50 percent cut in PSDP under consideration

A 50 percent reduction in the Public Sector Development Program (PSDP), to create fiscal space to help the flood victims, is being considered, it is learnt. Sources said that all available options to create fiscal space were discussed during a meeting between Prime Minister Yousuf Raza Gilani and his financial team a few days ago.
The economic team informed the Prime Minister that 50 percent reduction of federal PSDP would imply Rs 140 billion outlay on PSDP of the budgetary allocation of Rs 280 billion in 2010-11. The meeting also discussed whether funds could be diverted from the Rs 243 billion earmarked in the budget for Public Sector Enterprises (PSEs) to the flood victims.
The meeting also highlighted the need for provinces to undertake similar cost cutting measures and reduce their PSDP as well as use a major portion of additional resources under the seventh NFC award for the flood victims. The Finance Ministry was advised to save some resources by minimising official trips and services of Pakistani ambassadors, to be used instead, wherever possible. Sources said that the Finance Ministry is working on all possible options which could help create some fiscal space for the government.
The economic team also apprised the Prime Minister that floods have resulted in about 1.2 to 1.5 percent decrease in GDP from estimates. This figure, they said, could well be higher, but by exactly how much would be known only after the final damage needs assessment is completed by Asian Development Bank (ADB) and World Bank (WB). The GDP estimate of 4.5 percent for the ongoing fiscal year is therefore likely to be revised to 3 percent.
Sources said that a meeting is scheduled to be held between Prime Minister and Pakistan Muslim League (N) chief Nawaz Shariff on Saturday and the agenda of the meeting would include flood damage; how to deal with the flood affectees; and the timing of the meeting of Council of Common Interests (CCI). The purpose of convening the CCI meeting is to improve co-ordination between federal and provincial governments.
The Minister for Finance Dr Abdul Hafeez Sheikh also reportedly held a meeting with the high-ups of Pepco and reviewed its operational and business plan for 2010-11. An official in the Finance Ministry told this scribe that budgetary estimates and targets have become totally irrelevant after such a massive natural disaster hit the country.