Government relying on heavy slashing of PSDP

The government has relied heavily on slashing Public Sector Development Program (PSDP) during the last three years to finance the yawning fiscal deficit caused by phenomenal increase in current expenditure. Documents show that PSDP allocation was slashed by Rs 367 billion in 2008-09 and 2009-10 to finance the rising current expenditures.
In 2008-09, PSDP allocation was Rs 549 billion, which was subsequently revised downward to Rs 418 billion, and Rs 131 billion was redirected to cater for an additional outlay of Rs 156 billion for current expenditure. The actual budgetary allocation for current expenditure was Rs 1493 billion for 2008-09, which was revised upward to Rs 1649 billion, and the gap was financed through slashing the PSDP.
The PSDP was slashed by Rs 136 billion in 2009-10 from the budgetary allocation of Rs 646 billion. The resulting PSDP allocation was Rs 510 billion. In 2009-10, current expenditure rose by Rs 318 billion necessitating the upward revision of budgetary allocation of Rs 1699 billion to Rs 2017 billion. However, cutting the PSDP was not sufficient to meet the fiscal deficit targets and hence the government also resorted to borrowing from the banking sector which, in turn, fuelled debt servicing payments requiring even larger outlays for current expenditure.
In 2008-09, Rs 115 billion was paid in addition to the budgetary allocation for debt servicing for the year. The interest payment on domestic debt rose from Rs 576 billion to Rs 595 billion in 2009-10. Documents show that interest payment for the current fiscal year has increased from budgetary allocation of Rs 699 billion to Rs 726 billion in the revised budget for the current fiscal year.
The PSDP for the current fiscal year was slashed by Rs 100 billion from Rs 280 to Rs 180 in the wake of devastating floods. The money so diverted was used for creating fiscal space to undertake rehabilitation and reconstruction activities. The reduction in the development expenditure coupled with high inflation has eroded the purchasing power of each rupee earned.