☰
PSDP funds: A tool for political gains
Distributive politics is at the core of Pakistan’s electoral system, where the ‘electability’ of an individual politician is believed to largely depend on their ability to secure resources to fund ‘development schemes’ or public services in their respective constituencies once the voters return them to the assemblies.
No wonder the ruling parties allocate state resources, especially the annual development budgets, in such ways that maximise political gains for them and improve the electoral chances of their candidates during the elections.
The parliamentarians are granted large funds in the annual national and provincial budgets to finance schemes within their constituencies to improve their chances of reelection.
A study on electoral incentives and the allocation of public funds on the impact of distributive politics in the Journal of the European Economic Association shows such allocations are made potentially at the cost of lower welfare. A central function of governments, the study says, is the provision of public goods and services.
The allocation of resources under the caretaker government raises concerns about the fairness of distribution, particularly during an election year
In 2020, governments worldwide spent, on average, more than 32.4 per cent of their countries’ GDP on these goods and services. “When allocated efficiently, these expenditures can be important drivers of economic development and key determinants of the quality of life. But, public expenditures are often allocated across regions by politicians who compete for reelection, and this competition can create political incentives that distort how public funds are spent relative to the social optimum.”
These findings also apply to Pakistan, where major parties have mastered the art of political patronage to create small to large pockets of support among the voters through local networks kept together by the state funding of development in the constituencies.
Punjab’s development model built under the PML-N, which has intermittently ruled the province since 1988, is a classic example of political patronage where development projects have had significant political consequences at the expense of the economic progress of various regions of the province.
Adnan Rehmat, a journalist, wrote in his article published by Arab News, an online newspaper, a couple of years ago: “Money, politics and power are closely tied everywhere there is any kind of functional democracy. The standard practice is that legislators make budgets, and bureaucrats implement development work using the allocations. But Pakistan has a history of legislators wanting the budgets to implement development schemes in their electoral constituencies themselves, and governments usually succumbing to the pressure to let their legislators bypass and undermine the country’s three-tier governance system in doing so.”
Commenting on the then PTI government’s decision to grant development funds to its legislators, he wrote: “Even Imran Khan had done so despite in the past being a vehement opponent of the practise and rightly dubbing development funds as ‘political bribes’ by ruling parties to keep party legislators loyal.”
With its political fortunes falling over unprecedented inflation during its 16-month rule closer to the new general elections, the previous Pakistan Democratic Movement (PDM) coalition led by the PML-N had generously increased the size of the discretionary spending on the politically motivated programme, known as the Sustainable Development Goals (SDGs) Achievement Programme (SAP), through parliamentarians by 59 per cent to Rs111 billion during last fiscal year in spite of tough fiscal and balance of payment conditions.
With the upcoming polls in mind, the coalition’s finance minister, Ishaq Dar, allocated Rs90bn for the SAP programme in the current fiscal year’s budget. He also authorised maximum releases from the funds to be spent through the alliance’s legislators in the first six weeks of the new fiscal year before the caretakers took over from the PDM for the period leading up to the elections.
If the annual development budget remains the same and no new projects are added, it will take about 14 years to complete the existing approved projects
The caretaker setup, which is supposed to play neutral, has continued the SAP funding. The new data on the federal development spending shows the discretionary SAP spending has “outpaced utilisation of funds on all remaining development schemes of ministries during the first four months of the current fiscal year”.
Of the total SAP funds, the PDM government, before its term ended in the second week of August, had authorised the release of almost 70pc or Rs61.3bn of the total allocation for the programme for the entire year within the first three weeks of the fiscal year.
With the fund utilisation reaching Rs27.1bn, the SAP expenditure accounts for over a third of the total federal development expenditure of Rs76bn during the four months, official data shows.
The disproportionate funding towards parliamentarians’ schemes under the supposedly neutral caretaker setup “raises concerns over equitable resource distribution, especially during an election year since it is skewed in favour of the PDM lawmakers in the previous assembly”.
A news report suggests that it is “quite unique that the controversial SAP programme funding was released at the start of the current fiscal year, so the authorisation stood at Rs61bn, keeping in view the ceiling of funds approved by the Ministry of Finance to the tune of 20pc for the first quarter (July-Sept) of the current fiscal year. Now the Ministry of Finance has also granted permission to release another 30pc for the second quarter (Oct-Dec).”
Excluding the SAP spending, the federal development expenditure stood at Rs49bn against the yearly budget of Rs950bn. The total development spending amounts to a mere 5.8pc of the remaining annual budget of Rs860bn, excluding that for the SAP schemes.
The low development spending, which accounted for 8pc of the annual budget till October, is causing delays in crucial projects but compensating for fiscal slippages in other areas, according to another report.
During recent review talks, it says the International Monetary Fund (IMF) has reduced its projection for Pakistan’s development spending to Rs782bn, Rs168bn below the approved allocation for the year, as the government scrambled to achieve a primary surplus of 0.4pc of the GDP by deliberately slowing down development spending.
The political use of state resources for a particular set of politicians raises the question of whether it is worth the distortions created due to this.
An IMF report — “Pakistan: Technical Assistance Report — Public Investment Management Assessment” — says the Public Sector Development Programme (PSDP) of Pakistan is unaffordable and should be reassessed as the total cost to complete projects in the PSDP is Rs10.7 trillion, more than 14 times the budget allocation of Rs727bn in 2022-23.
If the annual PSDP budget remains the same and no new projects are added, it will take approximately 14 years to complete the existing approved projects. However, in practice, new projects continue to be added at a significant rate.
In addition, the estimated years to completion is likely understated since i) ongoing projects not receiving funding in 2022-23 (known as unfunded projects) are not counted in the funding backlog, ii) the 2022-23 PSDP does not include flood-related projects that have been subsequently approved, and iii) delays result in significant cost overruns.
The Planning Commission estimates that a typical project requires two to three times its original estimated cost due to inflation, damage to work already done and, loss of materials at inactive building sites, and increased builder costs because of funding-induced delays.
That’s not all. The politically motivated SAP schemes and the rest of the federal and provincial development projects are being financed through expensive debt, which Finance Minister Dr Shamshad Akhtar says is “unsustainable.”
“Vulnerability has increased due to the unsustainable debt position, with Pakistan in breach of the Fiscal Responsibility and Debt Limitation Act since 2013,” she said.
The minister pointed out that large fiscal and trade deficits over two decades have weakened the debt position, with the cost of servicing debt reaching three-quarters of the Federal Board of Revenue revenue in the fiscal year 2023.
It was recently reported that the IMF has projected that Pakistan’s public debt, including publicly guaranteed debt, will potentially increase to Rs81.8tr, or 77.3pc of GDP, by the end of the current fiscal year. “Managing public debt will require a significant focus on reforms to enhance resource mobilisation and contain unproductive expenditures,” she told a gathering in Islamabad.
The country needs extensive expenditure reforms just as it needs reforms for tax resource mobilisation. The elimination of the (ab)use of state resources for political parties’ and individuals’ election campaigns should be on top of the fiscal reform priority list.
Published in Dawn, The Business and Finance Weekly, November 27th, 2023
Read Comments