KP’s neglected economic roadmaps

Planning
KP’s neglected economic roadmaps
The Comprehensive Development Strategy (CDS) is an ambitious economic growth plan
By Tahir Ali

http://jang.com.pk/thenews/jul2012-weekly/nos-08-07-2012/pol1.htm#3

The Khyber Pakhtunkhwa government has prepared quite a few documents which, if implemented, could originate unprecedented economic development in the province. However, these economic roadmaps are generally overlooked while setting development priorities for different sectors.

According to the Comprehensive Development Strategy (CDS 2010-17), the province has strong agricultural potentials, and offers a diverse climate and landscape for a variety of tourism activities. “Located at the crossroads of important international trading routes, the people of Khyber Pakhtunkhwa have long traditions of trade and travel. Hydroelectric power, forestry and minerals offer resources for a modern economy,” it states.

The Economic Growth Strategy (EGS) also envisions that acceleration of growth will be realized by concentrating on natural resource endowments of KP in hydel power, mining and minerals, Oil and Gas and agriculture value addition and agro-processing industries.

“With huge potential for development there is a necessity to focus on growth. Unfortunately, the resources’ investment strategy while following a much trodden path for decades remained captive to an antiquated thinking; to invest more and more in brick and mortar as a development solution to the problems of low and slow growth; high rates of unemployment and underemployment; a decadent infrastructure; inefficient, inadequate transportation facilities; a non-competitive industrial sector and last but not the least, stagnant human development indicators,” states the EGS.

According to the Whitepaper for this and last year, the previous ADPs were skewed towards brick and mortar projects and whereas the social sectors (education and health etc) have consumed a sizeable chunk of the development program, the socio-economic (food, agriculture, roads etc) and productive sectors (energy, minerals etc) remained low in priorities.

The growth policy will target the sectors with comparative advantages of indigenous raw materials and natural resources like minerals, tourisms and agriculture with a significant increase in total investment in productive sectors to attain higher rate of growth, states the EGS and stipulates that foreign loans would be sought for productive sectors if required and for the socio-economic and social sectors only grants would be utilised.

The EGS, the CDS and the budget whitepaper, said the KP finance minister Humayun Khan, have served as the bases of the annual development programme (ADP) this year.

But while in the Rs303bn budget, ADP, with an outlay of Rs97.4bn, including foreign component of Rs23bn, has a share of 35 per cent against 65 percent for current budget which is in line with the EGS recommendations, most of the budget targets and allocations don’t match with these official strategies.

While the EGS recommends 70 ADP funds for ongoing and 30 per cent for new schemes, they have been allocated 62.5 per cent (Rs46bn) and 37.5 per cent (Rs27.8bn) funds respectively in the core provincial ADP of Rs74.2bn.

The province has abundant potential in water, oil and gas and precious stones like marbles and other minerals. Around 6.76 per cent area of KP is under exploration for oil and gas reserves with a one billion barrel of oil and four trillion cubic feet of gas. Investment in these sectors can offer a base for developing a flourishing industry.

While the EGS says productive sectors and socio-economic sectors would be given top priority in funds allocation and the expenditure on social sectors would be capped at current level, allocations to the sectors speak otherwise.

Against the avowed 70 per cent, 30 per cent and 20 per cent share in the ADP for the productive, socio-economic and social sectors respectively as per the EGS, the 9 productive and 7 socio-economic sectors have been allocated just 12 per cent (Rs11.6bn) and 23 per cent (Rs22.6bn) respectively in the ADP while the social sectors have got 39 per cent (Rs37.9bn).

While education and roads have got over Rs22bn and over Rs14bn respectively, energy and mineral sectors got only Rs1.8bn and Rs0.5bn in that order. Allocations for minerals and minerals stand around only 0.9 per cent and at less than two per cent each for energy, power and agriculture sectors.

In the FY 2010/11 too, out of 972 projects funded through ADP, mines and minerals had only 11 projects with an allocation of Rs255mn at 0.42 percent of ADP.

By the end of 2012, the CDS stipulates an additional Rs14.6bn for the agriculture sector which obviously is far higher than the existing new ADP allocation of Rs1.4bn In the outgoing year too, the productive sectors were allocated Rs10.8billion, the socio-economic Rs21.3bn and the social sectors Rs36.8bn in the total core ADP of Rs69bn.

The CDS is a pretty ambitious economic growth roadmap. Its total seven years’ financial cost above the 2010 level expenditure is Rs960 of which Rs648bn would be for development expenditure and the rest for current expenditure. Rs516bn of these would be met through local resources and Rs444bn from external assistance.

It recognises increased insecurity, financial mismanagement, food inflation, inconsistency and duplication for increased donor funding, climatic hazards such as flooding etc as main risks to the implementation of CDS, and has suggested remedial measures.

But the CDS ironically has failed to point alternative resources in case the expectation of increased domestic revenue and foreign assistance fail to materialise while the current expenditure increases beyond the estimates.

Under the annual strategy review (ASR), a detailed analysis of the ADP 2010-11 and 2011-12 was carried out to know whether development allocations in different sectors matched the above strategies and with the short term allocations for those sectors in CDS. As per the ASR, Rs126bn out of the total ADP for 2010-12 were allocated against the CDS recommendations/allocations of 201bn.

“The province is far from eradicating poverty by 2015, and is unlikely to be able to effect a reduction in poverty incidence to 20 percent, as articulated in the CDS,” states the CDS paper. The white paper and EGS eye reduction in throw forward liability — the money required to complete all the ADP projects-by allocating more resources to ongoing project i.e. 70 percent of ADP.

But as the government usually misses the development targets for several departments come up with attractive projects that they could not execute, the throw forward liability is on the rise and is expected to be Rs343bn by end of this fiscal.

The government could utilise Rs79bn off Rs85bn last fiscal, Rs61bn off Rs69bn in 2010 and Rs46bn off Rs51 in 2009. If it cannot ensure full utilization of funds, what is the justification of increasing development outlays that results in throw forward liability for the
coming governments?

And if this government which, besides phenomenal increase in its federal receipts, has been getting Rs25bn in net hydro profit arrears could not bring down the number of in-complete development projects, how would the incoming governments do when the money would cease to come from 2013-14 onwards.

The foreign component projections at Rs23bn also seems unrealistic as the revised estimates for this head in last year stood at just Rs7.5 against Rs16bn of budget estimates.

KP has given top priority to energy and power sector. In this regard substantial amount of net hydel profit arrears has been transferred to Hydel Development Fund (with assets of Rs24bn) and various schemes are under pre-feasibility, feasibility and implementation stages in the province.

The KP government has prepared a 10-year hydro power generation action plan worth Rs330 billion according to which 24 projects would be initiated in KP to generate 2100 megawatts of electricity. But there is a perception that had this government started these projects when it was installed, the province would have no problem of loadshedding now.

According to a 2004 survey, industrialists and traders in KP identified policy uncertainty, tax administration, access to electricity supply, corruption, access to finance, insecurity and transportation as major hindrances to growth.

There is some good news in the budget too. While the foreign project assistance was just Rs4.61bn in 2008 with 83 per cent of it comprising loan component, it has increased to Rs23bn this year with 84 per cent of it to be in shape of grants and only 16 per cent as loans.

Numerous pro-poor schemes have been allocated Rs5.7bn against Rs4.5bn in last fiscal. Ranging from students’ related scholarship scheme to laptop distribution schemes to schemes in health, IT and agriculture sector etc, these also have a scheme for long term financing schemes for industrialists.