanitation, 35 for health sector, 10 for tourism and sports, five projects in the field of law and justice and 82 CPEC/Chinese related projects.
In the sphere of large infrastructure projects, the focus will on completing the Swat expressway, bus rapid transit, canal irrigation road for market to farm access, and setting up two new cities — CPEC City and Peshawar Model Town — to cater to the residential needs of the province.
The CPEC City will be built near the Colonel Sher Interchange on the Motorway. Peshawar Model Town will be located between Peshawar and Nowshera.
The provincial government has inked a memorandum of understanding (MoU) with the Frontier Works Organisation ahead of the budget announcement. The FWO will also establish a 506MW hydro-power station in Chitral as well as an oil refinery in KP.
Similarly, the government has prioritised health and education development — for which the allocation is expected to increase in the range of 15pc to 20pc, from the current level.
On the revenue side, it is estimated that the province will receive Rs337.74bn from the federal divisible pool in 2017-18 against current year’s Rs293.69bn.
The province is projected to receive Rs40.58bn as 1pc of the divisible pool for its contribution to the war against terror. It will receive Rs17.2bn in straight transfers or payment on duties and royalties on the production of oil and gas.
As per proposed estimates, the province’s tax and non-tax receipts are projected at Rs40.48bn for 2017-18 against current year’s Rs49.50bn, a decline of Rs9bn or 18pc. KP’s tax revenue is projected at Rs19.98bn against current year’s Rs18.17bn.
So the total increase in the budgetary outlay for next year over the outgoing fiscal year is not coupled with any fiscal proposals. The province should not fully bank on the Federal Board of Revenue’s initial tax revenue projections, as the actual collection generally falls short of the target.
Published in Dawn, The Business and Finance Weekly, May 29th, 2017