Why do our governments often fail to meet the PSDP budgetary targets? For example, in 2010-11 fiscal year, the shortfall with respect to federal PSDP was a whopping 94 billion rupees while the shortfall in provincial PSDPs was 107 billion rupees giving a cumulative shortfall of 201 billion rupees.
The objective of the government is to identify deficient areas/sectors of the economy that require development and formulate a list of projects with their associated costs that are considered more critical in any given year; yet, over time, it has been patently evident that there is clearly a disconnect between various government departments/wings.
Critics argue that the fault lies with the Ministry of Finance for accepting PSDP allocation proposals in a budget that it cannot possibly fund. So why does the Ministry of Finance approve the PSDP while slashing it mercilessly at the end of the year to meet the government's burgeoning current expenditure needs? Because it reflects well on the government's commitment to development of physical and social infrastructure as opposed to current expenditure. However, the fact that the government has been unable to contain current expenditure (given the rise in allocations for subsidies to the power sector and defence in recent years) coupled with its inability to achieve its revenue targets both in terms of tax collections and more recently in terms of external resources identified in the budget accounts for what is now regarded as a routine massive reduction in PSDP.
The country has over the past decade witnessed budgetary expenditures and revenue collections that are simply not realistic. While Pakistan has been subjected to natural disasters - two major floods during 2010 and 2011 - which can seriously undermine the ability of any government to adhere to its budgetary expenditure or revenue generation targets yet many have expressed concern that an element of deliberate miscalculation has crept into our budget making exercise. In other words the revenue targets are deliberately over-stated and expenditure particularly in terms of subsidies understated given the insistence of multilateral and bilateral donors to eliminate subsidies. Such tactics are not helpful as it raises public expectations with respect to outlay on development that the government is simply not able to meet. The government must understand that the strategy to overstate PSDP allocations as well as revenue collections in the budget no longer provides space to the economic managers by enabling them to access foreign assistance with donors now seeking implementation of agreed reforms prior to disbursing pledged assistance.