Punjab’s spending on infrastructure development during the eight months between July and February has marginally dropped to Rs137.2 billion from Rs148.3bn last year.

The province is targeting a development expenditure of Rs337bn on socio-economic infrastructure during the present fiscal year. Given the public resource constraint, the government had arranged significantly large foreign funding as well as implemented a plan to leverage private investment in infrastructure projects. For example, the original estimates of the annual development programme (ADP) for the present year carry almost two-fifth of the total uplift allocations in the shape of foreign loans, including a Chinese loan of Rs40.8bn. Similarly, the provincial government is expecting a private investment of Rs25bn in different road infrastructure development schemes in the province during the current year.

Ever since coming into power in 2018, the PTI government is struggling unsuccessfully to increase its development allocations to the levels of its predecessor. The decreasing allocations are now showing up in the shape of the increasing development gap in the province.

The Usman Buzdar administration drastically cut the development allocations in its first year in power to Rs238bn from original estimates of Rs635bn in the previous fiscal year of 2018, citing resource constraints as a reason for the reduction in the ADP. It ended up spending Rs212.5bn at the end of the year, terming 2018-19 as a year of consolidation. Last year, it increased its ADP allocations to Rs308bn but ended up spending Rs214bn.

The new strategy estimated that the government will have to boost its development stimulus to Rs850bn by 2022-23 to push the provincial economic growth rate to 7pc, which currently is projected to grow by 3pc

The financial constraints because of the low federal and provincial tax collection on account of the economic shutdown induced by the Covid-19 pandemic during the last quarter of the fiscal year 2020 and the economic stabilisation and fiscal adjustment policies mandated under the $6bn loan from the International Monetary Fund (IMF) were cited for low consumption of the uplift funds. The shortages of funds are hurting all the areas of social and economic infrastructure and the province raising its ADP to the peak development expenditure of Rs488.1bn in 2017-18 looks like a distant dream.

“Punjab has been struggling for resources to ramp up its annual development spending since it came into power. The economic contraction induced by the tough macroeconomic environment and the global Covid-19 pandemic has made it even harder for the Usman Buzdar government to spare enough cash for the development of social and economic infrastructure in the current year’s budget,” according to an economist who has worked with the previous Pakistan Muslim League-Nawaz government.

Last year, the actual development spending was revised down to Rs255bn on the back of a massive revenue gap of Rs581.4bn — including a shortfall of Rs473.6bn in the federal transfers to Punjab and Rs103.9bn in the province’s own tax source — in the originally projected income of Rs1.989 trillion owing to the difficult macroeconomic and business environment, which was worsened by the countrywide lockdown. To maintain the revised development budget at the level of the previous fiscal year, the government was constrained to partially fund it through federal loans.

The budget for the last financial year had also projected private investment of Rs42bn in public-private partnership (PPP) mode. However, the target could not be realised despite reforms in the provincial regulatory mechanism through the PPP Act, 2019, to remove existing bottlenecks and facilitate the private sector participation in infrastructure and public service provision.

The PPP Act envisages a diverse institutional arrangement for regulating the PPPs in Punjab and developed a potential three years PPP Rolling Business Plan — a roadmap developed in 12 sectors given fiscal constraints and scarce public funding for the overall development portfolio of the province, according to budget documents. Under this plan, 38 projects amounting to Rs488bn have been identified for launch under the Punjab Private Finance Initiative.

In order to meet the challenges posed by the coronavirus infections that continue to surge in the province, the government has rolled out the Public Investment Strategy — Responsive Investment for Social Protection and Economic Stimulus. The strategy, which replaced the Punjab Growth Strategy 2023 in the wake of the health crisis, presented targeted interventions and policy responses to contain the Covid-19 crisis and included an ADP prioritisation framework to set the direction for its development programme for the current year and support development of the Medium-Term Development Framework. But the resurgence in the spread of the virus infections and lower development spending anticipated this year appears to have rendered the new document useless.

The new strategy argued that the government needs to spend heavily on development to grow the provincial economy and create jobs because of the health crisis. It estimated that the government will have to boost its development stimulus to Rs850bn by 2022-23 to push the provincial economic growth rate to 7pc.

However, in the absence of enough increase in the public development investment stimulus or private investment in large-scale uplift schemes, according to the new development plan, the provincial economy is projected to grow by just 3pc by the end of the PTI’s term in spite of the recent recovery.

Published in Dawn, The Business and Finance Weekly, April 12th, 2021