Mar 9 - 15, 2009

The Planning Commission has moved a summary to the Prime Minister seeking formal approval to drop 140 locally funded projects costing over Rs17 billion included in the Public Sector Development Programme (PSDP) for the current financial year (2008-09) for reducing the expenditure for curtailing fiscal deficit as required by the IMF.

The fiscal deficit is targeted to decline to 4.2 percent of Gross Domestic Product (GDP) in current fiscal year from 7.4 percent in 2007-08. The government has committed to the International Monetary Fund to reduce domestically financed development spending by about 1 percent of GDP through better project prioritization.

Sources said that these are ongoing projects including 6 projects of water and power ministry, 5 information technology, 15 food and agriculture, 3 finance, 28 science and technology, 13 commerce, 30 health, 6 housing, 6 Board of Investment, 14 Higher Education Commission (HEC), and 3 interior ministry in addition to about 125 projects already removed from PDSP programme cutting development expenditure by about Rs100 billion. The highest cut has been made in the projects relating to higher education.

The Planning Commission recently briefed the prime minister on the state of development activities and its document presented a rather gloomy picture of the pace of development. While terrorist activities have taken a heavy toll on infrastructure and business and development activities, the process of releasing funds for several important projects has been quite slow. The government has set the deficit target for 2008-09 at Rs562 billion, which is 4.2 per cent of the GDP. It will need a funding of Rs350 billion from external sources and Rs212 billion from internal sources.

The cut in the PSDP is by now estimated at Rs100 billion, but sources in the finance ministry say that savings will go well beyond the figure by June 30. According to the PC document, 170 of the 432 projects could not be implemented on time due to 'lack of management capacity'. Delay in the release of funds has affected 73 projects and 60 others could not meet the completion deadline due to ŰinefficiencyÝ of contractors. Ten projects were delayed because of faults in designs, 16 due to inability of implementation authorities to acquire land and nine because of the law and order situation.

Twenty-seven projects could not be taken up on time because of delay in the appointment of staff or their absence. Lack of coordination between provincial and federal governments affected eight projects and 'delay in appointment of consultants' another eight. Problems in loan disbursement delayed five projects, while 46 projects failed to meet the deadline due to other factors. Of about 100 infrastructure projects, 82 are facing delays of more than a year and five of one year. Eight are in the initial stage. The government has approved 233 projects for social sector and only nine of them are on schedule. Of them, 173 projects are facing delays of more than a year and 34 of one year. Seventeen social sector projects are in the initial stage.

WATERCOURSES: The commission informed the prime minister that 68 per cent work on the National Programme for Improvement of Watercourses has been completed. The project has to be completed by 2010 and involves 86,043 watercourses. Work on 58,435 of them has been completed. Only 621 watercourses have been lined in the Federally Administered Tribal Areas against the target of 1,600, because of the law and order situation.

In Azad Kashmir, 251 watercourses have been improved against a target of 1,000. About 30,000 watercourses were to be improved in Punjab, but work on only 177,44 has so far been completed. In Sindh, 16,611 watercourses have been improved against a target of 29,000. In the NWFP, however, the target of 10,000 watercourses has been met and in Balochistan, work on 11,782 watercourses has been completed against a target of 13,466.

It is unfortunate that Pakistan's ruling elite gets to keep its perks and privileges no matter how difficult economic conditions in the country may be. They are willing to beg from 'friendly' countries, borrow from international lenders, and steal from the poor to get things going for themselves. When the government embarked upon its macro-economic stabilization programme and subsequently approached the IMF for balance-of-payments support to correct financial imbalances, it was obvious that some spending somewhere would have to be curtailed. It was also a foregone conclusion that the cut would not affect the government's administrative expenses i.e. its perks and privileges, and that the common people would be made to pay the price for the financial indiscretions and profligacy of the rulers. Few officials tried to convince the public otherwise.

It did not take people very long to start feeling the heat of government policies. Fuel subsidies were eliminated ˇ in fact, consumers are now paying far more than the international price of oil ˇ and power subsidies slashed. The government has now reduced its development spending by more than Rs100bn in the first seven months of this fiscal in the name of "rationalizing" the Public Sector Development Programme. The size of the latter is expected to be trimmed further during the rest of the financial year.

Another report appearing in a section of the press a few days back pointed out that the social sector ˇ including health, education, water supply, etc ˇ was a major victim of the reduction in development spending: allocation for it was cut by a hefty Rs79.50bn.

The twin measures - cuts in subsidy and reduction in development expenditure - were the easy way out of economic trouble for the government. They have helped fiscal deficit to come down to 1.9 per cent during the first half of the year. The government hopes to contain it at less than 4.2 per cent by the end of the year. However, the elimination of subsidies has raised the cost of living and forced many to cut essential spending on education and health.

The removal of 125 development projects from the PSDP and delays in the implementation of others mean thousands of new jobs will never materialize. At the same time, the government has failed to restrict its non-development expenditures, which have grown by over 25 per cent year-on-year. In spite of public statements, it has also dithered on promises to tax the rich who enjoy massive exemptions. To keep promise would have also been a way out of the economic morass. Perhaps, it was difficult to do that because of the damage to elite interests. Public anger against the government's policies is, therefore, not without reason.