PSDP: foreign aid dries up

The Rs675 billion federal Public Sector Development Programme (PSDP) is under the weather. As per Planning Commission (PC) data, the PSDP funds authorized for release had totaled Rs417 billion as of March 29, 2019. Nine months into the fiscal, that’s 62 percent of the earmarked funds sanctioned for release by the Commission.

This state of affairs potentially sets up even a chopped PSDP budget for significant under utilization by FY19 end. Already feeling the cut from the federal kitty, the PSDP spending this fiscal has been overwhelmingly supported by foreign development assistance.

The foreign assistance (mostly bilateral and multilateral loans for development projects) has been coming in mainly from China and the Asian Development Bank, as per data from the Economic Affairs Division. Foreign aid accounted for 38 percent (Rs160 bn) of the Rs417 billion funds authorized for PSDP in 9MFY19. That is higher than foreign aid’s 21 percent share (Rs144 bn) in the Rs675 billion budget.

But it’s not sustainable for foreign aid to outrun its commitments and yet continue to give. That’s precisely what happened in March 2019. Last month, mere Rs0.4 billion worth of sanctioned funds belonged to foreign aid sources. After healthy foreign inflows into projects linked mainly to transportation (NHA), space (Suparco), water (Wapda) and power (NTDC/Pepco), it’s a standstill for March and onwards.

Meanwhile, it isn’t clear how much of the remaining PSDP budget will the federal government authorize for release in the final quarter. The unfunded PSDP, as per PC data, was about Rs257 billion as of March end 2019. The government’s own funding for PSDP in the fiscal thus far has also been Rs257 billion – less than half of its Rs531 billion budget commitment.

Therefore, it will be difficult for government to fund the PSDP budget beyond 80 percent level this fiscal. Further foreign aid is expected to come in water and power sectors, but it will be in trickles, not in tens of billions. Reportedly, further PSDP spending will slow to a crawl in the last quarter as finance ministry gets stingy with releasing more funds. It is crunch time anyway, so expect development spending to feel more heat.