ISLAMABAD:
The Khyber-Pakhtunkhwa (KP) government has warned that the continued shortfall in federal releases under the National Finance Commission (NFC) and other commitments has posed a serious risk to meeting the cash surplus target of Rs 157 billion agreed with the International Monetary Fund (IMF).
KP Chief Minister’s Finance Advisor Muzzammil Aslam warned Finance Minister Muhammad Aurangzeb after the province received Rs 76 billion less than the estimated share under the NFC due to the Federal Board of Revenue (FBR) failing to meet its target for the first half.
Despite taking billions of rupees in improper income tax and sales tax advances, thereby slowing down refund payments, the FBR missed the original fiscal target by a margin of Rs 545 billion and the revised target by Rs 330 billion. It is the second consecutive year of Prime Minister Shehbaz Sharif-led government that is falling behind on fiscal targets despite providing full support to the FBR.
“It is evident that continued shortfalls in federal releases pose a serious and immediate risk to the achievement of the budgeted surplus of Rs 157 billion,” the financial advisor wrote this week. The Finance Ministry spokesperson did not respond to a request for comment.
The development comes amid rising tensions between the provincial and federal governments over the KP chief minister’s claims of retaining Rs 4.5 trillion in arrears and Pakistan Tehreek-e-Insaf’s (PTI) decision to observe strike action on February 8 against alleged “election rigging”.
For the current fiscal year, four provincial governments have committed to providing Rp1.46 trillion in surplus cash, equivalent to 1.1% of the size of the national economy. Meeting the cash surplus target is critical to meeting another critical IMF condition of showing a primary budget surplus target of Rs 2.1 trillion.
However, the provinces say they will only be able to provide the money if the FBR achieves its goal. The government had assured the IMF that it would achieve 20% growth in taxes, but so far the FBR has barely achieved a 10% growth rate.
President Asif Ali Zardari has made the 11th NFC to deliberate on a new award. The first meeting was held last month and all interested parties decided to hold the second meeting before the second week of January.
The provincial finance advisor said revenue constraints due to NFC, direct transfers and allocations for the merged districts “have been further aggravated by unavoidable expenses, including Rs 28 billion incurred on flood response and rehabilitation.”
The advisor further wrote that the provincial government has also spent Rs 7 billion on internally displaced people (IDPs), putting further pressure on the budget.
Aslam urged the federal Finance Minister to take urgent corrective measures, including timely and predictable delivery of federal transfers in line with budgeted assumptions.
The KP’s share of federal tax allocations for the first six months was Rp643 billion, including 1% for the war on terrorism, but actual revenues amount to Rp567 billion, the financial advisor said.
Aslam further said that the budgeted cash surplus of Rs 157 billion for the current fiscal year had been calculated strictly on the assumption that all federal transfers and releases would be made in full and in accordance with the approved budget schedules. Any deviation from these assumptions directly undermines the province’s ability to achieve the surplus target and maintain fiscal discipline, he added.
According to correspondence with the federal government, the KP government had allocated a total of Rs 292 billion for the merged districts. This includes Rs 143 billion for recurrent expenditure, Rs 40 billion under the Annual Development Plan (ADP), Rs 50 billion under the Accelerator Implementation Program (AIP), Rs 17 billion for TDPs and Rs 43 billion representing NFC’s 3% share.
Against allocations of Rs 292 billion, actual releases to date amount to only Rs 56 billion, which is one-fifth of the annual provision and severely limits development activities and the delivery of essential public services in these historically underserved areas, according to the financial advisor.
The advisor highlighted that against zero federal release under the AIP, the province has released Rs 26.4 billion. Similarly, for the current expenditure of the merged districts, Rs 63 billion has been spent till date, while the federal government has released only Rs 46 billion.
The KP government said releases under direct transfers present an equally serious concern. Against an annual budget provision of Rs 115 billion, actual releases to date amount to only Rs 19 billion, he added. Similarly, the Net Hydel Profit (NHP) budget is Rs 106 billion, but only Rs 18 billion has been released during the first six months.
