PSDP on track

At the start of the new year (or more precisely the second half of the ongoing fiscal), the pace of development spending at the federal level has accelerated. Against the Rs650 billion budget allocated to the Public Sector Development Program (PSDP) for FY21, the Planning Commission had authorized about Rs477 billion worth of funds for release, as of January 29, 2021. This is right on target.

On a year-on-year basis, the latest figure is 11 percent higher than Rs429 billion authorized in the comparative period of Jul-Jan period of FY20. In January alone, the fund authorization was about Rs158 billion, one of the largest monthly hauls in recent years. This follows a slow performance in November and December 2020, when about Rs10 billion and Rs20 billion, respectively, were authorized for release. But the October 2020 tally is still the largest, when about Rs172 billion were sanctioned in just that month.

The pattern is clear: authorize large amount of funds early on in a given quarter and then focus on project reviews in the remaining time. This had happened in July 2020 as well, when about Rs100 billion had been authorized and the rest of the first quarter was a rather lull affair. In fact, the big jumps have been happening in a single week of a given quarter’s first month rather than throughout that whole month.

The main takeaway is that with five months still to go in the fiscal’s close, about three quarters of the federal development allocations have been green lighted. The actual spending may show some lag to show in fiscal accounts, but the government’s intent to max out PSDP spending is obvious. Recent patterns indicate that February and March will be quiet – once April comes along, it will rev things up.

It’s true that this PSDP budget is lower in nominal and real terms compared to previous years. However, amid tight fiscal conditions, the government seems intent to consume the whole pie. As the PSDP is infrastructure-heavy, regular release of funds helps industries like cement, chemicals, commercial automotive, petroleum products, among several more construction-allied sectors to keep on humming.

One awaits the 1HFY21 fiscal scorecard to review actual federal spending. But recent data, as revealed in the monthly Economic Outlook published by the Finance Ministry, show that gap is widening between authorized spending and actual spending. The federal government’s own PSDP spending (also known as the Rupee Component, which is Rs577 billion or 89% of the FY21 PSDP budget, with the rest being foreign assistance) had grown by 11.3 percent year-on-year to reach Rs128 billion in the Jul-Nov period.

In the same five-month period, the Planning Commission had given a go-ahead to about Rs269 billion of spending under the Rupee Component. That’s a huge disparity. Soon the 1HFY21 fiscal numbers will be released and then it can be better ascertained how big or small the apparent deviation had become at the half-year close.