The political temperature is rising, but so is the government’s push for development spending. There is growing fiscal confidence post-lockdowns as economic activities have gradually returned to normal levels. Reportedly, the FBR has comfortably achieved its toned-down Rs970 billion tax collection target in first quarter by raising about Rs1 trillion. Federal government feels inclined to spend more on uplift projects.
Development spending has visibly picked up of late. As of October 9, Rs270 billion out of the Rs650 billion Public Sector Development Program (PSDP) budget for FY21 had been authorized for release by the Planning Commission. That’s about 42 percent of the yearly federal development budget that has now cleared first hurdle in terms of funding. Able execution of projects can warrant socioeconomic returns.
This level of PSDP utilization rate at this time of the fiscal is rather unprecedented. For instance, PSDP utilization at a similar time stood at 23 percent in FY20, 9 percent in FY19 and 17 percent in FY18. The FY21 funding level thus far is also significant considering that foreign aid disbursements have been slow this year and bulk of funding is coming from the federal government’s internal resources.
Calculations show that more than half of the PSDP budget authorized thus far had been released in a very short span of time in the week ended October 9. This may point to a coherent strategy at the P-Block, vis-à-vis reaching the quarterly spending ceilings (20 percent each in first two quarters and 30 percent each in last two quarters). Prepare in advance, hit those limits early on in the quarter, and let funds flow smoothly.
Of the Rs152 billion authorized between October 2 and October 9, most of the fresh funding has gone to the National Highways Authority, followed by the likes of Water Resources division, Special Areas (AJK and GB), Cabinet division, and Finance division. Further project-wise analysis cannot be performed because the Planning Commission has stopped sharing details of PSDP projects with the public.
While the PSDP is on track, and it is a good sign, this analysis would be remiss if doesn't state the fact that FY21 PSDP budget is at a multi-year low, indicating a big contraction in spending in real terms even if 100 percent of the budget is utilized by fiscal end. Besides, it remains to be seen as to what extent the funds authorized by the P-block are actually spent on the projects.
But so far, so good. The spending level must be maintained for the economy to find a pathway to decent growth in the fiscal after a marginal contraction in FY20. It helps that the IMF favors maintaining development spending, too. Now a lot is riding on the interplay of coming winters and the coronavirus: if the second wave arrives, which one hopes should not, it will again impact economic activities, lower tax revenues and eventually hurt development works.