• Overall federal, provincial development spending to go beyond Rs3.5tr
• Energy sector gets largest share • 59pc drop in social sector funding

ISLAMABAD: The Annual Plan Coordination Committee (APCC) on Friday cleared a National Development Plan (NAP) of over Rs3 trillion for 2024-25, including the federal Public Sector Development Programme (PSDP) of Rs1.221tr, to accelerate economic growth to 3.6 per cent from 2.38pc in the outgoing FY24.

The PSDP of Rs1.221tr is almost 30pc higher than the current year’s allocation of Rs950bn, which has now been slashed to Rs717bn owing to fiscal constraints. In addition, the power companies would also be making another Rs185bn investment outside the PSDP, thus taking the federal development spending to Rs1.406tr.

Excluding the Power Division, the Rs2.869tr NAP also included a frugal Rs700bn Annual Development Plan (ADP) of Punjab and an extravagant Rs763bn of Sindh when seen in the context of the two provinces’ overall revenue proceeds.

Khyber Pakhtunkhwa has separately announced a Rs627bn ADP, while the APCC, presided over by Deputy Chairman Planning Commission Jehanzeb Khan, was silent about Balochistan’s ADP. As such, total national development spending is estimated to go beyond Rs3.5tr.

As a major departure from existing policy, the federal government has slashed its social sector responsibility by reducing its allocation for next year to Rs83bn, down by 59pc from Rs203bn in FY24.

Likewise, the centre has frozen the development allocations for Azad Kashmir, Gilgit-Baltistan, and tribal merged districts at their current year position. Instead, it has increased federal investments in infrastructure by 60pc to Rs877bn and in Science & Technology by 148pc over the current year to Rs104bn.

Of the federal PSDP, the energy sector will receive the largest allocation next year at Rs378bn, 212pc higher than the current year’s original allocation of Rs121bn. Likewise, the water sector has been allocated Rs284bn, an increase of 92pc over the current year’s Rs148bn.

The transport and communication sector, on the other hand, will receive only Rs173bn next year compared to Rs245bn this year, down by 29pc.

The major loser will be the social sector, whose cumulative funding will be down by 59pc to Rs83bn as the centre transfers health and education-related responsibilities to the provinces.

As such, allocations for the health sector have been reduced by 35pc to Rs17bn, and education spending, including higher education, has been slashed by almost 62pc to Rs32bn from Rs83bn during the current year.

On the positive side, the allocation for so-called Sustainable Development Goals (SDG) misused for political schemes has been completely abolished for next year, against Rs61bn during the current year. Governance allocation has been increased by 38pc to Rs29bn. The agriculture sector would get Rs14bn next year against Rs9 bn this year.

The growth target for next year has been set at 3.6, to be supported by 2pc growth in agriculture, 4.4pc in the industrial sector and 4.1pc in services. The growth prospects are subject to “political stability, exchange rate stability on the back improvement in external account and external inflows, macroeconomic stabilisation under IMF’s programme and expected fall in global oil and commodity prices”, the planning commission said.

The agriculture sector’s growth for next year at 2pc reflects a substantial contraction in the growth momentum. The output of important crops is expected to face a contraction of 4.5pc due to the severity of the dry weather spell and inadequate water availability due to lower-than-normal rainfall, especially in the case of Kharif crops. Other crops and livestock subsectors are envisaged to grow at 4.3pc and 3.8pc, respectively.

The industrial sector is expected to recover in 2023-24 with a targeted growth of 4.4pc on the back of expected LSM growth of 3.5pc. This is expected to get a boost from improved inputs and energy supplies on the back of anticipated fall in global oil and commodity prices, further easing import restrictions, higher public sector expenditure and stability in the exchange rate and a decline in interest rates.

Owing to these factors, construction materials prices are expected to decrease, which will support the construction industry in achieving a growth target of 5.5pc in 2024-25.

The services sector is also expected to grow at 4.1pc. The envisaged growth of 3.1pc in commodity-producing sectors will complement the targeted growth in the services sector. An uptick in economic activity in industry, especially manufacturing sectors, will largely translate into better growth in wholesale and retail trade, transport, storage and communications, etc.

The total investment-to-GDP ratio is expected to increase from 13.1pc in 2023-24 to 14.2pc in 2024-25 due to expected economic turnout, improved business environment, and political stability.

Fixed investment is expected to grow by 27.6pc on a nominal basis, whereas as a percentage of GDP, it is expected to increase from 11.4pc in 2023-24 to 12.5pc in 2024-25. National savings are targeted at 13.3pc of GDP for 2024-25, up from 13pc this year.

The government expects the fiscal deficit to narrow due to fiscal consolidation measures, with a focus on enhancing tax revenue and curtailing non-development expenditures, including subsidies.

Monetary policy will be aligned with the objectives of inflationary expectations and growth revival. With falling global inflation, domestic average inflation is expected to moderate to 12pc next year.

The Planning Commission said the current account deficit was expected to widen in 2024-25 with further easing of import restrictions to achieve the growth objectives, especially the revival of the industrial sector.

The scheduled repayments of external debt will put pressure on forex reserves and the exchange rate. However, a positive outlook for remittances, exports, and external inflows will mitigate these pressures.

Published in Dawn, June 1st, 2024