KARACHI, June 26: The State Bank has noted with concern the lower than budgeted development expenditures during the first three quarters of the current fiscal year 02-03.

It estimates one percentage point of GDP shortfall in the public sector investment during the current fiscal year of 02-03 arising mainly due to large non-utilization of public sector development programme allocations.

“The development expenditure level in the first three quarters of the current fiscal year 03 was lower than the previous year despite a much higher target,” the SBP third quarterly report for the year 2002-03, released on Thursday, observed.

The report covers national economic performance from July 02 to March 03. At the very outset it points out emphatically “a sharp rise in public sector development spending is imperative if the economy is to observe the acceleration and spread of investment required to sustain high growth rates which is necessary if the economy is to experience a rise in employment and lower poverty.”

“The continuing worry is the slow implementation and lack of utilization of these (development) resources,” the SBP report remarks while pointing out towards 30 per cent higher allocation for public sector development programme in 04 budget.

The report suggests close and regular monitoring of all those institutions at the “highest policy level” which carry out major projects to ensure that impediments are removed, the results are achieved and benefits are realised.

The SBP, however, notes with satisfaction the government’s success in containing the fiscal deficit during July 02 to March 03 to 2.1 per cent of GDP leaving it comfortably placed to meet the 4.6 per cent GDP revised FY 03 target.

“This was achieved on the back of strong growth in revenues,” the report says while referring to robust growth in taxes as well as exceptional non -tax receipts and a decline in share of government expenditure in the GDP despite a marginal rise during July 02 to March 02-03 over corresponding period of previous year.

Most of the increase in government expenditure has been attributed to rise in defence, subsidies particularly to KESC and Wapda and in current expenditures of the provincial governments.

Current expenditures of provincial governments were up by 43.1 per cent while federal government expenditures showed a modest growth of 4 per cent. The lower growth in federal current expenditure largely reflects the sharp decline in interest payments on external and internal debts. But defence expenditures increased by Rs21.2 billion and general administration by Rs10.4 billion during July-March 02-03 period. It attributes increase in defence expenditure to demobilisation of troops from the eastern border.

Subsidies to KESC and Wapda are estimated to reach Rs36.4 billion during the current fiscal year, which is substantially higher than Rs6.9 billion budgeted originally for the year and Rs14.4 billion for the year 02.

But growth in revenue was much stronger than that of expenditure during July to March 03 which narrowed down fiscal deficit.

The CBR tax receipts showed strong growth consecutively in the third quarter of the current fiscal in sharp contrast to 02 year performance. During July- March 02-03 period tax collections were up by 15pc and SBP report confidently predicts total collection by end of June close to budgeted target of Rs460.6bn.

The report has made a comparison of last five years tax collection with budget targets and found that 02-03 is the first year when CBR has successfully achieved target. Never before CBR was able to achieve this performance in last five years.

The SBP attributes this exceptional tax recovery to a revival in the economy, broadening of tax base and reform of the tax system. The SBP notes the rise in recovery of indirect taxes — GST and customs—and a fall in direct taxes. It attributes the shortfall in direct taxes — Rs 0.8 billion —to reduction in withholding taxes on government securities and interest on deposits and overall interest income.

Customs and sales tax maintained a growth despite a loss of Rs3 billion suffered because of appreciation of rupee value to average Rs58.5 for a dollar than Rs60 a dollar estimated at the time of budget.