Is the Public Sector Development Program (PSDP) as an instrument of fiscal policy dead? Traditionally, governments all over the world have used comprehensively designed development portfolios in order to steer gains in infrastructure development and human capital accumulation.
Both provide inputs to economic growth processes and enable nations to reach a higher level of sustained development - something that hasn't happened in the case of Pakistan! Over 60 percent of PSDP is spent on brick and mortar, having no completion deadline, no monitoring criteria and no follow up from the executing agency. There are distorted incentives for the political leadership and the civil service for keeping the projects lingering. All are interested in approval of projects and not in completion of projects!
For 2010-11 originally approved PSDP was Rs 720 billion which was revised to Rs 462 billion by the year end. Some of the difference was diverted to post-floods needs and fiscal expenditures other than development.
Keeping in view the reduced resource envelop, Planning Commission put in place a PSDP management strategy which focused on: Preserving allocations for Baluchistan, Azad Jammu Kashmir, FATA and Gilgit-Baltistan Deferring slow moving projects Protecting social sector programmes
Enhanced monitoring and evaluation
Fast tracking priority projects such as Diamer Basha, Chashma-III & IV, small dams, and Thar coal. Such measures were undertaken under the new role of Planning Commission which allows this entity to work as the apex body for formulation, co-ordination and monitoring of economic reforms. The National Economic Council reinforced these responsibilities of Planning Commission through the approval of the New Growth Strategy.
This strategy begs to revisit the 'governance' of PSDP. Should civil servants, who usually do not have specialised background, head highly technical projects in diverse sectors? How can we move from input-based to an outputs and outcomes-based system? How can we make Principal Accounting Officers accountable, based on regular monitoring and evaluation of outputs and outcomes?
In order to answer these questions, the starting point is a transparent public expenditure management strategy. The implementation of medium-term budgetary framework at the federal and provincial levels is the need of the hour. Such a system has already been around in the federal government in some form, and desperately requires a legal framework.
The second step is to initiate the monitoring of outcomes of the efforts of the line ministries and provincial departments. At the provincial level this will take slightly more time as key performance indicators need to be put in place first (for each department). Finally the Prime Minister's Secretariat and Planning Commission should jointly monitor socio-economic performance based on overall reforms agenda given in the growth strategy.
But the question remains; is PSDP still relevant for economic growth? Let's step back and ask; what has PSDP delivered to date? Well, we have managed to develop some hardware for growth ie infrastructure for example in road, rail, aviation and utilities sector.
The Global Competitiveness Report places Pakistan's infrastructure at parity with many regional economies such as India, Philippines and Indonesia. However, what the PSDP could not (and should not be expected to) deliver is the software of economic growth ie how the assets are managed, decisions are co-ordinated and projects are executed. This has been the missing link that did not let PSDP maneuver growth towards a higher trajectory.
Scientific literature reveals that in Pakistan there was no strong relationship between public investment and economic growth, but it appears that public investment did have some effect in attracting private investment.
Can PSDP find its way back into growth policies? To answer this correctly we need to holistically define what may be an apt set of policies that could constitute a forward-looking approach for Pakistan. Local and global literature indicates that Pakistan's binding constraints to economic growth are not entirely related to energy and security but relate to: lack of contract enforcement, missing property rights, non-inclusivity of markets (hindering entrepreneurship), poor zoning and building regulations in urban centers of growth, lack of connectivity between people and places, and poor youth and community engagement - that is a must for creating ownership of reforms.
Consequently, the strategy for PSDP should focus on the following areas:
Short-term irritants such as energy shortages Wastages and losses in the supply chain of inputs such as water and power;
Aligning priority projects with the key themes under growth strategy ie focusing more on the software of economic growth ie better governance and management of our existing infrastructure. In its new role, PSDP must compliment the efforts to strengthen free and fair markets. No government penny should now go into strengthening the hold of existing public sector enterprises that are competing with the private sector. Untargeted subsidies should be phased out. And finally it would be fair to say that the role of the government bodies that add to the regulatory burden on the private sector (eg Engineering Development Board) should be revisited. The writer is National Institutional Advisor at Planning Commission of Pakistan. He can be reached at vahmed@gmail.com