Falling PSDP

As the fiscal space gets tighter amid ballooning debt servicing costs, so goes down the development spending, raising question marks over the authorities’ capacity to budget decent sums for the next fiscal. The sharp slowdown in spending under the Public Sector Development Program (PSDP) has negative consequences for output, employment and investment in several industries that directly or indirectly interface with infrastructure development, logistics and transportation, consulting and service delivery.

The latest Planning Commission (PC) data show that against the FY23 original PSDP budget of Rs727 billion, the expenditures in the Jul-Feb period stood at Rs250 billion, reflecting a large year-on-year decline. Just over a third of the budget spent with two-thirds of the fiscal gone by does not bode well for a reasonable level of budget utilization by the end of FY23. Average spending has been around Rs30 billion per month in this period. A ‘normal’ budget utilization level of around 80 percent would have required spending roughly Rs50 billion per month.

The top-five recipients accounted for 75 percent of the Rs250 billion spending in Jul-Feb FY23. (These top-five have a combined 67 percent share in the Rs727 billion overall FY23 budget). On top was the NTDC/PEPCO with PSDP expenditures at Rs49 billion, followed by the Water Resources Division at Rs42 billion, the Cabinet Division at Rs41 billion, the National Highway Authority at Rs28 billion, and the Provinces and Special Areas also at Rs28 billion. Except for NTDC/PEPCO, all of these recipients’ respective budget utilization this fiscal remained below 50 percent at the end of February 2023.

The PC’s latest numbers show that the above-mentioned PSDP expenditure in 8MFY23 was 38 percent down when compared with the Rs400 billion that was authorized to be spent in this period. To help contain the yawning fiscal deficit, the Finance Ministry has been going slow. It reported actual PSDP spending of Rs162 billion in 1HFY23, down by a massive 44 percent year-on-year. If that spending pace remained, federal PSDP utilization would remain below 50 percent at FY23 end, lowest in recent history.

The situation at provinces, however, appears less gloomy when it comes to development spending. As per the Finance Ministry’s 1HFY23 fiscal data, the four provinces, put together, spent 24 percent year-on-year more on provincial PSDP projects, taking the overall tally to Rs454 billion (and having a decent 21 percent share in total provincial expenditures). Nearly 90 percent of growth was accounted for by Punjab (then under the former PTI-led government), with remaining increase coming from Sindh and Balochistan.

As a result, total provincial surplus could only reach Rs101 billion, disappointing the center. Sindh provided most of the surplus, while Punjab under-performed. With caretaker setups installed in Punjab (and Khyber Pakhtunkhwa) since January, there is higher likelihood of fiscal ‘discipline’ being observed in those capitals. The upcoming Jan-Mar FY23 fiscal data release will tell if the Q-block succeeded in raising the provincial surpluses. As the fiscal crunch is expected to prevail into the medium term, federal and provincial development spending may not be a priority for the center. Even during an election year!