Compensating for shortfall: Development budget spending gets slashed by 15%

Against Parliament-approved expenditure of Rs525b, ministry releases Rs442b

Shahbaz Rana July 22, 2015
The actual development spending always remains slightly lower than the releases made by the Planning Ministry. PHOTO: INP


For the second year in a row, the PML-N government has cut federal development budget by 15% or Rs83 billion, releasing only Rs442 billion for spending on development schemes during the recently concluded fiscal year, show provisional official results.

As against the Parliament-approved Public Sector Development Programme (PSDP) budget of Rs525 billion, the Ministry of Planning and Development released Rs442 billion for the fiscal year 2014-15 that ended on June 30, according to the ministry.

The actual development spending always remains slightly lower than the releases made by the planning ministry. Finance Minister Ishaq Dar had promised to protect development spending at Rs525 billion.

Reasons for low funds

The PSDP budget was slashed to offset the impact of shortfall in tax revenues after the Federal Board of Revenue missed its annual target by Rs229 billion. To counterbalance the impact on budget, the government also sold its remaining 42.5% shares in Habib Bank Limited for Rs102 billion as against its original plan to sell only 20% stakes.

The squeeze on releases came to meet the key condition of the $6.6-billion programme, which is to restrict the budget deficit to 4.9% of gross domestic product in fiscal year 2014-15. However, the government is set to miss the budget deficit ceiling target despite scaling back development spending.

The releases were even less than projected by the IMF that had estimated the development spending at Rs467 billion for the last fiscal year.

It was the second consecutive year when the government slashed development spending. In the fiscal year 2013-14, the development spending had amounted to Rs435 billion - Rs105 billion or 19% less than the approved budget of that year.

It seems that the trend of slashing public sector investment would continue in the new fiscal year 2015-16 as well. Against the approved budget of Rs700 billion that also includes Rs120 billion of security-related spending, the IMF has projected the expenses at Rs663 billion. The Ministry of Planning does not treat the security related expenses as development spending. The amount has been added into the PSDP on the insistence of the Ministry of Finance.

The federal government has cut the PSDP at a time when it has added 366 new projects valuing Rs4.2 trillion into the federally funded projects during the last two years. This has multiplied the financing requirements.

Various sources of funds

Out of Rs442 billion releases, an amount of Rs355 billion was arranged from the domestic sources while the international lenders gave Rs87 billion in loans.

The planning ministry said that the foreign loan component may go up to Rs102 billion, as the Economic Affairs Division has not yet compiled the foreign economic assistances data for the month of June.

The government has drastically slashed development budget allocated for underdeveloped areas of the country. As against the budgetary allocation of Rs36 billion, the government released only Rs3 billion. The Rs36 billion had been allocated for under developed areas in Sindh, Balochistan, Khyber-Pakhtunkhwa, Azad Jammu & Kashmir and Gilgit-Baltistan.

The Rs20 billion that had been earmarked for unapproved new projects also could not be spent in the last fiscal year.

In order to inflate development spending, the Ministry of Finance has shifted expenses on Temporary Displaced Persons (TDPs), affected by Operation Zarb-e-Azb, from the current budget to development budget.

The Rs35 billion spending on TDPs and Prime Minister’s Youth Package in the last fiscal year will now be shown as development expenses. In a meeting of the National Economic Council held on June 1, the federal government had shown the revised size of the outgoing fiscal year’s PSDP at Rs542 billion including Rs35 billion of current expenditures.

Even by including Rs35 billion current expenses, the total releases for last fiscal year 2014-15 would amount to Rs477 billion -Rs65 billion or 11% less than the revised PSDP size of Rs542 billion.

Published in The Express Tribune, July 23rd,  2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.