On provincial development spending

While the sharp 44 percent year-on-year decline in 1HFY23 federal development spending under the Public Sector Development Program (PSDP) to Rs162 billion has been widely noticed after the release of related fiscal data by Finance Ministry last week, what has remained under the radar is the high growth in development spending at the provinces. How much provinces have spent on development during the half-year has ramifications for the Rs750 billion fiscal-end provincial surplus promised to the Fund by center!

Put together, the four provinces spent Rs455 on the provincial PSDPs in 1HFY23, showing a year-on-year growth of 24 percent. About 89 percent of this increased development spending was accounted for by Punjab. In the most populous province where the PTI government had been ruling with its PML-Q front until a month ago, the 1HFY23 PSDP surged by 43 percent year-on-year to reach Rs263 billion. This sum is even higher than the one spent by the collective might of the federal government under its own PSDP.

The intent was clear at the helm in Lahore. Anticipating early elections (at least in Punjab), the provincial government, led by a veteran CM, splashed big on development schemes (reportedly more so in his own constituencies and areas of political influence). The same is not true for PTI’s other provincial government in Khyber Pakhtunkhwa (KP), however. There, the 1HFY23 PSDP spending declined by 26 percent year-on-year to Rs74 billion. Both the Punjab and KP assemblies were dissolved last month by the PTI.

Over in Sindh, 27 percent yearly increase in the province’s PSDP spending was observed, as the tally reached Rs80 billion in 1HFY23. The PSDP spending in Balochistan underwent the largest relative increase in the analysis period, doubling to Rs38 billion compared to Rs19 billion in the same period last fiscal. Overall, Punjab had a 58 percent share in overall 1HFY23 provincial spending of Rs455 billion, Sindh was there with 18 percent, KP had 16 percent share in the pie, with Balochistan at 8 percent.

Collectively, the provincial development spending of Rs455 billion had a 21 percent share in overall provincial expenditures of Rs2.2 trillion in 1HFY23(similar share in 1HFY22). Among the provinces, Punjab led on this count, spending 25 percent of the province’s overall expenditures on development. Balochistan came second, with development having 22 percent share in its total expenses in the period under review. This was followed by KP (20% development share in total spending) and Sindh (14% development share in total spending).

Finally, on the question of attaining the mammoth provincial surplus, half-yearly results presage a massive shortfall. Only Rs101 billion in provincial surplus could be generated by the four provinces combined. While this figure grew 8 percent year-on-year, it fell much below mid-year expectations at the concerned quarters. Punjab clearly disappointed the center on this count, producing just Rs38 billion in surplus at the half-year close. This compared woefully low with the massive Rs333 billion positive balance in 1HFY22, which was generated by the Buzdar government for the PTI’s federal government at the time.

While Sindh was the leading source of provincial surplus, providing Rs58 billion cash for the center in 1HFY23, its surplus contribution was also visibly down by 40 percent year-on-year. Meanwhile, KP recorded a Rs5 billion budget deficit (albeit much lower than the Rs32 billion deficit in 1HFY22) and Balochistan posted a budget surplus of Rs11 billion (down by a huge 88 percent from the Rs86 billion surplus in 1HFY22).

With the Punjab and KP political governments gone and new elected governments not expected to be in place there for a few more months amidst uncertainty over elections, it remains to be seen if the federal government can improve its fiscal scorecard on the provincial surplus front. The center’s hands are tied when it comes to spending adequately on federal PSDP in the second half – now it has every reason (political and fiscal) to ensure that development spending is reined in at the provincial level as well.