Upcoming fiscal year: Govt proposes Rs580b for development spending

Parliament approves; expenditure 10.5% higher than on going year’s amount.

ISLAMABAD:

The federal government has proposed Rs580 billion for development spending in the upcoming financial year, which is one-tenth higher than the amount for the ongoing fiscal year but not sufficient to meet the pressing requirements of setting up power plants to overcome energy woes.

The Ministry of Finance has formally indicated Rs580 billion for the Public Sector Development Programme (PSDP) in the financial year 2015-16, which will commence from July, said sources. The envelope was indicated to the Ministry of Planning, Development and Reforms with an aim to start work on next year’s development agenda.

The proposed budget is Rs55 billion or 10.5% higher than this year’s development budget of Rs525 billion, approved the parliament.

Under the three-year bailout programme by the IMF, Pakistan is required to bring down its budget deficit closer to 4% of its GDP by the end of the next fiscal year. The proposed PSDP of Rs580 billion has been worked out to meet IMF’s conditions that carry implications for development spending.

Officials in the Ministry of Planning said that the proposed envelope was not sufficient for next year’s development requirement, particularly for setting up power plants. The government has recently announced setting up LNG-fired power plants, which will be financed from the next year’s PSDP.

The Central Development Working Party (CDWP) may approve today (March 31) two such LNG-fired power plants at an estimated cost of Rs163 billion, each having 1,200-megawatt generation capacity. The officials said these power plants will be financed under the next year’s PSDP and the government will have to allocate additional resources for their completion before 2018.

Similarly, they added, the government has not yet been able to resolve the financing issue of Rs958 billion for the Karachi Nuclear Power Plants, having combined generation capacity of 2,117MW. The government has arranged a $6.5-billion loan from China to finance the project but has not yet booked it in the budget in an attempt to keep the budget deficit lower.

Chinese are pressing the government to book expenditures in the budget and the government may have to accept their genuine demand from the next fiscal year, said officials. Finance Minister Ishaq Dar on Monday chaired a meeting to resolve the nuclear projects funding treatment issue but no decision was reached, they added. The officials said the government may take up the issue with China again, requesting it to allow the funding outside the budgetary books.

The officials said that for next year, the planning ministry would require a minimum Rs650 billion to keep momentum on the ongoing projects besides undertaking work on power plants.

The final decision in this regard will be taken by Prime Minister Nawaz Sharif in his capacity as chairman of the National Economic Council – the body having representation of federal and provincial governments.

Against this year’s allocation of Rs525 billion, so far the indications are that the actual development spending will remain significantly lower than the budget approved by Parliament. By March 27, the government released only Rs250 billion or 47.6% of the annual allocation. By all means, it cannot spend the remaining Rs275 billion in just three months.

The officials said the actual spending could be around Rs470 billion. This will be the second year of the PML-N government when it will cut the development spending to meet the IMF’s targets.

The reduced development spending will have serious implications, as the government spending for development is one of the main contributors to economic growth.

According to standing financial management instructions prescribed by the finance ministry, the government is entitled to spend 70% of the annual budget in the first nine months of the fiscal year. Under this mechanism, the federal development spending is Rs120 billion less than the projected one.

Published in The Express Tribune, March  31^st,  2015.

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