Latest numbers have somewhat chastened earlier fiscal signals of turbo-charged development spending this fiscal. Recall that the Planning Commission had authorized Rs393 billion for release under the federal Public Sector Development Program (PSDP) in the Jul-Sep quarter of the fiscal, out of Rs900 billion budget. It was an unprecedented sum for first quarter spending, showing government’s intent to fast-track growth. Now it seems the government isn’t too keen on accelerating just yet.

Latest data from Finance Ministry show that during 1QFY22, actual federal PSDP spending was Rs144 billion, which happens to be just 37 percent of the funds that had been authorized for spending by the Planning Commission in the quarter. A deviation between what the Commission authorizes and what actually gets spent is not new – under the PML-N government’s last year in office, the 1QFY18 actual PSDP spending was 59 percent of authorized spending. However, 1QFY22 level is historically low.

It’s one thing to approve large sums, but quite another to actually spend it – the public sector has finite capacity to absorb resources. Besides, the pace of PSDP spending tends to accelerate in later quarters. Then, there are fiscal constraints related to resumption of IMF program. If the full Rs393 billion that were approved by the Planning folks were spent (a big if!), fiscal deficit would have jumped by nearly 60 percent to 1.27 percent of GDP in the Jul-Sep FY22 period, compared to actual deficit of 0.8 percent of GDP.

Furthermore, current macroeconomic situation demands coherence between fiscal and monetary policies. Be that as it may, actual PSDP spending of Rs144 billion in the quarter is still a huge improvement of 74 percent compared to Rs83 billion spent by the federal government in 1QFY21. It’s the highest level of first quarter PSDP spending by the center in recent years. This has to have an economic impact, as bulk of the PSDP spending is moving to infrastructure development projects.

Also note that, in relative terms, the actual spending in the analysis quarter is also the highest in recent years when it is taken as a share of originally-approved size of federal PSDP budget. Calculations based on finance ministry data show that about 16 percent of PSDP budget was utilized in 1QFY22, up from 13 percent each in 1QFY21 and 1QFY20, 6 percent in 1QFY19 and 10 percent in 1QFY18.

Another rather encouraging development is that the federal government directed 9 percent of its total Rs1.55 trillion spending in 1QFY22 towards PSDP. That share could be a lot more, but in the historical context, it is a visible improvement compared to the 6 percent average share of PSDP expenditures in overall federal spending seen in its first three years of the PTI government for the same quarter. Let’s see what the coming quarters have in store, as the government grapples with economic headwinds.