THE federal government’s decision to scale down many of its mid-term budgetary framework targets for the next financial year is understandable. The government has missed the MTBF targets in previous years and will miss them again this year and the next. It is difficult, even if not impossible, to achieve the major macroeconomic targets of a relatively faster economic growth rate, a slower inflation rate and a narrower budget deficit as envisaged in the MTBF given the persisting challenges of growing energy shortages, deteriorating security conditions, a falling tax-to-GDP ratio, rising unproductive expenditure, increasing revenue leakages, etc. The slower economic growth has actually forced the
government to substantially cut development spending in the last few years. And it is again considering the downward revision of its development budget for the next year to Rs350bn from the projected Rs470bn.

At the same time it plans to get out of social-sector development and transfer this responsibility to the provinces from the next fiscal. This should help it to partially correct the fiscal imbalance created by the significant increase in the provincial share and reduction in the federal share from the divisible pool under the NFC award. It should also prove an incentive for the otherwise reluctant provinces to effectively tax the untaxed and under-taxed sectors falling in their domain, like agriculture income and real estate, to raise resources for financing their social-sector development. The decision will save cost and time overruns, and help to cut the throw-forward of Rs581bn in over 1,250 Public Sector Development Programme schemes worth Rs822bn in the social sector, launched since 2005. More importantly, it will give the federating units greater autonomy in the selection of the projects that are important for their people in line with the objectives of the NFC award and the 18th constitutional amendment that devolves most functions to the provinces.

While this policy change is likely to take some financial burden off the government’s shoulders, it is also expected to pave the way for restructuring the PSDP in view of the decreasing resources for development and in accordance with the New Growth Framework. The latter, for a change, focuses more on developing human resource, enhancing productivity, increasing competitiveness, etc than on erecting brick-and-mortar structures to please the politicians. The PSDP, shows a recent Planning Commission study, remains the mainstay of Pakistan’s development and growth policy. It is hoped that the NGF will remove
several flaws that have crept into the planning system and restore the PSDP’s role in the economic growth of the country.