Financial crisis: a case of Khyber-Pakhtunkhwa

The province of Khyber-Pakhtunkhwa is passing through one of the harshest economic and financial crises. With each passing day, the crisis is compounded due to high rates of energy, and mounting terrorism looming large all over the territory, which is impeding economic growth and social development.

Most of the subjects of social development such as health, education, social welfare, sports, tourism and youth, and even other development projects, fall within the domain of the province; therefore, due to shrinking financial space, most of the schemes are at a standstill. So much so that many of the departments and universities even find it difficult to pay pensions.

Faced with locational disadvantage, exacerbated due to mounting terrorism, the province is also facing flight of capital. Grinding under the financial crunch, the Chief Minister of the province addressed a letter to the Prime Minister of Pakistan requesting for a solution within the framework of the Constitution.

In this context, Justice Munir had aptly put that the resolution of the most contested issue of distribution of the powers remained at the heart of the problem during constitution-making right from Independence Act 1947 to the framing of the constitution of 1973. Now finally, the Constitution provides mechanism for distribution of resources and redressal of grievances among the provinces and the federation.

In this purview, taking up the issue with the federal government, the Chief Minister has described the financial situation of the province as precarious, with a stress to pay pending dues to the province including funds for the development of tribal districts, which would address sense of deprivation and generate economic activity as well as contain militancy.

Due to multiple factors such as locational disadvantage, poverty, backwardness, illiteracy, dearth of infrastructure, high rates of energy, high transportation costs and lack of skilled human resources, and other ills, the province has lagged behind. Therefore, it is in urgent need of the required resources and access to its rightful dues, under various heads promised and enshrined by the Constitution. With timely provision of financial resources, the impending disaster can be averted.

The 25^th Amendment to the Constitution and merger of Federally Administered Tribal Areas (FATA) with the province of Khyber-Pakhtunkhwa necessitates revisit of and correction of the 7^th National Finance Commission (NFC) Award, which will result in an increase in the provincial share from 14.62 per cent to 19.6 per cent. Under this arrangement, the increase in the province’s share will be to the tune of Rs262 billion for the year 2023-24, whereas the federal government has allocated only Rs123 billion, leaving a shortfall of Rs139 billion for the period in question.

The government of Khyber-Pakhtunkhwa, while lamenting, said that the federal government is backing out of its commitment made in a cabinet meeting on March 02, 2017, to provide 3 per cent NFC/ Rs100 billion annually to the province to be spent on the development of ex-FATA with an objective to mainstream and bring it on a par with the rest of the country. This refusal is not only denting credibility of the government but is also generating centrifugal tendency. In order to repair fissures and alley deprivation, the commitment needs to be honoured.

The contention of the provincial government is that the due share of the province is Rs500 billion from 2018 to 2023 but allocation has been only Rs103 billion, causing a shortfall of Rs397 billion.

The other argument of the province is that the outstanding payments of Rs1.5 trillion from 2016 to 2023 are pending under the head of Net Hydel Profit as per the Kazi Committee methodology.

It is a matter of record that on November 20, 2014, the Economic Coordination Committee decided in a meeting to allocate 100 MMCFD gas for setting up thermal power projects in the province, and accordingly, a memorandum of understanding was signed between the Khyber-Pakhtunkhwa and federal governments. In this connection, Khyber-Pakhtunkhwa’s industrial sector consumed 40 MMCFD gas therefore 100 MMCFD gas should be relocated from the power sector to the province’s industrial sector.

The other issue taken up was to facilitate Khyber-Pakhtunkhwa in expanding the wheeling of power under ‘Pehur Model’ to offset its locational disadvantage and promote economic activities.

While pleading the case, the Chief Minister told the Prime Minister that the Pakhtunkhwa Energy Development Organisation (PEDO) produced about 165 megawatts of hydroelectricity and it had successfully undertaken supply of power through wheeling from its 18 megawatts Pehur hydropower station and selling units of electricity through an open competitive bidding process since April 2019.

It is not out of place to mention here that specific provisions of the Constitution, Article 151 to 158, 160, 161, and 172, coupled with Part V1 has constructed the basic structure of the fiscal federalism and provides a viable arrangement for distribution of revenues between the federation and the provinces.

Since the Constitution is a sacred covenant between the people and the government as well as among the federation and the provinces to run the affairs and distribute revenues under a prescribed manner, the proposals contained in the letter of the Chief Minister is an attention to adhere to the special provisions encapsulated in Chapter 3 Part V of the Constitution, which provide a roadmap to bring the province back to normalcy from the present financial quagmire.

In summary, the Constitution of 1973 has offered solution to the most contested issue of distribution of the powers; therefore, all provisions pertaining to fiscal federalism must be adhered to in order to avoid acrimony and agitation.

Published in The Express Tribune, September 16^th, 2023.

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