Over the past few years, almost everyone in Pakistan has personally experienced their incomes go down with the erosion of the rupee. It’s a tale all too familiar. Even those lucky enough to get regularly healthy increments now struggle to catch up with the levels of inflation. As a result, most people have been forced to live hand to mouth and cut any ‘frivolous’ expenditures.

Somehow, our state has managed to be in a worse situation, albeit by a crisis manufactured by itself. After years of living beyond means and quick fixes, economic decay has seeped in. The Public Sector Development Programme (PSDP) symbolises this crisis better than anything else.

In the latest budget, the federal government proposed Rs1.15 trillion under PSDP for FY24 — the same outlay originally budgeted for FY19. During this period, the dollar has appreciated by about 135 per cent against the local currency, so obviously, each rupee is worth way less now. Yet, here we are.

Admittedly, the outlay proposed for FY19 in itself was a facade as the then government tried to maximise its election chances by coughing up money it didn’t have. The amount was never realistic as the economy was being actively spearheaded into a crisis after years of imported growth.

Unrealistic development amounts are either revised down in subsequent mini-budgets or remain unutilised

The external and fiscal accounts just didn’t have the space for that, as was soon proved when the PTI administration took over and had to knock on the International Monetary Fund doors for funding. And in the subsequent mini-budget, the outlay was revised down to less than Rs700 billion.

Given the near-term macro outlook, with the talk of an imminent default and the finance minister giving no concrete information about Pakistan’s funding sources, it’s unclear how the proposed PSDP outlay will be realised. Because when push comes to shove, development is often the first casualty.

The way it works is that the government initially proposes a certain amount for PSDP in the annual budget. For the past few years, it has become a norm the outlay is revised downwards due to fiscal constraints. The Planning Commission proposes a release strategy for how the money will be rolled out every quarter. In FY23, the updated plan was to allocate 10 per cent, 20pc, 30pc and 40pc in Q1, Q2, Q3 and Q4, respectively.

Here again, there is usually some attrition because authorisation levels are below the proposed amounts and often pick up towards the end of the year. Then finally, you have the actual utilisation, which, as of June 5, 2023, was Rs466bn against the revised outlay of Rs714bn — or 65pc of the revised sum in more than 11 months of the fiscal year.

So even if the outlay has been brought back to Rs1.15tr for FY24 after five years — albeit when the rupee is only half as valuable — there are serious question marks if the money will ever see the light of the day.

Since FY17, PSDP expenditure as a percentage of GDP has consistently declined from 2.1pc to just 0.8pc as of FY23. Sure, provinces continue to amp up their development budgets every year, but given that the federal government accounts for roughly two-fifths, its inability to spend will have serious consequences for the economy.

The issue of investing in the county’s future is neither a new nor an exclusively public sector problem. In fact, it’s been happening since forever. Take this: Pakistan’s gross capital formation as a percentage of GDP — which measures how much value that was added in an economy is invested back instead of consumed — peaked all the way back in 1965 at 23pc. The majority of our population wasn’t even born then.

In the subsequent decades, it has gotten considerably worse. For example, every single year since 1996, Pakistan’s gross capital formation as a percentage of GDP has lagged behind other South Asian countries and not once touched 20pc in the 2000s. In 2021, it stood at just 15pc — less than half of India’s and Bangladesh’s 31pc, according to World Bank data.

The National Accounts published by Pakistani authorities present an even more concerning picture. Since 2015-16, gross capital formation as a percentage of

GDP has been largely trending downwards and fell to just 9.93pc and 11.91pc by FY23 in terms of current and base prices, respectively.

There are troves of research papers that have established a positive causal relationship between gross capital formation and growth, including in Pakistan. Yet, even decades later, we have only regressed. At this rate, the only thing left for the next generations would be a free-floating rupee that devalues by the second and debt payments that jump by the minute.

Published in Dawn, The Business and Finance Weekly, June 19th, 2023