EDITORIAL: The Ministry of Finance has given a 700 billion rupee indicative budget ceiling for Public Sector Development Programme (PSDP) for next fiscal year against 727 billion rupees budgeted for the current year indicative of negative 3.7 percent lower outlay.

Data uploaded on the Ministry of Planning, Development and Special Initiatives website gives total authorisation for PSDP July-March of 370.487 billion rupees or around 51 percent of the total amount budgeted under this head in the current year with actual expenditure for the first three quarters estimated at 316.6 billion rupees which implies a still lower percentage of 43.5 percent that delineates actual authorisation is distinct from disbursement.

The fact that the Ministry has yet to update the authorisation and actual expenditure for April strengthens the argument of the sceptics that the pace of releases may further decelerate in the remaining three months of the current year due to the International Monetary Fund (IMF) pressure to contain the burgeoning budget deficit sourced mainly to a massive rise in current expenditure funded by borrowing domestically at extremely high rates of profit (20 trillion accounted for through issuance of Pakistan Investment Bonds) with the prevailing 21 percent discount rate that has considerably upped the debt servicing cost of the government.

Needless to add, heavy borrowing from the domestic commercial banks today accounts for government borrowing crowding out private sector borrowing with severe implications on the growth rate which, in turn, impacts on tax collections to the tune of around 300 billion rupees. It is little wonder that PSDP — federal and provincial — is regarded as the main engine of growth in this country.

However, given the extremely limited fiscal space today post-2010 18th Amendment and the National Finance Commission award arguments have legitimately resurfaced: why have all subsequent federal governments (PPP, PML-N and the PTI) remained engaged in usurping the domain of the provinces, given the shrinking of the federal government’s percentage share from the federal divisible pool in favour of the provinces and devolution of subjects to the provinces.

The obvious answer is that the members of parliament of the ruling party(ies) insist on development funds/projects in their constituencies as vote gainers which accounts for the release of massive, including unbudgeted funds, by all three national parties, especially close to a general election. Such releases have been the norm even if the ruling party resisted such releases during its first two to three years in power referred to as pre-poll rigging by members of the opposition.

It is important to note that PSDP budgeted outlay has been touted by all our repeat finance ministers (Hafeez Sheikh, Shaukat Tarin and the incumbent Ishaq Dar) as indicative of the ruling party’s commitment to development. And over time has been regarded as a wish list rather than a serious intent to develop key underdeveloped sectors.

With fiscal space continuing to contract due to ever-rising current expenditure (higher by 75 percent July-March this year compared to the year before) coupled with a widening revenue collection gap, administrations have preferred to raise reliance on the low hanging fruit, indirect taxes whose incidence on the poor is greater than on the rich with associated negative fallout on disposable income, rather than in reforming the tax structure that would end the prevalent elite capture of both expenditure and revenue sources remains largely undisturbed.

The remedy is obvious: slash current expenditure, reform the tax structure, and begin to follow the detailed quantitative targets provided in the two consensus documents, notably the 18th Amendment and the NFC award.

Copyright Business Recorder, 2023


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KU May 19, 2023 11:05am
How many PSDP projects have benefitted the economy of Pakistan? How has it made the life of a citizen easy or has it generated any employment opportunities? Every now and then AG of Pakistan publishes damaging reports on the misappropriation of funds by the public sector but no one is ever caught or punished. Not surprised that civil servants, politicians, and banks get rich while Pakistan becomes bankrupt. Pakistanis are already paying a heavy price for the corrupt-fest and surely will end up in more pain if more of the same economic mismanagement is not stopped.
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Tulukan Mairandi May 19, 2023 03:15pm
Looks like development budget is reducing. Hallmark of a degenerate state
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