Arrested development?

Economists maintain that development spending has a multiplier effect on growth and job-creation. The extent of the multiplier - large, small or negligible - is presumed to be a function of different variables such as a development portfolios economic value, its manner of execution, completion timeline, and future maintenance.
In that context, it was great to see the finance minister announcing yesterday a nearly 40 percent jump in federal PSDP budget for 2013-14, in addition to just a 4 percent increase in non-developmental, current expenditures (compared to FY13 revised estimates). This indicates that the freshly-installed government is looking for ways to stimulate the economy and practice austerity in its cabinet and administrative ranks.
The Public Sector Development Programme (PSDP) has been allocated an all-time high budget of Rs540 billion for next fiscal. The main priority seems to be the energy sector, for which Rs225 billion will be invested in FY14, of which federal government would provide Rs107 billion through the PSDP and the rest is to be procured by Wapda through government support.
The PML-N leaderships focus on infrastructure development shows in the PSDP allocations. A block allocation of Rs115 billion, under New Development Initiatives has been earmarked, most likely for infrastructure projects that will be specified later on. The National Highway Authority - which is the custodian, developer and repairer of national highways and motorways - would get Rs63 billion from PSDP.
Development expenditures outside of PSDP have been budgeted at Rs171.8 billion, showing 60 percent growth over FY13s revised budget. These include allocations of Rs75 billion for the Benazir Income Support Programme, Rs15 billion for the Pakistan Poverty Alleviation Fund and Rs12 billion for miscellaneous development expenditure.
That sounds all good. However, the finance ministers budget speech lacked references to two major issues that will determine whether these large development allocations yield the desired results.
Firstly, the PSDP portfolio, whose cost is touching Rs3 trillion, needs a strategic review to determine the utility of ongoing development projects. The Planning Commission had warned two years ago that the PSDP has lost its effectiveness for playing its due role for economic development. The portfolio needs to be rationalized otherwise the stock of existing projects will not finish in time and new ones will also remain underfunded.
Secondly, it seems that the ruling party is expecting the same bureaucracy - ministries, divisions and corporations who have been presiding over massive time and cost overruns of over a thousand PSDP projects - to now suddenly become efficient and effective in executing development projects. Without significant reforms, the administrative machinery will likely remain structurally inept due to limited project management capabilities and hapless state of project monitoring and evaluation.
Clearly, the private sector has a role to play here. The PML-N government must tap into its past good experience with the BOT (build, operate and transfer) mode of infrastructure development. Partnering with the private sector will not only create fiscal space but also introduce fresh culture and competence in project management units at the ministries and divisions.
For a government just sworn in, there is a lot of time on its hand. So, hopefully, the Minister for Planning & Development would start working soon towards making the PSDP portfolio robust in terms of socioeconomic value, and also make good on the partys promise to mobilise private sector in infrastructure development through a single-window "Bureau of Infrastructure Development".

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Federal PSDP in FY14: Major Beneficiaries - Rs (bn)

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Ministries/Divisions/Corporations        FY14       FY13

                                       Budget  (revised)

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National Highway Authority               63.0       71.1

Water and Power (Water sector)           57.8       45.3

Wapda (Power sector)                     51.4       34.7

Pakistan Atomic Energy Commission        52.3       44.0

Railways                                 30.9       25.8

Kashmir affairs and Gilgit-Baltistan     29.6       19.4

Higher Education Commission              18.5       15.6

States and Frontier Regions              18.5       15.2

ERRA                                     10.0       10.0

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