GOVERNMENT CONSIDERING CUT IN PUBLIC EXPENDITURES

SHAMIM AHMED RIZVI
Feb 18 - 24, 2008

The Government is considering cutting its Public Sector development Program (PSDP) by about Rs. 80 billion to meet the shortfall in revenue collection and the growing expenditure on subsidies on food items and petrol and petroleum products.

According the finance Minister of the caretaker government, the government incurred an expenditure of about Rs. 54 billion as subsidy on oil price during the last 7 months. The subsidy on food and many other food items sold through utility stores is costing national exchequer about Rs. 24 billion a month for the last four months. There has been a shortfall of Rs. 36 billion in the revenue collection during the first half of current (2007-08) financial year ending on Dec-31st -2007. In a meeting called by the Planning Commission in Islamabad last week on the request of the Ministry of Finance, the four provincial governments were asked to reduce their development budgets for the current year. Surprisingly however, the representatives of the provincial government refused to trim their ADPs.

Confronting a rising budget deficit, the federal government has asked the Punjab, Sindh and NWFP governments to squeeze out more than Rs. 40 billion from their development budgets of the current fiscal year. Sindh was being asked to take out Rs. 10 billion, Punjab Rs. 25 billion, and NWFP Rs. 5 billion plus from their respective development programmes of 2007-08. Sindh has drawn up a development programme of Rs. 50 billion, Punjab Rs. 150 billion and NWFP more than Rs. 20 billion from their own resources stipulated by the National Finance Commission in the federal divisible pool. Balochistan entirely depends on federal funds for its Rs. 10 billion development outlay and hence the province for a cut. "All the three provinces have opposed this cut on development programme," a reliable source in the government said.

Dr. Akram Sheikh, Deputy Chairman Planning Commission chaired the inter-provincial meeting in Islamabad last week to discuss the possibility of cut in the development funds of the provinces. Sources said that the proposal to cut the size of the ADPs was discussed in length and various options were considered. The authorities of Planning Commission came up with a plan to cut in federal Public Sector Development Programme as well as major slash in the funds of ADPs of the provinces, a senior official of Planning and Development Department of Sindh who represented the province in the meeting told.

Sources said that it was discussed in the Planning Commission meeting that billions of rupees worth property was set on ablaze and damage occurred to public as well as private property in violence acts erupted in the wake of murder of former Banazir Bhutto on December 27th which resulted into a big shortfall in the resource collection the country.

The authorities of federal government were of the view that billion of rupees were needed to rehabilitate the damage occurred to public property while government also has a plan to compensate the losses of private level on some level. While the representatives of four provinces showed their unwillingness to curtail the provincial annual development programme of current FY08 on the basis of major losses suffered to private sector.

There was no justification to cut in provincial ADP, the representatives argued in the meeting. While representatives of Punjab and NWFP governments conveyed that they didn't incur major losses as compared to Sindh, hence both provinces took firm stand for not curtailing their funds. The Punjab government informed the meeting that the total outlay of the ADP was 150 billion of current FY08 out of which it had already released 105 billion in last six months for the development projects. The authorities of federal government did not stress on Balochistan to cut the funds of annual development programme of province as it had already meager resources for ADP, official source confirmed. The Sindh government, on the ground of losses occurred to private sector, showed unwillingness to reduce its ADP.

The senior official of Sindh government confirmed that final decision has not taken in last meeting and federal government may convene another meeting to discuss the issue in next few days. While official of Sindh government were of the view that the tug of war continued between Planning commission and Federal Finance Ministry on the issue of curtailment of PSDP funds.

As the caretaker government failed to evolve consensus in the meeting the issue of budget adjustment has been left to president to decide.

Informed sources told PAGE that a number of proposals were being worked out for the required budgetary adjustments by the ministry of finance. It suggests that the government will need to reduce the allocation for the Public Sector Development Programme along with slightly higher fundraising through national savings schemes to bridge the gap between available resources and expenditures.

The federal and provincial governments were able to utilize Rs. 128 billion n the first quarter (July-September) of the current fiscal year. Another 100 billion was utilized by project executing agencies till December 31, 2007. The second quarter funds utilization usually remains higher than the first quarter because of a pick-up in implementation activities after the start-up problems.

The sources said that the pace of implementation had slowed down in the recent weeks because of the elections and overall security environment which also resulted in the evacuation of foreign engineer from the projects sites.

Officials at the finance ministry expect the overall development expenditure will remain more or less at the last year level or at best touch Rs. 450 billion. Caretaker finance minister Dr. Salman Shah said the government had half a year to make fiscal adjustments which may include a reduction in the development budget in the last quarter of the financial year because the government had to meet the overall objective of restricting fiscal deficit at four per cent of GDP. The government had allocated an amount of Rs. 520 billion for the current year's PSDP (2007-08) which was about 25 per cent higher than the previous year's Rs. 415 billion.

An official at the Planning Commission said that it was yet to receive proposals for a reduced PSDP, but agreed that a mid-year review of the overall economic situation, including the development programme, was currently in the final stage. He said that there was a likelihood that releases for slow moving projects or those failing to take off owing to various bottlenecks might be withheld on the basis of mid-year review.

Last year, the federal and provincial governments were able to spend about Rs. 435 billion or five per cent of GDP. This year, the government has transferred about 25 per cent of total funds to the provincial governments and federal executing agencies at the beginning to help them start the projects. The utilization of Rs. 128 billion funds in the first quarter of this year was, therefore, almost double the Rs. 68 billion utilized during the same period last year.