Need for higher development spending

With the fiscal and current account deficits under control, probably earlier than some observers had thought, there is a case for increasing the development spending at the center and the provinces. Against the full-year target of Rs1.6 trillion, about Rs150 billion is estimated to have actually been spent on development in the first quarter. Less than 10 percent in actual spending is a low bar for coming quarters.

It must be noted that the FY20 development budget is already a downsized figure that takes development spending several years back. It was in FY17 that Pakistan spent Rs1.68 trillion on development, which was about 25 percent of all expenditures and 5.3 percent of GDP. Now in FY20, there are serious question marks over whether the budgeted figure of Rs1.6 trillion will be realized – about Rs700 billion at the center and Rs900 billion at the provinces.

It seems that now there is a growing realization within the government to open the development tap a little bit. The thinking seems to be that the economic growth has really taken a heavy toll in the past 18 months, as reflective in a number of industries and services sectors. The recent green shoots amid “stabilization” provide a much-needed window to pump more development money into the economy.

A hint came in late October when a top IMF official visited Pakistan and urged the authorities here to make “full use of development budget to achieve development goals”. (For more on that, read “IMF and development” published November 4, 2019). A keen observer has pointed even the IMF officials perhaps feel that the GDP growth has taken a bigger hit than previously imagined.

For its part, the Planning Ministry has been issuing “authorization” instructions for spending under the federal PSDP. As of November 22, the Planning Commission had authorized funding that equates to 41 percent of the federal PSDP budget. However, it is the Finance Ministry that has adopted a go-slow approach on releasing the authorized funds.

The PM himself is showing wariness over PSDP under-utilization. Recently, instructions were issued by the PMO to the Planning Commission to ensure “optimal and timely utilization of funds”. Timely execution of development projects is another matter that has caught the premier’s attention. To expedite projects, the government has recently decided that a ministry’s secretary, who happens to be the ministry’s principal accounting officer as well, can release up to Rs2 billion for the ministry’s projects on their own.

Now with a high-profile politician made in-charge of the Planning Ministry, there are hopes that the PSDP projects will get their due share from the national kitty. More than that, it is expected of Asad Umar, who seems busy putting CPEC front and center again, to fix the issues in the PSDP development model that have given rise to massive time and cost overruns.