BY all indications, the Khyber Pakhtunkhwa government has presented an over ambitious budget based on unrealistic resource flows for the year 2017-18.
Like the federal, Punjab and Sindh budgets, it has been framed with an eye on the 2018 elections.
The size of the KP budget has been pitched on the expectation of a loan of Rs44 billion from the Asian Development Bank for the Peshawar Mass Transit System, Rs10bn domestic loans and on another sizable amount under foreign direct investment from China. In fact, budget makers expect Rs82bn in foreign inflows in 2017-18, or 14pc of the total outlay.
Development spending has been hiked to Rs208bn on the back of expected foreign inflows, while the province’s own revenue generation sources have been declining
As a consequence, development spending has been hiked to Rs208bn to create a feel-good environment on the back of expected foreign inflows, while the province’s own revenue generation sources have been declining. Compared to the outgoing financial year, the annual development programme is projected to grow by 29pc.
But an official of the finance department says the projection in foreign inflows reflects the international donors’ confidence on the provincial government. The actual receipts of these loans and the FDI will generate economic activity.
The ADP 2017-18 provides 49pc of the allocations for new projects as against 39pc in the outgoing fiscal year.
The total outlay of this years’ budget is Rs603bn, which is 19.4pc up over last year’s outlay.
However, KP’s heavy reliance on transfers from the federal government for its budgetary needs has slipped to 71pc of the total budget for 2017-18 from 75pc in 2016-17. Traditionally, these flows witness shortfalls in the range of 10pc - 15pc depending on the Federal Board of Revenue’s performance.
The ratio of provincial tax and non-tax revenues to total budget outlay has also declined from 10pc in 2016-17 to 7pc in 2017-18. Against the original target of Rs49.5bn, the province collected Rs20.91bn in 10 months of the current fiscal year.
The World Bank will provide $200 million budgetary support to help the provincial government in raising revenue from its own sources.
No amount against the target of Rs12.7bn for commercialisation of government property could be realised during 2016-17. However, the provincial budget receipts for 2017-18 did contain Rs8.2bn under this head, which did not materialise.
Similarly, for domestic loan of Rs12.2bn, no amount could be generated in 2016-17. However, Rs10bn domestic loan is intended to be raised during 2017-18.
A target of Rs13.7bn is set for revenues from general sales tax on services against the original Rs10bn billion in 2016-17.
Grants from international donors consistently fall short of the targets set. The revised estimates for 2016-17 show a dip of 27pc of original estimates for the year. The grant amount for 2017-18 is projected to be 10pc above the over estimated amount in 2016-17.
Analysts believe the total expected implicit shortfall for the 2017-18 Budget will be around 10pc - 12pc.
Another withdrawal amounting to Rs15bn from the Hydel Development Fund has been targeted for 2017-18 thus making a total withdrawal of Rs30bn in two years. The share of Energy and Power in the ADP 2017-18 is Rs830m which is only 0.4pc.
Last year, the KP government had Rs11.8bn in its kitty, but this year it has Rs24.8bn which shows the province’s good cash management.
Current expenditure has declined by 2pc from 68pc in 2016-17 to 66pc in 2017-18. The share of development budget in total outlay has increased by 2pc to 34pc in 2017-18 from 32pc.
Pay and pension make 70pc of the total current expenditure in 2017-18 because of a large number of inductions in government departments.
The government is more focused on infrastructure projects, which has significantly changed budgetary bias for social sectors.
The transport sector gets the highest share in the next year’s ADP up from 4pc in the current fiscal year. Share of infrastructure sector (road and building, housing, industries, transport and urban development) has almost doubled from 19pc in 2016-17 to 37pc in 2017-18.
Consequently, the share of education in the development budget has fractionally decreased by 0.7pc. However, the decline in health sector is nearly 3pc.
In the district ADP, the vertical share of the local governments continues to be at the discretion of the provincial government. An amount of Rs28bn has been allocated as district ADP which is 17pc less the previous year’s allocation of Rs33.9bn.
In the light of the amendment in local government act 2013, 2pc or Rs560m, has been apportioned for a Public Interest Fund (PID) to be authorised by the chief minister.
Similarly, 1pc, or Rs280m, has been apportioned for PID to be authorised by the finance minister.
Published in Dawn, The Business and Finance Weekly, June 12th, 2017