Expenditure on Public Sector Development Programme (PSDP) is the most important indicator of the Government of Pakistan's commitment to improve social indicators and develop infrastructure in the country. The creation of some fiscal space in the last few years has enabled it to devote higher level of resources for this desirable objective.
According to a Recorder Report, the Federal Government is again contemplating a substantial increase in the size of PSDP for the next year and is likely to allocate a record amount of Rs 342 billion for the purpose during 2006-07. At this level, the amount earmarked for PSDP will be Rs 70 billion higher than last year's allocation of Rs 272 billion. The availability of enhanced financial resources is believed to have prompted the policy makers to plan for a sharp increase in the size of PSDP for the next year.
Another satisfactory development in this regard was a somewhat better utilisation rate of the PSDP amount during the current year. During the first nine months of 2005-06, 65 percent of the funds earmarked for PSDP were utilised as against a historically very low level in the past. Improved utilisation was the result of timely release of funds for development schemes.
The executing agencies were asked to monitor progress of work of their respective schemes very closely to ensure that funds were utilised judiciously and without any hassle. Also, the Planning Commission was conducting quarterly reviews of PSDP to ensure that none of the development projects suffered due to paucity of funds.
As a consequence, most of the PSDP schemes were on target this year. According to the province-wise break-up of PSDP during 2005-06, Punjab got Rs 32.4 billion while Sindh, NWFP and Balochistan were released Rs 14.1 billion, Rs 14.5 billion and Rs 7 billion respectively. Balochistan, in addition to its share from PSDP, was also released Rs 3 billion under Khushal Pakistan Programme.
A higher allocation of about 25.7 percent in the size of PSDP for 2006-07, in our view, would be a welcome development. Even after adjusting for the rise in input prices, the increase would be quite substantial in real terms and enable the government to undertake more aggressively major social sector programmes and development projects in the country during 2006-07.
This would generate more employment, and help the people to get better facilities and improve their living standards. However, the intended objectives can only be realised if two conditions are met.
Firstly, the allocations for PSDP should be in line with a prudent fiscal policy or, in other words, the funds for PSDP should be raised from non-inflationary sources. Unfortunately, however, the fiscal position of the country, according to the latest quarterly report of the State Bank of Pakistan, is weakening and there appears to be a trend deterioration in fiscal indicators during FY05 and FY06.
In such a situation, the government needs to be very careful in allocating a higher level of funds for PSDP until and unless there is an improvement in its fiscal position. Secondly, the utilisation rate of PSDP is still very low and needs to be sharply improved by devising a proper and more effective mechanism.
Also, it needs to be ensured that the funds earmarked for various projects are optimally utilised. We are afraid that if these conditions are not fulfilled, the PSDP as such will not be able to fully meet its objectives.