Development spending scorecard

While the government has been pointing out higher development spending this fiscal, the situation is more nuanced than it looks. As per latest half-yearly fiscal numbers reported by the Finance Ministry, the federal government had spent Rs232 billion on the federal Public Sector Development Program (PSDP) in the Jul-Dec period. This is 16 percent lower than Rs276 billion spent on federal PSDP in Jul-Dec 2019.

Given the inflationary pressures during this time period, the PSDP spending decline in real terms comes even larger. During FY21, the federal government is to internally spend Rs578 billion (rupee component) within Rs650 billion PSDP budget. About 40 percent of that budgeted rupee component stood spent by December end. However, this “actual” spending is lower by 14 percent when compared with Rs269 billion in rupee component “authorized” for release by the Planning Commission as of December end.

If the federal spending is down year-on-year, how does the situation look among the provinces? The same fiscal report card from the Finance Ministry shows that except for Khyber Pakhtunkhwa and Balochistan, the remaining two provinces, which account for about 70 percent of combined provincial development spending, spent a lower amount on their respective PSDPs in the analysis period.

The Punjab government, the leading spender, funded nearly Rs109 billion of its PSDP in Jul-Dec period, which is down 7 percent year-on-year. The province’s PSDP utilization was well below 50 percent mark at half-year close. The Sindh government had spent Rs49 billion on its Annual Development Program, a figure that is lower about 4 percent year-on-year, throwing up a budget utilization of less than a third.

The Balochistan government had Rs20 billion spent on its PSDP, which is higher 30 percent year-on-year. But the utilization stands at less than a fifth of the budget. The Khyber Pakhtunkhwa government had spent Rs50 billion on its Annual Development Program, up 39 percent year-on-year, thanks in part to spending in newly-merged areas. The utilization, however, stood at about a third of the budget.

The data show that cumulatively, Rs403 billion was spent on federal and provincial PSDPs in the half-year period, down about 12 percent year-on-year (or Rs54bn short). The spending level is visibly lower in real terms. In relative terms, the federal and provincial governments together spent 0.9 percent of the country’s GDP on development in this period, down from 1.1 percent in same period last fiscal. This throws into doubt claims that development spending will help the economy to rebound strongly this year.

Just to maintain FY20 level, close to Rs700 billion in additional PSDP spending is needed for the Jan-Jun period. In the first half, the overall provincial surplus was managed by fiscal authorities at Rs255 billion. This level needs to draw down in coming months to make room for a lot more development spending. Having said that, the five governing capitals managing to spend Rs400 billion+ in six months during a pandemic amid fiscal uncertainties reflects resilience. The second half needs to build on this.