ISLAMABAD: Antici­pat­ing a massive tax shortfall, the government may cut Public Sector Development Programme (PSDP) by 22 per cent, or Rs258 billion, during FY15 to meet the fiscal deficit limit at 4.8pc of GDP imposed under the International Monetary Fund (IMF) programme.

According to documents released by the IMF after disbursement of $1.1bn last week, the country’s consolidated PSDP has been put at Rs917bn instead of Rs1.175 trillion allocated in the budget 2014-15.

This spending would be even lower than the last year’s actual development expenditure of Rs1.012 trillion by about 10pc, the documents said.

The federal PSDP spending for FY15 has been revised to Rs477bn against budgetary allocation of Rs525bn — a reduction of Rs48bn or about 9pc.

The major reduction in development spending has been estimated to come from provincial governments, mainly because of their commitment with the Centre to offer Rs289bn cash surplus and capacity limitations to undertake development projects.

As a consequence, the provincial development spending has been worked out at Rs440bn against Rs615bn allocations made in the latest budget and approved by the parliament and provincial assemblies. This means a cut of 28.5pc (Rs175bn).

In a written statement to the IMF, Finance Minister Ishaq Dar has given an undertaking that FY15 budget was consistent with the Fund’s programme objectives aiming to lower the deficit, excluding grants, to 4.8pc of GDP.

Mr Dar said the envisaged fiscal adjustment in the current year was underpinned by tax revenue measures and further realisation of energy subsidies.

However, the delay in implementing the electricity tariff adjustment and the court orders against the GIDC (gas infrastructure development cess) had “created risks to the fiscal outlook”.

He committed that to address these concerns, the government had developed a new power tariff strategy, and in case GIDC legal concerns were not resolved by January 2015, “we stand ready to take compensatory measures as agreed, including adjustment on the revenue side to reach our fiscal targets”.

Mainly because of this reason, the government has released only Rs145bn for development spending in first six months of the current fiscal year, purely in line with papers released by IMF which suggest total half-yearly spending at Rs146bn.

This expenditure was way behind officially notified spending mechanism which required 40pc, or about Rs210bn. This means the government was behind its normal schedule by Rs65bn, or about 31pc behind budgetary target.

Lower development spend­­ing has direct bearing on the living standards of the people.

Published in Dawn, December 31st, 2014