PSDP in 9MFY23

Three-quarters of the fiscal in, the federal development spending remained at less than half of the budget, signifying challenges on both financing and implementation fronts amid economic and political crises of the time. As per the latest fiscal data released by the Ministry of Finance, spending under the federal Public Sector Development Program (PSDP) stood at Rs329 billion in Jul-Mar period this fiscal, compared to original FY23 budget of Rs727 billion. There is clearly higher activity in 3Q, pushing9M numbers up.

The 9MFY23 PSDP spending is down by 27 percent year-on-year, whereas total expenditures (which include stubbornly-high ‘current expenditures’) saw a growth of 17 percent year-on-year to nearly Rs7 trillion. The share of development spending has gone even lower this fiscal, as debt servicing ballooned and tax revenue growth disappointed. PSDP spending had 5 percent share in total federal expenditures in 9MFY23, down from 8 percent share last fiscal and 9 percent average over both past 5 and 10 years.

The development spending this fiscal thus far is also at a multi-year low in the analysis period. The nominal figure for 9MFY23 under the PM Shehbaz Sharif is almost the same as it was in FY17, which was precisely the time when his brother Nawaz Sharif was in power (albeit he was just a few months away from being ousted by judiciary at that time). Contrary to expectations of higher and visible development spending under Shehbaz, his development train got derailed by macroeconomic challenges.

Based on the Finance Ministry data, the PSDP spending in the third quarter picked up significantly. Spending stood at Rs167 billion in 3QFY23; more than the combined sum of Rs162 billion in the first and second quarters this fiscal. The 3Q spending was also 2 percent higher than the same period last fiscal. Does this uptick in the latest quarter, despite the fiscal strains and the IMF’s close expenditure scrutiny, suggest that full-year PSDP budget utilization would conclude on a higher level? It remains to be seen.

The budget utilization ratio of 45 percent after nine months is traditionally not too bad, considering that the authorizations, spending and implementation are often expedited in the final quarter before the fiscal’s close. (Over the past decade, the average PSDP budget utilization after nine months also happens to be 45 percent). However, given the extremely weak resource position, it would be quite something if two-thirds of the PSDP budget is utilized until the end of this fiscal (equivalent to roughly Rs500 billion).