• New policy direction says all projects must demonstrate robust economic, financial rationale
• Ministries directed to ensure schemes are completed within specified timelines

ISLAMABAD: On the instructions of the International Monetary Fund (IMF), the government has formally started rationalising the Public Sector Development Programme (PSDP) and established matrix-based principles for identifying and financing future development projects.

On Thursday, Planning Minister Ahsan Iqbal chaired a meeting of a special committee formed by the prime minister.

The meeting conveyed the government’s policy direction that “all projects should demonstrate robust economic and financial rationale, given the current balance of payments challenges” and the need for “a mechanism to reduce financial burdens and ensure practical implementation”.

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As part of the $7 billion Extended Fund Facility (EFF) approved last month, the IMF has 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 planning minister asked committee members to prepare plans that address the “minimum essential requirements” of ministries to ensure timely disbursement of funds.

He also emphasised that all PSDP projects, including foreign-funded initiatives, must be executed within specified timelines, with clear ownership to avoid cost and time overruns, according to an official statement.

The minister also stressed the need to manage economic and financial risks carefully, especially for foreign-funded projects, as exchange rate fluctuations could increase loan repayment burdens on government finances.

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.

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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”.

The IMF also advised improved liquidity management to reduce borrowing costs and strengthen overall debt management through continued efforts to consolidate the treasury single account and implement measures to better utilise cash balances accumulating in commercial banks.

The IMF record confir­med that the government agreed “on rationalising the size of the PSDP, recognising the need for an analysis to determine which current projects align with government priorities and which can be delayed or capped to reduce the throw-forward. Additio­na­lly, they agreed on the need to improve PSDP project management to prevent the unsustainable growth of the throw-forward and are continuing efforts to expand training coverage to all relevant federal agencies on the e-PADS”.

The government, through Finance Minister Muhammad Aurangzeb, has given in writing that “by December 2024, we will produce a report detailing the outcomes of our review of all investment projects in the PSDP. The findings from this review will enable us to streamline the PSDP pipeline by developing a prioritisation mechanism for existing projects, identifying those suitable for capping or cancellation.

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“Moreover, to enhance our project selection fram­e­work, we will publish on our website the criteria for the project selection, inclu­ding a scorecard detailing the weight assigned to each criterion and the methodology for calculating the score, along with an annual limit on the total size of new projects entering the PSDP portfolio”.

“In developing these criteria and determining the annual limit, we will consult with the IMF to ensure alignment with best international practices,” the finance told the IMF while committing to “strengthening the governance and risk management frameworks for Public Private Partnerships (PPP), including to ensure that they are subject to the same project selection criteria as projects funded from other sources”.

It was against this backdrop that the committee discussed in detail the planning and execution of foreign-funded projects and the need to refine policy guidelines in line with the Economic Coordina­tion Committee’s (ECC) decisions.

During the briefing, it was highlighted that the current financial year faces challenges due to scarce resources and high demand for development projects.

Ministries had requested Rs2.9bn in funding, while the approved development budget stood at Rs1.1bn, with Rs220bn allocated in foreign funding as a rupee cover.

The Ministry of Planning confirmed in a statement that financial constraints had led to a tenfold increase in the project backlog, along with administrative and implementation challenges.

The committee on foreign-funded projects, led by the planning minister, included the ministers for finance and economic affairs, as well as the secretaries of these ministries and the chairman of the National Highway Auth­ority. However, Fina­nce Minister Aurangzeb could not attend the meeting due to his visit to the United States.

Published in Dawn, October 25th, 2024