Upcoming review talks with IMF will set direction of budget

ISLAMABAD: The government is in catch-22 situation to allocate required development funds in coming budget as on one side the government wants to protect major priority projects like China-Pakistan Economic Corridor (CPEC), Lahore-Karachi Motorway and energy projects but on other hand it cannot hike the budget deficit under the tight noose of the IMF.
Pakistan will have to make a hard choice between two tight ropes and the upcoming review talks, scheduled to be held in Dubai with the IMF, will set the direction of the upcoming budget which will be unveiled by Finance Minister Ishaq Dar at the National Assembly on June 5, 2015.
With expected revenue of FBR to the tune of Rs3250 billion in next fiscal year, the government will have to match expectation of higher development needs to avoid delays in the much hyped CPEC projects for which China was going to invest $46 billion over next 5 to 15 years.
Pakistan and the IMF high-ups are all set to kick-start upcoming review talks in Dubai and Finance Minister Ishaq Dar will lead the policy level talks from mid of next week. The Finance Ministry is preparing the next budget with deficit of 4 to 4.2 percent of GDP that does not allow increased public sector investment to jumpstart the sluggish economic activities.
So far no PSDP size was fixed as Finance Minister Ishaq Dar on Thursday talked to Planning Minister Professor Ahsan Iqbal regarding the resource envelop and it might go up to Rs600 to Rs625 billion with the approval of prime minister.
“Finance Ministry has so far given indicative ceiling of Rs580 billion for the next PSDP which according to the Planning Commission will be insufficient to undertake mega projects like CPEC and others by maintaining pace of ongoing development scheme,” official sources confirmed to The News here on Thursday.
Against demand of Rs725 billion through official communication sent out by Minister for Planning Professor Ahsan Iqbal to Finance Minister Ishaq Dar, the Finance Ministry has incorporated indicative ceiling of Rs580 billion into Budget Strategy Paper (BSP) for the next budget 2015-16.
“Finance Ministry is directing the planning managers to protect major initiatives and also run the ongoing schemes of PSDP,” said one top official and added that the government would have to make hard choices keeping in view existing resource constraints.
In a letter written by Minister for Planning, Development and Reforms Professor Ahsan Iqbal to Finance Minister Ishaq Dar, pressing upon the need for making an allocation of Rs725 billion for the federal PSDP in order to undertake sufficient allocation for certain mega projects such as for the terminal and other infrastructure of LNG, there was requirement of Rs100 to Rs125 billion allocation alone for this project.
Pakistan will have to allocate resources to accelerate the process on projects under CPEC where China had committed inflows of $46 billion.
The Finance Ministry high-ups say that the PSDP allocation could go up to Rs600 billion to Rs625 billion but the resource allocation beyond this limit did not seem feasible keeping in view the budget deficit target of 4 percent of GDP under the IMF programme for 2015-16.
However, the sources said Pakistan requires public investment to boost growth coupled with job creation and reducing poverty. The government had allocated Rs525 billion for federal PSDP in the outgoing fiscal year 2014-15 and it is estimated that the government will be able to spend Rs400 billion to Rs425 billion maximum with share of foreign aid of approximately Rs102 billion.
When asked about estimates of “savings” in PSDP in the context of IMF programme, the official of Planning Commission said that the government had allocated Rs55 billion for Lahore-Karachi Motorway in the PSDP of which Rs25 billion released last year while remaining amount would remain un-utilized. For Coastal power projects, the government had allocated Rs12 billion in the PSDP which would remain un-utilized in the current fiscal year.