PSDP goes steady

Those looking for austerity measures should look no further than the development spend. Stubbornly high current expenditures mean that even a trimmed-down development budget is hard to get decent funding. The PML-N left a trillion-rupee FY19 budget. The PTI government slashed it by roughly a third to leave Rs675 billion on the table, after the mini-budget last September. But spending has been slow from the federal kitty.

As per the Planning Commission data, the Public Sector Development Programme (PSDP) had been provided Rs225 billion as of January 4, 2018. The spending in the first half of the ongoing fiscal year is equivalent to 33 percent of the budgeted amount. The actual spending ratio is lower than the 40 percent spending limit authorized by the commission’s rules.

Data also show that the federal government is lagging in funding the PSDP from its pocket, as opposed to healthy official, foreign flows coming into projects that have a sizable foreign aid component. In the period under review, foreign aid accounted for 38 percent of the total PSDP funding – proportionally higher than its 21 percent share in the Rs675-billion budget.

Meanwhile, the federal government had released just 26 percent of its Rs531 billion PSDP obligation as of January 4. That ratio is visibly lower than the foreign aid component, which had funded about 60 percent of its Rs144 billion in PSDP commitments in the first six months or so.

The first week of the New Year saw even more robust foreign inflows moving into some projects of Wapda, the National Highways Authority, and the national space agency (Suparco). Relating the PSDP spending data with other government data will point towards China being at the center of bulk of PSDP spending originating from foreign sources.

As per the latest data from the Economic Affairs Division, China provided roughly $650 million of loans – equivalent to roughly Rs83 billion – in the period July to November 2018. This equates to 35 percent of all foreign assistance (grants plus loans) received by Pakistan in that period. The bulk of Chinese funding came in for CPEC projects like Sukkur-Multan motorway and Orange Line Project; besides a roughly $20 million loan made its way to finance a remote-sensing satellite for Suparco.

However, foreign proceeds – both for project and budgetary support – are down thus far in FY19. In the Jul-Nov period of 2018, total foreign assistance stood at $1.86 billion, down from $2.92 billion in the same period the preceding year. Inflows from China (CPEC and non-CPEC loans & grants), coming in at $650 million in Jul-Nov 2018, are also down, compared to $955 million in the same period the previous year.

The above situation doesn’t exactly spell gloom and doom for the PSDP in the remainder of this fiscal. If CPEC-related transport and energy inflows continue to come in their hundreds of millions, the impact of an impending government cut in PSDP spending can be countered to some extent. On the other hand, whether or not the government goes for another kill on PSDP budget is subject to yet another mini-budget, which is to be reportedly presented later this month.