Increase in PSDP

The Prime Minister, while on a visit to the Planning Commission, which he committed to undertaking on a quarterly basis, stated that he had directed the Ministry of Finance to release 300 billion rupees for the Public Sector Development Programme (PSDP) within the current fiscal year.
Former Finance Minister Shaukat Tarin was continuously engaged in difficult negotiations with the International Monetary Fund (IMF) since November 2008, a time period encompassing the entire duration of his tenure, to juggle Pakistan's non-compliance with some of the conditions over which the government had little or no control, such as the decline in exports, attributed to global recession, with meticulous compliance with others to ensure each subsequent tranche release, considered critical for the economic health of the country.
In this context, his repeated exhortation to parliamentarians to end the culture of tax exemptions and to pay their taxes promptly and honestly, his plea to his Cabinet colleagues to downsize current expenditure, including the large amounts spent on providing security to the VVIPs, as well as to restructure the loss-making state units made headlines often enough.
However, the fact that Tarin slashed the budgetary allocation of 646 billion rupees for PSDP to a mere 250 billion rupees within eight months bears ample testimony to the fact that he was neither able to curtail current expenditure nor raise the tax-to-GDP ratio. That left him with one option: to slash the PSDP, which he proceeded to do.
Many correctly point to the fact that the budget's allocation of 646 billion rupees, a rise of over 200 billion rupees from the revised estimates of 2008-09, was unrealistic, given the fact that the country was on a rigid IMF Stand-By Arrangement; and Tarin never intended to allocate this amount in earnest. His intent may have been to provide some space for any failure to generate revenue, as envisaged in the budget, as well as perhaps to play to the gallery by citing an unprecedented 54 percent rise in PSDP as a reflection of his government's economic priorities.
Whatever the reason, the fact remains that the PSDP was drastically slashed, a policy common enough in our past economic history and it is extremely doubtful that the IMF was not supportive of this reduction within the overall objective of containing the budget deficit within sustainable levels.
Thus, in this context, for the Prime Minister to summarily increase allocation for the PSDP by 50 billion rupees, without bothering with the source of funds, is irresponsible to say the least, as it would not only compromise the subsequent IMF tranche, but may also further fuel domestic inflation. A wiser policy would have been to slash current expenditure by 50 billion rupees that would have enabled the government to justify a rise in the PSDP at present.
So why did Prime Minister Gilani summarily increase the PSDP fund release by a hefty 50 billion rupees? The answer has to be because it was politically expedient. The slow pace of implementation of the Balochistan package and with the NWFP struggling with a large number of Internally Displaced Persons, the Prime Minister may have placed his political compulsions over and above the economic compulsions facing the hapless people of this country.
It is nonetheless disheartening that the Prime Minister decided to increase the PSDP fund release, until and unless it is clarified as a reprioritisation of expenditure, which is within the deficit target agreed with the IMF. It is imperative that the government seeks a Finance Minister who is honest and a macroeconomist, able and willing to stand up to overt political pressure. Pakistan can no longer afford to appoint a qualified candidate from our past, who failed to make a difference because he opted to succumb to political pressure.