ISLAMABAD:
The Khyber-Pakhtunkhwa (KP) government has warned that the continued lack of federal releases under the National Finance Commission (NFC) and against other commitments has posed a serious risk to meeting the Rs157 billion cash surplus target agreed with the International Monetary Fund (IMF).
Muzzammil Aslam, Financial Adviser to KP Chief Minister, has warned Finance Minister Muhammad Aurangzeb after the province received Rs76 billion less than the estimated share under NFC due to the Federal Board of Revenue’s (FBR) failure to meet its target for the first half of the year.
Despite taking billions of rupees in unnecessary income tax and sales tax advances, slowing refunds, the FBR missed the original tax target by a margin of Rs545 billion and the revised target by Rs330 billion. This is the second year in a row that the Prime Minister Shehbaz Sharif-led government has fallen behind on fiscal targets despite extending full support to the FBR.
“It is clear that continued shortfalls in federal releases pose a serious and immediate risk to the achievement of the budgeted surplus of Rs157 billion,” the finance adviser wrote this week. The spokesman for the Ministry of Finance 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 withholding Rs 4.5 trillion due dues and Pakistan Tehreek-e-Insaf’s (PTI) decision to observe strike on February 8 against alleged “election fraud”.
For the current financial year, four provincial governments have committed to deliver Rs 1.46 trillion in cash surpluses, which is equivalent to 1.1% of the size of the national economy. Meeting the cash surplus target is essential to meeting another critical IMF condition of showing a primary budget surplus target of Rs2.1 trillion.
However, the provinces say that they can only give the money if the FBR reaches its target. 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 consider a new award. The first meeting had been held last month and all stakeholders decided to hold the second meeting by the second week of January.
The provincial finance adviser said the constraints on the revenue side due to NFC, direct transfers and allocations to the merged districts “have been further compounded by unavoidable expenditure, including Rs 28 billion on flood response and rehabilitation”.
The adviser further wrote that the provincial government has also spent Rs 7 billion. on internally displaced persons (IDPs), putting further pressure on the budget.
Aslam urged the federal finance minister to take prompt corrective measures, including timely and predictable realization of federal transfers in line with budgeted assumptions.
KP’s share in the federal tax duties for the first six months was Rs643 billion, including 1% due to war on terror share, but the actual revenue amounts to Rs567 billion, the finance adviser claimed.
Aslam further said that the budgeted cash surplus of Rs157 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 approved budgetary timelines. Any deviation from these assumptions directly undermines the province’s ability to meet the surplus target and maintain fiscal discipline, he added.
According to the correspondence with the federal government, the KP government had allocated a total of Rs 292 billion for the merged districts. This includes Rs143 billion for recurrent expenditure, Rs40 billion under the Annual Development Plan (ADP), Rs50 billion under the Accelerator Implementation Program (AIP), Rs17 billion for TDPs and Rs43 billion representing the 3% NFC share.
Against Rs292 billion allocations, actual releases to date amount to only Rs56 billion, representing a fifth of the annual provision and severely constraining development activities and delivery of essential public services in these historically underserved areas, according to the finance adviser.
The adviser emphasized that against zero federal release under AIP, the province has released Rs 26.4 billion. Similarly, Rs63 billion has so far been spent on current expenditure in merged districts, while the federal government has released only Rs46 billion.
The KP government said the releases during direct transfers pose an equally serious concern. Against an annual budget of Rs115 billion, the actual releases to date amount to only Rs19 billion, it added. Similarly, the Net Hydel Profit (NHP) budget is Rs106 billion, but only Rs18 billion has been released during the first six months.
