• Development spending cut by 25pc to Rs717bn; PSDP size falls from 1.7pc of GDP in 2013 to 0.9pc in 2023-24
• Planning Commission summary suggests finance ministry violating NEC decisions
• Budgetary resources being diverted to ‘constituency politics’, deficit financing

ISLAMABAD: The country’s development programme seems to be in tatters, incapable of meeting even a fraction of its infrastructure and growth potential, while budgetary allocations are flowing to constituency politics and deficit financing, in what is deemed a blatant violation of the decisions of the National Econo­mic Council (NEC), the apex economic decision-making body.

This is the crux of a formal summary, presented by the Ministry of Planning, Development and Special Initiatives to the Annual Plan Coordination Committee (APCC) and the NEC, for course correction as part of the next year’s budget, with instructions to the Ministry of Finance to stay within the financial limits granted by the NEC to avoid stymieing national development.

Specifically, it required the finance ministry to “provide the foreign exchange component (FEC) cover wherever required and also exempt the development spending from austerity measures”, not to make at-source deduc­tions of cash development loans (CDL) and not to divert development funds to the non-development side during a specific year.

The summary suggested that the Ministry of Finance’s boasting about surpassing the primary balance target — even significantly higher than committed to the IMF — during the outgoing fiscal year was at the expense of development projects, increasing their costs, delaying beyond repeated annual deadlines and losing significantly on opportunity cost.

It said the current year’s Public Sector Development Programme (PSDP) was cut by 25 per cent to Rs717 billion against Rs950bn allocation approved by the NEC and the parliament.

Against this backdrop, the PSDP for the next year faced a series of critical challenges. The ministries and divisions came up with demands for Rs2.8 trillion as the project throw-forward surged to Rs9.8tr this year against Rs3tr in 2013-14. The size of PSDP allocation and expenditure remained stagnant at an average of Rs630bn during the decade.

With this pace, the projects already under implementation would take 16 years to complete, provided no new projects are taken in hand.

“The size of PSDP in terms of the percentage of GDP shrunk over time and reduced from 1.7pc of GDP in 2013 to 0.9pc of GDP in 2023-24,” the Planning Commission said. It added that the “size of PSDP is also decreasing in real term due to inflation and depreciation of the rupee. Moreover, due to the IMF programme, the primary deficit has been managed with a cut on PSDP, which has worsened the development investment in the country”.

It said the NEC had approved policy guidelines last year to ensure smooth execution and completion of ongoing development projects that included 25pc funds for each quarter under a flexible release strategy, non-deduction of cash development loans from PSDP funds, and exemption of development funds from austerity cuts.

Instead, the “Finance Division issued a back-loaded release strategy at 15pc, 20pc, 25pc and 40pc, contrary to the NEC-approved release strategy for quarters Q1, Q2, Q3 and Q4, respectively,” it said.

On top of that, out of the total releases of Rs131bn in the first quarter (July to September) of this fiscal year, Rs61.26bn (or 47pc) was earmarked to SDGs schemes (for parliamentarians ahead of elections), leaving behind only Rs69.74bn for all other PSDP projects.

Additionally, Rs20bn was diverted to the non-development side during the year, and a 20pc (Rs184bn) cut was made in releases for the fourth quarter to maintain the primary budget balance, thereby compressing the PSDP size from Rs950bn to Rs746bn.

“Further, Rs29bn was deducted at source by the Finance Division on account of CDL recovery. Thus, the actual/effective size of PSDP was reduced to Rs717bn,” the Planning Commission said.

It said the ministries and divisions kept on pointing out major obstacles like restrictions on procurement, deduction of CDL, skewed release strategy, and requirement of rupee cover for foreign-aided projects in the execution of their respective projects.

“The at-source deduction of CDL dues from the development budget not only affects the cash flow/work plan of budgeted projects but also causes cost and time overrun in the long run,” the commission said.

“Thus, the expected financial and economic benefits from important highways and power projects are delayed and minimised besides affecting future cash flow through cost and time overrun.”

The Planning Commission pleaded the NEC to resolve the matter beforehand so that CDL repayment from development budget may be avoided.

Moreover, the share of provincial projects and programmes in the federal PSDP amounted to around 33pc irrespective of the fact that such projects were the responsibility of the provincial governments after the 18th Amendment.

“The inclusion of these projects in the PSDP hampered the financial and physical progress of the core mega-projects of national importance” while “on the other side, pressing demand of over Rs300bn emerged to provide budgetary cover to the foreign aid secured during the course of the financial year”.

Even at the formulation stage, the PSDP for the next fiscal year has been marred by Rs184bn liability rollover from this year due to a cut in PSDP size, thin spreading of programme allocation and rising throw-forward, rupee depreciation and price hike, additional demands of important projects, huge demand for rupee cover against foreign exchange component and at-source deduction of uplift loans by finance ministry.

Therefore, only 10pc of total development budget could be considered for new projects to ensure priority funding to strategic and core ongoing projects with 80pc completion, with particular focus on water, transport and energy. The provincial nature projects have, therefore, been excluded from the federal PSDP, except those in the 20 least developed districts.

Published in Dawn, June 3rd, 2024