ISLAMABAD, April 28: The international donor agencies have urged Pakistan to increase development expenditure to Rs250 billion in 2004-05 to achieve 6 per cent GDP growth.
Official sources told Dawn here on Wednesday that the World Bank, IMF and the Asian Development Bank were of the view that without substantially enhancing development budget, it would be difficult to achieve 6 per cent growth during the next financial year.
The government plans to enhance the public sector development programme (PSDP) from the current Rs160bn to Rs200bn in 2004-05 and Rs240.3bn in 2005-06. However, the donors wanted the government to increase the development budget to Rs250bn in 2004-05, one year ahead.
The donor agencies largely agreed with the growth projections included in the poverty reduction strategy paper (PRSP). However, they believed that the real test of the PRSP strategy was the resource availability and the effective implementation to deliver the expected results to the poor.
The donors were told that in an environment where the main focus of macroeconomic stablization programme - the key to reviving growth - had been towards controlling the fiscal deficit, generating resources for poverty reduction is a formidable task.
The strategy envisages an increase in allocations over the medium term as more and more fiscal space becomes available as a result of reduction in overall cost of borrowing, decreasing debt servicing, increased resource mobilization and reduction in public sector enterprises' losses, while containing the overall fiscal deficit within the range of 4.0-3.5 per cent.
The qualitative improvements in the public spending and supporting private sector investments can still make a significant difference in terms of development and poverty reduction as the government is under obligation to protect PRSP expenditures at around 4 per cent of the GDP, indicated in the Fiscal Responsibility and Debt Delimitation Law.
"The government has to spend increased funding specially Rs250bn as part of the next PSDP, otherwise one cannot know how would the planners achieve 6 per cent GDP growth in 2004-05", a source in local multilateral agency asked.
He said when the government has a lot of fiscal space available, it must go for higher spending and that the development budget needed to be substantially enhanced for 2004-05 and during the subsequent fiscal years.
"If you are aiming for higher growth then you have to spend Rs250bn or little more during the next financial year", the source insisted. He also said that the government needed to attract necessary investment to achieve the objectives of higher GDP growth.
According to the PRSP, overall investment fell from 20 per cent of GDP in 1992-03 to an all time low of 14 per cent in 2000-01, which contributed to slowdown in industrial growth.
Public investment in this period nearly halved and private investment fell by one-fourth. This reduced employment opportunities particularly for the new entrants into the labour force. The last three year have seen a recovery in investment, which if sustained have a positive impact on employment.
