Tipping point? Budget overestimates lead to austerity measures

Finance minister hopeful federal govt will release hydel arrears

PESHAWAR:

Overestimates in the Khyber-Pakhtunkhwa budget have started surfacing, forcing the government to issue additional austerity measures to all departments across the province. One of the possibilities suggested is taking back funds from the local governments.

Cutting down

In order to curtail recurring expenditures, the K-P finance department issued a notification to all government departments on Monday asking them to implement austerity measures. According to a copy of the document available with The Express Tribune, the measures include a ban on seminars and workshops in five-star hotels; a ban on the purchase of electric heaters and geysers in all offices, institutions and colleges except hospitals; ensuring utility bills are paid within the stipulated time to avoid late payment charges; limited authorised telephone calls; curtailing consumption of stationery, using both sides of papers for writing and printing; avoiding using vehicles beyond 1,000CC for local general duty as well as returning redundant vehicles to the administration department.

Arrears in full

Insiders in the finance department said austerity measures cannot compensate for the financial discrepancies of the province which amount to Rs100 billion.

The government in its revenues for the fiscal year 2015-16 included a large part of Rs68.8 billion Net Hydel Profits (NHP) and its outstanding arrears against the federal government.

However, Islamabad wants money arrears to be paid in installments over five to six years whereas K-P government desperately needs it in one go. A senior official of the finance department, requesting anonymity, said, “The matter has not been resolved and even though the K-P government is trying its best to force the federal government to release the money, I do not think this will be possible so soon.”



Minister for Finance Muzaffar Said seemed more hopeful about the situation. “The federal government has intimated they will release the money and we are meeting in Islamabad on January 25 in this regard,” he said.

Said called the budget “balanced.” He said, “Every year the tug of war over funds continues between provincial and federal governments and money is finally given.” He also said if the money was not given, they will protest on every platform, including the media and even will go to courts.

Regarding the failure in provincial receipts, Said stated, “We are holding a review meeting in three days after which the situation will become clearer.” He added, “If the federal government does not pay us, there will be problems but still the situation as of now does not appear to be so discouraging.”

Daunting realities

The provincial government is also struggling to achieve its provincial non-tax receipts. The government has failed to get the estimated Rs14 billion from the housing department which was reflected in the budget whitepaper. “The housing department was to build a housing scheme through Chinese investors and then give it to private sector to generate revenue,” stated the official. According to the finance official, however, as the schemes got delayed, K-P government’s expectant share of Rs14 billion from receipts has also been delayed.

The government was also expecting Rs8 billion from the forest department from the sale of timber, but that amount has also not been generated.

The official added the province is short on a total Rs22 billion expected from provincial non-tax receipts.

Moreover, another Rs15 billion from hydel development fund (HDF) that can only be used for hydel development and under the law, cannot be utilised anywhere else – hence useless for filling the shortfall – has also not been received. “This makes the total Rs100 billion that is haunting the government,” the official said.

The repercussions

“The situation would directly affect the development side,” the official added and other officials of the department concurred.

“You cannot cut current expenditures which are mainly salaries and pensions which make up 71% of total expenditures,” the official said. He added the annual salaries amount to Rs175 billion while pensions add up to Rs37 billion. He said ultimately the Annual Developmental Programme (ADP) will be cut as minimising operational expenditures will not fill the gap.

The government has allotted Rs30 billion for local governments out of which half the amount has been released by the finance department. “The local government department has divided Rs30 billion along three tiers – Rs8 billion allocated to all districts, Rs8 billion allocated to all towns/tehsils and Rs14 billion to village/neighborhood councils. The official added local governments are struggling with the utilization of funds, adding the finance will take the funds back due to this ineptitude and the withheld amount can somehow help the provincial government in overcoming the shortage.

Published in The Express Tribune, January 23^rd,  2016.