PSDP: spend more!

There hasn't been much movement in development spending of late. Latest data shows that as of November 6, Rs290 billion out of the Rs650 billion Public Sector Development Program (PSDP) budget for FY21 had been authorized for release by the Planning Commission. In about a month’s reporting period, this is an increase of just about Rs20 billion between October 5 and November 6.

But the government doesn't really have to spend more than that. The funding until November 6 equates 45 percent of the FY21 PSDP budget. As per the official funds release mechanism, the Planning folks can authorize up to 40 percent by December end. They have already overshot that target by about Rs30 billion. Or is there a plan to increase PSDP spending beyond the original budget?

Already, relative previous years, the 45 percent funds utilization rate so far this fiscal has been exceptional. While the lackluster activity in last four weeks or so is understandable, will it continue for rest of the November and December as well? Most likely there will be minimal level of additional funds’ release.

Funding is expected to pick up at the start of next year when new approvals might come in, to cater the next quarterly target of 30 percent of funds (worth nearly Rs200 billion). This is what happened at the start of October, the first week of a fresh quarter, when the bulk of the funds were approved, over Rs150 billion by the way, for onward processing.

It must be noted that while 45 percent of budgeted PSDP funds approved after a lapse of just 35 percent of the fiscal year sounds good, it isn’t the same as 45 percent of budgeted PSDP funds actually spent in the real economy. This is adequately clear from the Ministry of Finance’s recently-released quarterly fiscal roundup.

In the Jul-Sep 2020 quarter, the federal government had spent Rs82.5 billion on PSDP, data from FinMin show. This actual spending is about 30 percent lower than the the Rs118 billion that had been authorized for release by the Planning Commission in the same quarter. This is a notable divergence.

In addition, actual PSDP spending has also declined over previous fiscal. The Rs82.5 billion 1QFY21 PSDP spending on the ground is about 12 percent lower than the Rs93.5 billion spent on PSDP projects in 1QFY20. Also note that actual PSDP spending had a lowly 6 percent share in total Rs1.4 trillion expenditures in Jul-Sep 2020 period, down from 8 percent of total Rs1.2 trillion spending in Jul-Sep 2019.

Given the above situation, the high PSDP utilization rate this fiscal is a mirage created by a smaller PSDP budget. The federal government needs to rein in growth in non-development spending and spend a lot more on development than it currently is.