PM defers decision on increasing development budget

Will wait until the end of talks with IMF for the seventh economic review.

ISLAMABAD: As national planners dub the proposed Rs580 billion development budget for the next fiscal year as insufficient, Prime Minister Nawaz Sharif has put off a decision on increasing the ceiling to Rs758 billion until the outcome of ongoing talks with the International Monetary Fund (IMF).

Any decision on the development budget would indicate whether the government will pursue its fiscal consolidation policy for the third consecutive year or it will give preference to economic growth that remains subdued.

Following no response from Finance Minister Ishaq Dar, Minister of Planning, Development and Reform Ahsan Iqbal took up the issue of insufficient allocation for the Public Sector Development Programme (PSDP) 2015-16 at the highest level, said officials privy to the discussions.

Iqbal sought the intervention of Prime Minister Nawaz Sharif, pleading if the proposed development budget was not increased to Rs758 billion, many critical projects including some under the China-Pakistan Economic Corridor (CPEC) would remain unfunded.

The issue was raised during a meeting held on Monday that was chaired by the prime minister. For the next fiscal year 2015-16 beginning July, the Ministry of Finance has indicated the allocation of Rs580 billion for the federal PSDP, which is only 10% or Rs55 billion higher than Rs525 billion for the outgoing year.

After the finance ministry conveyed the ceiling to the planning ministry, Iqbal wrote a letter to Dar, explaining the pressing development needs particularly to spur growth and fund CPEC projects. He demanded Rs725 billion for the next fiscal year.

However, after a meeting of the Priorities Committee with the executing ministries, the planning ministry raised its demand to Rs758 billion, higher by Rs178 billion against the proposed budget.

During its first two years, the government has pursued a tight fiscal policy that suppressed economic growth. It has so far imposed over Rs620 billion in additional taxes and is planning to introduce over Rs220 billion worth of taxes in the next fiscal year.

The Ministry of Finance gave the indicative ceiling without factoring in the financial impact of CPEC projects on development spending, said officials. The planning ministry told the premier that the estimated foreign assistance for development projects including the CPEC would be in the range of Rs250 billion to Rs260 billion for next year.

This will increase the share of foreign assistance for development activities from the present almost one-fifth to over one-third. In the first 10 months of the current fiscal year, Rs65 billion was disbursed by foreign lenders, which was 18% of total releases of Rs349 billion by the end of April.

Officials said in the next fiscal year, China is expected to provide Rs68.5 billion for the Multan-Sukkur section of the corridor. Similarly, Rs25.7 billion Chinese loan is expected for the Thaikot-Havilian road section of the corridor.

“The choice is between increasing the funds or dropping critical development schemes,” said a senior national planner on condition of anonymity.

However, the prime minister deferred the decision until the conclusion of Pak-IMF talks for the seventh economic review. The talks that began this week and would conclude by Sunday are primarily aimed at deciding the broader fiscal framework for the next financial year besides seeking IMF’s endorsement for the fresh loan tranche of over $500 million.

The IMF is pushing Pakistan to agree on a budget deficit of around 4.2% of gross domestic product, which would constrain the finance ministry’s ability to enhance the size of PSDP, said sources.

Published in The Express Tribune, May 6^th,  2015.

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