PSDP releases

The federal government has released only 277.9 billion rupees (40 percent of the 700 billion rupees budgeted) for the current fiscal year after the passage of nearly seven months. Pakistani governments have invariably met budget deficit targets, particularly during years when the country is on an International Monetary Fund (IMF) programme, through mercilessly slashing the Public Sector Development Programme (PSDP). The need to show a high allocation at the time the budget is announced has, over time, come to be considered politically expedient as it allows the incumbent government to claim that it is more committed to development than its predecessor.
Budget documents reveal that during the first full year of the PML-N government (2013-14) the budgeted federal PSDP was 540 billion rupees while revised estimates gave the total at 425 billion rupees. However, details of the PSDP in the budget documents revealed that the shortfall in allocation was due to the deferment of new development initiatives estimated at 115 billion rupees. In 2014-15, however, the budget documents claimed that 535 billion rupees was earmarked for PSDP while revised estimates gave the higher total disbursement of 542 billion rupees. This, if accurate, is clearly a break from past practice of slashing development expenditure to meet the deficit target. The stipulation, 'if accurate', has unfortunately become critical over time as governments are almost routinely accused of data manipulation through making patently flawed claims. In 2014-15, for example, there is clearly lack of synchronisation of data notably construction growth is more than double that of cement manufacturing while at the same time non-tax revenue has been shifted to other taxes to give an improved tax to Gross Domestic Product ratio. It is also relevant to note that the growth rate in 2013-14 was estimated at 4.1 percent while in 2014-15 it has been estimated at 4.2 percent - a claim challenged by the Fund as well as independent economists partly because the heavy reliance on domestic borrowing crowded out private sector borrowing and partly because energy sector as well as delays in refunds continued to impede private sector activity.
Thus with the private sector not a major contributor, did investment by the state under PSDP prove to be the engine of growth? That appears to be the government's contention though a look at components of Gross National Product as noted in the Economic Survey 2014-15 indicates that the major contribution to the growth rate was not the farm sector (2.9 percent), manufacturing sector (1.65 percent), or general government services (2.86 percent) but wholesale and trade (3.98 percent), indirect taxes (7.76 percent) and remittances (net factor income from abroad) rose by 17.66 percent. Public investment rose by 6.8 percent in 2013-14 and was targeted to increase by 25.6 percent last year - a target highly unlikely to have been achieved.
Data reveal that during the first almost seven months of the current year, the government has released 55.8 billion rupees for Water and Power Development Authority out of the total budgeted 112.8 billion rupees and 31.26 billion rupees out of the much higher allocation of 159.6 billion rupees to National Highway Authority (clearly reflecting the Prime Minister's priorities). It is of course unclear whether the Ministry of Finance will release the total allocated to NHA in the remaining months of the fiscal year; however, informed sources have revealed that the government has already agreed with the Fund to slash 20 percent of PSDP in the current fiscal year with the objective of meeting the agreed budget deficit. It is, however, unclear whether it would admit to this in the budget documents of 2016-17 or whether it would engage in 'innovative' accounting. Disturbingly, the National Action Plan (NAP) whose non-implementation in key areas came under considerable media scrutiny subsequent to the attack on the Bacha Khan University received insufficient funds.
This newspaper has been advising Pakistani governments to make the Federal Bureau of Statistics independent from the Ministry of Finance which would enable the Ministry to take more realistic decisions based on more accurate data. As matters stand today the FBS is perceived to be meeting the political as opposed to the economic considerations of the Ministry of Finance.