Federal Budget 2008-09

Some uncertainty prevails: changes being proposed
in the size of various allocations
Qamar wanted the National Economic Council to cut the size of the Public Sector Development Programme for 2008-09 from the amount of Rs 541 billion proposed by
the Planning Commission, but the NEC rejected the finance minister’s demand
By Kaleem Omar

If proof were needed of the clout wielded by the Planning Commission’s new deputy chairman, Salman Faruqui, in the PPP-led coalition government, it was seen at a meeting of the National Economic Council chaired by Prime Minister Yousuf Reza Gilani in Islamabad on June 2 when the NEC rejected a demand by Finance Minister Naveed Qamar to cut the size of the Public Sector Development Programme (PSDP) from the amount of Rs 541 billion proposed by the Planning Commission.

Qamar’s demand was also supported by Foreign Minister Shah Mehmood Qureishi. Both ministers reportedly expressed their reservations on the proposed size of the PSDP, the biggest ever, and asked the NEC to reduce the amount in view of the tight fiscal position of the government.

But the four provincial finance and planning ministers strongly opposed any cut in the Rs 541 billion PSDP, which includes an amount of Rs 170 billion for the annual development programme of the provinces and Rs 371 billion for the federal development programme.

The Rs 541 billion PSDP represents an increase of 11.54 per cent over last year’s PSDP of Rs 485 billion. Opposing any cut in the 2008-09 PSDP, the provincial finance and planning ministers argued that the proposed increase of Rs 56 billion was essential for the revival of economic growth in the coming fiscal year, which commences on July 1.

The provincial ministers further argued that increased spending was required in the infrastructure and social sectors to meet the needs of the four provinces.

The NEC accepted the point of view of the four provinces and the planning commission and approved the PSDP of Rs 541 billion proposed by the Panning Commission.

But the Planning Commission didn’t get everything its own way. Following interventions by the federal Finance Minister and the Governor of the State Bank of Pakistan, Dr Shamshad Akhtar, the NEC reduced the Panning Commission’s proposed Gross Domestic Product (GDP) growth target for 2008-09 from 6.5 per cent to 5.5 per cent.

The NEC also directed the Planning Commission to revise projections for the Macro Economic Framework for the coming fiscal year. Growth targets for the agricultural, manufacturing and services sectors will also be revised in line with the revised GDP growth target of 5.5 per cent.

Of the Rs 341 billion federal portion of the PSDP, Rs 75 billion has been allocated for infrastructure development, including Rs 10 billion for hydel projects, Rs 9.8 billion for the national programme to improve irrigation water courses, Rs 14 billion for canals and Rs 2.2 billion for canal-lining.

Over the years, sub-soil water seepage from unlined irrigation canals have become a major source of water-logging, requiring a series of salinity-control and reclamation programmes (SCARPS) in Punjab and Sindh to lower the water table and bring salinity-affected agricultural land back into production. Since the early 1960s, more than 70 SCARPS have been built to date by the Water and Power Development Authority.

Given Pakistan’s (the former West Pakistan’s) burgeoning population (which has grown more than 4-fold since 1951 to an estimated 165 million today), a shortage of fresh water is likely to be the most serious resource problem the country will face in the years ahead. To compound the problem, global warming is troubling irrigated basins like the Indus, where 70 per cent of the cropland is irrigated.

New storage reservoirs will have to be built on the Indus and other rivers to compensate for the reduction in storage capacity of the existing reservoirs – Tarbela and Mangla – due to silting. The Mangla Dam Raising Project being built by Wapda will raise the height of Mangla Dam by 40 feet, resorting much of the reservoir’s capacity lost due to silting since the dam was completed in 1968.

Pakistan has become an increasingly water-stressed country and there are several reasons to expect water shortages to grow worse. These include increases in irrigated land for boosting food production to feed a growing population, including growth on the country’s urban population, requiring a large increase in water supplies.

Another serious long-term problem is salination. When irrigation water seeps into the soil, it absorbs mineral salts from the earth, flushing them to the surface. As the water evaporates, these salts dry out in the fields, gradually destroying their fertility. According to one estimate, some 25 per cent of Pakistan’s cultivated land has been damaged in this way. Recovering poisoned fields is vastly expensive. The environmental damage caused by man-managed irrigation schemes is a time bomb that threatens to reverse the gains in agricultural production made by past schemes.

Pakistan is currently using half its available run-off - that is, the water that falls as rain and snow in the country and is collected in rivers, lakes and streams, and is drawing half as much from underground springs and acquifers.  It has been estimated that by 2025 demand will reach 92 per cent pf the entire run-off. Pakistan faces an awkward choice. Either it must reduce the amount of water used by agriculture and urban areas, or it must make huge investments totalling tens of billions of dollars to develop new supplies and build more storage reservoirs. Feeding Pakistan in the years ahead will require such gigantic schemes to be built and it will require farmers to use water more efficiently.

At present only one-third of the water used for irrigation actually goes into producing crops – the rest is wasted. Using water more efficiently would also being environmental benefits. Cities and their demands will also grow. In 1951, at the time of the first post-independence national census, there was only one city in Pakistan with more than a million people: Karachi. Today, there are more than eight, with Karachi alone now at an estimated 16 million, Lahore at 8 million, and several others at over a million.

Water supplies are also essential for industrial development. Up to now, few cities have found the industrial development circumscribed by water shortages – a considerable achievement. With competing demands for water, however, shortages are likely to occur with increasing frequency in the years ahead.

Water supply in the lower Indus basin is falling behind agricultural and urban demand, particularly in Karachi where population growth exceeds the physical capacity of the public water system. Conflict between the provinces on the Indus basin water obstructs cooperation on lower water basin issues.

Karachi currently gets a maximum of 650 million gallons a day of water from all sources (Indus, Hub, etc.). Based on a population of 16 million, that works out to a maximum water availability figure of about 40 gallons a day per person – well below the 70 gallons a day per person figure recommended by international agencies for urban centres in developing countries.

Of the 140 million acre feet (maf) of water annually available in Pakistan, only about 40 maf reach the Indus delta (though it has been much less in recent years), which supports important fish and shellfish industries. The lower reaches of the river support unique riparian species, but are ecologically stressed by upstream impounding of water and sediment.

In recent decades, surface irrigation and drainage problems have stimulated groundwater development, involving the installation of hundreds of thousands of public and private tube wells. In May 2001, the government said it had directed the Water and Power Development Authority to install another 20,000 tube wells to augment groundwater supplies. But a great many more than 20,000 will be needed to meet the growing demand for water.  Also, will the government tell us how many of those additional 20,000 tube wells have been installed to date? Or is this yet another example of a scheme that was announced by the government of the day but failed to materialise?  Fixing targets for PSDP spending on government projects is all very well, but any PSDP is only as good as its implementation.

According to the new government, the 2007-08 PSDP of Rs 485 billion fell short by Rs 190 billion due to inefficiencies in its implementation. What steps does the present government intend to take to ensure that the same thing doesn’t happen to the 2008-09 PSDP of Rs 542 billion approved by the National Economic Council?