That a budget can be ‘populist and fiscally expansionary’ and yet advance governance and financial reforms is the key takeaway from Khyber Pakhtunkhwa’s budget proposals for the next fiscal year.

The Rs1.33 trillion budget prepared with an eye on the next general elections is a distinctive combination of the populist initiatives to meet the electoral needs of the provincial government of the PTI in that province and innovative, re­­formist initiatives to improve governance for advancing its development agenda.

The credit for looking after the political needs of his party in an election year through populist measures without compromising financial discipline must be given to Finance Minister Taimur Khan Jhagra. That is not all. The budget documents give a clear idea of where the minister wants his province and its economy to move.

The improved security conditions, governance reforms and economic infrastructure development in the province over the last few years are already said to have investment from multinationals in an array of sectors with the Kuwait Investment Fund financing the creation of a smart city.

Despite exaggerated revenue numbers, the province has quite intelligently knitted together populism and reforms without compromising on their larger future agenda

The next budget allocates massive development funds of Rs418 billion, continues tax concessions for different sectors given during the virus pandemic, boosts expenditure on health, education and other public services, allows 16 per cent pay and pension hikes for civil servants, and creates thousands of new jobs in the public sector.

With the country entering an election year, the PTI, which has recently been ousted from power in the centre and Punjab and demanding early elections, is still ruling the province. It was expected to propose populist initiatives even if they ran counter to the austere fiscal policies being targeted by the federal government to meet the International Monetary Fund’s demands for the revival of its suspended bailout package.

That a province that has already increased its tax and nontax revenue collection by two and a half times to Rs75bn in three years is now looking at the possibility of introducing a contributory pension scheme for its new employees. It will make KP the first federation unit in Pakistan to take this initiative to cut its growing pension expenditure.

The yearly pension expense of KP has grown at an average of 22pc per annum for the last many years. During the same period, its wage bill has been increasing by 13pc against far less growth in its financial resources. Likewise, the government has announced a transport monetisation and vehicle leasing policy and better health care facilities than available under its health insurance scheme for the civil servants.

Other major reforms and populist initiatives include free wheat flour for one million of its poorest households, allocation of Rs25bn for rolling out its flagship health insurance scheme and expansion of its coverage to diseases like advanced-stage cancer, bone marrow transplants, multiple sclerosis, etc that can be expensive for people to get treatment for, free higher education for young men and women in top universities across the country, and restructuring of the primary healthcare system and involvement of private sector under the Public-Private Partnership (PPP) modes.

Moreover, the government has expanded the emergency rescue service down to the tehsil level and integrated the fire brigade service. It also became the first province to set aside money for polio eradication in Bannu and Dera Ismail Khan divisions, launch an ambulance service for pregnant mothers to reduce the mother/infant mortality rate and initiate a safe city project for Peshawar.

A look at the details of these initiatives reveals that the finance team of the province has quite intelligently knitted together populism and reforms without compromising on their larger future agenda and that needs to be commended.

That said, one is nevertheless constrained to point out here that the revenue estimates made by the KP government are exaggerated and its allocations for its current and development expenditure expansionary just like the budgets of Punjab and Sindh.

Among the three provinces, KP has ‘balanced’ its total receipts and expenditures. How will it pull this off even if receives resources according to the budget plan at a time when the minister says the federal government has cut its transfers for the merged Federally Administered Tribal Area districts by Rs90-110bn and that the province will struggle to manage the payment of salaries to its employees in the tribal areas next fiscal year?

“It will be a challenge for us to fund the salaries as the federal government has left around 25pc of the tribal districts’ pay bills unfunded,” Mr Jhagra said at the post-budget press conference. “The local doctors, teachers and other government employees should know about it,” he added.

Then, the province has made its budget estimates and allocations on the federal assumptions of economic growth of 5pc, collection of Rs7tr in the FBR taxes and inflation at 11.5pc.

If the assumptions prove correct, the province hopes to obtain a little over Rs670bn as its share from federal taxes, straight transfers and the cost of being on the front line of the war on terror, receive Rs61.89bn in Net Hydel Profits and raise Rs85bn as its own tax and nontax revenues.

Of the Rs418bn set aside for the development programme, programmes worth Rs43bn remain unfunded. What happens in case the revenue estimates go awry? The budget documents remain silent on that.

Given the long-term challenge of militancy the province has been facing for decades, it has performed much better in the last few years under PTI than other units in reforming the management of its finances and governance. It has improved its public service delivery despite resource constraints.

It is heartening to note that the government has joined its political ambitions in that province with its long-term public welfare goals. Other provinces should follow the suit. —NJ

Published in Dawn, The Business and Finance Weekly, June 20th, 2022