PSDP: on a roll

The clock is ticking towards election time. If the government’s five-year tenure is scaled down to 24 hours, the PML-N has just over an hour left to rule until it’s midnight. The urgency is apparent in development spending. In January alone, the federal government released about Rs108 billion for Public Sector Development Programme (PSDP), as per latest data from the Planning Commission.

This is one of the largest monthly development disbursements on record. And it isn’t even May or June yet, when funds start to flow even faster. This pace must continue, if the huge FY18 PSDP budget (Rs1.001 trillion) is to be adequately funded by the fiscal close.

The federal government has to fund 84 percent of the trillion-rupee budget – or Rs839 billion – with the remaining amount to be funded by foreign assistance. As of February 2, 2018, government’s own disbursements were Rs371 billion (44% of the commitment) and foreign aid had reached Rs82 billion (50% of the commitment). Hence, seven months in, 45 percent of the overall PSDP budget stood funded.
The spending pattern hasn’t changed much from prior months, or even years. Over three-fourth of PSDP spending thus far has gone to projects with high brick-and-mortar concentration (e.g. NHA, Wapda and Railways) and schemes with political undertones (e.g. funding for Special Areas – Fata, GB & AJK – and a number of special schemes under the PM office).

Though there are serious question marks over the efficacy of PSDP spending, the juggernaut will continue to roll. The ruling party knows it has just four good months (Feb-May) before they hang up their boots in early June. With the federal PSDP component standing at Rs467 billion, the government will have to release Rs117 billion every month to fund the entire PSDP.

But it will be difficult to take forward the spending momentum seen in January. For one, the inefficient administrative machinery doesn’t have the capacity to absorb such massive funding month after month. Perhaps that’s why one good month for PSDP spending is generally followed by a lean month.

Also, an inconsistency is developing between monetary and fiscal policies. The central bank is now looking to curb money supply to avoid over-heating of the economy. But political considerations are making the government spend record amounts of money. This misalignment will likely become severe in the coming months. But, by then, an interim government would be in place to pick up the pieces.