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National Economic Council to Review Proposed Budget Cuts for Development Projects Today

ISLAMABAD: The caretaker government is proposing a substantial reduction in the federal development budget following the IMF’s estimation of a Rs175 billion cut in the consolidated development program of the federal government and provinces. Seeking over Rs201 billion reduction in the federal development budget alone for the current fiscal year, including Rs121 billion allocated for federal-funded provincial projects, the government aims to reallocate funds and streamline spending.

The National Economic Council (NEC), chaired by Prime Minister Anwaarul Haq Kakar, is set to discuss a six-point agenda, including a cap on federal financing to provincial projects and proposing priorities and guidelines for the Public Sector Development Programme (PSDP) for the next fiscal year. This discussion takes place as an elected government is expected to be in place within the first half of February, almost three months ahead of the next year’s budget.

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Strong opposition from caretaker governments of the three smaller provinces — Sindh, Balochistan, and Khyber Pakhtunkhwa — is evident, as they argue that such matters should be left to the soon-incoming elected governments, considering their own financial constraints. Punjab, while acknowledging challenges in legal, contractual, and financial liabilities, has not openly opposed the Centre’s move to scale down funding to provincial projects.

Surprisingly, the planning and finance ministries at the Centre are proposing approval for at least a Rs201 billion cut in the current year’s budgetary allocations of Rs940 billion for PSDP. They advocate for transferring about Rs121 billion worth of 76 provincial projects off-the-book of the federal government to the provinces for financing and completion. Additionally, savings of Rs30 billion are proposed by freezing certain schemes under the SDGs Achievement Plan and the prime minister’s initiatives.

Interestingly, the IMF estimated a few days ago that the overall development program, comprising both the center and four provinces, would be slashed by Rs175 billion to Rs2.108 trillion to contain development spending at 2% of GDP instead of 2.1%.

According to the IMF, the federal PSDP should have been down Rs61 billion to Rs782 billion instead of Rs843 billion in the budget. The Fund did not consider the government’s Rs950 billion budgeted PSDP due to about Rs100 billion block allocations for unspecified projects. On the other hand, the Fund had projected the provincial development plans to be lowered by Rs115 billion to Rs1.325 trillion instead of the budgeted Rs1.44 trillion.

In the NEC meeting, the proposal includes not implementing provincial projects with zero financial progress and ordering ministries and divisions not to make or initiate any expenditure on such projects. This involves diverting funds from 68 projects with about Rs32.55 billion allocations to other crucial projects, especially those requiring additional foreign components within the overall PSDP for the ongoing fiscal year.

Additionally, there will be no further authorization for the SDGs program. The cabinet division would prioritize the completion of ongoing schemes within the already authorized amount. Savings of Rs28.74 billion may be diverted to other important projects within the PSDP, especially where additional foreign components are required.

Projects under the prime minister’s initiatives that have not received funding so far would be capped at the current expenditure level. Provincial governments would be free to take up these projects as per their priority. The planning division emphasized completing all ongoing projects to avoid wasting investment already made and potential legal/contractual issues. These cuts would not apply to projects in KP’s newly merged districts.

As part of the IMF’s structural benchmarks, the NEC will also review the Public Investment Management Assessment (PIMA), Climate-Public Investment Management Assessment (C-PIMA), and their action plans. Discussions on socioeconomic objectives of the 13th five-year plan currently under preparation will be included in the meeting agenda. The meeting will also feature a mid-year review of the 2023-24 annual plan and a progress report on the SDGs subcommittee.

In its recent report, the IMF found federal spending closely aligned with the initial Standby Arrangement projections, with some under-spending on power subsidies and PSDP attributed to technical delays.

The caretaker finance minister, Dr. Shamshad Akhtar, reported to the IMF that the provinces have amended their memorandums of understanding to include the estimated federal revenue, annual provincial revenue, and total expenditure plans to ensure provincial governments remain within their initial budget plans.

The Punjab provincial government has committed to restricting its spending to achieve a surplus of Rs336 billion as committed in the memorandum associated with this fiscal year’s budget. The provinces have also committed to refraining from increasing their commodity debt and adopting a definition of provincial surpluses.

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