It is surprisingly refreshing to see a visiting top IMF official urging higher spending on development. It is ironic, too, given that a development stimulus is incompatible with the tight fiscal-deficit target spelled out by the Fund. Be that as it may, Mr. Ernesto’s calling for a “full use of the development budget to achieve the development goals” may cause a rethink in the Q-block and loosen the purse strings a little.
Thus far this fiscal, the picture is rather hazy so far as development spending is concerned. As per latest data, the Planning Ministry had “authorized” Rs257 billion for subsequent spending under the flagship Public Sector Development Programme (PSDP) as of November 1, 2019. That is 37 percent of the FY20 PSDP budget of Rs701 billion – just shy of the 40 percent ceiling for the first half.
Four months in, the “authorized” spending by the Planning Ministry is the highest in recent years, not only in absolute terms but also in relative terms as percentage of original PSDP budget. However, funds authorized do not necessarily mean funds actually spent. The Finance Ministry follows a go-slow approach in releasing the authorized funds. Reining in the fiscal deficit is imperative, not development.
About 82 percent of the FY20 PSDP budget is to be funded by the federal government’s own resources and the rest of the financing is to be met through the foreign sources. Within the authorized funds thus far, the federal government’s share was Rs204 billion, or 36 percent of its budgetary commitment. The foreign aid component came in at Rs54 billion, or 42 percent of the overseas obligations.
Foreign assistance, which is mostly in the form of loans and computed as of September 19, came in majorly for transportation projects under the National Highways Authority (NHA). Among the leading PSDP recipients include the NHA (Rs80 bn), Wapda’s water division (Rs30 bn), ‘Security Enhancement’ (Rs27 bn), Special Areas (AJK & GB-Rs17 bn), Cabinet Division (Rs16 bn), and Higher Education Commission (Rs12 bn).
As for actual spending, the picture will become clear when fiscal numbers are released later this month for the Jul-Oct 2019 quarter. Amid concerns of slowdown in actual development spending at the center and at the provinces, the manufacturing output and employment are under stress. It will be interesting to see if and how the government will follow the Fund’s advice to actually spend more on development.