The guidelines set under the World Bank's structural adjustment credit (SAC), envisaging budgetary support to the NWFP against the successful implementation of its three-year roll-over provincial reforms programme (PRP) , would greatly shape the province's budget for the financial year 2004-05.

Because of the stand-off over the non-finalization of the new National Finance Commission (NFC) award due to differences between the stakeholders, confusion prevails among the finance managers of the province with none of them knowing how much the province would get from the federal divisible pool in the next financial year. One thing is for sure that the NWFP's next budget would strictly be governed by its loan agreement with the World Bank.

The accord provides guiding principles in continuation of the out-going fiscal when the ruling coalition formed by the religio-political parties remained occupied with fulfilling the SAC conditions in an effort to qualify for the second tranche of $90 million (to be released in May).

The medium-term-budgetary framework (MTBF), under the SAC for a period of three financial years, taking effect from 2002-03 fiscal year would provide for the revenue receipts and current expenditure estimates as well as capital receipts and capital expenditure estimates for being an integral part of the loan agreement between the World Bank and the government of NWFP.

The loan has attained such a significance that in an attempt to qualify for the second instalment, the Muttahida Majlis-i-Amal-led provincial government avoided to implement some of the policies announced by the provincial finance minister during the financial year.

Because of the lending agency's pressure, the government did not fully implement its plan of recruiting over 8500 teachers for raising the teacher-student ratio. The government settled with around 4500 new teachers to avoid getting its annual salary bill and establishment costs swallowed a big chunk of the budget.

Similarly, it could not implement its decision of lifting the ban on new appointments on regular basis and kept pursuing the contract employment policy left behind by the last military- government.

The government's strict adherence to the loan agreement helped it qualify for the second tranche. The broad parameters of the 2004-05 financial year's budget are likely to be in consonance with the existing provincial budget, but the people at large are not likely to get any financial benefit.

The cash-strapped government would continue to heavily rely on the federal tax assignment and proceeds on account of net hydel profit released by Wapda every year.

The proceeds under both the accounts jointly form about 91 per cent of the total annual revenue receipts which, as per preliminary estimates, were projected at Rs51.5 billion for the 2003-04 and are likely to settle at around Rs40 billion at the end of the fiscal because of an in-built deficit of about Rs11 billion contained in the budget. In this way, the next budget is not likely to tell a different story as a major thrust of the revenue receipts and current expenditure budget would be on the proceeds from Wapda and the federal government.

Though disbursement of funds by Wapda and the federal government are in line with the constitutional rights of the province, none of the successive provincial governments has been successful to improve the provincial receipts' ratio in proportion to the federal and Wapda releases under the total annual revenue receipts of the province.

For the last several years, the province kept receiving about 91 per cent of its total resources from the federal government and Wapda, while its own receipts stood in the vicinity of 8 to 9 per cent of the total annual receipts.

Without much success, governments in the past have been demanding increase in the quantum of federal tax assignment, but, none of them could improve the provincial tax base to an extent that could bring them distinction.

Their failure to frame prudent financial policies which could have improved receipts by exploring the untapped resources where new taxes could be levied made the province to take one loan after the other to finance its development works and meet the essential expenditures.

The budgetary support is meant to help the financial development activities by undertaking essential civil services and reforms in addition to taking measures to establish an effective and transparent environment for the private sector development.

While the provincial government recorded marginal improvement in its receipts, financial management and infrastructure facilities in the social sectors as a result of implementation of reforms through financing from the World Bank, the common man's sufferings did not lessen despite heavy investment made by the donor agency in the social sectors.

Hence, the PRP's objective to bring down the poverty level from 44 to 38 per cent appears to be a big question mark. The reforms programme has not yet trickled down to the grassroots level as neither the province received any major investment during the last two financial years nor the delivery of the social services improved.

The finance managers claim that the province qualified for the second SAC tranche after accomplishing most of the targets during the first and second year implementation of the PRP that envisaged wide-ranging reforms in all spheres of the public sector.

The provincial government is required to grow its tax receipts by another 10 per cent in the 2004-05 in fulfilment of the SAC. It means, it would need to effect minor upward revisions in the rates of some of its taxes in line with the SAC to improve its tax receipts by 15 per cent in the 2003-04 - the first year of the PRP's implementation.

