The first quarter’s development spending in FY23 was widely expected to remain off the mark, considering that the macroeconomic situation required fiscal consolidation under the IMF program. And also because the floods-related emergency spending by the government had to be paid for by making cuts somewhere, which turned out to be the development budget. As the latest numbers have now been released, the slump in the federal Public Sector Development Program (PSDP) is indeed very significant.
As per the 1QFY23 fiscal scorecard released by the Finance Ministry, the federal government could spend only Rs75 billion on PSDP projects, reflecting a decline of 48 percent year-on-year compared to Rs144 billion spent by the previous government in the same quarter last fiscal. Such a drastic decline is not without precedent, though: the PTI government’s first quarter in power (1QFY19) also saw PSDP spending being halved year-on-year to Rs51 billion, as fiscal realities were also challenging at the time.
During 1QFY23, the share of PSDP spending in total federal government expenditures dropped to a low point of 4 percent, compared to 11 percent in the same period last fiscal. As a result of low spending, only about 10 percent of the FY23 PSDP budget of Rs727 billion could be utilized in the quarter under review. In normal circumstances, PSDP spending is allowed to go up to 20 percent of the budget in the first quarter.
Over at the provinces, all the governments (except for Punjab) recorded a decrease in their respective PSDP spending, mainly due to provinces having to spend on flood relief. Besides, the provinces have also committed to showing a fiscal surplus, which comes down to lower development spending. During 1QFY23, the total provincial surplus was recorded at Rs218 billion, within which Punjab had a 57 percent share, Sindh 28 percent, Balochistan 14 percent, and Khyber-Pakhtunkhwa (KP) just 1 percent share.
The Punjab government spent Rs72 billion on its PSDP program during 1QFY23, a growth of nearly 20 percent year-on-year, despite the change in government and an uncertain political climate there. The KP government’s PSDP spending was recorded at Rs44 billion in the quarter, showing a decline of nearly 20 percent. Sindh’s PSDP spending was reported at Rs28 billion, down 4 percent year-on-year.
The Balochistan government could only spend Rs8 billion on PSDP, a decrease of 14 percent year-on-year. When comparing provinces in terms of share of development spending in their respective overall expenditures in 1QFY23, KP leads with 29 percent (1QFY22: 24%), followed by Punjab at 18 percent (1QFY22: 20%), 12 percent in Balochistan (1QFY22: 19%), and 12 percent in Sindh (1QFY22: 13%).
Unless large amounts of foreign aid materialized in the next few months and helped the federal government’s fiscal position, at this pace the federal PSDP utilization rate may not even cross the 50 percent mark during FY22. (During FY22, 62% of the Rs900 billion PSDP budget could be actually spent/utilized). On the other hand, with elections likely happening within a year’s timeframe, provinces will find it urgent to spend more on development, thus putting fiscal surplus at risk. The federal government is in a tight spot.