ONCE again, after many years, the Public Sector Development Programme (PSDP) of 2007-08 has become the first causality of resource crunch that eventually led to Rs50 billion cut in original outlay. Originally, the caretakers proposed a cut of Rs70 billion.

The Planning Commission is believed to have opposed Rs70 billion reduction by saying that it will send a wrong signal and that minimum funding should be ‘withheld’ by not providing funds for over 100 small and medium-sized development projects.

The objective to apply cut in the PSDP size was to restrict fiscal deficit, which officials of the ministry of finance and the Planning Commission privately concede, could escalate to 6.5-7 per cent against the target of four per cent set for the current financial year.

Fiscal deficit was at 3.6 per cent of GDP during the first six months of the current fiscal year, with some relevant people maintaining it could eventually touch as high as eight per cent considering an unforeseen huge expenditure incurred particularly on law and order and scheduled February 18 elections.

The Deputy Chairman of the Planning Commission while talking to Dawn insisted that the word cut should not be used as no formal decision had been taken to reduce the PSDP. However, he did admit that all is not well and that a number of projects, relating to the federal PSDP (Rs335) would have to be deferred to avoid hitting the budget for 2007-08.

Various development projects of national importance, he said, needed to be continued without any interruption so as to complete them on schedule.

“But those projects which have not been started, are being deferred and naturally no funding will be available for them during the current financial year”, Dr Sheikh said.

To a question, he said higher authorities had been taken into confidence for withdrawing some Rs50 billion funding from the PSDP. He advised the government to adopt professional approach to avoid more problems.

Senior leaders of PPP, PML (N) and ANP accused the former PML(Q) ruling party of creating a mess of the economy and said they would be inheriting a ruined economy. “This is so sad to hear that the caretakers had decided to cut the PSDP by Rs50-70 billion and we really don’t know what to do with it when we come into power”, said former commerce minister Ishaq Dar.

He said that public had already suffered particularly due to higher prices and now they would also be experiencing cut in the PSDP which meant more problems on account of health, education and sanitation etc.

Former PPP finance minister Syed Naveed Qamar, when contacted, was equally disturbed over the cut in PSDP and saw this as an outcome of bad economic policies. He said the caretaker government, which was the continuation of previous PML(Q) government, had no understanding of the economic issues. “This cut should have been avoided and now we will see how deal with it after the formation of the new elected government”, he added..

One of the options, he said, was to avoid incurring non-development expenditure by previous rulers and the caretakers instead of cutting the development programme. “Why did they appoint people on high salaries and offered them big cars and rented bungalows, and this was one of the reasons for the increase in the expenditure”, he added.

Central information secretary of the Awami National Party (ANP) Mr Zahid Khan, who is also an ex-senator, told Dawn that caretakers did not have mandate the cut or withdraw funds from the PSDP and said this would be reversed by the incoming government.

“The nation is already suffering due to power, atta and many other crises and now it is being forced to suffer further because of cut in the PSDP”, Mr Zahid Khan said. He blamed previous rulers and President Musharraf for increasing poverty and unemployment across Pakistan. “Few years ago we used to hear that 33 per cent Pakistanis were living below the poverty line which now has increased to 50 per cent”, the ANP information secretary said.

A high-level meeting presided over by President Pervez Musharraf on February 4 had agreed to cut PSDP by Rs70 billion in the wake of slowdown in the economy and the huge losses suffered due to assassination of PPP leader Benazir Bhutto.

The president had convened the meeting to understand the point of view of the Planning Commission for cutting the size of the PSDP. Caretaker Finance Minister Dr Salman Shah and Special

Secretary Finance Dr Ashfaque Hasan Khan had already told the president that since domestic oil prices remained unchanged during the last 13 months, it was becoming difficult to continue paying Rs14 billion every month as subsidy for which the size of PSDP needed to be reduced to avoid further “haemorrhaging the economy”.

The president was also told that the current overall PSDP of Rs520 billion which also included funding for the provinces and earthquake rehabilitation was fast becoming unsustainable.

A participant of that meeting, when approached, said that top priority would be given to the ongoing important development projects and that no cut would be applied on them. He said the president had advised that wastage should be reduced and mega development projects should be completed on time.

However, Special Secretary Dr Ashfaque Hasan Khan, explains that it is necessary to make adjustments in the PSDP to avoid piling of fiscal problems. The government would have to have Rs70-75 billion adjustment in the PSDP especially when there was no decision to increase oil prices in the previous 13 months. Some increase had been made in the oil prices by the caretakers and it would have to be continued during the remaining period of 2007-08, he added.

But many analysts believe that the current fiscal problems are the outcome of structural weakness that have not been addressed effectively over the past eight years.