ISLAMABAD: The International Monetary Fund (IMF) has stated that the Public Sector Development Programme (PSDP) of Pakistan is unaffordable and should be reassessed with the total cost to complete projects in the PSDP is Rs 10.7 trillion, more than 14 times the budget allocation of Rs. 727 billion in 2022-23. F If the annual PSDP budget remains the same and no new projects are added, it will take approximately 14 years to complete the existing approved projects. However, in practice new projects continue to be added at a significant rate.
“Notwithstanding intentions to prioritise the completion of ongoing projects, new projects with a total cost Rs. 2.3 trillion were added by the government in the last budget. In addition, the separate preparation and oversight of the current budget and the development budget, by Finance Division the Planning Commission respectively, can lead to inconsistent and sub-optimal decision making,” said the Fund in its latest report “Pakistan: Technical Assistance Report–Public Investment Management Assessment–PIMA and Climate PIMA”.
The Fund further stated that while the Planning Commission gives funding priority to ongoing projects, reforms are needed to provide a more credible basis for the PSDP budget. If the annual PSDP budget remains the same and no new projects are added, it will take approximately 14 years to complete the existing approved projects. However, in practice new projects continue to be added at a significant rate.
In addition, the estimated years to completion is likely understated since i) ongoing projects not receiving funding in 2022-23 (known as unfunded projects) are not counted in the funding backlog, ii) the 2022-23 PSDP does not include flood-related projects that have been subsequently approved, and iii) delays result in significant cost overruns.
The Planning Commission estimates that a typical project requires 2-3 times its original estimated cost, due to inflation, damage to work already done and loss of materials at inactive building sites, and increased builder costs, which Planning Commission attributes largely to funding-induced delays.
While the PSDP provides information on total project costs, this information would be more useful if compared to realistic funding available in the medium term.
The Fund Stated that the debt and deficit ceilings have been ineffective at containing expenditure and the debt limit has been consistently breached over the years. Total public debt has trended upwards since 2010, consistently exceeding the 60 percent ceiling after 2012).
In recent years, budget priorities have set higher spending levels, hence higher fiscal deficits, but this has largely been confined to the recurrent side of the budget. Generally, the PSDP budget does not depart markedly from the envelope envisaged in the October MTFF.
The lack of medium-term planning document means that in practice there is a missing link between the annual budget, investment plans, and the objectives of Vision 2025.
The annual development budget, comprising the PSDP, the budgetary allocation by ministry and projects, and the annual development plan— the strategic document explaining this allocation and reviewing the execution of the previous year’s PSDP— is presented along five development pillars, which are different, though close, from the seven pillars in Vision 2025.
Given this, and the absence of projects in Vision 2025, it is not possible to identify how plans are influencing budget decisions, with the exceptions of CPEC and NCCP projects. However, when assessing the effectiveness of projects, the annual development plan takes a sector approach and makes use of output and outcome indicators for major projects.
With Vision 2025 reaching its term, there is an opportunity to revive five-year planning in Pakistan. The limited fiscal space which Pakistan is likely to face in coming years, coupled with the need to collectively search for growth drivers, for which public infrastructure is key, should provide impetus to this effort.
A medium-term plan would also provide the occasion to reflect and incorporate the important changes—nationally and internationally—that occurred since Vision 2025 was drafted, including the many promises that digital technologies offer.
In practice, public investment by the federal government, which accounts for less than half of all public investment in Pakistan, has tended to vary with economic conditions. Comparisons with peers suggest that Pakistan’s capital stock and efficiency of public investment are both relatively low. Ensuring public infrastructure is climate resilient is also critical given Pakistan’s exposure to climate risks.
All modelled global warming scenarios suggest that Pakistan’s weather patterns will become more unstable and severe. Increasingly frequent and severe extreme weather events such as floods, heat waves, and droughts pose a significant threat to the country’s infrastructure.
This report finds scope to strengthen Pakistan’s institutions for public investment management. The report applies the Public Investment Management Assessment (PIMA) framework. It finds that while Pakistan scores slightly above average compared to the emerging market economies that have undertaken the PIMA to date, there are still significant gaps in key areas the impede the delivery of critical infrastructure services in Pakistan.
Pakistan has taken some important steps to improve public investment management, including through reforms incorporated in the Public Financial Management (PFM) Act 2019 and the 2021 Manual for Development Projects. However, their implementation is incomplete and contributes to Pakistan’s scores for institutional design against the PIMA framework being higher than those for effectiveness.
It further stated that as one of the countries most exposed to climate change, Pakistan is ahead of many of its peers in understanding the importance of sustainable and resilient public infrastructure, with a strong framework for climate action across the country.
Still, there is room to accelerate progress on climate-sensitive public investment management, which can be expected to improve Pakistan’s ability to attract climate finance.
Copyright Business Recorder, 2023