In giving a trillion-rupee+ projection for non-tax revenues this fiscal, the finance minister sounded optimistic last weekend that the government would be able to create fiscal space to spend more on public welfare projects and decrease borrowing. Development spending indeed requires a boost, for the current level of spending, with a fifth of the fiscal gone by, may not be enough to shield from economic slowdown.
As of September 13, the Planning Commission had released Rs84.4 billion under the Public Sector Development Programme. That is 12 percent of the Rs701 billion PSDP budget for FY20. At this spending rate, the 20 percent target for first quarter will likely be missed. When one looks at core PSDP portfolio that has a budget of Rs575 billion, only Rs45.6 billion – or 8 percent – had been released.
Thus far this fiscal, the PSDP’s releases have been tilted towards Khyber Pakhtunkhwa and erstwhile Fata. The federal government has released almost Rs27 billion for “Security Enhancement” and Rs12 billion for “Merged Areas’ 10 Years Development Plan”. This suggests that the mainstreaming of the ex-Fata region within KP is a top priority for the federal government.
Meanwhile, among other top recipients, National Highways Authority got Rs18 billion (12% of its budget), Special Areas – AJK & GB – received Rs7.7 billion (17% of its allocation), and Higher Education Commission had Rs4.6 billion (16% of its earmark). Among the ministries and divisions with big development budgets but little spending included Railways, Cabinet division and water & power divisions.
A reduced level of spending on an already-slim PSDP portfolio will have further negative impact on employment and poverty. Business leaders have cautioned that the manufacturing recession in key sectors that was seen at the end of FY19 is only going to get worse this fiscal. Production of cement, steel products, coke, petroleum, small engineering goods, and dozens of other items will be further affected by low PSDP spending, even as LSM takes more hits from slowing demand for consumer goods.
The government is running a tight fiscal policy; therefore, it cannot be expected to spend beyond a certain level on development. There is likelihood, in line with precedent, of a double-digit PSDP cut, in case the need for a mini budget arose to curtail fiscal slippages. Meanwhile, foreign assistance for development projects is also cutting a sorry figure. In that context, the business community should hope and pray that the finance czar secures the trillion he was dreaming of and gives the development its fair due.
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