ISLAMABAD, Jan 18: A massive shortfall in revenue collection and the International Monetary Fund’s condition to lower budget deficit has forced the government to drastically cut the development budget during the first half of the current fiscal year.

The finance ministry released only Rs70 billion for development projects in July-December against an expected Rs200 billion.

Like in the past, the development budget is the first casualty of efforts to reduce expenditures.

The government had allocated Rs400 billion for 2008-9 under the revised estimates of the Public Sector Development Programme (PSDP), reduced from Rs549 billion in the wake of the slowing down of privatisation and foreign investment.

Last year, the PSDP allocation was Rs520 billion which had not been fully utilised.

Only Rs16.502 billion was given to the provinces during the six months for development projects proposed by members of parliament as part of the PSDP. Of the amount, Rs633.754 million was released to the ministry of local government and rural development.

The finance ministry admitted that last year’s PSDP allocation remained under-utilised because of procedural problems and the surplus was not deposited with the central bank, leading to the federal government’s overdraft for its expenditure.

An official told Dawn that the government had been left with no option but to cut development expenditure and take other measures to meet the budget deficit target of 4.2 per cent by the end of June, as agreed with the IMF.

He said the Federal Board of Revenue (FBR) had faced a shortfall of Rs36 billion during the first half of the fiscal year. The shortfall might reach Rs100 billion by the end of the year, he said.

The government recently asked all ministries, division and departments to cut all non-salary expenditures by 20 per cent.

The official said that rather than cutting the defence budget, the government might have to allocate more funds for the purpose because of tension on the eastern and western borders.

The country is also facing problems in receiving funds from the US against expenses incurred on the ‘war on terror’, which amount to $1 billion.

The privatisation programme is also moving at a snail’s pace with no major achievement having been made during the period.

Because of these reasons, the official said, the government was forced to raise the levy on petroleum products and keep their prices unchanged despite a massive decline in crude prices in the international market.

The government was getting Rs14-15 billion from PDL and duty and taxes on petroleum products and the revenue on this account was expected to reach Rs100 billion by the end of June, the official said.

Oil prices in the international market have declined by 70 per cent after having reached the peak of $147 per barrel, but the government has reduced the price for consumers by only 40 per cent.

It is feared that the cut in allocation for projects would not only slow down development work, but also increase unemployment and affect businesses dependent on it, including cement, engineering and manufacturing sectors.