EXCEPT for its bigger size and generous social-sector allocation, the Pakistan Tehreek-i-Insaf-led coalition government’s third budget for Khyber Pakhtunkhwa looks no different from the previous two.

At Rs472bn, the outlay for FY16 represents an increase of Rs67bn over the outgoing year’s budgeted figure. A substantial provincial annual development programme of Rs124bn is Rs24bn more than the outgoing year’s allocation.

Yet, analysts wonder whether these increases would help revive the sinking industrial base and create enough jobs in the less-developed province. They say the budget-makers have left the key challenges to economic growth largely unaddressed.

In fact, the failure of the KP government to fully utilise its development budget for the last two years has helped the PML-N-led federal government to lower the country’s consolidated budget deficits.

KP Finance Minister Muzaffar Syed has said no new tax will be levied in the upcoming provincial budget. Revenue will be generated from tourism, gas and mineral royalties, he added

Meanwhile, KP Finance Minister Muzaffar Syed has said no new tax will be levied in the upcoming budget. He added that revenue will be generated from tourism, gas and mineral loyalties. But, analysts say, a tax-free budget is not good for the health of the provincial economy.

Elaborating on the social focus of his government in the next budget, the finance minister said the allocation for primary education will be increased by 23pc over the outgoing fiscal year, while that for higher education will go up by 20pc and the health department by 25pc.

This generous allocation to the social sector is commendable. And it is a clear departure from the previous government’s approach. But both education and health also include non-development expenditure, which eats up the bulk of allocations.

Regarding the revival of economic activities, the finance minister said there will be some allocations for the establishment of new industrial zones, while incentives will also be given to jump-start closed zones. For example, there is a space for a new zone near the Dargai hydro project.

The minister added that small power stations will be constructed in the province to overcome the energy crisis. “We are expecting these measures to create sufficient jobs.”

The provincial finance minister said there will be some allocations for the establishment of new industrial zones, while incentives will also be given to jump-start closed zones

Syed said there will also be a hefty increase in the budget for local governments — said to be around Rs3bn — in the wake of the recent local body elections. The salaries of government employees will also be increased.

However, no significant reduction is expected in the expenses for various ministries and departments. Over 60pc of the budget will be for salaries and non-development. The chief minister’s discretionary package is being increased from Rs3bn to Rs8bn. At the federal level, Prime Minister Nawaz Sharif has already done away with the discretionary funds facility.

On the revenue side, the KP government once again has no plans to tap agriculture, real estate and other under-taxed sectors because of the opposition from strong vested interests.

Conversely, the province’s reliance on federal resource transfers has increased manifold in the past few years. Over 92pc of its revenue comes from the federal divisible pool as a result of the 7th NFC Award and the 18th Amendment. The province is also expected to receive the capped amount of net hydro profits of Rs6bn along with past arrears.

Meanwhile, unlike Sindh and Punjab — which have collected sizable revenues from sales tax on services after it was devolved to the provinces — the KP government has failed to appoint the head of the KP Revenue Authority to collect this tax..

At the same time, the provincial government claims to be aiming for a 7pc growth rate over the next few years. Given the various challenges faced by the province, including militancy, such an ambitious growth target is likely to remain nothing but a pipe dream, particularly given KP’s lacklustre attempts to shore up indigenous revenues and its inability to fully utilise its development funds.

Published in Dawn, Economic & Business, June 8th, 2015

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