2020: will development spending pick up?

Growth gurus want the federal government to start pumping more money into development projects next year to boost the economy. The optimism is not unwarranted. The severe downturn is taking a political toll and core PTI members are said to be uneasy about another year of austerity. Expect the spadework for next budget to see some fireworks between vocal ministers and the technocratic economic team.

Over the last two months, the Prime Minister himself has shown reservations over low spending on the flagship Public Sector Development Program (PSDP). Indeed, as per the latest finance ministry fiscal data, the federal PSDP spending stood at Rs93 billion in the Jul-Sep quarter, a mere 13 percent of the Rs701-billion budget for the entire fiscal year. Provincial PSDP spending was even more abysmal.

And it seems there are worries that the economic screws have been tightened a bit too much under the IMF’s EFF arrangement. So much so that a top visiting IMF official last November had to urge the government to ensure full utilization of the development budget. Mind you, the existing PSDP budget is a pared down version of budgets old, taking the spending level several years back.

At the close of first half of the fiscal year, the government was entitled to release up to 40 percent of the PSDP budget – or Rs280 billion to be precise. In the first stage, the Planning Commission had authorized almost Rs300 billion as on December 27, 2019. In the next stage, the funds have to be released by the finance ministry. And if history is any guide, the actual spending level will be lower than authorizations.

The funding pattern shows that releases are directed mainly towards the infrastructure-development side. For instance, the National Highways Authority had a 22 percent share in the budget, but thus far it has accounted for 32 percent of the funds authorized for release. Hence, over 60 percent of the NHA’s allocations have been authorized, thanks to robust foreign assistance in these projects. Following that, 13 percent of total funds have been authorized for the Water division, satisfying 44 percent of its earmarks.

With a politically-savvy minister at the helm of Planning Ministry, it can be safely stated that the case for higher PSDP spending will be vigorously made with the finance ministry’s fiscally-conservative hawks, who are understandably more keen on meeting IMF targets. However, wearing a fiscal straitjacket labeled EFF, do not expect a fiscal stimulus any time before next budget is announced. From what it looks, development spending may remain restricted for FY20, regardless of whether mini-budget is in the offing.