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Anatomy of a budget

The government of Azad Jammu and Kashmir presented a budget of Rs163.7 billion for the next fiscal year in the legislative assembly a few days ago.

During the last few months, the federal government had been hinting at providing Rs14 billion less than the previous year to Azad Kashmir in the current fiscal year due to the poor economic conditions of the country. However, the hectic lobbying and backdoor efforts bore fruit and the Ministry of Finance agreed to provide the full budget. Thus, Azad Kashmir’s impending financial crisis has been temporarily – not permanently – averted.

Azad Kashmir is not a formal member of the National Finance Commission (NFC) due to the disputed nature of the region. Therefore, it is not entitled to claim its share from the federal distribution of the divisible pool unlike the four provinces of Pakistan. To circumvent this barrier, the federal and AJK governments agreed to a financial arrangement wherein the Azad Kashmir government’s share in the federal distribution of the divisible pool was fixed at 3.6 per cent in 2018. According to the abovementioned agreement, the federal government is bound to provide Rs74.320 billion in the current financial year, besides providing Rs28 billion separately for developmental projects.

The budget seems to be quite balanced in the available political and economic circumstances. It has introduced loan schemes for youth and women. Rs300 million has been allocated for providing loans to women on easy terms. AJK Finance Minister Majeed Khan also expressed his determination to set up a special economic zone for women. Young people will be given loans to start businesses which is just a beginning, not the end.

To enhance tax collection, the present government has set for itself a challenging target of collecting Rs36.5 billion in the current fiscal year. AJK’s domestic tax collection gradually improved after the 13th Amendment to the constitution about three years ago. Hence, Azad Kashmir has achieved a great deal of financial autonomy. Local revenue collection has steadily increased. Unnecessary financial interference of the Ministry of Kashmir Affairs and arbitrary use of taxpayers’ money have largely been clogged. Nonetheless, the powerful officials of the Ministry of Kashmir Affairs have not yet come out of the shock of losing their financial and administrative powers, trying hard to regain the financial control of Azad Kashmir.

AJK is one of the least developed regions of Pakistan. It has not been able to develop a sustainable economic foundation of the state yet. Lack of state-of-the-art infrastructure, the absence of sustained electricity and 4G internet, and unfriendly economic policies have left AJK underdeveloped and a hub of unemployed but educated youth.

Recently, Dr Danish Khan and Aiza Ashraf published an analysis of AJK’s economic outlook, projecting a gloomy picture. The report says that AJK’s unemployment rate stands at 11 per cent which is twice that of Pakistan’s national average. Similarly, the youth (15-29 years old) unemployment rate is 27 per cent. The female labour force participation rate is only 7.9 per cent as compared to Pakistan’s average of 23 per cent.

The authors further observe: “One of the biggest potentials of the AJK is its tourism sector but the tourism sector on average has received only 0.27 per cent of the total budget in the past twenty years, and this explains why tourism in AJK is ‘under-developed”.

Although the government of Pakistan is in the throes of a severe economic crisis, it should be requested to significantly increase the financial resources of Azad Kashmir given the rapid pace of inflation in the country. At least an amount of Rs30 billion more should be given for developmental purposes to run the financial affairs smoothly.

To improve AJK’s economic landscape, the federal government has to invest heavily in the region; network connectivity particularly deserves urgent attention. Luckily, the Central Development Working Party (CDWP) has recently approved the construction of 26.6 km Muzaffarabad-Mansehra Road, with a total cost of Rs44,720.00 million. The project is expected to be completed in three years. Consequently, AJK’s capital will be connected with the motorway. Equally, many more mega projects are required to enhance connectivity and develop the local economic base.

The Azad Kashmir government, on the other hand, also needs drastic changes in its administrative structure besides resettling its economic priorities. Currently, only Rs28.5 billion out of a total Rs163 billion is being spent on development projects. Rs135.2 billion is spent on salaries, pensions, and other administrative expenses. The government should spend at least 60 per cent of its budget on public welfare projects. Frankly, Azad Kashmir will not be able to survive economically without significant reduction in administrative expenses and creating local means of large-scale wealth creation.

The incumbent prime minister, Sardar Tanveer Ilyas Khan, belongs to the business community, and has strong social and business ties with the ruling circles and the political elite. In this background, the local people expect a massive inflow of investment so that an economic turnaround is possible. Ordinary citizens, in particular, want to get rid of substandard infrastructure, substandard educational institutions and hospitals. Instead of government recruitment drives, creating employment opportunities in the industry, tourism and IT sectors, especially for women should be a key priority. It should be kept in mind that a large number of women have access to higher education but not employment opportunities.

The provision of good governance has always been a gigantic task for all successive governments in AJK. Although Muzaffarabad is the capital, it has been a tradition for decades that not only the rulers, but also the key government officials like to stay in posh neighbourhoods in Islamabad. Muzaffarabad is usually deserted on Friday afternoon. In case the ministers and authorities get wind that the prime minister is not present in the capital, Muzaffarabad quickly turns into a ghost city. People run from pillar to post seeking remedy but to no avail.

Email: ershad.mahmud@gmail.com

Ershad Mahmud, "Anatomy of a budget," The News. 2022-07-01.
Keywords: Economics , Economic crisis , Economic conditions , Economic base , PM Sardar Tanveer Ilyas Khan , Danish Khan , Azad Kashmir , CDWP , NFC , Fiscal year , Financial control , Pakistan , AJK , Educational institutions