Development budget cut by Rs173b

The government has further deepened the cut on the development budget to Rs173 billion, or 17% of annual allocations. The move aims to offset the impact of the Middle East conflict on the primary budget surplus condition agreed with the International Monetary Fund (IMF) before the war.

The Ministry of Finance has now reduced the Public Sector Development Programme (PSDP) to Rs837 billion. This is a reduction of Rs173 billion against the original budget approved by the National Assembly in June last year, according to government officials. The budget was reduced in two phases: Rs100 billion on March 25, followed by a Rs73 billion cut last week, said officials.

The maximum cut of Rs38 billion has been placed in the budget of the National Highway Authority (NHA). This was followed by a Rs23 billion reduction in allocations for critically important water sector projects and a Rs22.5 billion cut in allocations for provincial schemes

However, the government has protected parliamentarians' schemes from the second cut after reducing their budget by Rs7 billion last month. The allocation of the Ministry of Planning and Development has also been protected this time. Officials said this was because of protecting Balochistan's flood rehabilitation projects.

The cut will further aggravate the government's fiscal problems, as the finance ministry is deferring liabilities instead of showing fiscal prudence. Planning Minister Ahsan Iqbal has criticised the finance ministry for its approach. He said it is reducing development expenses instead of creating fiscal space on the current side and enhancing revenue collection.

For the current fiscal year, the National Assembly had approved a development budget of just over Rs1 trillion. This was almost half of the demands made by competing ministries. The government had agreed to show a primary budget surplus of 2.6% of GDP with the IMF, which it assured to deliver during the recently concluded staff-level talks despite the adverse impacts of the Middle East conflict. However, Fitch, one of three international credit rating agencies, said on Monday that Pakistan would miss the primary budget surplus target despite making adjustments within the budget.

Finance Minister Muhammad Aurangzeb held a meeting with Jihad Azour, Director of the Middle East and Central Asia Department of the IMF, on the sidelines of the World Bank-IMF Spring Meetings.

Aurangzeb 'expressed appreciation for the successful staff-level agreement and conveyed his expectation for early approval by the IMF Executive Board to sustain the momentum of Pakistan's reform programme', according to a handout issued by the finance ministry on Tuesday. The statement suggests that the government has not yet secured a date for the IMF executive board meeting for the approval of the $1.2 billion loan tranche, as it used the word "expectation".

The sources said the planning ministry has reduced annual allocations of all ministries proportionally, except a few. The NHA's budget has been reduced by Rs38 billion to now Rs185 billion. So far, the NHA has spent only Rs73 billion against its annual allocation due to slow releases by the finance ministry. The Power Division's allocation has been cut by Rs16 billion to Rs75 billion. Its utilisation of funds amounted to just Rs41 billion in nine months. The Water Resources Division faced a Rs123 billion cut, and its annual allocation is now Rs106.6 billion. Nine-month spending stood at Rs47 billion.

The first revised allocation for schemes recommended by parliamentarians under the Sustainable Development Goals stands at Rs63 billion. Rs44 billion has been spent so far against parliamentarians' schemes in relaxation of the limits set by the finance ministry.

The defence ministry's development budget was reduced by Rs1.8 billion to Rs9 billion. The education ministry's budget was cut by Rs5.5 billion to Rs26.6 billion. Another Rs7.2 billion reduction was made in the budget of the Higher Education Commission, which has been reduced to Rs35 billion. Azad Kashmir and Gilgit-Baltistan budgets have been slashed again. The merged districts of Khyber-Pakhtunkhwa also faced a total Rs11.2 billion cut, and their new revised budget is Rs54.2 billion. The allocation for provincial projects has been reduced by Rs22.5 billion to Rs79.1 billion, with nine-month spending of Rs36.2 billion. The health sector's development budget was cut by Rs2.4 billion to Rs11.6 billion.

Development spending was already low compared with the authorisation by the Ministry of Planning. During the first nine months of this fiscal year, development spending amounted to Rs409 billion, or just 41% of the original allocation. The PSDP has traditionally been used as a tool to compensate for excessive current expenditure and offset revenue shortfalls. Despite reducing the PSDP size by Rs173 billion, the Prime Minister's Office has instructed the planning ministry to release funds for the construction of a jail in Islamabad, health schemes and the safe city project.