Mar 31 - Apr 06, 2008

The acute financial crunch has forced the government to cut down both the development and non development expenditure by about Rs 65 billion during the remaining period (March/June) of the current financial year.

After many years, once again, the public sector development programme (PSDP) of 2007-08 has been cut by Rs 50 billion. All government departments have been directed to cut down their no-development expenditure too as the government intends to save about Rs 15 billion on this account. The caretaker government wanted to cut down PDSP by about Rs 70 billion but later, on the advice of the planning commission, the cut was reduced to Rs 50 billion.

Sources in the Ministry of Finance told page that the governments has cut down non-developmental expenditures by Rs 15 billion to save at least some money to narrow down the budgetary deficit, and has asked all ministries, divisions and corporations to follow a policy of saving the public money to help it take the big hit of the growing subsidies. "We are facing very difficult time at this point when subsidy on oil is making it next to impossible for the government to fulfil expenditures and the only option left with the government is to cut down developmental and non-developmental expenditures to keep the budgetary deficit within controllable limit. The policy makers said that except defence, government employees, salaries and debt servicing all other heads are currently being reviewed to cut down expenditures for saving whatever amount is possible to keep domestic borrowing within a reasonable limit.

The government departments have been instructed, in writing, by the Finance Division not to spend funds on any kind of procurement or other needs which could be avoided so that non-developmental expenditures could be curtailed as much as possible, and this policy of saving public money would be strictly followed for the remaining months of the current fiscal year.

The Planning Commission is believed to have opposed Rs 70 billion deduction by saying that it will send a wrong signal and that minimum funding should be "withheld" by not providing funds for over 100 small and medium sized development projects. The objective to apply cut in the PSDP size was to restrict fiscal deficit, which officials of the ministry of finance and the Planning Commission privately concede, could escalate to 6.5-7 per cent against the target of four per cent set for the current financial year. Fiscal deficit was at 3.6 per cent of GDP during the first six months of the current fiscal year, which could eventually touch as high as eight per cent considering an unforeseen huge expenditure incurred particularly on law and order.

The Deputy Chairman of the Planning Commission, Dr. Sheikh while talking to press, insisted that the word cut should not be used as no formal decision had been taken to reduce the PSDP. However, he did admit that all is not well and that a number of projects, relating to the federal PSDP (Rs 335) would have to be deferred to avoid hitting the budget for 2007-08. Various development projects of national importance, he said, needed to be continued without any interruption so as to complete them on schedule.

"But those projects which have not been started, are being deferred and naturally no funding will be available for them during the current financial year," Dr Sheikh said. To a question, he said higher authorities had been taken into confidence for withdrawing some Rs 50 billion funding from the PSDP. He advised the government to adopt professional approach to avoid more problems.

Slashing the development and non-development expenditure had also become inevitable because of the fall in collection of revenues. The Federal Board of Revenues (FBR) has collected Rs 584 billion during 8 months (July 2007 to Feb 2008) of the current financial year against the full year target of Rs 1,025 billion. It is feared that there will be shortfall of about 50 to 60 billion in revenues collection during current financial year. According to the FBR the shortfall in revenues has primarily owing to political disturbance since the very start of the financial year.

According to some insiders, however, the target of Rs 1025 billion was too over ambitious. They said that the last government had forced the tax authorities to set an over ambitious target of Rs 1.025 billion on the eve of budget making. "We knew it was not achievable."

A high-level meeting presided over by President Pervez Musharraf last month had agreed to cut PSDP by Rs 70 billion in the wake of slowdown in the economy. The president had convened the meeting to understand the point of view of the Planning Commission for cutting the size of the PSDP. Caretaker Finance Minister Dr. Salman Shah and Special Secretary Finance Dr. Ashfaque Hasan Khan told the president that since domestic oil prices remained unchanged during the last 13 months, it was becoming difficult to continue paying Rs 14 billion every month as subsidy for which the size of PSDP needed to be reduced to avoid further "haemorrhaging the economy".

The president was also told that the current overall PSDP of Rs 520 billion which also included funding for the provinces and earthquake rehabilitation was fast becoming unsustainable.

A participant of that meeting said that top priority would be given to the ongoing important development projects and that no cut would be applied on them. He said the president had advised that wastage should be reduced and mega development projects should be completed on time.

Some analysts, however, believe that overspending of public sector development allocations by the former ruling party just before elections caused a higher than expected budget deficit for the current fiscal year.

Well-placed sources told page that in the first quarter (July-September), former Chief Minister of Punjab Chaudhry Pervaiz Elahi spent over Rs 100 Billion out of a total annual allocation of Rs 150 billion for the fiscal year 2007-08.