PSDP: Development spending sees axe

Out of Rs150.6 billion, only Rs71.3 billion spent during July-Sept

ISLAMABAD:

The Ministry of Finance has withheld funds amounting to Rs79.4 billion out of the Rs150.6 billion sanctioned by the planning ministry for development spending in the first quarter after it failed to curtail current expenses.

The amount blocked to keep overall spending within limits prescribed by the International Monetary Fund (IMF) is higher than the actual development spending of Rs71.3 billion from July through September.



The massive cut on development spending, which has virtually brought public investment to a halt, has also put a question mark over claims of attaining fiscal discipline.

The less-than-sanctioned development spending from July through September also led to a breach of directives from the National Economic Council (NEC) that authorised 20% of the total development budget spending in the first quarter.

In July-September period, the Ministry of Planning, Development and Reforms sanctioned Rs150.6 billion or 21.5% of the annual federal Public Sector Development Programme (PSDP), according to official documents.



However, the summary of fiscal operations that the Ministry of Finance released on Monday showed that the actual federal development spending stood at Rs71.3 billion, just one-tenth of the annual allocation.

Out of Rs71.3 billion, an amount of 52.6 billion was given for the rehabilitation of Temporarily Displaced Persons (TDP) affected by the on-going Operation Zarb-e-Azab. The Planning Ministry did not treat this sum as ‘development spending’, although allocation of Rs100 billion for TDPs was part of the annual Rs700 billion PSDP.

This has left very little for development activities and in many cases the money is only sufficient enough to pay salaries of projects staff, said sources in the Ministry of Planning.



Like the past two years, the spending pattern conveys that PML-N government would again cut the development budget to claim good fiscal discipline.

For the current fiscal year, the NEC, which is headed by Prime Minister Nawaz Sharif, has approved Rs700 billion development spending. The NEC also allowed spending 20% of the total development budget in the first quarter, 30% each in the second and third quarters and the remaining 20% in the last quarter of the fiscal year.

“The release of development budget slowed down after the current expenses went beyond the initial estimates,” said sources in the Ministry of Finance. “The debt servicing consumed Rs416 billion or 48% of the total expenditures, while another 17% expenses were incurred on defence affairs.



The Finance Ministry has curtailed development spending at a time when the federal government has undertaken mega infrastructure development projects.

Despite blocking release, the budget deficit remained at Rs328 billion or 1.1% of the Gross Domestic Product (GDP

Finance Ministry view

The Ministry of Finance denies blocking any funds and says the difference between spending and the sanctioned budget is due to the pace of development activities.

“The Ministry of Finance timely releases funds and the money goes into the assigned accounts from where it is drawn by the respective ministries,” said Ministry of Finance Spokesman and additional secretary budget Dr Shujat Ali.



However, the Finance Ministry did not have figures on how much it sanctioned for spending and the remaining balance in the assignment accounts.

Another major reason for drastically cutting the development spending was the budget deficits run by Punjab and Khyber-Pakhtunkhwa (K-P) governments, showed the documents.

The achievement of overall budget deficit target of 4.3% of the GDP hinges on the provinces’ abilities to save Rs297 billion or roughly 1% of the GDP from their budgets.

However, instead of showing any savings, the provinces posted Rs29 billion deficit, creating serious problems for the federal government to manage the books.

Punjab government ran into Rs28.5 billion deficit and the K-P government had Rs3.3 billion deficit in the first quarter. The other two provinces posted minor surpluses.

Published in The Express Tribune, November 18^th, 2015.

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