KARACHI, March 28: The Rs60 billion development spending, provisionally estimated for July-December 2001, includes unaccounted expenditures, indicating weak monitoring and poor public sector governance.

In a footnote on a summary of public finance, the State Bank of Pakistan has observed that the development spending “includes unidentified expenditures.” The summary has been presented in the form of a table of figures in its second quarterly report.

Although the finance minister reportedly informed the cabinet at the fag end of November last that the Public Sector Development Programme (PSDP) had been raised to Rs140 billion as a result of increased inflow of foreign assistance and the fiscal space provided by it, the central bank has indicated a PSDP figure budgeted at Rs130 billion for the current fiscal.

In fiscal 2001, the PSDP was budgeted at Rs120.4 billion, but the actual expenditure was a mere Rs102.1 billion against Rs98.3 billion in 1999 and Rs87.7 billion in 2000.

Neither the government nor the SBP makes public any report on the PSDP performance in their six monthly review that tends to focus on IMF agenda and fiscal and monetary policies. In the movement towards free market and limited fiscal space, the development spending assumes a low priority. When the government suffers from a fiscal squeeze, the axe first falls on PSDP.

However, it was expected that fiscal space provided by debt relief and increased foreign assistance would help increase the PSDP substantially in order to revive the economy after Sept 11, more so because investments had fallen to the lowest levels.

Instead as it appears, the government has decided to retire debts from foreign grants. The $600 million dollar grant received from the US has been used by the government to retire almost Rs36 billion of its debt to the banking sector during November-December 2001.

As the revenue side is lagging behind the target and the government has to incur higher defence expenditure due to tension with India, the SBP says that these factors “may cast a shadow on the government outlay.”

Although the government succeeded to control its expenditure during first half of current fiscal, the SBP says “the outlook for overall fiscal operations remained pessimistic.” Central bank officials are of the view that “the government has to revisit its budget deficit target.”

The consolidated budget deficit for the first half of current fiscal was nearly Rs100 billion or more than half of the budgeted amount of Rs187 billion.

PSDP execution has suffered from weak monitoring both at the federal and the provincial levels and delayed disbursement of funds. The over-centralized system of tax collection and distribution is convenient from point of view of collection, but faulty from the distribution aspect. Funds are sometimes released after intervention from the President of Pakistan.