Federal authorities have proposed Rs506 billion for development spending in the upcoming financial year (2014-15), which is 6% less than the original development budget of the current fiscal year – continuing the policy of giving less priority to development spending in its second year of rule.
The Ministry of Finance has formally indicated Rs506 billion for the Public Sector Development Programme (PSDP) in the financial year 2014-15, which will commence from July.
According to Ministry of Planning and Development officials, the Pakistan Muslim League-Nawaz government had announced Rs540 billion for the PSDP for the current fiscal year. The proposed budget is Rs34 billion or 6.3% less than this year’s development budget.
So far, the indications are that the actual development spending will remain significantly lower than the budget approved by Parliament.
The reduced development spending will have serious implications, as the government spending for development purposes is one ofbr
the main contributors to economic growth. Economists like Dr Nadeem ul Haque, the former Deputy Chairman of the Planning Commission, have been advocating that austerity should be eschewed for the sake of economic growth. The new development budget envelope has been indicated to the Ministry of Planning and Development that will now work out the proposed development budget ceilings of each federal ministry and department.
However, Prime Minister Nawaz Sharif is the authority to approve a development budget higher than the indicative one during the National Economic Council meeting, which takes place days before the budget is presented in Parliament.
The development budget has been indicated under the three-year Medium-Term Budgetary Framework (MTBF) – a document that indicates the budget of the new fiscal year in addition to setting rolling targets of the next two financial years.
From July through December 2013-14, the government had spent Rs120 billion on development programmes, restricting the expenses to 22% of the annual development budget of Rs540 billion. According to standing financial management instructions prescribed by the finance ministry, the government is entitled to spend 40% of the annual budget in the first half of the fiscal year, while the remaining is spent in the next half.
The federal government resorted to reducing the development budget after it failed to curtail the non-development spending, which increased to almost half of the total budget in the first half of the fiscal year.
Of the Rs540 billion development budget, an amount of Rs115 billion had been allocated for new initiatives. In fact, the Ministry of Finance has not yet formally indicated the availability of the Rs115 billion, said Asif Sheikh, the planning ministry spokesperson.
The federal government has linked the availability of Rs115 billion with the Federal Board of Revenue’s ability to achieve Rs2.475 trillion annual tax target, a goal that the FBR is surely set to miss. The FBR has so far posted an average growth rate of 17% while it needs 28% to collect Rs2.475 trillion revenues.
Officials said that after witnessing the results of the first seven months, the federal government was expecting that FBR may not collect more than Rs2.345 trillion. The reduction in collection will also have adverse implications on next year’s budget, they added.br
Published in The Express Tribune, February 26th, 2014.