THE RS. 20 BN CUT IN DEVELOPMENT EXPENDITURE

In which areas can the cuts be made?

 Oct 26 - Nov 01, 1996

PAGE REPORT

While announcing the devaluation of the Pak rupee the Governor State Bank of Pakistan also made two announcements regarding cutting down expenditure by Rs. 27 billion and additional measures to raise Rs. 13 billion to control the mounting budgetary deficit. He also made it clear that the economic package is an indigenous product of the government of Pakistan duly endorsed by the IMF.

Against total resources of Rs. 439.9 billion, the estimated current expenditure was to the tune of Rs. 395.4 billion, developmental expenditure of Rs. 104.8 billion to be supported by bank borrowing of Rs. 20 billion and a gap of Rs. 40. 9 billion.

The proposed reduction looks a little odd. Because against an estimated expenditure of current account of Rs. 395.4 billion the suggested reduction was Rs. 7 billion and Rs. 20 billion would be curtailed from a development expenditure of Rs. 104.8 billion.

However, one is able to rationalise why could only a limited amount be curtailed from current expenditure? The bulk of current expenditure comprises defence (Rs. 131.4b) and debt servicing (Rs. 186.1b). The other heads include general administration (Rs. 22.3b), law and order (Rs. 7.6b), subsidies (Rs. 8.3b), social service (Rs. 8.9b), grants to provinces, AJK, railways and others (Rs. 16.5b).

The development expenditure comprises federal government expenditure of Rs. 79.3 billion and provincial programmes of Rs. 25.5 billion. Out of this Punjab had the highest allocation of Rs. 9.3 billion followed by Sindh (Rs. 7.5b), NWFP (Rs.5.3b) and Balochistan (Rs. 3.4b). Out of the federal government expenditure 43.6 billion and 28 billion rupees had been allocated to federal ministries/ divisions and public sector corporations respectively.

An amount of Rs. 27 billion comprised reduction in non-core development budget by 20 billion rupees and Rs. 7 billion from current expenditure. The reduction will be ensured by an austerity campaign in all the government expenditures at all levels. However, it is interesting to note that there is no apparent will to cut down non-developmental expenditure. As a first step, if the economic package is owned and initiated by the government, the size of federal and provincial cabinets, number of advisors and perks of memebers of the Senate and assemblies should have been curtailed.

Nature of development expenditure

The governor himself expalined the nature of developmental expenditure by saying that even the construction of a house for a deputy commissioner is classified as developmental expenditure. Therefore efforts should be made to cut down expenses of projects the execution of which has not started as yet. Cutting down the allocations for the already ongoing projects would be more like abandoning the projects in the middle.

As such, most of the development programme initiated by the government neither helps in providing direct employment nor in increasing revenues. The expenditure on health, education and infrastructure forms such a small percentage of GDP that one can hardly expect any major benefit from these expenditures.

The development expenditure comprises capital expenditure and running expenditures. Generally, the capital expenditures are met through aids and grants but if a school building or a hospital has been contructed and is without infrastructure facilities the whole purpose of the project is lost.

Austerity campaign

In the past many projects covered under the head of development were initiated primarily with the object of achieving political gains. But soon after the government initiating the programme was out of power, the programmes were discontinued. The latest of such programmes have been undertaken by allocating funds to MNAs and MPAs and are of very small size. This can neither help in achieving any national objective nor are of any consequence.

Therefore, is it feared that the first victim of the austerity campaign would be these projects. Just to refer to another programme of great magnitude, the present government had started 'Awami Tractor Scheme'. However, after facing serious problems — the banks refused to provide loans — the scheme has taken a new turn. Now the farmers interested in getting a tractor under this scheme are required to make the full payment. The only advantage they could get is the difference in prices — tractors under this scheme come duty-free.

The transport revamping programme initiated by Nawaz Sharif government was discontinued but a similar scheme was initiated for the rural population. However, since the farmers are required to make the full payment in advance the spirit of scheme is no more there.

It has been said that in Pakistan governments starts various programmes which are really not intended to contribute in real terms but to get support from their vote banks. This is the reason the population, irrespective of urban or rural, still faces shortage of schools, healthcare units and public transport facilities.