Contrary to austere expectations, it appears that the development budget will stay the course this fiscal, albeit in its reduced size of Rs675 billion under the current economic team. And no – it is not the government that is primarily feeding the flagship Public Sector Development Programme (PSDP) – rather it is the “foreign assistance” driving the ship, mostly through project loans.
Latest Planning Commission data show that the PSDP portfolio was released about Rs291 billion as of February 1, 2019. That is 43 percent of the budget seven months on, but it is not too far below the average of 45 percent PSDP utilization level seen in the comparable period during FY16 to FY18 under the PSDP-loving PML-N.
The remainder of the PSDP budget (Rs384 bn) will need to be spent in the five remaining months. Funds over Rs65 billion were released in January alone. If the spending keeps this pace, around Rs615 billion might be released by the end of June – crossing 90 percent utilization level. But there are question marks as to funding momentum, for foreign assistance has been the cheerleader until now.
The revised PSDP announced alongside the September 2018 mini-budget had put Rs144 billion under foreign assistance (21% of the Rs675 bn PSDP budget). In the first seven months, however, the assistance has raced to Rs121 billion. That’s a whopping 84 percent of the committed foreign assistance coming in already, contributing an outsized 42 percent to the PSDP releases thus far.
The foreign assistance has been mainly concentrated in the National Highway Authority (NHA) projects (71%), followed by NTDC/Pepco (11%), Suparco (8%), and Wapda – water division (5%). As usual, China is leading the pack on foreign financing of PSDP.
The data from the Economic Affairs Division, for 1HFY19, put incoming proceeds from Chinese project loans at Rs82.86 billion – most of which go to federal projects. Out of that, major funding came for CPEC highway and motorway projects, Orange Line project, and a Remote-sensing satellite (Suparco). Following China was the ADB, which channeled the government close to Rs45 billion in 1HFY19, under transport, connectivity, energy and social projects.
With five months still left, foreign assistance cannot continue the joyride and may taper off soon. Onus will then increasingly fall on federal kitty to keep the priority development projects reasonably funded for the rest of the fiscal.
If the finance minister succeeds in convincing the PM to avoid the IMF prescriptions – recent news reports characterize him as averse to a fund bailout and the resulting austerity – then expect PSDP funds to receive sufficient nods from the P and Q blocks, thus impacting the economy positively.