Similarly, the province would again face a daunting task of pulling up its user charges collections by some 25 per cent during the 2004-05 in line with the out-going year's target.

The finance managers also claim that the tax receipts grew by 13 per cent (against the target of 15 per cent) and user charges by about 23 per cent (against the 25 per cent target) in the out-going year in comparison with the fiscal 2002-03.

However, the provincial receipts would settle at about Rs3.5 billion at the end of the current financial year, missing the annual revenue target by a margin of around Rs250 million.

In view of the existing feeble tax base, the government is expected to post estimated receipts for the next financial year at about Rs4 billion and to achieve this target it is likely to introduce certain tax reforms by extending the scope of taxes to the Provincially Administered Tribal Areas (PATA) where even the income tax law is not applicable fully and people have been made to pay withholding tax through utility bills only recently.

So the government's intended move in fulfilment of the SAC's conditions to extend the under-preparation land tax and agriculture income tax laws also to PATA, poses a big question mark because none of the previous governments succeeded to accomplish that feat due to pressure exerted by the ruling parties' MPs and threats hurled by the religious zealots who have always posed a challenge to the establishment to enforce any thing against their will.

In a major development- again because of the government's limitations- the salary budget of the government employees which has up till now been retained by the provincial government, contrary to the spirit of the devolution of power plan introduced on August 14, 2001, would be transferred to the district government from the beginning of the new financial year.

This would make the provincial government to lose a substantial amount, making things somewhat difficult because it would further shrink the already meagre fiscal space it has.

The district governments employees' annual salary bill in the out-going financial year stands at over Rs15 billion and by maintaining that much big amount, the provincial government felt free to make adjustments by using the fiscal space by saving incurred by some of the district governments.

Instead of transferring the salary accounts' to the district government, the provincial government utilized the funds on its own. So it is set to loose a cushion it has been enjoying up till now.

The total annual salary bill of the province -including district governments - comes to around Rs18 billion. However, if the decision to transfer salary budget to district governments would create problems for the provincial government it may also create some problems for the local governments because they lack the capacity to properly maintain their financial accounts. So in such a situation, it is going to be a tough task ahead for them to maintain salary accounts and service records of their respective employees.

The fate of the new Provincial Finance Commission (PFC) award would largely depend on the outcome of the negotiations underway in relation to the NFC. The province has a commitment with the World Bank that it would announce the next PFC award- due on July 1, 2004 - for a period of three years in case the new NFC award takes effect from the start of the new financial year.

While the issues relating to the size of the provincial divisible pool (PDP) would largely depend on the amount of funds the province would receive from the centre amidst looming confusion because of the NFC deadlock, the PFC comprising representatives of the provincial and district governments has decided to scrap the Rs96 million discretionary fund, the chief minister is entitled to under existing arrangement to carry out development works on his directives.

Following the abolition of the discretionary fund, the relevant funds would be diverted to the district governments in line with their respective share determined under the PFC award.

However, the district governments are likely to continue with the 'agony' of utilizing development funds under the strict checks and guidelines set for them by the provincial government in accordance with its loan agreement with the World Bank.

They would need to utilize specific amount of the development funds- put at their disposal- on the betterment of social sector mainly health, education, roads and water supply in continuation of the last financial year, no matter whether they need to divert investment to any other sector in view of their requirements.

While, the district government would continue to get funds for development activities from the provincial government under the PFC award and federal government under some of the umbrella projects, the provincial government would keep looking to foreign donor agencies to lend support for its development works.

The second instalment of the World Bank loan likely to be released to the province in May would come as a big support to let the provincial government to carry out development activities.

Similarly, funds likely to be released to the province by other multi-lateral donor agencies would form a substantial portion of the annual development programme of the province.

By heavily relying on external sources to get funding for development activities, the over-all liabilities of the province which would stand at around Rs100 billion at the end of the current year are likely to rise by rupees five to seven billion at the start of the new fiscal.

However, the Annual Development Programme would continue to depict the wishes of the donor agencies instead of the government which has been rendered, over the years, just an executing agency with the donors leaving hardly anything to the provincial government to determine future priorities.