With 59% allocated for infrastructure schemes, the government on Friday proposed a record Rs1.22 trillion for the federal Public Sector Development Programme (PSDP) for the next budget, still less than half of the estimated financing requirements.
In a major policy shift, the government has tried to align the development budget largely with the requirements of the Constitution and the National Finance Commission.
The Annual Plan Coordination Committee (APCC), which took these decisions, also approved abolishing the budget for discretionary spending by parliamentarians. Major energy sector projects have been prioritised, with 31% of the budget proposed for these schemes.
The proposed budget of Rs1.221 trillion is 64% higher than this year’s downward revised PSDP and 30% more than the original budget of this fiscal year. For the outgoing fiscal year, the government had allocated Rs950 billion, but spending is expected to remain around Rs746 billion.
The planning ministry opposed the finance ministry’s decision to cut the development budget to meet International Monetary Fund (IMF) targets. A sum of Rs20 billion during this fiscal year was diverted to meet non-development expenses, and another Rs184 billion cut was made in releases in the last quarter to maintain the primary budget balance.
The APCC recommended budget is 51% less than the Rs2.5 trillion needed, as estimated by the planning ministry and executing agencies. However, after intervention from Prime Minister Shehbaz Sharif, the finance ministry agreed to increase the proposed allocation from Rs1 trillion to Rs1.22 trillion. The federal government also briefed former-prime minister Nawaz Sharif on the development budget on Wednesday in Lahore.
The National Economic Council (NEC) will now take up the APCC’s recommendation for approval in its meeting next week. The planning ministry had decided to hold the NEC meeting on Monday, but the Cabinet Division has not yet notified the body. PM Sharif will chair the NEC, which has the constitutional mandate to approve the national development outlay, including the federal PSDP. The budget is expected to be announced on June 10th after the prime minister’s return from Beijing.
The government has proposed Rs877 billion for infrastructure-related allocations, up by Rs324 billion or 59% over this year’s original budget. Within infrastructure, energy sector projects would receive a lion’s share of Rs378 billion, also higher by Rs257 billion or 212%. The transport sector allocation has been proposed to be reduced from Rs245 billion to Rs173 billion, a reduction of 44% for the next year. The water sector projects would get a major share of Rs284 billion, up by Rs136 billion or 92%. However, until Friday morning, the government did not have the details of the National Highway Authority and the Water Resources Ministry’s projects.
The government has drastically reduced the allocations for the social sector to align them with the National Finance Commission Award. The social sector development budget is cut by Rs120 billion or 59% to Rs83 billion for the next fiscal year. The budget for parliamentarians’ schemes has been completely abolished. Within the social sector, the health development budget is reduced by 53% to Rs17 billion for the next fiscal year. The education sector budget is slashed by 61% to Rs32 billion, with the Higher Education Commission receiving Rs21 billion, nearly 65% less than this year.
The development budgets for the Azad Jammu & Kashmir and Gilgit-Baltistan governments have been retained at Rs51 billion this fiscal year. The budget for the merged districts of Khyber-Pakhtunkhwa has also been kept unchanged at Rs57 billion.
The APCC also recommended that the Ministry of Finance devise a flexible budget release strategy, allowing 25% releases for each quarter to ensure sufficient and timely availability of funds. The Ministry of Planning proposed that the finance ministry should be barred from deducting interest on loans given to the National Highway Authority, which has indicated a Rs92 billion budget for next year against a demand for Rs385 billion. It has also been proposed that the development budget should not be reallocated for non-development expenditure in the next fiscal year.
The government faces serious fiscal constraints and does not have enough resources to fund the already approved schemes. The total financing requirements for completing the already approved schemes have been estimated at Rs9.8 trillion. The size of the PSDP as a percentage of GDP shrank from 1.7% of GDP in 2013 to 0.9% of GDP in 2023-24. The PSDP is also decreasing in real terms due to inflation and rupee depreciation, the APCC was informed.
Published in The Express Tribune, June 1st, 2024.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
Read the full story at the express tribune website.
