ISLAMABAD: The government has decided in principle to phase the ongoing Public Sector Development Programme (PSDP) over three years to ensure timely completion of high-priority projects and meet International Monetary Fund (IMF) requirements.

The move is part of a four-pronged strategy to reduce the current Rs9 trillion development portfolio under the $7 billion Extended Fund Facility.

Sources told Dawn that a meeting presided over by Planning Minister Ahsan Iqbal last week consolidated a way forward based on PSDP, which, if not corrected, would take more than 14 years to complete at the current pace of implementation.

It was agreed that the IMF-mandated conditions should be a starting point that required a “one-time review of all technically approved projects to reduce the set of active projects to high-priority projects that can be completed in a timely manner”.

Plans to hold quarterly instead of half-yearly reviews to meet IMF requirements

The meeting also decided to make it mandatory to hold quarterly reviews, instead of half-yearly reviews, of this year’s PSDP and formulate a strategy to induct new projects in the coming fiscal year that serve the current government’s priorities.

Report on outcome of PSDP reviews

The government is required under the IMF programme to produce a report on the outcome of the PSDP review.

The meeting was informed that 1,071 development projects were part of the federal PSDP for the current year, of which only 105 projects were nearing completion with 80pc or higher physical progress and had been allocated just Rs37bn during the current year.

About 85 foreign-funded projects totalling Rs260bn were part of the current year’s portfolio.

The meeting noted that based on demand from various ministries and agencies, the current year’s PSDP needed Rs2.053tr but was allocated Rs1.4tr in the budget and later reduced to Rs1.1tr to meet IMF requirements.

The demand for the next fiscal year (2025-26) was put at Rs2.1tr, followed by Rs1.5tr in fiscal year 2027.

It was reported that the pace of spending during the current year had been very slow in the first five months and only nine ministries had a funding utilisation of 11pc to 18pc while six other ministries were able to spend more than 5pc of their annual allocation.

Zero spending in five months The remaining 27 ministries or divisions had an expenditure level of less than 5pc, including 10 of them having zero spending in the first five months.

The PSDP utilisation as of Nov 20 has been reported at just Rs92bn, or 8pc of the revised budget allocation of Rs1.1tr, down from Rs1.4tr, as part of the IMF agreement. The Rs92bn utilisation accounts for 6.6pc of the budget allocation or 8.4pc of the revised PSDP cap.

Under the mechanism announced by the Ministry of Finance for the current fiscal year, the government should release 15pc of the budgeted allocation in the first quarter, followed by 20pc in the second quarter, 25pc in the third quarter and the remaining 40pc in the last quarter of the fiscal year.

As such, the estimated release for the PSDP up to Nov 20 should be around 26pc of the annual allocation or no less than Rs290bn.

This year’s utilisation is also significantly lower than last year’s Rs117bn, or around 13pc of Rs940bn annual allocation, despite the tight fiscal position and strict stabilisation programme in place.

Under the IMF programme, the Planning Commission has set matrix-based principles for identifying and financing future development projects. This included that all projects should demonstrate robust economic and financial rationale, given the current balance of payments challenges and there would be “a mechanism to reduce financial burdens and ensure practical implementation”.

Criteria for project selection

The IMF had set a structural benchmark for January 2025, requiring the government to develop and publish “criteria for project selection, including an annual limit on the total size of new projects entering the PSDP portfolio”.

The IMF instructed the government to undertake serious public financial management reforms to strengthen budgetary discipline, enhance transparency, build confidence in budgetary spending and improve PSDP management.

Key measures to improve the budget process, according to the Fund’s demands, include producing and publishing quarterly reports comparing budget projections with actual execution.

In this regard, the IMF suggested measures to enhance the PSDP portfolio management by “conducting a one-time review to prioritise and rationalise ongoing and approved PSDP projects and integrating the current expenditures associated with new projects into the decision-making process”.

Published in Dawn, November 25th, 2024