Caught between the desire to keep its commitments to the International Monetary Fund and to Beijing, the finance ministry will likely shut down 100 so-called ‘less important’ development projects in a bid to create the fiscal space for the construction of the China-Pakistan Economic Corridor.
“CPEC and energy projects are the top priority of the government and we will allocate at least Rs250 billion in coming budget to avoid delays,” said Planning Minister Ahsan Iqbal on Thursday. However, the closure of over 100 projects will create a fiscal space of only Rs20 billion, leading some to question the wisdom of abandoning such projects midstream.
The Rs250 billion is 43% of the proposed allocation of Rs580 billion for fiscal year 2016, suggesting that the massive allocations for energy and CPEC projects will have adverse implications for other ongoing projects as well, not just those that have already been identified as ‘less important’.
“We had choice either to enhance [the development budget] allocation to Rs758 billion to meet the financing requirements of the ongoing and new projects or put less important projects on the backburner,” said a planning ministry official.
PM Nawaz Sharif chaired a meeting on the next year’s development budget aimed at finding the money for priority projects and to make a decision on the Planning Ministry’s request to enhance the proposed development budget to Rs758 billion from Finance Ministry’s ceiling of Rs580 billion. “No decision on increasing the proposed budget was taken in the meeting,” said a planning ministry official. A Finance Ministry official said that its hands were tied due to the bailout agreements with the IMF. Pakistan and the IMF have agreed to lower the budget deficit to 4.3% of the total size of the economy including 0.3% in additional space sought for security related spending. “The 4.3% deficit ceiling does not allow the government to jack up the development spending to Rs758 billion,” said the official.
The planning minister made it clear that his ministry needed at least Rs250 billion for the priority energy and CPEC projects to make the eastern trade corridor route under CPEC operational by fiscal year 2018. Pakistan has to make the eastern route operational within the next two and half years to meet its commitments to China.
“The government has taken a decision to put over 100 less important projects on hold, which have remained on low priority during the last five years,” said Iqbal. He admitted, however, that the decision would provide additional fiscal space of only Rs20 billion. Iqbal said that efforts are being made to enhance the Rs580 billion proposed development budget.
To create additional fiscal space for CPEC projects, the prime minister on Thursday allowed the Planning Ministry to divert the funds from less important projects.
“The PM approved moving unspent Public Sector Development Programme amounts of the current financial year, as well as the savings identified by various ministries to be allocated to priority projects to ensure their early completion,” said a handout issued by the PM’s Office.
As of May 8, the federal government had released only Rs383 billion of the total development budget of Rs525 billion for this fiscal year. The allocations for the Planning Ministry and the National Highway Authority largely remain unutilised. Similarly, Rs32.5 billion, which were allocated for less-developed areas of Khyber-Pakhtunkhwa, Balochistan, Sindh, Azad Jammu and Kashmir and Gilgit-Baltistan remained unutilised so far.
Iqbal said the challenge was to protect funding for highly important ongoing projects while at the same time making space for new schemes. He said the critical projects like the Lowari Tunnel, Kachi Kanal, construction of NA-85 road having immense importance for connectivity under CPEC. In addition, Jamshoro coal power projects, LNG projects, Diamer Basha dam, Dasu hydropower project and Neelum-Jhelum power projects will be fully funded in the coming financial year.
For two 2,400MW LNG-fired power plants that will be setup in Punjab, the government would require Rs74 billion in the next fiscal year alone. The projects are critical to fulfill the PML-N’s promise to bring an end to power outages by 2018.
Published in The Express Tribune, May 15th, 2015.
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