Budget 2020-21: KP government facing financial crisis, deficit of Rs53 billion

PESHAWAR: The Khyber Pakhtunkhwa government is facing a severe financial crisis and deficit of Rs53 billion in the current fiscal year 2019-20 due to non-payment of share from the federal government, reported The News on Friday.

A shortfall of Rs150 billion is expected in the next budget and the province would start the next financial year 2020-21 with a Rs35 billion deficit. The PTI-led KP government has requested the federal government to allow the province to avail the facility of cash development loan for the financing of the provincial budget deficit. Pension liabilities would be roughly increased to Rs84 billion in the coming year.

The provincial government has urged the federal government to increase the overdraft limit of the province from Rs10 billion to Rs40 billion (which is the average wage bill of the province for six weeks). The KP government has also expressed concern over the non-receipt of Rs36.771 billion of net hydel profit (NHP) till June 2020, which has further aggravated the financial situation of the province.

Sources within the Finance Department have confirmed that the government is considering raising the domestic or international loan to meet the budgetary needs of the province. “Article 167(4) of the Constitution allows the provinces to raise the domestic or international loan or give guarantees on the security of provincial consolidated fund as per the limits specified by the National Economic Coordination Council current limit which is 0.85% of the National GDP which may be increased to 3%”, an official said.

He said the provincial government has requested the federal government to allow the province to avail the facility of cash development loan for the financing of the provincial budget deficit. The federal government has not yet released the outstanding amount of Rs69 billion for the newly merged areas. For the fiscal year 2020-21, a sum of Rs191 billion is required for NMAs out of which Rs119 billion are for the current budget and Rs72 billion for the development budget.

Finance Minister Taimur Saleem Jhagra, while confirming the worst financial conditions, said the figures are correct because of revenue pressure and global recession. The province is facing a deficit against spending needs in the next budget. “We have planned the budget based on the officially-intimated figures from the federal government, but good planning requires that we work out our receipts and expenditures based on four different scenarios of FBR collection,” he added.

Jhagra said an additional variable that has a huge impact on KP finances is regular NHP payments, which have never historically occurred. “If we cannot count on these NHP payments being made reliably, we end up blowing a Rs30 to 50 billion hole in the provincial budget receipts. Collectively, depending on what FBR collects, we could face a deficit of between Rs50 and 150 billion, which we will finance through cash available on the balance sheet, debt, and cost savings”, he maintained.

He said spending on the economy is critical, so the government would not compromise on the size of the development budget. The KP salary bill would be over Rs310 billion but will be reduced by different measures. 

The high court decision on retirements increases pension liabilities by at least 20% versus the current fiscal year. This year, pension liabilities were 70 billion which will be increased in the coming financial year. He added that non-salary expenditure of around Rs130 billion last year is expected to stay flat while the annual debt repayment is minimal at Rs15 billion this year and will be the same in next year.

Originally published in The News