Slowdown in PSDP

“Development” spending has remained a fiscal orphan for long. Facing fiscal and external adjustments, the newly-minted PTI government also went chopping in the mini-budget. The hitherto-trillion-rupee PSDP budget in the last year of PML-N was followed by the new rulers with allocations rationalized at Rs675 billion for FY19.

While the deep cut in PSDP was necessary, it came in the wake of unusually-low PSDP spending under the caretaker regime that lasted until mid August. The latest figures published by the Ministry of Finance show that even before the hammer fell on PSDP in September, the federal PSDP spending had remarkably slowed in the first quarter ended September 30, 2018.

It is normal for first-quarter spending to come in low, as releases pick up pace in the second half. And at Rs51 billion, the actual PSDP spending in 1QFY19 is not the lowest in recent years in terms of absolute numbers. In relative terms, it is. The quarterly spending was 6 percent of the original PSDP budget (Rs800 bn) – down, on average, 9 percent seen in the first quarters of the last government’s five years.

Besides, the share of PSDP spending in total expenditures came in at 5 percent – down from the average of 7 percent in the past five years in the relevant quarters. Clearly, the caretakers were focused on running the day-to-day government affairs, releasing only about Rs30 billion until they lasted, leaving the subsequent government to execute PSDP the way they liked later on.

The PTI government took its time and slowed PSDP spending to a crawl in its first 6-7 weeks. The spending pace, however, picked pace after September. Planning Commission data show that PSDP releases stood at Rs151 billion – about 22 percent of the revised budget – as of November 23. Recipients like NHA, Special Areas (AJK, FATA & GB), HEC and Railways were better funded compared to the rest.

Some 80 percent of releases came from federal government and the rest from foreign aid. That is pretty much in line with their respective shares in the revised budget. The government can authorize spending up to 40 percent of the budget until December end. However, it looks unrealistic as it would take Rs120 billion or so in additional spending to reach that mark in the remaining five weeks to December end.

Meanwhile, indications are that slowdown in PSDP, along with other stabilization measures, may finally be affecting the economy at large. The LSM growth for 1QFY19 has come in negative, with effects felt across the spectrum of industries. The growth momentum looks stalled – but it’s a price to be paid to hopefully put the economic house in order.