Sources told Dawn on Monday that the government had adopted a tight policy of releasing funds for development schemes because of the rising fiscal deficit. – File Photo

ISLAMABAD: The government has released Rs30 billion in the first two months (July and August) of the current fiscal year, which is about 10 per cent of the Rs290 billion federal public sector development programme (PSDP).

Sources told Dawn on Monday that the government had adopted a tight policy of releasing funds for development schemes because of the rising fiscal deficit.

As a result, the government was generally releasing funds for development projects on ‘actual work done basis’, instead of making payments against ‘work in progress’.

Insiders said the slow release process was an indication of a move to contain PSDP expenditure well below Rs290 billion approved by parliament.

Last year, the government had cut federal development programme by over Rs100 billion to finance a part of fiscal deficit that breached the budget target by more than 2.2 per cent of GDP as a result of higher security expenditure and reckless payments to power companies for their unquantifiable losses.

An official said that the finance division had started the new financial year with a tight fiscal policy to remain within budgeted fiscal deficit limit. Traditionally, the government has been empowering executing agencies and line ministries to limit their development spending to 20 per cent in the first two quarters of the financial year and then spend 30 per cent of the allocation in the last two quarters.

However, the formula could not work prudently in the current unusual circumstances when resources are limited and there is competition to get greater share in the pie.

Also the line ministries and executing agencies get hold of PSDP funds even if their projects move slowly. In the process, they deprive other competing projects of required funding even if they have to surrender funds from slow moving projects.

Therefore, to better manage whatever resources are available, it has been decided to release funds only for completed and highly likely to be completed works, the official said.

A finance ministry official said the government had decided to follow a path of fiscal consolidation and revive economic growth, for which it was important to spend money where necessary and in a targeted manner.

In line with this policy the government has also written to ministries, divisions and line departments to limit fiscal deficit within budgetary targets and avoid a repetition of last year when deficit went beyond six per cent of GDP against a target of four per cent.

All the relevant authorities have been directed to restrict their current expenditures at the level of 20 per cent of budget estimate for the first quarter, July-September, followed by another 20 per cent in the second quarter, up to December.

They have been advised to utilise 30 per cent each in the third and fourth quarters.

In unavoidable cases, contractual and obligatory payments may be considered on a case-to-case basis and relaxation, if required, may be allowed by the secretary finance.