Centre may slash PSDP

The federal government may be compelled to considerably slash Public Sector Development Programme (PSDP) in the forthcoming fiscal year to achieve the 4 percent fiscal deficit target as all the four provinces have failed to present a consolidated surplus budget of Rs 125 billion as earmarked in the federal budget 2011-12.
According to federal and provincial budget documents, the federal government estimated a consolidated Rs 125 billion provincial budget surplus, but outlays presented by all the four provinces - Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan - for 2011-12 showed a consolidated budget deficit of Rs 5.588 billion.
A senior Punjab finance ministry official says that the Centre has no right to retain any part of the National Finance Commission (NFC) Award if a province fails to achieve the surplus as specified in the federal budget. The federal government, he added angrily, has to transfer resources to each province according to the NFC Award and has no right to unilaterally slash the share of any province.
"We have presented a balanced budget and dealing with the federal budget deficit is the responsibility of the federal government" the official added. Punjab government announced a Rs 654.74 billion outlay for the next fiscal year with total receipts of Rs 654.81 billion, including Rs 530.65 billion transfer from the federal government under National Finance Commission Award (NFC), Rs 88.51 billion from provincial tax and Rs 35.65 billion from non-tax revenue, showing a budget surplus of Rs 70 million.
The Sindh Government announced Rs 391.9 billion budget for 2011-12, with a budget surplus of Rs 882 million. The Khyber Pakhtunkhwa government announced a budget of Rs 249.15 billion for the financial year 2011-12, out of which a huge amount of Rs 87.706 billion was shown separately as credit from commercial banks and other financial institutions.
An official on condition of anonymity stated that the federal government would, third year running, massively slash its PSDP to meet a deficit target that was unrealistic to begin with. The failure of the provinces to show a consolidated surplus of Rs 125 billion merely implies that much more would be slashed in the PSDP.
Two provinces, Punjab and KPK have announced balanced budgets, Sindh is the only province to have announced a Rs 882 billion budget surplus, while Balochistan government has announced a budget deficit of Rs 6.73 billion. Last year, due to devastating floods, the government was compelled to bring down the PSDP by 46 percent to Rs 150 billion from total developmental allocations of Rs 280 billion, besides cutting the shares of provinces from Rs 373 billion to about Rs 240 billion, showing about 36 percent reduction. The share of Punjab was reduced to about Rs 180 billion, the Sindh shares slashed from Rs 118 billion to about Rs 55 billion, KPK share was reduced from Rs 73 billion to about Rs 45 billion, while the share of Balochistan remained the same at Rs 22 billion.
Sources added that to meet the fiscal deficit the government would have to rely on borrowing from the financial sector, which would once again crowd out private sector investment. According to economist Dr Zahid of Pakistan Institute of Development Economics all the four provinces have failed to generate a surplus which would increase fiscal deficit by 0.5 percent. He added that revenue collection target of Rs 1952 billion for the upcoming fiscal year 2011-12 was also unrealistic.