On PSDP spending

As per latest data from the Planning Commission, the spending authorizations under the FY21 Public Sector Development Program (PSDP) had reached Rs479 billion as of March 5, 2021. With less than four months remaining in the ongoing fiscal, this amounts to 74 percent of the budgetary allocation. This comfortable lead is also 3 percent higher when compared with the analysis period in the last fiscal.

Except that the PSDP authorizations barely picked up in the month of February. Just Rs2 billion in fresh funding was sanctioned that month, and that measly sum, too, came under the head of ‘foreign aid disbursements’. This much was expected, as there has been a pattern in recent months where lump-sum authorizations take place in the initial weeks of a new quarter.

The Rs650 billion budget this fiscal is already on the low side compared to prior years. However, the Planning Commission is on target when it comes to making timely decisions to utilize the budget. As of March 5, the federal government had funded 71 percent of its planned Rs577 billion allocations (rupee component) for FY21. Whereas the foreign component had met 96 percent of its Rs70 billion commitment during the year.

Whether or not the federal government will be able to meet its PSDP target remains to be seen. As per the latest finance ministry data on actual spending for Jul-Dec 2020 period, the government had spent Rs232 billion on PSDP, which equals 40 percent of the rupee component. That figure is lower than Rs269 billion that was authorized for spending by the Planning Commission.

Contrary to government’s claims of higher development spending, the half-yearly actual spending of Rs232 billion is, in reality, a significant 16 percent lower than Rs276 billion spent on PSDP in Jul-Dec 2019. As a result, the share of development spending has declined in the federal government’s total spending. The 1HFY21 PSDP spending was 7 percent of overall federal expenditures of Rs3.18 trillion, in contrast with a 9 percent share of PSDP in overall spending in 1HFY20.

Spending is expected to pick up in coming months as the fiscal year’s end approaches. Going forward, given the spare capacity in the economy despite rebound in large-scale manufacturing, the share of development spending must be increased next fiscal, along with other policy measures. Resumption of the IMF program might put some brakes on economic mojo, so the government may do well to negotiate a significantly higher development budget for FY22.