On PSDP spending

Facing fiscal headwinds, development spending is widely expected to be the only major casualty vis-à-vis spending cuts. After all, it was just over a month ago that the federal government had finally confirmed that the Public Sector Development Program (PSDP) – originally budgeted at Rs900 billion for FY22 – would be capped at Rs700 billion. The government didn’t want to do it, but the IMF wanted fiscal space.

With five months to go before the sun sets on the fiscal, let’s see if the government is able to accelerate what is left of PSDP budget. Recent official numbers, however, do not paint a gloomy picture. Latest data from the Planning Commission show that the federal government’s own spending on PSDP – referred to as “rupee component” – had been authorized a sum of Rs392 billion as of December end 2021.

Within that, Rs322 billion worth of funds had been sanctioned by the concerned ministries and divisions for release. And a total of Rs269 billion from within that pie had been actually spent at the end of December 2021. In the Jul-Dec period, official data show that foreign aid disbursements for PSDP projects were to the tune of Rs63 billion. (The government has budgeted Rs100 billion in total foreign aid for PSDP projects in FY21).

Adding the rupee component and the foreign aid component, one gets the actual PSDP spending figure of Rs332 billion for 1HFY22. That amount equates to 37 percent utilization of the Rs900 billion original PSDP budget and 47 percent of the scaled-down Rs700 billion PSDP budget. Not bad entering the second half of the fiscal after spending almost half of the revised budget!

Official data show that the top-five PSDP beneficiaries in 1HFY22 were Finance Division (Rs39 bn), Cabinet Division (Rs38 bn), Communications Division (Rs36 bn), Water Resources Division (Rs33 bn), power division (Rs28 bn), and Kashmir Affairs & Gilgit-Baltistan Division (Rs25 bn). While project-wise details are not available, it appears that the bulk of PSDP spending is going towards infrastructure development projects, including for constituency-level schemes ahead of the next general elections.

One awaits the finance ministry’s half-yearly fiscal data to confirm the above estimated figure for actual PSDP spending in 1HFY22 (Rs332 bn). Recall, in 1QFY22, actual PSDP spending was reported at Rs144 billion by the finance ministry, showing yearly growth of 73 percent. If the above estimate is confirmed by the finance ministry data, it would result in 43 percent yearly growth in PSDP spending during 1HFY22. PTI’s PSDP spending is still miles behind PMLN-era spending, so the strong double-digit yearly growth helps in doing the catching up a bit.

The current shape of electoral politics may force the government to speed up PSDP spending in the coming months. However, it may be difficult to surpass FY21 PSDP actual spending, which was reported at Rs667 billion by the finance ministry last year. But if the government maintains the current spending pace, it may be able to exhaust about 90 percent of the revised PSDP budget. Not bad in a tight year!