THE National Economic Council (NEC) is meeting in Islamabad on May 31 to firm up various budgetary proposals, including a Rs535 billion Public Sector Development Programme (PSDP), for 2007-08.

The government plans to allocate additional Rs100 billion to have Rs535 billion PSDP against Rs435 billion of the current financial year.

The new budget, likely to be announced on June 9, is being finalised by the priority committee of the ministry of finance examining the funding demands of various ministries and provinces. The Annual Plan Coordination Committee (APCC) of the Planning Commission is scheduled to meet on May 21 to approve various development projects of the provinces, ministries and departments in line with the resource capacity earlier indicated by senior officials of the ministry of finance.

What is the budget strategy and how would the government make available additional Rs100 billion for development purposes, especially when the tax-to-GDP ratio is stagnant, is an important question begging for an answer.

The prime minister's adviser on finance, Dr Salman Shah, when contacted told Dawn that the government's financial position is comfortable to offer additional Rs100 billion for the proposed PSDP.

“Rest assured funding is not a problem", he claimed, adding that the overall size of the economy had doubled during the last five years from $70 billion to $140 billion which was helping the government in spending more money on development activities across the country, Azad Kashmir and the Federally-Administered Tribal Areas (FATA).

Dr Shah said that as the country's old and decaying infrastructure was causing problems in attracting sizable local and foreign investment, most of the PSDP funding would be allocated for infrastructure development. But then the human resource development sector would also be provided adequate share in the next budget for skill promotion, a key to achieve real progress and development in the country.

Issues concerning poverty and unemployment are also being taken as important challenges for which the government would not only mobilise more funds for next financial year, but had also asked the international donor agencies to fund development programmes during the next financial year.

He said increased funding would also be made available for building major dams in order to have necessary hydropower for industry and sufficient water for agriculture. During the ongoing pre-budget meetings, it had also been decided to give a boost energy sector with a view to managing the required electricity.

Asked about poverty alleviation and unemployment, he said these two issues certainly required more attention and more funding by the government. A decision had been taken to reduce poverty by strengthening social safety net through the Bait-ul-mal funding and increased small loans to be offered by the microfinance banks during 2007-08.

To a question, he said the government was considering offering more incentives for promoting privatisation and attracting sizable foreign investment..

Dr Shah said the government would also be extending all possible fiscal and non-fiscal incentives for the industry and the manufacturing sectors as well as for the services sector.

When reminded that one did not see the impact of increased allocations of funds, Dr Shah said that fruits of improved economy could not adequately go to the common man if population growth was not restricted below 1.5 per cent.

“But things are much better than seven years ago as far as poverty is concerned which has been cut by 10 percentage point and this is also being recognised by the international donor agencies".

The going-forward strategy, he said, was to ensure timely disbursement of funds to the provinces and the line ministries out of the PSDP funds. He admitted that some time it became a problem to exhaust all budgeted funds and that this issue would be adequately addressed during the next financial year.

Former senior official of the Planning Commission and former president of the Pakistan Institute of Development Economics (PIDE), Dr A.R. Kamal, however, did not believe the government had the capacity to spend proposed Rs535 billion on development next year.

"One must ask the government how much funds it had spent so far out of the current Rs435 billion PSDP and, in the light of that answer, there could be some idea about spending additional Rs100 billion in 2007-08", Dr Kamal said.

He said a big chunk of the money had not been spent out of the allocated funds, which would now be used in the next budget, showing an increase of Rs100 billion. The government also avoided giving details about the development and non-development budget and this issue needed to be taken into account, he said.

"This is our dilemma that we do not spend the money that we decide and allocate at the time of announcing the budget", Dr Kamal regretted. He believes that as percentage to GDP ratio, the government should allocate funds for development purposes and fully inform the nation about it.

Mr Henri R. Lorie, IMF Senior Resident Representative in Islamabad, when approached, said that most of the funds allocated for the current PSDP were expected to be spent by the government by June 30 this year. "My sense is the most of budget appropriations would have been spent before this financial year ended", he said.

However, he said that implementation always lagged behind which was now catching up. "If the implementation process of PSDP spending is good, the government could be in a position to achieve its objectives", Mr Lorie said.

According to Dr Shah, the budget deficit target was being set at four per cent of the GDP and if the government remained within its target limits, implementation capacity for the PSDP funding would improve for better economic growth, the IMF local chief said.

He, however, stressed the need for improving infrastructure for strengthening growth within the stated limits of budget deficit. The government, he said, was expected to make efforts for mobilising enough revenues during 2007-08.