Wither development?

With the economy in a tailspin amidst fiscal squeeze, arguments for higher development spending to rev up the economic engine are unlikely to find much audience. As per latest Finance Ministry data, Rs452 billion had been spent on federal Public Sector Development Program (PSDP) in 9MFY22, an increase of 28 percent year-on-year. But this figure equates just half of the Rs900 billion PSDP budget for FY22.

Shahbaz, the development czar, is now in charge, but his economic team may find it difficult to convince the staff at the IMF to increase the size of the PSDP budget for next fiscal. The PML-N-led federal government is under pressure to introduce new development projects, both to put its mark on development and to satisfy demands of a coalition government. The issue is that new schemes will be starved for funds at a time when there are already issues financing national mega-projects of importance.

Still, the government is reportedly planning a Rs800 billion PSDP budget for FY23 – a sum that is significantly higher than the oft-truncated Rs500 billion PSDP (a figure reportedly revised down from the Rs900 billion PSDP budget this fiscal). The new government’s tenure, which can constitutionally cover entire FY23 plus two months, hangs in the balance. It isn’t clear at the moment if the government is even interested to step into hot June.

With fiscal side being hammered by unplanned subsidies (especially on the fuel prices), prospects do not look bright for PSDP spending for the remainder of this fiscal either. This will have implications for infrastructure-driven industries and unemployment situation in the country. As per the latest Planning Commission data, during the period Jul-Apr FY22, federal PSDP expenditures stood at Rs466 billion.

That equates to just 52 percent of the original Rs900 billion budget, with 83 percent of the year gone by. And if the revised PSDP budget has indeed been drawn down by the new finance minister to Rs500 billion, the actual spending level may not increase much in May and June, as budget utilization in that case has already crossed 90 percent.

Budgeting big for development is one thing, but spending it quite another. The former PTI government issued its peak PSDP budget in FY22, at Rs900 billion. After multiple rounds of cuts, the PSDP budget had been reduced to around Rs600 billion by the time that government was ousted last month. During FY18 (final year of PML-N’s last government), it booked Rs1.001 trillion as PSDP budget, largest-ever! Despite being in power until May 31, 2018 that fiscal, just two-thirds of that colossal sum could be spent.

Unforeseen hikes in current expenditures often have to be met by slow-walking development spending. After all, axing PSDP spending is much easier than demanding cuts in other major federal expenditure heads. Regardless of whether the next budget is presented by the current government or by a caretaker government of technocrats, PSDP spending looks highly likely to remain on the low side during the next fiscal year as well. ‘Fiscal space’ is the catchphrase this year, so PSDP may have to wait for better days.