Over 30pc uplift funds earmarked for security

ISLAMABAD: The cabinet decided on Wednesday to make major budgetary adjustments, including diversion of more than 30 per cent (Rs170 billion) from development and income support programme for the poor towards security expenditure, changes in macroeconomic estimates and at-source deduction of provincial electricity bills.

Presided over by Prime Minister Yousaf Raza Gilani, the meeting also decided to allow implementation of eight rental power projects (RPPs) of 1,156MW before June, review legal implications of six RPPs of 838MW before a final decision and scrap another five RPPs of 256MW as advised by the Asian Development Bank.

The cabinet decided to increase with immediate effect the salaries of armed forces officers by 15 per cent and of other personnel by 20 per cent to bring them on a par with those fighting terrorism on western borders.

Briefing newsmen after the meeting along with Information Minister Qamar Zaman Kaira and Water and Power Minister Raja Pervez Ashraf, Finance Minister Shaukat Tarin said even after mid-year adjustments, the budget deficit could touch “5.3 per cent of the GDP instead of 4.9 per cent target”, but all attempts would be made to contain it.

He said the axe had fallen on the social sector because of an unbudgeted burden of Rs310 billion – Rs170 billion in the shape of additional security expenditure, Rs85 billion for electricity companies, Rs20 billion in additional support to the textile industry, Rs10 billion for Railways and Rs25 billion for the Utility Stores Corporation.

To meet this gap, Mr Tarin said, the government would rationalise the public sector development programme by Rs125-150 billion and get a saving of Rs20 billion from Benazir Income Support Programme’s unspent funds, besides earning an additional Rs60 billion profit from the State Bank of Pakistan.

The net gap was still estimated to be about Rs80 billion that meant the budget deficit could reach 5.3 per cent of the GDP (Rs800 billion), instead of targeted 4.9 per cent or Rs722 billion, he added.

The minister said that despite taking over of Rs216 billion liabilities from power companies and injecting Rs85 billion, the circular debt stood at around Rs62 billion.

The cabinet, he added, decided to make at-source-deduction of provincial electricity bills and other inter-corporate receivables to overcome the problem and empower energy companies through restructuring of their management boards to function on commercial lines.

He said the internal security situation, political instability in the aftermath of NRO and El-Nino conditions, and energy shortages and rising global commodity prices had put pressure on fiscal framework and the only way to counter these risks was to pursue the nine- point economic agenda announced by the government.

The minister said the inflation at 10.5 per cent was much lower than last year’s 23.3 per cent. He said wheat production target might fall short by about 2 million tons, but last year’s surplus would be more than enough to meet local demand.

He said the government would have to improve revenue collection machinery, which was crucial to stop Rs1.5 trillion annual losses faced by the economy.

The minister for water and power said the cabinet decided to adopt all the 11 recommendations of the ADB that took about five months to complete its third part audit of the rental power projects. He said the electricity rates would go up by 6.1 per cent if eight RPPs of 1,156MW were implemented as advised by the ADB, but the increase could go up to 9.9 per cent if 14 RPPs of 1,994MW were realised. He, however, agreed that the increase did not take into account the impact of oil that was a pass-through item and its prices could not be estimated.

He said the ADB had also asked the government to remove inconsistencies in RPP contracts if legally possible, to strictly enforce contract timelines and to get their commercial operations certified by internationally acceptable independent engineers.

The ADB had said that the elimination of 100 per cent loadshedding during peak hours was not a viable option from the affordability perspective, he said. The bank had also called for quality controls of old and used RPPs strictly under the trade policy, optimum utilisation of available gas and find new resources aggressively and must continuously run RPPs till 2012 to provide room for improvement in Wapda’s generation plants, he added.

The information minister said the cabinet endorsed a decision of its economic coordination committee to import 1.25 million tons of sugar before June and sell a part of it through USC outlets Rs10 per kg cheaper than market rates.

He said the cabinet constituted a committee comprising federal ministers for finance and interior to bring at par salaries of police personnel in Balochistan at par with other provinces in consultation with the provincial government.