Now that time has come to cough up the money for the PM’s recent relief package, and the finance ministry must make required cuts to the development budget, it’s confused how to go about it, according to reports not yet denied by the government. Plans to cut the Public Sector Development Program (PSDP) by another Rs100 billion, which would being the total reduction to Rs300b for this year, will divert funds away from other crucial projects that are already underway and put the economy, as well as the government’s own scorecard, under that much more pressure at what is after all a very crucial time.
Taking away another Rs100b from PSDP would leave it with about Rs600b for the year, quite a cut from Rs900b announced in the budget, and according to the government’s own estimates it will increase the average completion period of the existing development projects portfolio by about 11.5 years. That’s why Planning Minister Asad Umar has urged the finance ministry to reconsider its decision because, among other things, it would also lead to a situation where spending orders already issued to ministries would have to be withdrawn. There are also the handouts to allies to consider, which the PM has been forced to offer to balance the scales in his favour considering the no confidence motion, as well as the expansionary posture he wants the government to adopt all the way to the next election; if it lasts that long.
It’s strange that at such a time the PM is favouring policies that will divert capital expenditures towards non-productive purposes, which is not only financially very imprudent but would also push the country deeper into the dreaded debt trap. Let’s not forget that the latest gambit – slashing petrol, diesel and electricity prices for political mileage – has also put the IMF program in peril and, should push come to shove, debt obligations could become a much bigger worry.
Since a lot will depend on what the IMF finally decides about this matter, the finance ministry should consult the lender before making any more cuts to the development budget. That would, at least, end all the confusion in a hurry.
