DAWN, ISLAMABAD, 19th SEPTEMBER 2013: The government is expected to slash development expenditures for the current financial year by about 28 per cent to Rs834 billion from Rs1.155 trillion to contain fiscal deficit.
According to documents released by the International Monetary Fund, the target for the federal PSDP for the fiscal year 2013-14 has been reduced to Rs420bn from Rs540bn announced in the budget, down by more than 22pc. And the annual development programme of the provinces has been cut to Rs414bn from Rs615bn envisaged in the provincial budgets, a reduction of about 33pc.
As a result, the cumulative federal and provincial development expenditures will stand at Rs834bn, brought down by 27.8pc from Rs1.155 trillion.
Finance Minister Ishaq Dar has given a written assurance to the IMF that the government envisaged several contingent measures in case the expected adjustment in fiscal and economic measures fell short of objectives to ameliorate risks to the programme signed with the Fund.
The measures, he said, included reduced allocations during the first nine months of the current fiscal year to create a reserve against any shortfall and use of reserves built into the capital expenditure budget, if needed.
These could yield savings amounting to 0.5pc of gross domestic product (GDP). “In addition, we stand ready to take any other measures needed to assure compliance with our fiscal target,” the minister said.
It was against this background that the government has released Rs54bn in the first two and half months (up to Sept 17) for the federal PSDP. Under the existing mechanism for release of funds for development schemes, the government is required to release about 20pc (Rs108bn) of the total budgetary allocation of Rs540bn.
Also, the IMF has scaled down its assessment of FBR collection to Rs2.345trn from the budgetary target of Rs2.475trn — a reduction of Rs130bn.
The IMF estimates the GDP growth rate at below 3pc as against 4.4pc envisaged in the budget.
The finance minister had said in his budget speech that higher PSDP allocation would boost the growth rate, generate economic activities and create jobs for the growing young population.
The IMF has also revised the target for fiscal deficit to 5.8 per cent of GDP from 6.3pc envisaged in the budget.
The IMF programme estimates devaluation of the rupee (real effective exchange rate) by 7.7pc during the current fiscal year against the government’s original estimate of less than 5pc.
It requires the government to stabilise the public debt at 66.6pc of GDP, instead of 69.2pc earlier estimated by the IMF.
The average inflation over the life of the IMF programme has been estimated at double digit. Net foreign assets have been targeted to be increased by 3.9pc of GDP from negative 3.4pc, while net domestic assets are to be reduced to 12.2pc of GDP from 19.3pc. Likewise, gross savings are projected to go up to 14.3pc from 13.3pc.