The province of Khyber Pakhtunkhwa has been facing a severe cash crunch for the last year because the centre is not fully paying its net hydel profits (NHP) and has also stopped funds committed for the erstwhile tribal areas.

The previous government of PTI in the province was forced to borrow Rs285 billion from the State Bank of Pakistan under the ‘Ways & Means’ facility to pay salaries and pensions to its employees on time. It had repeatedly accused the PDM coalition led by the Noon League of ‘victimising’ the PTI administration by stopping funds for political reasons.

The situation has somewhat changed since federal assistance seems to have increased. It is evident from the fact that the caretaker setup hasn’t borrowed any money from the central bank to pay its salary and pension bill after March.

Still, the central government owes the province a hefty Rs55bn in net hydel profit arrears as it has received only Rs5bn in the outgoing fiscal year. Hence, the caretaker setup in the province has authorised conservative expenditure of Rs462.4bn for a four-month period from July to October to manage the province in the run-up to the next national elections.

Mass regularisation of employees due to the Fata-KP merger and payments to project employees has resulted into massive wage spending

Like Punjab, Khyber Pakhtunkhwa has also chosen to breach the provisions of the Elections Act, 2017 and Article 126 of the Constitution, which drastically curtails the administrative and financial powers of the caretaker governments to maintain the credibility of the elections.

“The caretakers have cut the government expenditure (for four months) by another 25 per cent (from the outgoing year),” Himayatullah Khan, the adviser to the chief minister on finance, claimed at a press conference to announce authorised expenditure.

He said the caretaker government had also taken strict austerity measures in view of the crunch. All posts lying vacant for the past three years would be abolished, and there would be a total ban on new development projects, he added.

Besides, the government also banned the purchase of physical assets, new vehicles and renovation of government offices and residences; participation in seminars abroad on government expenses, and medical treatment abroad on government expenses. The budget also seeks to streamline the necessary payments and release of funds during the next four months.

However, the restrictions on caretakers as well as the financial crunch, didn’t keep the temporary, unelected setup from announcing a hefty Rs112.4bn development stimulus for the interim period leading to elections.

This includes allocations of Rs20.3bn for the merged districts of erstwhile Fata. The remainder of Rs350bn has been set aside for current expenditure, including Rs40.5bn for the merged districts.

That’s not all. In line with the federal decision, the province has also announced 35 per cent ad hoc relief in the salaries of provincial employees from grade one to 16 and 30pc ad hoc relief for grade 17 to 22 officers. An increase of 17.5pc in the pension was also approved. This will burden the province’s resources by over Rs40bn, including an increase of Rs29.7bn in the salary bill and Rs5bn in the pension bill.

Alongside the pay raise, the budget also increased the travelling and deputation allowance by 50pc, doubling the special conveyance allowance for disabled employees and the secretariat performance allowance.

It is not justified for an unelected setup to make such decisions that would be difficult for the elected government to reverse.

Khyber Pakhtunkhwa’s wage and pension spending has grown outrageously in the last 13 years, with the salary bill going up by 541pc and pension by 951pc between FY12 and FY24.

The figures in a spending plan presentation given to the caretaker cabinet by the finance department revealed that the province’s pay bill stood at Rs86bn in FY12 and would reach Rs487bn next year. The province’s wage bill grew by Rs40bn in FY22 and by Rs58bn last year. It is projected to rise by Rs115bn next fiscal. As for the province’s pension bill, it was Rs16bn in 2011-12 and will reach Rs126bn next year.

Mass regularisation of employees due to the Fata-KP merger, as well as payments to project employees, is the major contributor to the massive wage spending. In 2021, around 2,200 Levies and Khasadar personnel were absorbed into the province police, while 4,079 people working on 136 projects in tribal districts were regularised in January last year.

In July last year, the government had regularised 56,000 teachers and 700 ad hoc doctors. Overall, some 229,837 posts have been created and 258,887 upgraded since the PTI came to power in the province in 2013.

Against the expenditure of Rs462.4bn, the caretakers expect a total income of Rs442.6bn, showing an operational shortfall of nearly Rs20bn.

It hopes to receive over Rs249bn from federal transfers, Rs29.9bn from the 1pc share in the divisible pool on account of the war on terrorism, Rs13.2bn from straight transfers, Rs10bn in net hydel profits, and Rs18.3bn in NHP arrears during the four-month period.

The own provincial receipts are expected to generate Rs28.8bn in tax and non-tax revenue of Rs18.8bn and Rs9.5bn, respectively. The foreign funding for development projects has been pitched at Rs37bn, and the receipts for merged areas are projected at over Rs42bn.

Overall, the government expects to receive 871bn from the centre in the full next fiscal year, which also includes Rs84bn in terms of hydel profit and arrears and Rs90bn for the war against terrorism in its share in taxes and others.

Besides, the provincial government also expected to receive Rs93bn in foreign assistance for the purpose of development works during the next financial year, the financial adviser said.

In pursuit of the election laws and the constitution, the Khyber Pakhtunkhwa caretakers must revise the large expenditure that can be a burden on the provincial resources and impossible for the next elected government to reverse.

Published in Dawn, The Business and Finance Weekly, June 26th, 2023