Development woes

Governments around the world use development spending to spur economic growth or to avoid double dip recessions. Pakistans persistent fiscal constraints, however, are not allowing its economic managers to consistently pursue a broad-based development programme to uplift the economy and develop the social sector.
Public Sector Development Programme (PSDP) is the main instrument for providing budgetary resources for development projects and programmes at the federal and provincial levels. However, PSDP happens to be the usual and primal casualty in efforts to curtail the soaring fiscal deficit.
As the table shows, the difference between budgeted PSDP figures and actual development outlays run into hundreds of billions of rupees per annum. The government has usually resorted to slashing PSDP funds during a given fiscal year.
This year, however, the Planning Commission and the provinces are being asked beforehand to reduce the consolidated size of next years PSDP to create a fiscal cushion of around Rs100 billion in the 2011-12 budget. The aim is to adjust the fiscal deficit to 4 percent of GDP in 2011-12, to get the IMFs nod.
The proposed size of the consolidated PSDP for FY12 is Rs710 billion, out of which the federal government has a share of Rs280 billion, while the provinces have a share of Rs430 billion. These figures reflect development spending on new as well old projects in various areas, including infrastructure development, social sector, production sector, environment, and science and technology.
There is already a huge backlog of PSDP projects in need of funds for completion. According to the Commissions Annual Plan 2010-11, the throw-forward liability in large infrastructure development projects alone was in excess of Rs1.8 trillion till May 2010. Apart from delays and time lags, the escalation of project costs is also a huge factor at play here.
This is a pretty bleak scenario, given a decreasing development spending pie, an increasing number of projects running into limbo, and massive time & cost overruns. Foreign loans, an integral financing component of federal and provincial PSDP projects, are becoming costlier. Maintaining sectoral allocations and demographic priorities will get tougher if this goes on.
Reportedly, the Commission officials would demand the National Economic Council in a meeting later this week to disallow the Finance Division from slashing development expenditures in future. They would also recommend the NEC to authorise the commission to review projects in the federal PSDP on which less than 30 percent of expenditures are incurred and also decide their fate.
Though these measures would improve the current scenario, the Planning Commission needs to assess its own efficiency too. There is an immediate need to rationalise the stock of current PSDP projects. Public-private partnerships should be started for infrastructure development projects - which take the bulk of PSDP funding - and social sector programmes need to be targeted effectively.
Better identification, prioritisation and following through on new development projects are also needed, as is a reduction in project management overheads and inefficiencies.
Political influences in the Planning Commission have to be done away with. Only those projects that have the highest long-term benefits, and of critical importance should be pursued, while slow moving and low utility projects should be reviewed.