Amidst the coronavirus, the future of “development” – a reference to the brick-and-mortar spending that had been undertaken in pre-corona days – looks uncertain. With declining taxes, development spending is bound to take a hit in the next fiscal and beyond. Already, the federal development spending had been significantly peeled off compared to the peak funding achieved under the previous government.
It doesn’t look so bad, though, for the ongoing fiscal. At the end of May, official data show that the federal government’s Rs701-billion Public Sector Development Program (PSDP) had been approved Rs583 billion in funds. This 83 percent utilization, with a month to spare, looks healthy by historical standards. But will more funds come before the fiscal’s close?
Recall, as the virus took center stage around mid-March, a hesitant federal government, which was trying to retain some fiscal cushion to manage the public health emergency, only authorized Rs2 billion for the PSDP that month. But the fiscal confidence retuned in April amidst multilateral support: the government authorized Rs66 billion in fresh PSDP funding in April; then May came along with Rs50 billion in funding.
However, the character of PSDP spending, official numbers show, has hardly shifted from hard infrastructure priorities. Most of spending in April and May, the two full months of coronavirus continuing to spread, had gone to a select few ministries and organizations. These include the National Highways Authority, Wapda and NTDC/Pepco – albeit, the PSDP is tilted towards brick-and-mortar to start with.
To fully utilize the FY20 budget, the planning ministry must authorize Rs118 billion in June (same as combined figure for April and May). It looks unlikely, for the finance ministry might rein in funding in June to contain fiscal deficit. As per the latest finance ministry data, actual PSDP spending was Rs417 billion in Jul-Mar period – this is 11 percent lower than their planning counterparts’ sanctioned funds for 9MFY20.
There is another risk for under-spending, even if the planning folks continue to push for maximum utilization of PSDP funds. With economic activities being severely impacted since March, it is unclear whether the recipient ministries and organizations would be able to fully spend their corresponding funds on development projects. Unspent money will have to be returned if disbursements have been made.
What is in store for the next fiscal? There are reports that the government won’t be able to increase PSDP budget for FY21, despite the burning needs of reducing unemployment and nudging aggregate demand. A smaller figure of Rs600 billion is doing the rounds. The finance minister, who is reportedly interested in “labor-intensive” projects in the next PSDP, is constrained by tightening purse strings.
The crisis has provided an opening to reform PSDP regime, to better serve the public’s socioeconomic needs post-corona. But it seems that development budgeting will be business as usual this year. At the minimum, better fund utilization must occur. The planning minister has declared that no unapproved project would slip into PSDP and that the focus is on funding existing projects. Time to follow through!