THE formulation of the NWFP next year’s budget is expected to follow the set pattern which is not likely to be much different from what has been seen over the years. Except for some minor changes under different heads of revenue receipts and expenditure budget and inclusion of some more infrastructure projects, the NWFP budget for the 2005-06 is not likely to reflect out of the box thinking.

While the clergy-led ruling elite seems to be making a bid to get as many new development schemes in the next year’s ADP as it can, the financial managers appear worried about the growing gap between the NWFP’s gross revenue receipts and its increasing non-developmental expenditure.

Though the government managed, during the last couple of years, significant savings by pre-maturely retiring part of the NWFP’s expensive debt and brought down its non-development expenditure on account of electricity charges, their agony does not seem to end as they will lose the hard-earned fiscal space to the federal government’s decision to increase employees’ salaries.

Budget makers are not yet sure about the size of the total annual revenue receipts and expenditure though they are left with barely one month’s time for the provincial finance minister Siraj-ul-Haq to announce the next budget. It is expected to be tabled before the Provincial Assembly some time between June 15 and June 20, 2005.

The province is waiting for the Finance Division, Islamabad to let them know as to what would the Frontier province get against its share under the Federal Divisible Pool. NWFP’s revenue receipts, during the 2005-06, would largely depend on the nature of the new National Finance Commission (NFC) award.

The federal government is not sure whether the direct federal transfers to provinces during the next financial year would be made on the basis of the existing NFC award or under the new one, due since July 1, 2002.

As the new NFC award is likely to take some more weeks (in case the Centre succeeds in its renewed efforts ) to materialise, provincial budget makers may work out alternate budgetary proposals vis-à-vis estimates of revenue receipts and non-developmental expenditures to be able to present the new budget in both the cases - whether the new award is put in place or the existing one is extended for one more year.

However, the province is expected to get its annual salary bill raised next year, by around Rs2 billion, from the present level of slightly over Rs22 billion as a result of the federal government’s decision to ‘substantially’ increase salaries of the public sector employees.

This would result in making things more difficult for the Muttahida Majlis-i-Amal led NWFP government which is required, under the World Bank’s structural adjustment credit, to bring down its establishment expenditure and not let its establishment cost, on account of annual salary bill, go beyond the target of four percent of the Provincial Gross Domestic Product (GDP). The province may find it difficult to fulfil its commitment with the Bank on account of stipulated salary increase.

Apart from that, the provincial government’s own decision, made in December last, to regularize the services of thousands of employees who were recruited over the years on contract basis had also undermined its ability to keep the establishment cost at a desired level. The move has proved a costly affair for the cash strapped provincial government.

Budget makers are optimistic that the existing financial worries of the NWFP government would get effectively addressed in case the stakeholders – federating units and the federal government – agree to an amicable formula for the distribution of resources under the new NFC award.

They see considerable increase under direct federal transfers in case the new award takes effect from the start of the new financial year. Otherwise, they think, the province would experience one more difficult year under the existing NFC award and they would keep spending their energies to keep the ball rolling simply to ensure that day-to-day expenditure requirements of the provincial administration are met.

Nonetheless, the provincial government can have a respite during the next financial year in case it qualifies for the third tranche of $ 90 million under the World Bank structural credit.

But for this hard nut to crack, the provincial government would need to stick to its agreement with the lending agency. This would require the province to contain its establishment cost to the level of 2003-04 as a ratio of provincial GDP. Besides, it would be required to keep development schemes at the existing ratio of completing all the on-going development projects during the next three years or bring it further down to reduce the number of on-going development schemes.

Under the SAC agreement, the tax base of the province is required to be enlarged by new measures which the outgoing governments in the past found difficult to undertake whenever any one of them tried to improve the provincial own receipts.

In accordance with its medium term budgetary framework (MTBF), submitted to the World Bank under the loan agreement for a four-year period starting from the 2004-05, the NWFP government is required to improve its provincial own receipts, during the next financial year, by about 13 per cent. Improving the provincial tax and non-tax receipts by significant 13 per cent, for many, is a possibility that can realized if the government brings the un-tapped agriculture sector under the provincial tax net.

The Rs65 million agriculture income tax target set for 2004-05 is said to be far less than what the sector can actually fetch. In accordance with the MTBF, the government is required to raise the agriculture income tax target for the next fiscal to Rs73 million from the existing level of Rs65 million.

However, it has yet to be seen that whether the tax collection machinery of the province would be able to meet the current year’s target. They have never succeeded to achieve the target under this head ever since the income tax on acreage basis was introduced in the province more than six years back.

Officials believe that significant improvement can be made in terms of revenue receipts if the government strictly implemented reforms already introduced in its tax collecting agencies and departments.

The government, according to sources, has recorded substantial improvement in its overall provincial receipts this financial year as compared to the last fiscal. An increase of Rs95 million has been recorded alone by the excise and taxation department by collecting more than Rs774 million, under various heads, during the first ten months, up from Rs679 million raised during the same period last year. In all, the department, which is main revenue collecting agency of the provincial government, improved its total annual revenue from Rs637 million in the 2000-01 to, Rs685 million in the 2001-02, Rs724 million in the 2002-03 and Rs832 million in the 2003-04.

The province is required to grow its total annual provincial receipts by slightly over 10 per cent during the current financial year in accordance with the MTBF. Though achievement of the target appears to be a difficult proposition because of poor showing under certain heads of the provincial receipts, the chances of the provincial government ending up at a point close to the annual target are not ruled out.

The provincial receipts makes about nine percent of the total annual revenue receipts of the province. So direct federal transfers, proceeds from the NWFP’s share of net hydro profit payable by the Water and Power Development Authority and special grant/subvention in accordance with the existing NFC award form the main source of revenues for the province.

Though the province anticipates under its MTBF that its total current receipts would grow from Rs47 billion in the 2004-05 Rs51.5 billion during the next financial year growing at 9.5 percent, the provincial government may not see this to happen in case the federal transfers continue under the existing NFC award – which gives bulk of the resources to the federal government.

The NWFP government is also faced with a crisis of good governance in view of low utilization of development funds as indcated in the first three quarters of the current financial year.

It has failed to ensure 100 percent implementation of its annual development programme set for the 2002-03 and 2003-04 financial year. Its Rs16.2 billion ADP involving the highest ever allocation for development for the 2004-05 is, by no means likely to see the light of the day. At the end of the first three quarters, the province recorded expenditure up to 34 percent of the total annual size of the ADP. An amount of slightly over Rs5 billion could be spent during the July-March.

The government lacks the human resources and an efficiency level which any administration would require to ensure full implementation on an ADP.

Going by the experience of the out-going year, the Planning and Development Department, NWFP, has instructed the line departments of the provincial government to suggest few new development schemes and concentrate more on the on-going schemes to ensure that larger number of on-going schemes can be completed next year.