Fiscal management: Govt scrambles to find development funds

Admits before PAC 903 projects will take at least 7 years to complete

ISLAMABAD:

Just two days after signing infrastructure financing agreements worth $6 billion, the government on Wednesday admitted before a parliamentary panel that it would likely struggle to complete its existing portfolio of development projects in the next seven years.

At a hearing of the Public Accounts Committee, the apex financial watchdog for government finances, Planning Secretary Hasan Nawaz Tarar said that at the current rate of spending, the 903 projects currently being funded by the government will take at least seven years to complete.

Asif Sheikh, the development budget advisor in the planning ministry, said the collective cost of those projects is Rs5 trillion, of which Rs1.6 trillion has already been spent, leaving Rs3.4 trillion required in additional funds to complete the projects. He added that the construction work on some of these projects began as far back as a decade ago.

The PAC had convened the meeting to ask for details of the government’s development projects’ portfolio, including cost overruns and the money required to complete them. Tarar said the Rs525 billion allocated by the government towards infrastructure and other development spending was not enough to fill the infrastructure investment gap, adding that he was seeking a bigger allocation from the finance ministry.



The new projects the government has committed to develop on behalf of China will likely further stretch the development budget thin, said PAC Chairman Khursheed Shah, adding that this is likely to cause the cost of the projects to go up as delays add to construction costs. Shah said the government is expected to add roughly Rs1 trillion in more projects in the federally funded development programme.

Tarar said that work on around 250 projects will be completed this year, which will create some fiscal space but still that will not be sufficient to add new projects.

The briefing held just two days after Pakistan and China signed $28 billion contracts under the strategic partnership framework of China Pakistan Economic Corridor (CPEC).

The government would require roughly Rs125 billion to Rs150 billion during fiscal year 2016, which starts on July 1, to execute work on projects under CPEC, Planning Minister Ahsan Iqbal told The Express Tribune. He said the government would create fiscal space by suspending work on what he described as ‘less important projects’.

China has committed concessionary loans for these projects but still the government has to allocate a rupee component for each project, which will have a direct bearing on next year’s fiscal deficit. For fiscal 2016, the Finance Ministry has allocated Rs580 billion for the development budget, which the Planning Ministry says is insufficient, given the requirements of CPEC projects.

However, the government is stuck between a rock and a hard place. On one hand, it has promised China that it will fund its part of several projects for CPEC. On the other hand, it has also promised the International Monetary Fund that it will keep the budget deficit limited to 4% of the total size of the economy for fiscal 2016. Historically, including this year, to meet its deficit targets, the government tends to cut the development budget for long-term projects rather than cut short-term consumption through subsidies.

In the first nine months of this fiscal year, the government has only spent Rs304 billion, or just under 58% of its Rs525 billion budget, on development, said Tarar. Based on the mechanism agreed to with the Finance Ministry, the government should have been able to spend Rs369 billion by now, suggesting that the government has fallen short by Rs65 billion.

Despite this, however, the Planning Secretary insisted that the government would be able to spend its full allocation of Rs525 billion in development spending for the fiscal year ending June 30, an assertion the PAC did not accept as feasible.

“The government does not have the capacity to spend the remaining Rs221 billion in the last three months of the fiscal year,” said Syed Naveed Qamar of the PPP.

The IMF projects that Pakistan’s federal development will come to Rs468 billion in fiscal 2015, Rs57 billion short of its target.

Finance Secretary Waqar Masood said the government’s revenue collection will determine what the actual development spending will be in the current fiscal year. The Federal Board of Revenue is currently falling short of its downward-revised revenue collection target by Rs150 billion.


Published in The Express Tribune, April 23^rd, 2015.