Little development in PSDP

History and hindsight suggests that the closer it gets to the run-up to the next general election, the higher will be the development spending. However, it is not that simple; the process of determining Public Sector Development Programme (PSDP) allocations for 2016-17 became more complex as the debate over next year's PSDP gained heat with the Ministry of Finance and the Ministry of Planning, Development and Reforms not agreeing on the aggregates.

With MoF suggesting a lower outlay, and MoPD for a much higher sum, Rs800 million has been announced by the National Economic Council (NEC) for next year. The NEC meeting highlighted that out of Rs800 million, around Rs655 million was earmarked for development expenditure, Rs100 for IDPs, Rs20 million for Prime Minister's Youth Programme, and Rs25 million for GIDC. Out of the development expenditure, CPEC, energy, and infrastructure will continue to be the focus areas.

At Rs800 million, the federal PSDP for 2016-17 is 14 percent higher than that in 2015-16, compared to this federal PSDP allocation increased by 29 percent to Rs700 million in 2015-16. This trend of lower growth in allocation can be seen during the last three fiscal years where the focus has primarily been on reducing the fiscal deficit by slashing development expenditure and burgeoning indirect taxes to raise revenues- just in line with IMF's directives. And still, the government has been slow in using the development funds and to collect the budgeted revenues.

Preferably, the government should focus PSDP allocations towards more production sectors. While slow progress on projects could be one reason for waning growth in allocations, a major shortcoming over the years in the whole PSDP allocation exercise that mutilate the effective use of PSDP has been the lack of coordination between strategy and priorities (new projects versus existing), and resource allocation (lack of funds and allocations to politically popular projects).

Numbers from MoF's update in federal government's fiscal operation for 9MFY16 show the total booked spending for the first nine months was a mere 37 percent of this year's allocation. Similarly, MoPD data shows that the total releases until May 20, 2016 amounted to 69 percent of fiscal year's allocation. At this rate, it is not hard to believe that government would fail to release all funds by June 30, 2016. Moreover, it would like to restrict it to squeeze revenue shortfall.

PSDP allocations for 2016-17 would largely depend upon a couple of factors. Firstly, these allocations will have to be pursuant with the Fund as the government would not want to jeopardise the last IMF tranche. However, once the IMF programme is over, there are chances that MoF will start releasing funds higher than the budgeted with calling from CPEC and general elections 2018.