• IMF estimates Rs175 billion reduction in consolidated development programme
• Caretakers review proposals even as elected govt is set to take helm well ahead of budget

ISLAMABAD: With the IMF estimating a Rs175 billion cut in the consolidated development programme of the federal government and provinces, the caretakers in the Centre are seeking over Rs201bn reduction in the federal development budget alone for the current fiscal year, including Rs121bn allocated for the federal-funded provincial projects.

On Monday (today), the National Economic Council (NEC), chaired by Prime Minister Anwaarul Haq Kakar, is set to take up a six-point agenda, including a cap on federal financing to provincial projects and proposing priorities and guidelines for the Public Sector Development Programme (PSDP) for the next fiscal year.

The discussion takes place even as an elected government is expected to be well in place within the first half of February, almost three months ahead of the next year’s budget.

This also comes amid strong opposition from caretaker governments of the three smaller provinces — Sindh, Balochistan and Khyber Pakhtunkhwa — that want such matters to be better left to the soon-incoming elected governments and because of their own financial constraints.

Punjab, while highlighting the challenges of legal, contractual, and financial liabilities, has not openly opposed the Centre’s move to scale down funding to provincial projects.

Strangely, though, the planning and finance ministries at the Centre have proposed approval for at least a Rs201bn cut in the current year’s budgetary allocations of Rs940bn for PSDP. They want about Rs121bn worth of 76 provincial projects off-the-book of the federal government and transferred to the provinces to finance and complete if they so desire.

Another Rs30bn saving is proposed by freezing the parliamentarians’ scheme under the so-called SDGs Achievement Plan (SAP) at Rs61bn, already authorised by the previous PDM government for disbursement and Rs53bn under the prime minister’s initiatives already taken out of the PSDP.

Interestingly, the IMF had estimated a few days ago the overall development programme, comprising both the centre and four provinces, to be slashed by Rs175bn to Rs2.108 trillion to contain development spending at 2pc of GDP instead of 2.1pc.

According to the IMF, the federal PSDP should have been down Rs61bn to Rs782bn instead of Rs843bn in the budget. The Fund did not consider the government’s Rs950bn budgeted PSDP due to about Rs100bn block allocations for unspecified projects. On the other hand, the Fund had projected the provincial development plans to be lowered by Rs115bn to Rs1.325tr instead of the budgeted Rs1.44tr.

NEC meeting

Under the proposal to be considered today by the NEC, the country’s highest economic development forum, all provincial projects with zero financial progress would not be implemented and ministries and divisions would be ordered not to make or initiate any expenditure on such projects.

These included 68 projects involving about Rs32.55bn allocations. These funds could be diverted to other important projects, especially where additional foreign components are required within the overall PSDP for the ongoing fiscal year.

Also, according to a summary, there would be no further authorisation for the SDGs programme. Instead, the cabinet division would prioritise the completion of ongoing schemes within the already authorised amount.

The savings of Rs28.74bn may be diverted to other important projects within the PSDP, especially where additional foreign components are required.

Moreover, projects under the prime minister’s initiatives that have not been given any funding so far would be capped at the current expenditure level. Provincial governments would be free to take these up as per their priority.

“All ongoing projects may be completed to avoid waste of investment already made and due to possible legal/contractual issues,” the planning division said.

The authorisation of allocated funds for such projects should be made to ensure their timely implementation. These cuts would not apply to projects in KP’s newly merged districts (formerly Fata).

As part of the IMF’s structural benchmarks, the NEC will also review the Public Investment Management Assessment (PIMA), Climate-Public Investment Management Assessment (C-PIMA), and their action plans, besides discussions on socioeconomic objectives of the 13th five-year plan currently under preparation.

Additionally, the meeting will include a mid-year review of the 2023-24 annual plan and a progress report on the SDGs subcommittee.

In its recent report, the IMF found federal spending aligned closely with the initial Standby Arrangement projections, with some under-spending on power subsidies and PSDP attributed to technical delays.

The government had reported to the Fund that the federal government had contained spending, but provincial current spending increased 57 per cent year on year, partly explained by the Punjab provincial government payment of Rs115bn related to commodity transactions, while development spending increased 61pc year on year.

“To ensure that provincial governments remain within their initial budget plans, the provinces have amended their memorandums of understanding signed with the federal government to include the estimated federal revenue, annual provincial revenue, and total expenditure plans, in line with the agreed surplus.

Moreover, the Punjab provincial government has committed through a supplemental MoU to restrict its spending in the remainder of fiscal 2024 by Rs115bn to achieve a surplus of Rs336bn as committed in the memorandum associated with this fiscal year’s budget.

Additionally, the provinces committed to refraining from increasing their commodity debt and adopting a definition of provincial surpluses, the caretaker finance minister, Dr Shamshad Akhtar, reported to the IMF.

Published in Dawn, January 29th, 2024

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