Development spending: Planning Commission for 30% increase in budget

Crucial nuclear, hydropower projects may be delayed due to fund shortage.

ISLAMABAD:

The Planning Commission (PC) has recommended to the federal government to increase development budget allocation by over 30 per cent for next year, as failure to do so will hurt crucial nuclear and hydropower projects including a satellite programme.

It has also warned that the indicative development budget will not leave enough room for spending on flood-related projects besides leaving no option but to shelve projects with only 20-25 per cent funds against total requirements.

A working paper of the Annual Plan Coordination Committee shows that PC has proposed that the overall development budget be fixed at Rs795 billion against the current indicative envelope of Rs710 billion. The breakup of the Rs710 billion figure shows that federal development spending is estimated at Rs280 billion and provinces’ expenditure at Rs430 billion. For the outgoing fiscal year, provinces had allocated Rs383 billion for development spending.

But PC has asked the Annual Plan Coordination Committee, which will meet on May 13, to raise federal share to Rs365 billion, which is 30.4 per cent higher than the indicated development budget set by the finance ministry. The paper shows that even Rs365 billion is much less than what federal ministries and departments have demanded. These ministries have sought Rs486 billion for financial year 2011-12.

The government is in a quandary how to create fiscal space for development spending as it remains unable to widen the tax base, succumbing to political pressure.

“Owing to the limited fiscal space, requirements of Chashma 3 and Chashma 4 nuclear power plants and Suparco cannot be met,” warns PC. Moreover, it has informed that within the indicative ceiling the land acquisition requirements for Diamer-Bhasha Dam will also remain unmet. The water and power ministry has sought Rs18 billion for land acquisition.

PC has also told relevant authorities that Pakistan may be deprived of Rs40 billion foreign funding due to non-availability of matching local cash component. “If the government wants to be comfortable on development spending, it will have to allocate Rs365 billion,” said Secretary Planning Commission Sohail Ahmad.

For the outgoing fiscal year, the government had fixed Rs280 billion federal development budget but slashed it down to Rs180 billion to create fiscal space for security and flood-related spending.

PC has demanded Rs22 billion for the implementation of decisions of the Council of Common Interests that binds the federal government to finance development projects of the ministries devolved to provinces and finance projects of prime minister’s and president’s schemes.

For key water projects, PC has demanded an increase in the proposed allocation to Rs50 billion from Rs35 billion. For key energy projects like Chashma 3 and 4 nuclear power plants, it has sought an additional Rs13 billion. For Railways, it has demanded allocation of Rs17 billion against the plan of Rs14 billion and for Higher Education Commission, it has sought Rs23 billion.

The finance ministry has indicated it can give only Rs280 billion. Out of that, Rs148 billion is for infrastructure projects, which is 53 per cent of the indicative budget. An amount of Rs118 billion has been allocated for the social sector and Rs14 billion for other categories.

“With only Rs280 billion allocation, projects with 20-25 per cent expenditures may be deleted unless very critical,” recommends the Planning Commission. According a recent estimate of the Prime Minister’s Inspection Commission, there are 666 projects that could be scrapped in the wake of the financial crunch.

Published in The Express Tribune, May 11^th, 2011.