The Khyber Pakhtunkhwa caretaker administration has requested the central government to immediately release Rs300 billion withheld in federal transfers for over 17 months.

Due to this unjustified delay in revenue inflows from the centre, the province is on the verge of defaulting on its commitments to pay government employees their salaries and pensions. Funding police in newly merged tribal districts to fight terrorism was difficult due to a lack of resources.

In background interviews and discussions with high-ranking officials of the KP government, it has come to the forefront that a staggering 95 per cent of all the revenue receipts of the provincial government are reliant on the federal government.

This dependency on the central authority has significant implications for the financial stability and autonomy of the provincial administration. Any decline in these disbursements disrupts the intricate equilibrium of the KP government, jeopardising the timely payment of salaries and pensions.

Salaries, pensions at risk as federal govt withholds funds

Since March, a series of meetings with federal ministers and prime ministers have been scheduled, with the last meeting on Nov 20 to find a way to address the financial issues of the provincial administration as quickly as possible, which had been denied constitutional rights by the PDM government.

NFC Award

Following the merger of the tribal region with KP, the federal government is hesitant to increase the province’s portion of the divisible pool from 14.62pc to 19.64pc in the post-25th constitutional revisions. Before the merger, KP held 14.62pc of the NFC Award, while FATA held 5.02pc.

The revenue effect of this share is Rs262 billion, but the federal government released Rs163bn in combined current and development funds to KP, leaving a Rs99bn shortage. This is a significant burden imposed on the provincial government in breach of the constitution. There is also a decrease in federal tax collection, which leads to a decrease in transfers to KP.

Funding for merged districts

The federal government has committed to covering the current and development budgets of newly merged districts (NMDs) in the absence of a new NFC award. The transfer of funds, however, has been inconsistent ever since the merger. For the years 2019-20 to Rs2022-23, there was a financing shortfall of Rs144.4bn between the federal government’s committed allocations for the current and the development budgets.

Under the NMDs’ 10-year development plan, an annual commitment of Rs100bn was made for the Accelerated Implementation Plan (AIP). While Rs400bn was pledged for AIP, only Rs75.5bn has been received over the past four years. As a result, the provincial government is owed more than Rs469bn in funds. This funding freeze has made it challenging for police departments in NMDs to deal with the growing terrorist threat.

Net hydel profits

Net Hydel Profits (NHP) is a significant source of money for KP to stimulate economic growth. The province received Rs21bn under NHP in FY22, which decreased to Rs4.9bn in FY23. As of now, the unpaid sum under the agreed-upon obligation with the federal government is Rs15bn for FY22 and an additional Rs31.1bn for FY23.

According to an agreement reached in a committee led by Ishaq Dar and Khawaja Asif, the outstanding money under this heading is Rs46.1bn. When past arrears are factored in, the total unpaid NHP sum is Rs87.9bn.

According to the committee’s accord, the federal government promised to contribute Rs3bn per month to the KP government through the NHP. The federal government released barely Rs5bn to the KP government in the first four months of the current fiscal year.

The Pakhtunkhwa Energy Development Organisation, a KP government body that generates electricity using modest generators, has sold its electricity to the federal government but has yet to receive Rs6.68bn from it.

Windfall levy on oil

The KP government has expressed serious concerns over the Tal Block Supplemental Agreement’s omission of the Windfall Levy Clause. The province administration estimates that the omission will result in financial losses of Rs50bn for the Tal Block and Rs511 million for the oil-producing fields of Baratai and Togh.

Furthermore, a sum of Rs9bn is outstanding with the Federal Board of Revenue as a result of the Khyber Pakhtunkhwa Revenue Authority’s cross-input tax adjustment. Out of the total sum, both organisations have now reconciled Rs4bn.

Published in Dawn, November 26th, 2023