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After a strong showing in January, the government’s Public Sector Development Program (PSDP) witnessed a significant slowdown in February. Latest Planning Commission data show that the federal government had authorized Rs465 billion for PSDP as of February 28, 2019. During February, however, only Rs36 billion in funding was authorized, sharply lower than Rs130 billion authorized in January.

On the face of it, things are on track. The Rs465-billion authorization in 8MFY20 equals two-thirds of Rs701-billion PSDP budget. And that is not bad, given that the fiscal year had also run two-thirds of its course by February. More specifically, federal government had met roughly two-thirds of its Rs573 billion commitment; the foreign aid component, which has 18 percent share in the FY20 budget, did even better.

In addition, the 8MFY20 authorization happens to be 27 percent higher on a year-on-year basis – an incremental release of Rs100 billion over the same period last year. The Planning Minister has been sounding eager for a full utilization of the PSDP budget, and it shows in the numbers. The figures look better also because, thus far, the line ministries have had a greater say in the release of funds than in the past when the finance ministry used to call the shots.

However, latest fiscal data points towards a mismatch between the development spending approved by P-block and the development spending actually released by Q-block. During Jul-Dec 2019, actual PSDP spending totaled Rs276 billion, as per the Ministry of Finance data. This is about 10 percent lower than what the Planning Commission had authorized at the end of the same period. This mismatch used to be higher in past years, but the divergence could grow further in second half as other fiscal priorities kick in.

The finance ministry may rightly point out that 1HFY20 PSDP spending is higher year-on-year by 46 percent, or roughly Rs100 billion more! That, however, is attributable more to the low-base effect, as the FY19 PSDP budget was significantly lower than years past. But the narrative that PSDP spending has been significantly raised is an official talking point, even if spending is historically lower in both nominal and real terms.

Now there are reports that the government is mulling slashing Rs100 billion off of PSDP, to create fiscal space that helps clear the pending IMF review. If those reports are true, the last quarter’s PSDP spending will be contingent on final approval from FinMin, which has been trying to run a tight fiscal operation to not run afoul of the Fund’s quantitative targets. Will the Planning czar stand up for PSDP?


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