Prime Minister Nawaz Sharif’ government again compromised on economic growth by agreeing with the IMF on cutting its Public Sector Development Programme (PSDP)
With its latest promised cut, the planned PSDP spending has been slashed by a total of Rs278 billion or 24 percent, bringing it down to Rs897 billion. Initially, Finance Minister Ishaq Dar had announced development spending at Rs1,175 billion in his budget speech made in the parliament in June 2014.
"The 24 percent cut in PSDP would impact GDP {economic} growth by two percentage points," said Hafiz A Pasha, an economist and a former finance minister.
Despite all odds, the serving finance minister is confident that the economy would grow by 5.1 percent in the ongoing year, while IMF, World Bank, and Asian Development Bank recalculated the growth rate at 4.2 to 4.4 percent for the year.
The reduction in PSDP means much less spending in crucial areas of health, education, water (dams, irrigation, and drinking water supply), and electricity (generation and distribution). The domino effect of this includes less availability of new employment opportunities and more unemployment.
An official at a recruitment firm said the ratio of unemployment in Pakistan stands somewhere at six percent at present, but this does not include unemployment in the undocumented sectors of the economy. "The actual rate of unemployment, including the undocumented economic sectors stands above 30 percent," he claimed.
The downward revision in the development spending and slowdown in economic growth would not allow improvement in the lifestyle of the poor segment of the society, which is expanding instead of reducing. According to the government’s own estimate, people living below the poverty line {earn less than $2/day} numbered 90 million, which is almost half of the total population assumed at 180-190 million in the country.
Less spending on education would continue widening the gap between school going children (aged six-16) and better facilities. This gap would manifest the most in rural areas; however, urban centres would not remain unscathed either due to the unplanned rural to urban migration. Moreover, reports reveal that there are more than 27 million out of school children, of which seven million have never received any form of primary education. And approximately 50 percent of enrolled children drop out before completing primary education.
No or limited access to schools keeps the child labour industry thriving. Another facet of a high dropout rate is the unskilled and unfit youth, unable to get into technical and higher paid professions.
Similar is the case with the health sector. The availability of doctors of medicines in the country is that nominal that one doctor, on an average, takes care of over 1,200 people. A single nurse looks after over 2,350 patients and one hospital bed is available for every 1,664 patients.
More spending on education and health can lower the burden on doctors, paramedical staff, and hospitals. The country needs to reduce the dropout ratio, lower cost of medical education, and give incentives to doctors so they do not decide to leave the country in search for higher income.
Low spending on water and electricity would also have a negative impact on the wellbeing of the citizens. The mismanagement of irrigation and drinking water, its low availability, and non-construction of dams would also keep the average yield of agriculture produces comparatively low. This low yield, when compared with other agricultural countries at world across, including India, Australia, and Brazil will put Pakistan at further economic peril.
A recent media report, quoting a written reply submitted to the parliament, suggested that the government has not only cut the budgeted spending on development projects down, but the release of funds for the ongoing projects was too sluggish.
It said the government has spent less than five percent of the allocated funds, or Rs89 billion, for the ongoing 213 development projects in the last five years. These five years include the one year of the Pakistan Muslim League-Nawaz government in the centre. The total allocated fund by the government stands at a huge Rs1,978 billion for these projects.
This low utilisation of funds for the projects is intentional to keep the fiscal deficit curtailed at the limit agreed with IMF. The governments in Pakistan always find it easy to cut spending on development projects rather than cutting the spending on non-development projects.
The downward revision in the development spending is being made for two major reasons; one that the government needs huge funds for ongoing military operation against terrorism – especially in North Waziristan - and to resettle the war effected people to their militancy-cleared residence.
Earlier in February, the government had told IMF it would make massive spending on war against terrorism and resettlement of internally displaced people. However, the institution asked it to curtail the spending to Rs150 billion.
In addition to this, the government has also announced to buy warheads worth $1 billion (Rs100 billion).
The second major reason for the 24 percent cut in development spending is downward revision in revenue collection by 4.23 percent to Rs2,691 billion from Rs2,810 billion target set at the outset of the year.
Experts have suggested time-to-time that the government should make structural reforms to widen taxpayers net and increase collection of direct taxes instead of relying more on indirect taxes. This will help the government to spend on development spending and not compromise on economic growth.
Successive governments, however, fail to do so because of too much political gains they attain in exchange of favours given to different interest groups, including the agriculture one.
As a matter of fact, the registered taxpayers number 3.5 million in the country with a population of 180-190 million, while the number of return filers surprisingly stands at 850,000.
The writer is a staff member