ISLAMABAD, Jan 13: The government is considering reducing development budget by up to Rs80 billion or 15 per cent to partially offset the rising fiscal deficit.

Informed sources told Dawn that a number of proposals were being worked out for the required budgetary adjustments by the ministry of finance. It suggests that the government will need to reduce the allocation for the Public Sector Development Programme along with slightly higher fundraising through national savings schemes to bridge the gap between available resources and expenditures.

The federal and provincial governments were able to utilise Rs128 billion in the first quarter (July-September) of the current fiscal year. Another Rs100 billion was utilised by project executing agencies till December 31, 2007.

The second quarter funds utilisation usually remains higher than the first quarter because of a pick-up in implementation activities after the start-up problems.

The sources said that the pace of implementation had slowed down in the recent weeks because of the elections and overall security environment which also resulted in the evacuation of foreign engineers from the project sites.

Officials at the finance ministry expect the overall development expenditure will remain more or less at the last year level or at best touch Rs450 billion.

Caretaker finance minister Dr Salman Shah said the government had half a year to make fiscal adjustments which may include a reduction in the development budget in the last quarter of the financial year because the government had to meet the overall objective of restricting fiscal deficit at four per cent of GDP.

The government had allocated an amount of Rs520 billion for the current year’s PSDP (2007-08) which was about 25 per cent higher than the previous year’s Rs415 billion.

An official at the Planning Commission said that it was yet to receive proposals for a reduced PSDP, but agreed that a mid-year review of the overall economic situation, including the development programme, was currently in the final stage.

He said that there was a likelihood that releases for slow-moving projects or those failing to take off owing to various bottlenecks might be withheld on the basis of mid-year review.

Last year, the federal and provincial governments were able to spend about Rs435 billion or five per cent of GDP. This year, the government has transferred about 25 per cent of total funds to the provincial governments and federal executing agencies at the beginning to help them start the projects.

The utilisation of Rs128 billion funds in the first quarter of this year was, therefore, almost double the Rs68 billion utilised during the same period last year.

As a result, the release of funds in the first three months of the current year stood at 1.3 per cent of GDP, compared with 0.8 per cent of GDP during the same period last year.