That the pro-business PML-N government couldn’t fetch the targeted 6 percent real GDP growth at the end of its term is a disappointment. But no matter; it expects GDP growth to clock 6.2 percent in FY19. That, for the most part, is now up to the next government. But the current finance team has slashed funding for the main development machine budget, PSDP, something inimical to growth going forward.
Latest budget documents confirm that the trillion-rupee federal PSDP budget for the outgoing year has undergone a 25 percent cut to Rs750 billion. It may seem that lack of fiscal space – thanks to rising debt servicing, defence spending and subsidies – has again shrunk development share.
But budget documents show that close to Rs100 billion worth of several development projects with political undertones – such as Special Federal Development Programme, Clean Drinking Water for All and Prime Minister’s Initiative – had to be nixed for some reason. Thus far in FY18, PSDP releases have totaled Rs644 billion, which is 64 percent of the original budget and 86 percent of the revised estimate.
Development dreams now latch onto the next fiscal. For FY19, Rs800 billion has been allocated to the next PSDP. The government insists that total PSDP for FY19 would be Rs1.03 trillion, as it estimates Rs230 billion to be arranged by Wapda and NHA through “self financing”. Normally, official PSDP budgets reflect spending from government’s own kitty, besides foreign assistance. So, the “real” PSDP budget may be Rs800 billion only.
Detailed PSDP budget – which has entity-wise and scheme-wise allocations – is yet to be released. But the aggregates show that the biggest cut has been made to the erstwhile top-billing organization, the National Highway Authority. The NHA has been allocated Rs210 billion for the next fiscal, 36 percent lower than the revised budgetary estimate this fiscal. Its influential cousin, Wapda (power division), would receive Rs36 billion, which is 57 percent less than the revised estimate.
Lower year-on-year allocations for the NHA and Wapda’s power projects next fiscal are linked to CPEC’s early-harvest projects that are closing in on their completion. Infrastructure development has a higher marginal impact on economic expansion in the short term, so GDP growth will inevitably take a hit. A lot depends on the Chinese funding picking up this fiscal in construction of the highways straddling the three CPEC routes as well as development in and around the Gwadar Port.
The impression that the Chinese have been slow-walking CPEC projects lately owing to political uncertainty in the country may not be entirely correct. But it is still imperative that elections take place on time and result in a strong federal government that can take tough economic decisions. It will give confidence to the Chinese side to speed up investments here and negotiate critical, stalled multi-billion-dollar projects like the Railways Mainline-1 (Karachi to Peshawar).