Development budget gets leaner as current expenses soar

Govt reduces spending on development projects by Rs180 billion.

ISLAMABAD:

The federal government has breached the current expenditure limit, overshooting by Rs120 billion to stand at Rs2.2 trillion in the first nine months of the current fiscal year, highlighting fiscal mismanagement that has taken a heavy toll on development spending.

To make room for higher current spending, the government made a significant cut in the development budget, reducing it by Rs180 billion in July-March 2013-14, showed a summary of fiscal operations released by the Ministry of Finance on Monday.

The ministry restricted spending to just Rs196.5 billion compared to the limit of Rs380 billion earmarked for development projects.

Under the prudent fiscal management strategy, notified by the ministry, development and non-development spending in nine months should be 70% of the total budget for each of the categories.

For the current fiscal year, current expenditures were set at Rs2.829 trillion and against that Rs2.2 trillion or 75% of the annual budget was spent, according to documents.

On the other side, only Rs196.5 billion has been spent on development schemes in nine months, which is 36.4% of the annual allocation of Rs540 billion.

By reducing the development budget, the government has managed to keep overall spending at Rs2.5 trillion or 70% of the annual budget. This will also help in achieving the annual budget deficit target of 5.8% of gross domestic product or Rs1.5 trillion, set by the International Monetary Fund under the $6.7 billion loan programme.

In nine months, the budget deficit – gap between income and expenditure – stood at Rs1.2 trillion or 4.6% of GDP. However, overall deficit was Rs811 billion or 3.1% of GDP, thanks to savings of Rs258 billion made by provinces.

One reason behind this exceptional performance is the decision to add profits of over Rs200 billion from the previous year to revenues for the current year, according to sources.

An amount of Rs45 billion from the State Bank of Pakistan’s profit from the previous year has also been added to the current year to keep budget deficit lower. In nine months of this year, the central bank has given a profit of Rs205 billion to the federal government.

“We are looking at the bigger picture, which is to keep overall expenditures within prescribed limits,” said Rana Assad Amin, spokesman for the Ministry of Finance.

He claimed that the government would ensure that maximum funds were released for development schemes in the remaining period of the year.

According to Amin, they will try to spend Rs425 billion on development projects in the current fiscal year. However, according to sources in the Ministry of Planning, the government does not have the capacity to spend Rs230 billion in the remaining three months.

According to sources, work on various projects has slowed down because of the spending cuts.

In nine months, Rs909 billion went for debt servicing, which was 78.8% of the annual allocation and the largest head under expenses. Defence spending also marginally exceeded the nine-month limit and stood at Rs451.7 billion or 72% of the annual allocation.

An amount of Rs133 billion was released to pay pensions, almost 90% was on account of military pensions.

Already, the government has revised downward twice the tax collection target to Rs2.27 trillion. The shortfall in revenues will be bridged by reducing development spending.

Published in The Express Tribune, May 13^th, 2014.

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