PSDP proposals

The proposed Public Sector Development Programme (federal and provincial) for the forthcoming fiscal year envisages a marked increase in reliance on foreign assistance - from 102.2 billion rupees out of the total 525 billion rupees in the current year to 183 billion rupees out of a total of 580 billion rupees - or a rise of 31 percent from this year's reliance of around 19 percent. This must be a source of serious concern to economists and the general public alike because it lays the onus of initiating and completing a project on external funding that may or may not be forthcoming. The reasons could well vary from low absorption capacity of our economy to law and order problems and continuing energy shortages.
In 2012-13, the last year of the tenure of the PPP-led coalition government, external resources were budgeted at 384 billion rupees while 243.4 billion rupees were realised; in 2013-14 the reverse held or 576.4 billion rupees of external resources were budgeted while the revised amount was 714 billion rupees which is attributable not to concessional lending but to the issuance of 2 billion dollars worth of Eurobonds at rates double those applicable in the European Union but lower than the rate at which the government had borrowed domestically. In this context, it is relevant to note that external grants were budgeted at 109 billion rupees in 2012-13 with only 29 billion rupees realized while 109 billion rupees were budgeted in 2013-14 with 38 billion rupees realized. In other words, inflows from external resources were largely borrowings. In the current year, external resources to the tune of 868.6 billion rupees have been budgeted and data indicates that this target would not be achieved by the end of June.
Be that as it may, the government has proposed a federal and provincial PSDP of 1.4 trillion rupees for the forthcoming fiscal year, including 283.4 billion rupee foreign assistance. Past precedence reveals that PSDP budgeted allocations for identified projects reflect a wish list that rarely, if ever, is implemented. And some economists go one step further and claim that our successive governments are fully aware that the budgeted PSDP is a wish list but nonetheless routinely overstate this expenditure for political reasons as it enables the government to not only claim that it is focused more on development-oriented expenditure compared to previous governments but has also gone one step further with respect to its own allocation the year before; however in the event of failing to meet the fiscal deficit target, specially relevant when the country is on an International Monetary Fund (IMF) programme as is the case at present, PSDP is the first item to be slashed mercilessly.
Data reveals that during the last year of the five-year tenure of the PPP-led coalition government the 360 billion rupee budgeted federal PSDP exceeded the revised estimates by 28.4 billion rupees. The reason: 2013 was an election year; however, the then government curtailed provincial PSDP by 50 billion rupees. The first year of the PML-N government saw a budgeted PSDP of 540 billion rupees with the Finance Minister announcing in his budget speech that the newly-elected government has earmarked 115 billion rupees for new development initiatives, an addition that was much appreciated; however, this specific allocation received no funding due to the pressure on the government to meet its agreed budget deficit target with the Fund. Actual allocation was therefore no more than 425 billion rupees. In the current year, the government allocated 525 billion rupees for federal PSDP and documents from the Ministry of Planning and Reforms exclusively available with Business Recorder reveal that a large number of projects did not receive funding that is reflected by less than one percent progress of projects during the year due to what is evident is a decline in government's tax collections (due to lower international price of oil, high commodity prices and lower growth than envisaged). Thus for example releases for water and power projects specifically construction of dams showed a little progress during the year past because of the failure of the Ministry of Finance to release the appropriate funds - a failure disturbingly partly attributable to higher current expenditure due not so much to increase in security-related releases as much as for subsidies to the power sector, notably for inter-tariff differential.
What is, however, unfortunate is that since the PML-N took over the reins of government the mistrust with provinces that do not have a PML-N presence in government notably Sindh and Khyber Pakhtunkhwa has risen and they have expressed serious concerns at the federal government's identification of their PSDP projects and surpluses. In addition, the Balochistan government has also expressed reservations at the setting of certain priorities by the federal government. To add to this mistrust is the concern by the federal cabinet members who are not part of the kitchen cabinet to certain claims by the Finance Minister notably the overvaluation of the rupee and its negative impact on exports. There is, therefore, an urgent need for the federal government to take all provinces on board as well as allow them to set their own PSDP priorities and surpluses.