PSDP cut by Rs100b for fuel subsidy

The government has slashed the development budget by Rs100 billion, or one-tenth, to pay for fuel subsidies, opting for the "easiest prey" instead of utilising contingency budgetary allocations earmarked for such unforeseen events. The maximum cut of Rs22.3 billion has been placed in the budget of the National Highway Authority (NHA), followed by Rs13 billion reduction in allocation for critically important water sector projects and Rs10.2 billion in allocations for provincial schemes. The cost of the Federal Board of Revenue (FBR)'s inefficiency and the government's inability to convince the International Monetary Fund (IMF) to relax fiscal targets is now being translated into building another circular debt in the development sector. The government has decided to reduce the Public Sector Development Programme (PSDP) by Rs100 billion, Federal Minister for Planning Ahsan Iqbal confirmed to The Express Tribune. The finance ministry asked the planning ministry to surrender Rs100 billion to the Prime Minister's Austerity Fund, which has been established to finance subsidy on petroleum products. The development came two days after the Ministry of Petroleum asked the Ministry of Finance to hand over Rs71 billion to the Oil and Gas Regulatory Authority (OGRA) for clearing subsidies for the March 14-27 period. OGRA would then transfer the money to oil marketing companies. The cut will only augment the fiscal problems of the government, as the finance ministry is deferring liabilities instead of showing fiscal prudence, said Iqbal to a question. For the current fiscal year, the National Assembly had approved a development budget of Rs1 trillion, which was almost half of the demands made by competing ministries. During the mid-term review, various ministries demanded an additional Rs495 billion for the current fiscal year to keep momentum on development schemes, said Iqbal. Instead of increasing the budget, the finance ministry has reduced allocation, which would inflate the cost of these schemes, he added. Instead of raising revenues, the PSDP has become the easiest prey, lamentedIqbal, who for long has been struggling to convince the government to increase the development budget allocation from as low as 0.7% of the size of the economy. The finance ministry spokesperson did not comment on the decision to reduce the development budget by 10%. Prime Minister Shehbaz Sharif on Friday announced keeping the diesel price unchanged at Rs336 per litre, which required Rs176 per litre subsidy. The government also kept the petrol price unchanged at Rs322 per litre and claimed it was paying Rs78 per litre subsidy. However, the government is still charging Rs106 per litre petroleum levy, Rs2.5 per litre carbon support levy and 10% import duty. Effectively, there are no subsidies in the case of petrol. The Ministry of Petroleum this week wrote to the finance ministry to clear Rs71 billion outstanding payments to OGRA on account of price differential claims. The petroleum ministry estimated price differential claims of Rs23 billion for the March 14-20 week and Rs48 billion for the March 21-27 week. OGRA would then distribute the amounts to oil marketing companies. In a press statement, the finance ministry said OGRA has been provided the first tranche amounting to Rs27 billion from the Prime Minister's Austerity Fund to settle price differential claims arising from the government's decision to shield consumers from the impact of rising oil prices in the international market. The funds have been arranged through various expenditure reduction measures implemented within the federal government and deposited in the PM Austerity Fund, it added. The government had earlier increased fuel prices by 20%, even before buying any expensive fuel from the markets. To deal with unforeseen events, the IMF had asked Pakistan to set aside about Rs389 billion in this year's budget. A senior ministry official said the contingency pool had largely been utilised to offset the impact of the FBR's revenue shortfall. However, these funds were not meant to settle the cost of inefficiencies of the FBR. Where the FBR was facing revenue shortfall, collection on account of the petroleum levy was exceeding monthly targets. Yet, the finance ministry could not convince the IMF to review the targets in light of the Middle East war. The finance ministry spokesperson did not comment on the utilisation of the contingency pool. Sources said the planning ministry has reduced annual allocations of all ministries proportionally. The NHA's budget has been reduced by Rs22.3 billion, while the Power Division allocation has been cut by Rs9.1 billion. The Water Resources Division faced a Rs12.9 billion cut, which could compromise major water storage projects. But the secretary of the division will have the choice to prioritise the remaining budget. A Rs7 billion cut has been made in schemes recommended by parliamentarians under the Sustainable Development Goals. The defence ministry's development budget is reduced by Rs1 billion. The education ministry's budget is cut by Rs3.2 billion, while another Rs4.2 billion reduction is made in the budget of Higher Education Commission. Azad Kashmir and Gilgit-Baltistan budgets have been slashed by Rs8.2 billion, while the merged districts of Khyber-Pakhtunkhwa also faced a Rs6.5 billion cut. The allocation for provincial projects has been reduced by Rs10.2 billion. The housing ministry budget is reduced by Rs1.6 billion, while the Ministry of Science and Technology budget is slashed by Rs2.2 billion. The interior ministry budget is reduced by Rs1.4 billion and the railways budget is also slashed by Rs2.2 billion. The health sector's development budget has been cut by Rs1.4 billion and the FBR also sustained a Rs1.7 billion cut.