Actual spending on development work in the current fiscal year has been about 61% below the target set at the start of the year, reflecting the extent of the cash crunch the federal government finds itself in. Spending has been so low that many economists and development experts have warned that it is not just slowing growth and progress, but actually stunting them. The NHA, for example, only got Rs21 billion against an authorisation of Rs94 billion and a total budget of Rs157 billion. Meanwhile, Rs90 billion worth of approved water projects only got Rs30 billion.
While we are hopeful that the new government will address the spending cuts, a significant turnaround is unlikely, given that the main motivator was compliance with IMF loan conditions, and despite the deep cuts, we still missed the overall budget surplus target. The fact is that if the interim government had stayed on any longer, we would have definitely seen even deeper cuts to try and bring the budget into compliance — the only reason the last loan tranche was released is that the IMF granted the caretakers a waiver on the budget surplus condition. And while there is some hope that the new government will be able to create some wiggle room when it negotiates a new IMF loan programme, fully funding most projects will remain out of the question. This will be another source of pressure as the incoming coalition vies to keep all its partners happy without enough money to finance development work in various constituencies, which is critical to placate allies. The most extreme cuts related to the Rs70 billion special programme for PM’s initiatives, with only Rs261 million, or less than half of one per cent, actually being spent. And beyond the spending cuts, Islamabad also tried to hand off about Rs121 billion worth of projects to the provinces as they are less impacted by the cash crunch because their budgets and revenue streams work differently.
Unfortunately, just as the stopgap solution of freezing imports did more long-term harm than good, the impact of these spending cuts will be felt long after most people have forgotten who was in the caretaker government.
Published in The Express Tribune, February 16th, 2024.
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