EDITORIAL: Khyber Pakhtunkhwa (KPK) unveiled a 2119 billion-rupee budget outlay for next fiscal year with a projected surplus of 157 billion rupees — an amount that is lower by 15.8 billion rupees from what was budgeted by the federal government as its share in the 1217 billion-rupees provincial surplus (based on 14.62 percent KPK’s share in the divisible pool).
Given that the Sindh government budgeted a deficit of 38 billion rupees, instead of a surplus of 298 billion rupees budgeted by the federal government, a critical partner in propping up the PML-N government at the Centre, the KPK government’s surplus must have come as a pleasant surprise for the Centre.
In this context, it is relevant to note that the Sindh government has cited major risks associated with federal transfers pledged in the budget given that it is a usual occurrence for the federal budget to present unrealistic tax targets (in the current year the shortfall is projected at one trillion rupees).
However, the KPK budget formulators took the innovative and more appropriate measure to release a document titled ‘Fiscal Risk Statement’, which itemised a range of issues that would impact on the revenue and expenditure side of the budget, a list that includes: (i) general economic risks associated with geopolitical tensions, including with neighbouring countries, which present the possibility of potential disruptions in trade and investment flows, posing threats to economic stability and growth; (ii) specific fiscal risks associated with lower tax collections by the FBR than budgeted, leading to lower than budgeted total transfers to KPK which, in turn, was at a variance of negative 4 percent in two years — 2021-22 and 2022-23 — and which widened to negative 19 percent in 2023-24 and registered negative 8.79 percent in 2024-25; and (iii) structural or institutional risks.
KPK’s outstanding debt portfolio increased by 6.41 percent due to an increase in net receipts (disbursements less principal repayments) and decrease in foreign currency exchange rate from 285 to 280 which had a weighted average impact of -1.75 percent. However, it was rightly flagged that a portion of the province’s foreign debt portfolio remains linked to variable international benchmarks such as the Secured Overnight Financing Rate (SOFR), Japanese Yen Tokyo Overnight Average Rate (TONA), and the Euro Interbank Offered Rate (EURIBOR). While recent trends indicate a slowdown or pause in global rate hikes, any future tightening by major central banks could increase the cost of debt servicing.
Two further observations on the budget are in order. First, tax on agriculture income is budgeted at 130 billion rupees next fiscal year, the same amount that was generated in the revised estimates of 2024-25 (against the budgeted amount of 114 billion rupees in the outgoing fiscal year), which makes one wonder what is the expected implementation of the legislated tax on the income of farmers, as per the International Monetary Fund’s condition, to be implemented from 1 July 2025 with the effectivity pre-dated to 1 January 2025.
And secondly, Pakistan Tehreek-e-Insaf’s flagship project, Insaaf Sehat Card plus programme, is budgeted to receive 41 billion rupees next fiscal year and coverage list of medical conditions has been expanded to include liver, kidney, bone marrow and cochlear transplants/implants and related issues.
Preparing a medium-term strategy paper, as required by the multilaterals, does not add real value to the federal budget as it itemises a wish-list of the future with, if past precedents are anything to go by, little likelihood of being taken seriously by the economic team leaders.
However, one would recommend to the federal government (as well as all other provinces) to prepare a fiscal risk statement each year that would go a long way in adequately responding to routine challenges to budgeted revenue and expenditure claims that sadly are routinely violated.
Copyright Business Recorder, 2025