Shying away from spending

The ‘pro-business’ PML-N government has drastically cut the development spending to curtail fiscal deficit. Talk about ironies. Federal PSDP disbursement was Rs230 billion out of budgeted Rs431 billion in little over ten months while the 70 percent of foreign aid component has been released.
The Finance Minister is penalizing the development budget by Rs115 billion on bad performance of FBR. PSDP is expected to fall short by Rs200 billion, for details see BR Research’s article “PSDP’s familiar fate” published on May 19, 2014.
The story does not end here; provincial development spending is even lower and situation is same across all the provinces irrespective of the ruling party. Cumulatively, provinces disbursed a mere Rs200 billion out of the budgeted Rs682 billion for the full year.
Usually 20 percent each is released in the first two quarters and 30 percent each in the subsequent quarters. By applying this formula, Rs477 billion (70% of Rs682bn) should have been spent by the provinces in the 9M FY14. This explains a fiscal surplus of Rs217 billion by the provinces in the first three quarters of this fiscal year.
This behavior is totally apposite to what the provinces were doing in the past few years. Ever since the 7th NFC award, federating units after getting more of the pie had shown fiscal deficits every year despite the Federal Government’s persistent surpluses all those years. The coordination was so weak that provinces were even budgeting deficits right from the onset.
The role of Council of Common Interests was felt of paramount importance as in the past three years lack of coordination between the Federation and Federating units was manifestation of CCI’s institutional failure. The IMF recognized this anomaly and has incorporated strengthening of CCI’s role as a qualitative condition of its extended finance facility.
But that does not mean that provinces stop spending on requisite development projects as these releases are imperative for employment generation and boost the economic growth which is lagging behind. The question arises that why are provinces not incurring development expenditure? A plausible partial explanation could be that a large sum of money was transferred to the provinces on March 31, that’s why they did not have time to spend these late releases.
At the same time, in the first year of their governments, provinces are either reluctant to spend money or probably they do not have the capacity. Whatever it is, it’s the responsibility of the provinces to spend adequately on the requisite projects to kick start the economic growth!

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Provincial PSDP utilization

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Rs (bn)   Budgeted   Spent (9M)  Utilization (%)

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Punjab       290         89                  31%

Sindh        230         71                  31%

KPK          118         29                  25%

Balochistan   44         11                  25%

Total        682        200                  29%

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Source: Ministry of Finance