Islamabad:
Hours before its approval by the National Assembly, the government decided to cut the proposed Rs1.4 trillion Public Sector Development Program (PSDP) by Rs250 billion in a bid to create fiscal space to withdraw some taxes without jeopardize the expected International Monetary Fund agreement (IMF).
Government sources told The Express Tribune that the finance ministry had conveyed its decision to cut the proposed development funds for the financial year 2024-25 by a record amount of Rs 250 billion.
The reduction in the size of the GDP even before its approval is more than 17% of the amount approved by the National Economic Council two days before the budget.
On June 12, federal finance minister Muhammad Aurangzeb proposed a record Rs 1.4 trillion for development spending during the next financial year.
It has now been cut to Rs 1.15 trillion, official sources confirmed.
The response of the Ministry of Finance was expected until the submission of the report.
Planning Minister Ahsan Iqbal was also unavailable for comment.
It is rare that the PSDP has been cut after it was presented but before it was approved by parliament.
The NA was scheduled to approve the Rs1.4 trillion PSDP on Wednesday.
The finance ministry verbally communicated the budget reduction to the planning ministry.
However, the sources said the planning ministry was waiting for an official announcement.
It had not been decided by Monday night whether the government would still seek the approval of Rs1.4 trillion from the NA because of the lack of time to change the budget documents or present revised new ceilings.
It will be the fifth change in the PSDP budget ceiling within a month by the finance ministry, indicating how poorly the budget exercise has been managed by the economic group this time.
Initially, the finance ministry had proposed an allocation of Rs 1 trillion for the PSDP, only to later increase the amount to Rs 1.221 trillion, which was duly approved by the Annual Plan Coordination Committee (APCC).
The third change came after a meeting in the Prime Minister’s Office and the PSDP was proposed to rise to Rs 1.5 trillion.
The fourth change came just before the National Economic Council meeting, when the indicative figure was reduced to Rs1.4 trillion due to the fact that the Rs1.5 trillion figure would require a higher than Rs80 per liter oil levy to finance of the PSDP.
The government has proposed in the budget that the oil levy should be increased from 60 to 80 rupees per liter to raise a total of 1.3 trillion rupees from this amount.
For the current financial year, the NA had approved a budget of Rs950 billion, but the finance ministry cut over Rs200 billion in the fourth quarter to meet the primary budget surplus target.
So far, just over Rs 550 billion has been spent out of the original budget of Rs 950 billion.
Shewing the PSDP after it is passed by the NA is quite common and is done by every political government, but it is unusual for a change to be made just before it is passed.
There has been criticism of the finance ministry for dishing out a record-breaking as well as highly inflationary amount of Rs 1.5 trillion in new taxes and showing the overall budget to reach an inflated figure of Rs 18.9 trillion.
The proposed budget size of Rs 18.9 trillion is 30% higher than that of the current financial year.
The sources said the government was facing immense pressure to reverse some of the tax proposals, including those imposed on the salaried class, exporters, tribal areas of Khyber-Pakhtunkhwa, milk, fixed, poultry and hybrid vehicles to we mention a few.
They added that to offset the impact of withdrawing any of these measures, the government would have to cut spending.
However, even after cutting Rs 250 billion in the PSDP, the budget still remains unrealistic as the proposed tax target of Rs 13 trillion is not fully supported by adequate measures, according to government sources.
They went on to say that to stay within the IMF’s projected spending limits, the PSDP had to be cut to make it more realistic.
The global lender would not announce a staff-level deal with the country until it was sure the new budget was more realistic.
The sources said the IMF had also raised concerns over the provincial budgets, which affected the primary fiscal surplus target of Rs 1.217 trillion for the next financial year.
However, it will be a big challenge for the government to convince its allies of the need to reduce the provincial PSDPs, especially to protect Sindh’s development projects.
To accommodate the PPP, a key partner in the ruling coalition, the coalition government not only increased the size of the PSDP to Rs 1.4 trillion, but also took a fiscally unwise decision to re-include all Sindh projects of a provincial nature in the national scheme.
The sources said it would be difficult to readjust the ceilings of the ministries in the light of the new developments.
Various ministries and agencies had asked for a development budget of Rs 2.8 trillion, which was later reduced to Rs 2.4 trillion.
The APCC had asked for Rs 1.5 trillion for the new and ongoing schemes, but the finance ministry settled on the final figure of Rs 1.4 trillion.
There are 1,038 projects that have been included in the next financial year’s PSDP and will require funding of Rs 9.8 trillion for their completion.
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