PSDP is now a trillion-rupee prophecy

The federal development muscle is about to get stronger. If news reports are any guide, the federal public sector development programme (PSDP) will be allocated a sum of Rs1.001 trillion for FY18. Reportedly, the usual big-ticket items will continue to weigh heavy on PSDP spending next year as well. But the details, including any new development initiatives, will be clear Friday after budget announcement.

On face value, the PSDP budget crossing a trillion bucks looks good for a country plagued with infrastructure gaps and human capital issues. About a quarter more than FY17 budget, the reported FY18 figure is almost 3 percent of the country’s GDP in nominal terms. Whether that’s enough is another debate. But the PML-N has in its term so far significantly raised the profile of PSDP in recent years.

Between FY13 and FY17, the federal government has raised PSDP budget at a CAGR of 22 percent, calculations based on FinMin data show. What PML-N had allocated for PSDP in FY17 (Rs800 bn) was more than twice what the PPP government had earmarked in its last budget in FY13 (Rs360 bn). Actual PSDP disbursements grew at 20 percent CAGR since FY13 to reach Rs602 billion in FY16.

In the ongoing fiscal, as per Planning Commission data, PSDP disbursements, which include foreign aid component, had reached Rs617 billion as of May 22, 2017. This spending pace looks poised to achieve a high PSDP utilization level – around 90 percent of original budget – by the close of this fiscal.

The government may be looking to massively expand its PSDP footprint in an election year, but allocating a high budget figure is not the be-all, end-all of development. For one, budgetary estimates are generally revised downwards, especially when it comes to PSDP spending, to contain fiscal deficits. For its part, the PML-N government had revised its PSDP budget down by 21 percent in FY14 and 6 percent in FY16, compared to original budget estimates for those two years.

Second, even if a PSDP budget gets utilised maximally, the quality of spending carries a question mark. The Prime Minister frequently makes this point in his public speeches that communications infrastructure, especially roads, lead to development. His other main priority seems to stabilize the electricity problem, which did PPP in. One notices the big push for infrastructure – notably energy and infrastructure projects – in PSDP spending. But such spending lacks an independent evaluation to back up its effectiveness.

Three, given Pakistan’s lagging social indicators, the trickle-down argument that ‘economic growth’ will lead to ‘development’. A need exists for huge investments in quality education for all, affordable healthcare, adequate nutrition, and rule of law. But barely fifteen percent of federal PSDP generally gets spent on social sector. Meanwhile, Pakistan is running out of time to turn its youth bulge into a demographic dividend.

But the ruling party has ready defence. Ministers will tell you they are spending over Rs100 billion every year on pro-poor programs like BISP; it’s the domain of the provinces to take lead on social sector issues post-Eighteenth amendment; and the center has to fund CPEC-related infrastructure investments.

However, no one will have an answer on the quality (effectiveness) of federal spending, be it brick-and-mortar or otherwise.