The cash crunch being felt by almost every citizen of the country due to rising commodity prices has also struck the federal government. In the wake of rising trade deficits, the incumbent government had contracted $15.32 billion worth of foreign loans during the past fiscal year (2020-2021) alone through multilateral institutions and commercial banks, moving the total amount of loan agreements in the past three years of the ruling PTI to $34.17bn. In an attempt to mitigate this burden, the Centre has planned to cut back on expenditure on provincial development projects to leave room for projects of national importance.
According to the new National Development Framework (NDF) the federal government plans to shift its investment priorities and only spend on areas under the Centre’s responsibilities, barring provincial social sector projects that fall under the SDGs. In the recently held meeting of the Central Development Party it was decided that financing provincial projects under the Federal Public Sector Development Programme (PSDP) will be discouraged and the burden would be passed to the federating units. The fiscal budget for this year presented by then finance minister Shaukat Tarin had put the share of the provinces in the 7th National Finance Commission (NFC) award according to Article 160 of the Constitution. Punjab got the biggest share with nearly Rs1,700bn with Sindh at Rs848 billion, and Khyber Pakhtunkhwa and Balochistan a total of Rs559 billion and Rs313 billion, respectively.
But despite that it was noted during the meeting that currently the PSDP 2021-22 includes about 331 provincial nature projects worth Rs1.151 trillion, out of the total 1,190 projects. The federal government has already spent Rs345bn on these. With Pakistan’s current account deficit widening to $5.2 billion at the end of October, and the trade deficit to $20.59 billion in November, there is no denying the fact that expenditure on development projects must be curtailed. Afterall, it is also one of IMF’s conditions to confine the budget deficit, which does require the PSDP to be reduced from Rs900 billion to Rs700 billion for the current fiscal year. The provinces too must stop depending on investments from the Centre and spend on development projects themselves. However, a better policy decision should be working towards increasing the country’s tax-to-GDP ratio. The resource crunch the government is faced with can only be set off through rising revenues, and not through cutting provincial shares.
