ISLAMABAD: Amid ongoing consultations with the staff mission of the International Monetary Fund (IMF) for successful completion of the first quarterly review of the $3bn Stand-By Arrangement (SBA), development programme both at the federal and provincial levels is to face the brunt of fiscal tightening to minimise budget deficit and consolidate primary fiscal surplus.
The two sides started technical talks last weekend on a 9-month SBA and would remain engaged in an exchange of data on various sectors of the economy throughout the current week before entering the more crucial policy dialogue early next week for a wrap-up by Nov 16.
Informed sources told Dawn that the visiting mission had been briefed about the consultative process with caretaker governments in the provinces for not only slashing the federal funding to the provincial projects but also the need for limiting the Public Sector Development Programme (PSDP) of the federation and Annual Development Plans (ADPs) of the provinces, particularly those relating to politically motivated schemes.
Pakistan has to achieve primary surplus — the difference between total revenues and expenditures except interest payments — at 0.4pc of GDP (about Rs400bn) on the basis of Rs600bn cash surpluses to be returned to the federal government by the provinces.
Federal, provincial development projects to face the brunt
The government has already crossed Rs416bn primary surplus in the first quarter of the fiscal year but it needed to be sustained and increased as the year progressed. The provincial cash surpluses did not materialise in the first quarter as planned but the trend would reverse going forward.
The major achievement on primary balance had come through a tight squeeze on PSDP and subsidies as total PSDP spending in the first quarter stood at less than Rs41bn against a full-year budget allocation of Rs950bn.
The international lending agencies, including the World Bank, had been asking the federal government to stop providing funds to provincial projects and devolved subjects, involving fiscal savings of more than Rs700bn.
Besides development schemes, the federal government is also financing devolved responsibilities like vertical health projects etc.
Even the major chunk of Rs23bn expenditure had already been made by the PDM government on parliamentarians’ schemes for which the previous authorities had made authorisation for more than Rs61bn with first 40 days of the fiscal year against annual allocation of Rs90bn. The acaretakers had to control further flows.
Apart from that, almost the entire Rs18bn PSDP expenditures pertained to foreign-funded projects for which international lending agencies had already made disbursements, for example in projects relating to the water sector, power, information technology and so on.
The two sides converged on the need for this trend to be sustained at least until a new elected government takes over and by the time more than three-quarters of the year would be over.
“Virtually, there would be a freeze on development activities throughout the year except for areas involving international or contractual commitments and foreign exchange component and international aid and critical social sectors.
Informed sources told Dawn that healthy recoveries from non-tax revenues in the first quarter of the fiscal year were promising enough to meet the budgeted target supported particularly by the petroleum development levy that could cross Rs1 trillion by the end of the year against a budget target of Rs869bn as POL consumption has already started to pick up.
Published in Dawn, November 7th, 2023
