Projects aplenty

From the way the government is engaged in promoting various kinds of projects, it would appear that its budgetary position is very comfortable at the moment and the shortage of funds is not a problem. The Executive Committee of National Economic Council (Ecnec) is reported to have approved an upward revision in the cost of "doubling of track from Lodhran to Khanewal via Multan Cantt" from Rs 3.3 billion to Rs 3.7 billion. Factors necessitating an increase in the cost of the project included the higher cost of material for procurement of points and crossings, rise in market rates of labour, material and POL etc and additional work for remodelling of Lodhran and Shershah yards. The Prime Minister also joined the spending spree by announcing the commencement of certain other projects. He directed the Chairman, NHA to immediately resume work on Lowari Tunnel Project and asked the Ministry of Finance to release Rs 2.0 billion for the purpose, ie Rs 1.0 billion over and above the PSDP. Directions were also given to start work on Attabad lake bypass without further delay as its completion would provide a great deal of convenience to people of the region who have to undergo a lot of discomfort in terms of money and time in the absence of the bypass. In anticipation of the submergence of some parts of the KKH during the Bhasha Dam construction, Wapda was asked to release the funds to NHA for commencement of work on the 35-km Shatial bypass to facilitate movement of people during the time of construction of the dam. NHA was also directed to initiate work on the Hassanabdal-Mansehra Expressway and the Prime Minister desired to personally go for the ground-breaking ceremony in the month of January, 2011 for this project. In view of the poor state of conditions of bridges between Jaglot and Skardu, the Chairman NHA was also directed to complete the five bridges on a priority basis so that people could travel with ease and comfort. It would be interesting to note that the announcement of all the above projects was covered in this newspaper on 22nd November, 2011. By adding such announcements over the year, one could realise the enormity of the problem being faced by the economic managers of the country to ensure fiscal discipline for macroeconomic stability. It also needs to be noted that Prime Minister is not alone in dishing out such favours but is also joined by the President at times and some of the projects are not provided for in the budget. Demands for such projects would obviously increase as the time for elections of national and provincial assemblies draws nearer. Pressure is also brought upon the President/Prime Minister to finance the losses of certain PSEs and the Ministry of Finance is directed to provide extra-budgetary assistance in several cases. Unfortunately, all of this is being done at a time when the budgetary position of the government is deteriorating rapidly and the maintenance of fiscal discipline is a pre-requisite for restoring price stability, poverty reduction, exchange rate stability and the revival of much needed sustained economic growth. In order to ensure macroeconomic stability, the government must strive to reduce the fiscal deficit from 6.5 percent of GDP last year to around 3 percent by 2013-14 and this could only be done by redoubling of revenue mobilisation efforts and containing expenditures to the minimum. Since most of the current expenditures are inelastic, authorities of the country, in particular, need to be very cautious in announcing new projects involving billion of rupees and explain to the concerned parties about the hazards of overspending. We are afraid that if the government is unable to resist the pressure or the temptation to announce new projects for political expediency, it would have to continue the present practice of asking the State Bank to print more money and depriving the private sector of its genuine credit needs by maintaining a tight monetary policy. Both these options are fraught with consequences which could be devastating for the economy. In our view, the government at this critical juncture needs to muster the courage of refusing the initiation of new projects, at least till the time the fiscal position of the country improves to a satisfactory level. We are aware of the urgent need to build the physical infrastructure of the country but this is not possible without raising comparable levels of resources and the provisioning of adequate fiscal space. However, when all is said and done, the million-dollar question is whether a weak government facing elections would be able to say no to the growing demands of tax and a bulge in expenditures. Most probably, the present practice would continue with the concessions to be repeated, at least in the short run despite the warnings of a flawed fiscal policy from here and there. Copyright Business Recorder, 2011