Development spending stagnates amid fiscal challenges

• Rs22.5bn spent in first two months, falling short of Rs950bn annual budget
• PDM govt disbursed Rs61.3bn for lawmakers’ schemes within first three weeks

ISLAMABAD: Amid rising interest payments and disruptions caused by a change in government, Pakistan’s development expenditure has nearly come to a standstill, with just Rs22.5 billion spent in the first two months (July-August) of the fiscal year, against an annual budget allocation of Rs950bn.

According to data from the ministry of planning and development, the actual expenditure on core development in two months further plunged to a mere Rs8.1bn after excluding the Rs14.4bn disbursed by the previous PDM government for its parliamentarians’ schemes, under the Sustainable Development Goals (SDGs) Achievement Programme (SAP), during the first 40 days of the fiscal year.

Even the significant portion of Rs8.1bn was spent before the caretaker government took office, a senior official claimed without giving a breakdown. This amount included Rs2.8bn utilised by water sector projects, Rs1.5bn in the power sector, and an additional Rs1.4bn in the information technology and telecom sector, covering both local and international contractual obligations. The remaining Rs2.4bn was spent by about three dozen federal ministries, divisions and corporations.

The ministry of planning and development authorised the release of Rs135.4bn for development projects during the first two months, accounting for about 14 per cent of the annual Public Sector Development Programme (PSDP) worth Rs950bn.

Under the disbursement mechanism announced by the planning division, development funds allocated in the federal budget should be released at a rate of 20pc in the first quarter (July-Sept), followed by 30pc in the second (Oct-Dec) and third quarters (Jan-March), with the remaining 20pc in the last quarter (April-June) of each fiscal year.

The data showed the PDM government had authorised the release of almost 70pc (Rs61.3bn) of the Rs90bn it had allocated in the budget for parliamentarians’ SAP schemes within first three weeks of the fiscal year.

In comparison, disbursements authorised for all the ministries, divisions and corporations amounted to only Rs74bn against their budgetary allocation of Rs860bn, just 8.6pc. Interestingly, these authorisations also included a major chunk of Rs37.4bn for the National Highway Authority (NHA).

The authorisations for fund release this year were slightly better than the last fiscal year, which was marred by exceptional devastations caused by super floods, bringing development activities to a halt. Consequently, the total authorisations for fund release in the first two months of last fiscal year had amounted to Rs99bn compared to Rs178bn during the same period in FY22, which had concluded with just Rs550bn in spending.

Although consolidated fiscal data is still unavailable, reports suggest that interest payments in the first month (July) of the current fiscal year reached Rs537bn, exceeding the federal government’s net income, as the FBR’s total tax collections stood at Rs538bn.

After including non-tax revenues of Rs145bn, the federal resources in July amounted to Rs684bn, but its share was only Rs380bn after the transfer of provincial shares, while the total expenditures of the federal government stood at Rs645bn.

Due to massive floods and the frosty arrangement with the IMF, the government had made an interim plan last year to contain development spending to less than 20pc in the first half of that fiscal year (July-Dec), instead of 50pc, in view of slippages on interest payments and slowdown in revenues.

As a result, this marks the third consecutive year in which the country’s underfunded infrastructure development will be severely constrained by significant budget cuts, even in funds allocated by parliament. Consequently, development projects are likely to face serious negative impacts due to insufficient funding, which will further affect the living standards of a population already grappling with record-high inflation.

Last week, caretaker Finance Minister Dr Shamshad Akhtar pointed out that public sector spending was a big issue and a lot of challenges had arisen after the devolution that transferred funds to the provinces, leaving too many responsibilities to the federation to finance with thin resources.

Therefore, she noted, the public sector development spending required a review while Pakistan was under the IMF programme, in order to create some primary surplus.

Published in Dawn, September 18th, 2023