International lenders have grown worried over Khyber Pakhtunkhwa’s rising debt levels as it surged by 28 percent in just a year. As per Dawn, the outstanding debt KP is liable to pay stands at a staggering 680 billion rupees.

 

While this might not seem alarming at first glance, financial experts are predicting a drop in the development potential of KP as risk indicators continue to worsen in the province. As it stands, the provincial government of KP has been alerted by international creditors regarding the potential solvency issues that the government might run into.

 

In a meeting with KP leadership, international lenders suggested a solution- austerity measures.

 

As per Dawn News, the reason KP finds itself in constant need to borrow funds is because of PTI leadership’s focus on political issues rather than the economy. The claim has some merit to it as constant rallies to Islamabad and protests cause members of the provincial assembly to leave Peshawar largely unattended. This has created a vacuum for guidance within the decision makers, especially regarding matters pertaining to the economy.

 

The rising debt burden comes at an inconvenient time as IMF expects budget surpluses of large magnitudes from both the provincial and federal government. The IMF condition in reference here requires all four provincial governments to generate a budget surplus of 1.127 trillion rupees.

 

However, with KP relying on debt to finance government expenditures, lawmakers in Islamabad are worrying that the third largest provincial economy within the country may not be able to record a sizable budget surplus to meet IMF requirements.

 

This is largely due to the fact that in the coming months, the burden of interest payments is expected to rise. For businesses across the province, this spells bad news as the government might try to levy additional taxes or try to expand the tax net in an attempt to meet IMF guidelines.

 

The sectors where KP might attempt to increase tax collection will most probably be agriculture, automobiles, services, property and stamps. The reasoning behind this is that provinces are allowed to collect taxes on activity from these sectors.

 

For the upcoming fiscal year 2024-25, KP has budgeted a staggering 67 billion rupees for debt payments. Of this total amount, over 40 percent will be purely to pay back interest on the principle amount.

 

The interest repayments reduce KP’s ability to fund public projects within the province as the government will cut back expenditure on projects to pay back interest instead. The loss of potential public development initiatives is alarming as the current unemployment rate in KP stands at an uneasy eight percent which may rise even further if the government starts shelving projects as part of the stipulated austerity measures of the IMF.