Development constraints
ACCORDING to reports trickling in from various quarters, the government is faced with the difficult challenge of meeting its development programme commitments due to funding constraints resulting from revenue shortfalls. Official sources confirmed last week that the revenue collection in July-December fell short of the target by more than Rs125 billion. On the other hand, IMF reported two weeks ago that the government would contain the country's total development expenditure by Rs258 billion at Rs917 billion against the budgeted Rs1.175 trillion. It would be even lower by 10 percent than the last year's actual development expenditure of Rs1.012 trillion.
The federal PSDP budget for the current year has already been revised to Rs477 billion against the budgetary allocation of Rs525 billion - a reduction of Rs48 billion, or 9 percent. At the same time the government has been delaying payments to the provinces and the ministries with a view to containing fiscal deficit. It was disclosed a few days ago that the federal government had released a total of Rs183 billion - 35 percent of the Rs525 billion annual allocation - for the Public Sector Development Programme in the first half of the current fiscal year. Under its declared disbursement policy, the government should have released at least Rs210 billion - or 40 percent of total allocation (20 percent in each quarter) - by Dec 31. The reduction in expenditure has also to be seen in the perspective of an understanding with the International Monetary Fund to cut public sector development spending by over 20 percent.
From these cuts the hardest hit are projects relating to the achievement of millennium development goals focusing on basic human requirements like food, health and education. This is despite the fact that Pakistan has failed to achieve the targets agreed upon under international obligations. In the circumstances, the common man's sufferings will continue to multiply in 2015 as the country's economic managers have no clue as to how to fix the economy that did not see any real improvement during the last 18 months of the PML-N rule.
According to experts, the only way to avoid further cuts in the development programme is to go for new resource mobilization and increase revenues through proper taxation. If immediate measures are not adopted it is feared that the country will see a revenue shortfall of Rs200 billion. Pakistan's tax-to- GDP ratio at less than 10 percent is the lowest in the region and has remained at this level during the last many years. As per its commitment to the IMF, the government has to lower fiscal deficit to 4.8 percent of the GDP in 2014-15 by broadening the tax base through elimination of concessions and exemptions, improving tax administration, improving revenue collection at all levels, corrective action to reduce reliance on the central bank financing and streamlining public debt management. This is the only way to plug the resource gap instead of resorting to reckless borrowing from the commercial banks which has had the effect of crowding out the private sector with negative implications on large-scale manufacturing growth. Needless to say, the government cannot meet its development aims without a visible improvement in governance.