Development budget woes

The news that Pakistan would in all probability see a cut in its development budget, mostly on the part of the provinces, comes as little surprise. The country is forced to adopt a stingy approach in the wake of its budget deficit. More often than not, the government has had to slash the development budget in a bid to reduce the fiscal deficit, which seems to slip out of control every year. Amid increasing expenditures and no direct measures to increase revenue, the government has treated development projects as the step-child to be attended to later.

Declining oil prices have enabled the government to reduce the energy subsidy and help retire the piling circular debt of inefficient power companies. These have also helped the government build foreign exchange reserves that could help withstand external shocks — unlike the 2008 episode — and reduce the current account deficit despite falling exports. The IMF, in its latest projections of the Pakistani economy, has said the country would have to reduce its development budget by 25 per cent that would see the amount come down from Rs1.51 trillion to Rs1.13 trillion. This essentially means that Pakistan will miss its economic growth rate target of 5.5 per cent, which also does not surprise many since the goal was a highly ambitious one from the outset. While it was not unachievable, most felt the target will likely be missed since there weren’t concrete steps taken in that direction. Most of the blame for the ills plaguing the economy can be placed on low tax collection. Provinces will be seeing a cut in infrastructure spending since their share of tax collection, to be forwarded by the centre under the NFC award, will fall below the target. All the IMF’s projections can be traced back to poor tax collection, with taxpayers proving to be an unreliable source revenue-generation. Provinces don’t spend a lot on infrastructure development in any case and telling them that a steep cut is in the offing only makes matters worse. Raising the rates of indirect taxes will not be enough either, this time around.

Published in The Express Tribune, October 9^th, 2015.

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