ISLAMABAD:
The Khyber-Pakhtunkhwa (KP) government has warned that the persistent shortfall in federal disbursements under the National Finance Commission (NFC) and against other commitments poses a serious risk to achieving the cash surplus target of Rs 157 billion agreed with the International Monetary Fund (IMF).
Muzzammil Aslam, financial advisor to the KP Chief Minister, has warned Finance Minister Muhammad Aurangzeb after the province received Rs76 billion less than the estimated share under the NFC due to the Federal Board of Revenue’s (FBR) failure to meet its first half target.
Despite accepting billions of rupees in undue advances on income tax and sales tax, slowing down refunds, the FBR missed the original tax target by a margin of 545 billion rupees and the revised target by 330 billion rupees. This is the second consecutive year that the Prime Minister Shehbaz Sharif-led government has failed to achieve fiscal targets, despite fully supporting the FBR.
“It is evident that persistent shortfalls in federal disbursements pose a serious and immediate risk to the achievement of the budget surplus of Rs157 billion,” the financial advisor wrote this week. The Finance Ministry spokesperson did not respond to a request for comment.
The development comes amid growing tensions between the provincial and federal governments over the KP chief minister’s claims of withholding Rs 4.5 trillion in arrears and the Pakistan Tehreek-e-Insaf’s (PTI) decision to observe a strike on February 8 over alleged “election frauds”.
For the current fiscal year, four provincial governments have pledged to provide Rs1.46 trillion in surplus cash, which is equivalent to 1.1% of the size of the national economy. Achieving the cash surplus target is essential to comply with another critical IMF condition of posting a primary fiscal surplus target of Rs 2.1 trillion.
However, the provinces say they will only be able to provide the money if the FBR meets its target. The government had assured the IMF that it would achieve 20% tax growth, but so far the FBR has barely achieved a 10% growth rate.
President Asif Ali Zardari constituted the 11th NFC to deliberate on a new award. The first meeting was held last month and all stakeholders decided to hold the second meeting by the second week of January.
The provincial finance advisor said revenue constraints due to NFC, direct transfers and allocations for merged districts “have been further compounded by unavoidable expenditure, including Rs28 billion incurred for flood response and rehabilitation”.
The advisor further wrote that the provincial government also spent Rs7 billion on internally displaced persons (IDPs), further straining the budget.
Aslam urged the Federal Finance Minister to take urgent remedial measures, including timely and predictable delivery of federal transfers in line with budgetary assumptions.
KP’s share of federal taxes for the first six months was Rs643 billion, including the 1% for the war on terrorism, but the actual revenue was Rs567 billion, the financial advisor said.
Aslam further said that the budgeted cash surplus of Rs157 billion for the current financial 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 deadlines. 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 to the merged districts. This includes Rs 143 billion for current 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 the 3 per cent share of the NFC.
Compared to the allocations of Rs292 billion, the actual releases to date amount to only Rs56 billion, which represents one-fifth of the annual allocation and severely constrains development activities and delivery of essential public services in these historically underserved areas, according to the financial advisor.
The advisor pointed out that against zero federal release under the AIP, the province released 26.4 billion rupees. Similarly, for current expenditure of the merged districts, Rs 63 billion has been spent so far while the federal government has released only Rs 46 billion.
The KP government said releases under direct transfers presented an equally serious concern. Out of an annual budget allocation of 115 billion rupees, the actual releases to date amount to only 19 billion rupees, he adds. Similarly, the Net Hydel Profit (NHP) budget is Rs 106 billion, but only Rs 18 billion was released in the first six months.
