PSDP: at full steam

Priming the fiscal pump is essential to getting economy back to some marginal growth this fiscal. The Rs650 billion federal Public Sector Development Program (PSDP) budget for FY21 is a multi-year low, but it is securing significant spending early in the fiscal. As per latest data from the Planning Commission, about Rs102 billion worth of funds had been authorized for release as of August 7, 2020.

This means that just over a month into the fiscal, about 16 percent of the yearly development spend had been authorized. This is noteworthy because the ‘official release mechanism’ has a ceiling of 20 percent in the first quarter, meaning that funding can go only as high as Rs130 billion. It remains to be seen what happens in the rest of the quarter, as to whether the planning czars will continue in their spending zeal.

This spending drive is prominent also because at a similar time last fiscal, only Rs15 billion had been authorized. Spending was similarly lackluster at similar period in prior years – Rs23 billion in FY18; Rs54 billion in FY17 and Rs57 billion in FY16. This is not unusual because spending picks up as the fiscal year progresses, with higher releases in the second half. But FY21 is clearly bucking the trend, and it is good!

However, funds “authorized” is not the same as funds “released”. For instance, the planning body had authorized Rs645 billion under FY20 federal PSDP as of June 30, 2020 and achieved a 92 percent utilization rate in process. But when one looks at the finance ministry’s year-end “actual” PSDP spending, it tallies to Rs622 billion. Under the PTI government, this mismatch is getting lower, though.

All the sanctioned funds until early August were made by the federal government from its own kitty, which is to be budgeted to fund close to 90 percent of the PSDP projects in FY20. As the foreign project aid disbursements start coming in, it will further boost the spending. But it is unclear, given the Covid fatigue in donor circles, how much of the budgeted Rs72 billion will trickle in for PSDP this fiscal.

In terms of funding, the usual suspects are getting the lion’s share. NHA, which has an 18 percent share in the budget, received 21 percent of the PSDP funding as of August 7. Wapda, which has a 12 percent take in the budget, had 13 percent of the pie. Special Areas (AJK & GB) got 9 percent of the funding against an 8 percent share in the earmarks. Both finance and cabinet divisions were also well funded. The focus continues to be on infrastructure development to drive economic activity in associated sectors.