K-P throws a spanner in the works

Province declines to show Rs117 cash surplus, an IMF precondition

Shahbaz Rana August 27, 2022
Finance Minister Miftah Ismail and Coordinator to the PM on Economy & Energy Bilal Azhar Kayani address media in Islamabad on July 31, 2022. Photo: PID


Just three days before the revival of the multi-billion dollar lending by the International Monetary Fund (IMF), the Khyber-Pakhtunkhwa (K-P) government tried on Friday to derail the programme in an attempt that Finance Minister Miftah Ismail termed a “conspiracy against Pakistan”.

In a letter to Ismail, K-P Finance Minister Taimur Saleem Jhagra linked the provincial cash surplus in this fiscal year – which is a part of Pakistan’s deal with the IMF – with the clearance of the Rs100 billion claimed liabilities.

Under the IMF deal, the K-P government is required to generate a Rs117 billion cash surplus, which it has already consented to provide through a memorandum of understanding. Ismail is a co-signatory of the Letter of Intent (LoI) dispatched to the IMF a few days ago for the revival of the programme.

“Please note that in these conditions [floods], and without the resolution of the issues highlighted previously, for the province of Khyber Pakhtunkhwa to actually leave a surplus will be next to impossible”, Jhagra wrote in the communique sent to Minister Ismail on Friday.

In a late-night press conference, Ismail termed the letter “deplorable.” He term the letter a “conspiracy to derail the IMF programme and sink the rupee”. He questioned whether there was any redline for PTI Chairman Imran Khan, who was out to destroy Pakistan and its economy for his power lust.

“Come what may, the IMF board meeting will take place on Monday and Pakistan does not deserve to default as its people have given a lot of sacrifices in the shape of higher fuel prices,” the federal finance minister told reporters.

Miftah Ismail further revealed that the PTI leadership had also approached the Punjab finance minister and its finance secretary but they refused to write a letter on the cash surplus issue.

Thought, Ismail said, Jhagra had assured him that he did not write a letter to the IMF and that the correspondence was only sent to him [Ismail] but he hastily added that the letter was already in the reach of the IMF.

Last month, the K-P along with three other provincial governments had signed memoranda of understanding (MoUs) with the federal government for creating a cumulative Rs750 billion budget surpluses.

The signing of the MoUs by the federal and the provincial governments on provincial fiscal targets consistent with the fiscal year 2023 budget was one of the five prior actions that the IMF had set for convening the board meeting.
The IMF board meeting is due on Monday, August 29, to approve the loan tranche to $1.2 billion and K-P’s decision to take up these issues just three days before the meeting raised many eyebrows.

Jhagra was not available for comments.

The K-P government had promised to create a Rs117 billion cash surplus. The MoUs are not legally binding in nature and no provincial government in the past had fulfilled these commitments despite putting signatures in July every year.

In the last fiscal year, the four provincial governments had committed to have a cash surplus of Rs570 billion but the actual surplus money stood at Rs351 billion. The total revenues of the four provincial governments, mainly their shares from the Centre, are surplus to their needs, which then in return are counted as part of the overall budget deficit position of the country.

For this fiscal year, the federal budget deficit is estimated at Rs4.6 trillion but after incorporating the projected Rs750 billion cash surplus, the overall deficit is targeted at Rs3.8 trillion. The cash surplus is an important component to achieve an overall Rs153 billion primary surplus target, which is the core of the IMF agreement and its absence may push the federal government to take some drastic steps.

Although the letter may not derail the Pak-IMF bailout programme at this stage, the PTI has laid bare its priorities between the political interests of the party and the country’s economic survival.

Many have questioned the timing of the K-P’s finance minister’s move, which was made after the PTI leader Fawad Chaudhry said in an interview that the K-P and the Punjab governments could withdraw their support to the IMF programme. So far, the Punjab government had not withdrawn or conditioned its support to the IMF.

“First, the PTI government made an agreement with the IMF but failed to implement it and left the mess for the new government to clean. (And) when the new government made the agreement with the IMF to clear the mess, the PTI governments in Punjab and K-P are now scuttling it, tweeted PPP’s Farhatullah Babar. He added that the crass political opportunism was destroying the economy.

Jhagra wrote to Ismail that the fresh letter was a follow-up on his letter on the same topic on July 6 this year. He reminded the federal finance minister of his commitment to resolve the K-P’s major financial issues.

In return for Ismail’s commitments, the K-P had signed the MoU, which Jhagra described as a work “did in the greater national interest”. But he complained that during the past almost two months he could not secure an appointment with Miftah Ismail.

Miftah Ismail said that had the K-P government written the letter 10 days after the board meeting no one would have questioned its intentions. He said that he had called Jhagra for a meeting on Monday.

The day Pakistan was inundated by devastating floods and the country was about to get the IMF deal, the PTI attempted to derail the programme, said Ismail. But he assured the nation that the IMF would approve the loan on Monday.

The provincial finance minister underscored that the budget allocations for ex-Fata were very critical to his province. He said that the current budget allocations for ex-Fata by the federal government “are insufficient to cover even the monthly salary costs of existing employees”.

Ismail said that the federal finance secretary had demanded of the provincial government the evidence of the expenses, which were never provided.

He also demanded money for covering the cost of the Sehat Card Programme for the residents of ex-Fata. Jhagra also demanded adequate budgeting to cater to the needs of temporarily displaced persons (TDPs) moved in district camps because of operations against militancy.

However, the three provinces have been giving 1% of the undistributed divisible pool to bear the cost of war on terrorism since 2010.

The provincial finance minister also asked for fulfilling the commitment for provision of monthly net hydel profit (NHP) transfers based on an MoU signed between the federal government and the K-P government in 2016.

He also wanted an immediate revival of the National Finance Commission (NFC), so that these issues could be resolved permanently. The NFC revival demand appears genuine, as the PML-N government has also pushed the NFC issue on the back-burner, like its predecessor.

Jhagra has also demanded clearance of outstanding liabilities to the Pakhtunkhwa Energy Development Organisation (PEDO); resolution of the issues of energy wheeling and weighted average cost of gas (WACOG), and the availability of natural gas to the province in line with Article 158 of the Constitution.

He said that the federal government should also finance Pesco to develop transmission and distribution infrastructure in the province; and the commitment of the federal government not to delay the execution of provincially-funded Pesco and Tesco projects.
He also sought assurances that the federal excise duty (FED) should not be replaced with the Petroleum Levy without the provincial consent, as this amounts to unilaterally reducing the size of provincial transfers from the total quantum of federal collections.

“We estimate that the overall impact of not resolving these issues is actually to create a Rs100 billion unfunded liability in the Khyber Pakhtunkhwa budget”, claimed Jhagra.
He said that the ongoing floods in the province had made it more difficult to generate cash surplus, as the destruction in Swat, Dera Ismail Khan and Tank, might be greater than the super-floods of 2010. “The cost in terms of rescue, relief, rehabilitation and building back is likely to run into the tens of billions.”


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