ISLAMABAD, Dec 26: The government is expected to make some major budgetary adjustments in the next few days under the mid-year budgetary review 2007-08 to meet changed economic needs, including rising fiscal deficit and food inflation.

Informed sources told Dawn that the ministry of finance has almost crystallized required adjustments that would also involve cut in development programme by more than 20 per cent and increased allocations for subsidies.

At the heart of the problem is expected much higher deficit than budget target of four per cent as a result of slippages in utility prices and a continuous increase in food inflation, particularly wheat and flour.

The full year budgetary target of Rs130 billion for bank borrowings, said these sources, has already been surpassed although major part of the fiscal year was still remaining.

The sources said the government was also contemplating to make first oil price increase of Rs2 per litre on Jan 15 when the election process would be completed. This will be followed by another similar increase on Jan 31, 2008. In the meanwhile, a campaign would be started through the official media for the required increase in oil prices.

These sources said the finance ministry officials have estimated that utilisation of public sector development programme would remain significantly lower than allocated Rs520 billion.

The ministry expects that total PSDP expenditure would amount to Rs225 billion by Dec 31, i.e. in the first half of the current fiscal year. As a result, a few major budgetary re-allocations would be made.

These sources said another Rs131 billion are estimated to be utilised in the remaining half of the fiscal year because of an expected slow progress during formation of the new elected government. As a result, the ministry is contemplating to increase allocations for food subsidies to about Rs132 billion.

Some cuts would also be made in the development budgets of some of the ministries. For example, the budget for Higher Education Commission will be slashed by Rs5 billion.

In this way, the government would increase budgetary allocation for oil subsidies by about Rs40 billion instead of original estimates of Rs15 billion, leading close to Rs55 billion for this head.

Apart from development budget, some other adjustments would also needed to be made in the current expenditure to contain rising budget deficit.

These sources said the government was facing serious problems with Khushal Pakistan Programme that envisages a total allocation of Rs35 billion for the current year and a sizeable cut was also expected under this head.

In the first three months of the current year, budget deficit stood at about Rs158 billion. The pace of the deficit, if continued, could go beyond Rs600 billion. The government had set a target of Rs399 billion for fiscal deficit at the time of the announcement of budget 2007-08.

These sources said some revisions in the macroeconomic indicators are also expected owing to a slower pace of growth in the manufacturing sector, lower than targeted privatisation proceeds because of a slowdown being witnessed in this area since the start of the fiscal year.

The government had set a target of Rs75 billion for privatisation proceeds during the current year, but major transactions like Pakistan State Oil, OGDCL and PPL and gas and power utilities, were not showing the pace originally expected. Some of these transactions are unlikely to be completed by end of the year, these sources said.

The sources said the inflation target of 6.5 per cent set for the current year was also expected to be missed by a big margin and hence a revised estimate may be needed to be put in place under the mid-year economic review.

The review process, said these sources, was started early this month and would be finalised before the new government comes into power. It was, however, not yet clear if the revised estimates would be approved by the caretaker or the new government, these sources said.