"In addition to transfer of funds to provinces, debt servicing and security/defence-related expenses had increased significantly with the consequence that federal government is being forced to borrow to survive," sources quoted Finance Ministry's top brass as explaining the economic situation to the "expanded" Federal Cabinet.
The Finance Ministry, sources said, is also of the view that the recommendations of the 'commission' would form the basis of economic measures in public spending.
The Cabinet was informed that it would be necessary to further strengthen the austerity measures taken in March 2011, at the time of new budget. These will include: (i) continuation of ban on new recruitment due to surplus staff from devolution process and purchase of durable already surplus from devolved ministries; (ii) rationalisation of fuel entitlement, travelling allowance and expenditure on stationery and newspaper periodicals; and (iii) establishment of 'independent commission' to examine the structure of pay and allowance across the public services and bring equity and fairness across them.
The Finance Ministry also informed the Cabinet that additional resources, to the tune of Rs 360 billion, would be transferred to the provinces under the National Finance Commission (NFC) Award, whereas PSDP of the federal government would remain the same while there will be more than 80 percent increase in provincial PSDPs. This will have salutary effect on provision of social services being provided by the provinces to its citizens.
According to official documents, the Finance Ministry also conveyed to the Cabinet that Rs 360 billion would not be passed on to the provinces due to fiscal deficit for a couple of years.
According to official documents, unprecedented floods caused a loss of Rs 10 billion and 2 percent shortfall in GDP growth. To top it, rising international oil and food process and non-achievement of tax collection targets had further compounded the problem.
The government in its Budget Strategy Paper (BSP) has projected the following benchmarks: (i) fiscal deficit will be contained to 4.5 percent of GDP in 2011-12, and thereafter to be further reduced to 0.5 percent annually; (ii) tax-to-GDP ratio, estimated at 9.1 percent during the year, would be raised to 10.3 percent over the next three years; (iii) gradual elimination of tariff differential subsidy on electricity (estimated at Rs 186 billion during the year); (iv) elimination of other untargeted subsidies (estimated at Rs 43 billion during the year); (v) zero net financing from the State Bank of Pakistan (SBP); and (vi) implementation of new growth strategy, as being articulated by the Planning Commission.