ISLAMABAD: The government is believed to have agreed with the International Monetary Fund (IMF) to slash the current year’s Public Sector Development Programme (PSDP) by another Rs20 billion to Rs897bn from Rs1,175bn to cover a massive shortfall in revenue.

The government has already slashed the tax collection target from Rs2,810bn to Rs2,691bn. Based on collection figures of first nine months of the current fiscal year, independent economists put the total generation at Rs2,550-2,560bn.

Read: ‘Less than 5pc PSDP funds utilised in five years’

On top of that, gas infrastructure development cess (GIDC), one of the government’s major revenue streams, has become controversial after the rejection of its review petition by the Supreme Court which declared the cess a fee, and not a tax.

The government had set an ambitious target of Rs145bn or 0.5 per cent of GDP under the GIDC for the current fiscal year, besides about 0.1pc arising out of resultant higher GST.

Applying cut in development programme has been a traditional instrument for the government to rein in the fiscal deficit limit committed to the IMF. The deficit for the current fiscal year was set at 4.8pc of GDP, but the government has been indicating some slippages because of higher expenditure on security and resettlement of people displaced by the military operation in North Waziristan.

According to documents released by the IMF last week, Pakistan’s consolidated PSDP has been slashed by about 24pc to Rs897bn from Rs1,175bn allocated in the budget 2014-15. The federal PSDP spending was revised to Rs467bn from the budgetary allocation of Rs525bn, a reduction of Rs58bn or about 11pc.

The major reduction in development spending has been estimated to come from the provincial governments mainly because of their commitment with the centre to offer Rs289bn in cash surplus and capacity limitations to undertake development projects.

As a consequence, the provincial development spending has been worked out at Rs430bn against Rs615bn allocated in the budget and approved by the parliament and provincial assemblies. This means a cut of Rs185bn or 30pc.

In overall terms, development budget for the current fiscal year is estimated to have dropped to 3.2pc of GDP from 3.4pc last year. The provincial spending has declined to 1.5pc of GDP from 1.7pc last year, while the federal spending remained unchanged at 1.7pc of GDP.

In a written statement, Finance Minister Ishaq Dar has assured the IMF that the budget 2014-15 is in consistent with its programme objectives aimed at lowering the deficit, excluding grants, to 4.8pc of GDP.

Published in Dawn, April 17th, 2015

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