Austerity Needed

Azad Jammu and Kashmir faces a challenging new financial year. There is a record Rs17.5bn deficit in the Rs47.3bn budget, with the development outlay being badly hit. Non-development expenditure has gobbled up a huge chunk of the budget (Rs36.157bn) and the AJK government has to put in a tremendous effort to bridge the gap.

The cuts the territory is facing have been attributed to the fiscal restructuring after the signing of the seventh NFC award. Though AJK is not constitutionally part of Pakistan and hence not directly entitled to a slice of the NFC pie, reductions in the federal government’s share have had a direct effect on the state’s finances. Islamabad contributes towards AJK’s development budget through ‘block allocation’ as well as other heads, and as these contributions have been scaled down, a large deficit has resulted.

Muzaffarabad contends that if the central government gave the state its due share of net hydel profits and federal taxes, its fiscal conditions could improve and it would not have to look to Islamabad for bailouts. Some observers say that friction between the AJK government and Islamabad is having an adverse effect on the people of Jammu and Kashmir. The federal government must look into these claims and if there are indeed blockages clogging up the flow of funds to AJK, they must be cleared. As far as better financial management is concerned, there are possible short- and long-term solutions for the AJK government. Observers have noted that despite the record deficit the AJK administration has not announced any austerity measures. The cabinet is too big and the government styles itself after the Punjab administration. Can Muzaffarabad afford to run a government along Lahore’s model, or is a leaner administration and belt-tightening in order? As for long-term solutions, perhaps the federal government should invest in hydroelectric power projects in AJK, which will generate income and help alleviate the national power crisis.

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