THE PML-N is back with its signature infrastructure development model, which has been responsible for much of our economic crisis.
While setting an ambitious national development programme target of over Rs3tr for FY25, including a federal PSDP of Rs1.2tr, to pursue a growth rate of 3.6pc, the planning ministry is reported to have opposed the finance ministry’s proposal to cut development spending to meet IMF goals. How the lender — with whom Islamabad is negotiating a larger and longer bailout to shore up its international reserves and unlock international funding — will react to the proposals will soon become apparent.
The next budget will be part of the prior actions required by the IMF and key to a staff-level agreement for a new Fund programme. The planning ministry has also disregarded the fact that the current cash crunch may force the country to slash its PSDP estimates going forward and hold back funds for the proposed projects in order to meet Fund conditions — projects that only add to the existing development throw-forward of above Rs9.8tr.
The PSDP for the outgoing fiscal year has been reduced to Rs717bn from the original estimate of Rs950bn due to fiscal constraints as well as to create space for a primary surplus of 0.4pc of GDP to meet the most important condition of the last IMF programme. The proposed PSDP focuses on energy, transport and water projects, but it is not yet clear whether the government plans to complete the ongoing schemes or start new ones.
Considering our current financial condition, the growth target of 3.6pc appears overly ambitious. The Planning Commission itself has stated that growth prospects are subject to “political stability, exchange rate stability on the back of improvement in external account and external inflows, macroeconomic stabilisation under the IMF’s programme and expected fall in global oil and commodity prices”.
Likewise, an inflation target of 12pc for the next fiscal year may also be missed by a wide margin because of taxation measures, such as a 1pc increase in consumption tax to 19pc and a hike in taxes on petrol — to be included in the budget and the IMF’s exchange rate depreciation projections.
The government’s high indebtedness and its growing expenditure on debt servicing has put pressure on the upcoming budget, especially with the economy and private investment grinding to a halt. Any further fiscal slippages and succumbing to the temptation to showcase “progress and recovery” through large but deferrable infrastructure projects will worsen the situation.
The current state of the economy demands that the government focus on debt sustainability by curtailing its spending and mobilising more resources through the expansion of its tax base. The public has already paid dearly for the rulers’ fiscal profligacy in recent years.
Published in Dawn, June 3rd, 2024
