Financial crisis looms over KP as federal dues reach Rs515bn

PESHAWAR: Khyber Pakhtunkhwa (KP) is facing a severe financial crisis, with the federal government’s outstanding dues, including electricity net benefits and other receivables, soaring to a staggering 515 billion rupees.

The federal authorities have imposed significant cuts on KP’s share during the current fiscal year, attributing the shortfall to fund shortages.

To meet the shortfall in expenditures and fulfill commitments, substantial cuts have been made in the developmental budget. Facing a formidable financial crisis, KP has a meager 14.62% share in the National Finance Commission (NFC) due to the war on terrorism, with an additional 1% allocated in support. This amounts to 856 billion rupees during the fiscal year 2023-24. However, in the first five months of the current fiscal year, KP received only 295bn rupees rupees compared to the initially expected 356 billion rupees.

The non-payment by the federal government has led to KP incurring a loss of 62 billion rupees during these five months. On the other hand, KP’s share in net electricity benefits, including other receivables, amounts to 85 billion rupees annually. However, the province receives a mere 7bnn rupees from the federal government, resulting in a substantial loss of 78 billion rupees.

Tribal Districts’ Financial Struggle 

According to the provincial finance Department, the financial crisis in tribal districts has worsened. The annual budget for salaries and pensions of employees in tribal districts is 152bn rupees, with only 66bnn rupees allocated by the federal government.

Additionally, tribal districts receive no share in the NFC award for the fiscal year 2023-24. During the first five months of the fiscal year, tribal districts received 33bn rupees, while the required amount is 63bn rupees, resulting in a shortfall of 30bm rupees while the annual shortfall is estimated to be 85bn rupees. The lack of funds for development in tribal areas is raising concerns as the progress in these regions not only impacts the local population but also positively influences the overall national well-being.

Budgetary Constraints, Developmental Cutbacks

The KP government, in an attempt to control the financial crisis caused by federal non-payment, has made substantial cuts in developmental projects in the province. Despite these efforts, the current financial year is expected to end with a significant imbalance between available resources and the essential financial needs of the province.

The financial crisis has raised concerns about its potential adverse effects on essential services, the completion of developmental projects, and meeting financial responsibilities in tribal districts. The fear is that the federal non-payment during the current fiscal year could significantly impact the economic situation in the province.

Challenges and Opportunities for KP’s Economic Growth

Khyber Pakhtunkhwa finds itself at a delicate juncture, with historical lows in developmental expenditures. The budget for developmental projects during the initial five months of the current fiscal year was 44bn rupees, including projects funded by provincial ADP, M&ADP, and foreign assistance, indicating a substantial decrease compared to the previous years.

Efforts to increase economic strength and address financial challenges are essential. Following the footsteps of Punjab in enhancing tax and non-tax revenues could be beneficial, as Punjab has increased its revenue by over 500 billion rupees. Timely payments and keeping promises for developmental projects are crucial for the progress of historically neglected regions.

KP Urgently Requires Federal Assistance

The ongoing financial challenges in KP necessitate immediate attention and resolution through collaboration between the federal and provincial governments. The merger of tribal districts, a significant increase in population, and a 36% increase in the area highlight the urgency of addressing these financial issues.

With the financial crisis intensifying, the NFC holds a key role. A proposed increase in KP’s share from 14.62% to 19.64% can significantly contribute to alleviating the financial burden. 

**Worsening Scenario with the Peshawar BRT Project and Financial Reforms**

The financial scenario worsens as KP grapples with the Peshawar Bus Rapid Transit (BRT) project’s financial mismanagement and faces difficulties in fulfilling financial commitments. The provincial government’s records indicate a private investment track record, making the implementation of mega-projects viable without additional financial burdens.

The Public-Private Partnership model has the potential to expedite the implementation of mega-projects in the province without overburdening public finances. These initiatives can create a conducive environment for sustainable economic growth, addressing social concerns, and positively impacting the pace of development in the province.

The pressing financial crisis, exacerbated by federal non-payment and cutbacks in developmental projects, demands immediate attention and action. Collaborative efforts between the federal and provincial governments, exploration of financial reforms, and leveraging public-private partnerships are crucial for steering KP away from the brink of a severe financial crisis and ensuring sustained economic growth.