Is development spending about to get caught up in the political storm? Already, there are reports that the PM’s relief package on fuel and electricity prices is to be financed, in part, by up to Rs50 billion cut in the federal Public Sector Development Program (PSDP). That’s on top of the mini-budget-enforced Rs200 billion massive cut in the original PSDP budget of Rs900 billion for FY22. There are also reports that surplus from lower provincial development spending will also be used to finance the PM’s price cuts.
If the political front heats up further, it will further impact development spending on the ground. If the opposition is able to knock out the PM in their no-confidence vote, the wheels of the government may go round even slower, due to renewed political uncertainty. And if the PM is able to somehow defeat the opposition, his government may not feel an urgent need to spend more on development schemes at the constituency level. In that case, the government may instead focus on next, election year’s PSDP budget.
The situation on actual spending thus far remains mixed. Latest data from the Ministry of Finance show that in the Jul-Dec period of FY22, actual PSDP spending stood at Rs288 billion, which translates into a healthy year-on-year growth of 24 percent. However, there are doubts over whether this double-digit growth can be maintained to surpass the FY21 actual PSDP spending figure of Rs667 billion. Besides, the size of PSDP budget (post-cuts) stands at Rs650 billion for FY22 – its full utilization looks unlikely.
This, however, does not mean that the PSDP machine is sitting idly by amid fiscal and political uncertainties. As per the latest Planning Commission data, Rs422 billion worth of PSDP funds had been authorized for release by the concerned ministries and divisions as of February end 2022. In this pie, the top-five beneficiaries were the Finance Division (Rs70bn), Cabinet Division (Rs57bn), Communications Division (Rs54bn), Water Resources Division (Rs48bn), and Special Areas (AJK and GB: Rs39bn).
It remains to be seen as to how much of the slashed-down PSDP budget actually gets spent by the end of the fiscal. And it will be the FinMin data that would provide clarity on that count. But even if maximum PSDP fund utilization is achieved this fiscal, it won’t compensate for the fact that the government has been spending less than 10 percent of its overall expenditures on PSDP projects. Much-higher and better-quality development spending is the need of the hour, which is a challenge for any party in power.
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