Khaleeq Kiani | National | From the Newspaper

ISLAMABAD, Nov 14: The government has conceded having diverted funds earmarked for pro-poor sectors to resettlement of people affected by last year`s floods.

According to a report released by the finance ministry on Monday, development expenditure in all pro-poor sectors declined significantly during the last financial year.

The “PWP I&II (Public Works Programme) were characterised by negative spending trends as the government diverted funds to meet the needs of masses affected by the massive floods of August 2010. Similarly, development expenditures in all pro-poor sectors declined significantly, except justice and administration,” it said.

The report said the decline in remaining sectors was a continuation of the government`s policy to utilise the limited budgetary resources for reconstruction of the damaged infrastructure, provision of basic needs for affected population and restoration of their livelihood.

On the basis of the July-March 2010-11 quarterly progress reports on poverty reduction, the ministry said a rise in international petroleum prices posed challenges to creating a balance between the options to choose a lower fiscal imbalance and to reduce poverty by holding back the effects of the price rise.

It said production of most of the major crops remained low because of the catastrophic floods, but minor crops helped maintain growth for the agriculture sector. “Impressive growth in the services sector was a saving grace.”

The post-floods supply disruptions, which were the key cause of inflation, were of a temporary nature but inflation still remained in the double digits, it said.

The report said the overall transfers through programmes for protecting the poor and vulnerable had registered a mixed trend. The amount disbursed through different programmes, including budgetary and non-budgetary transfers, was Rs25.47 billion, showing a slight increase of one per cent in the disbursements as of the third quarter of 2010-11 against the same period of the previous year.

“The total beneficiaries of all these programmes were 3.05 million, showing a high decrease of 39 per cent.”

In the manufacturing sector, regardless of strong demand, supply side bottlenecks hampered the production levels and led to a significant slowdown in industrial growth. Although the post-flood hike in consumer price indicator inflation has largely receded, inflation is stubborn.

The energy deficit due to gas supply constraints and rising furnace oil prices also hampered growth. The real sector performance was adversely affected by growing macroeconomic imbalances, especially fiscal deficit and inflation.

“Another worrisome trend was the decline in investment for a third consecutive year.”

On the positive side, the only growth stimulus came from the external front. The recovery in developed economies helped boost textile and leather exports and led to a record inflow of remittances.

The report said that containing the fiscal deficit appeared to be a very difficult task. Although the government had managed to restrain spending, revenue growth had been weak.

Most of the development expenditures have been cut in order to divert money to more urgent needs on limited budgetary resources.

To finance a widening budget deficit, the government had to resort to domestic sources as external inflows remained quite low. “This practice has posed serious implications for domestic debt management.”

The report said the future projections for inflation were still high on account of various factors at the national and international levels.

An expected increase in global commodity and oil prices, in domestic fuel prices and electricity tariff and removal of various subsidies raised prospects of high inflation in the near future. The only relief in inflation will be seen from food on account of decline in wheat and sugar prices.

Expenditure in eight of 17 sectors contracted sharply when compared with the previous year.

“The largest drop in expenditure was observed in low-cost housing, 86 per cent. The People`s Works Programme, population planning and rural development also underwent 20-39 per cent decline. Reduction in expenditure in the remaining sectors was of one to seven per cent.

Development expenditures “witnessed massive reductions in all provinces except Balochistan and also at the federal level”.

Although current expenditures increased, the effect was neutralised by reduced development spending.

Development expenditures in Punjab suffered the biggest cuts, followed by Khyber Pakhtunkhwa and Sindh.