PSDP: taking stock

So how much did the federal government end up spending on development last fiscal? It’s time to take stock of the Rs701-billion Public Sector Development Program (PSDP). As per the latest data from the Planning Commission (PC), Rs645 billion worth of funds had been authorized for release under PSDP as of June 30, 2020. This marks a 92 percent utilization rate, one of the highest in recent years.

For context, PSDP utilization rate, based on PC data, stood at 100 percent in FY19, 80 percent in FY18, 93 percent in FY17, 90 percent in FY16, 83 percent in FY15, and 75 percent in FY14. Therefore, the PTI government’s two-year performance on this count is better than the PML-N’s first two years. However, the budget allocated to PSDP projects under this government has been significantly reduced in real terms.

Be that as it may, a high utilization rate in FY20 is remarkable because the last four months of the just-concluded fiscal had been sprinkled with lockdowns. In June, the planning bosses authorized Rs62 billion. This is more than Rs50 billion in funding approved in May, similar to Rs66 billion in April, and way more than the paltry Rs2 billion released in March as the wait-and-see policy consumed that month.

The “actual” spending on this count will be visible when the FinMin releases its FY20 fiscal report card next month. But expect little deviation as the PSDP approvals by P and Q blocks haven’t been too far apart in recent quarters. Most likely the actual PSDP spending will be somewhat below the amount sanctioned by the planning folks, as PSDP budget for FY20 had been revised down in the budget.

It is important for PSDP spending to become a lever for economic activities in these uncertain times. But reduced fiscal space ensured that the FY21 budget allocated Rs650 billion for federal PSDP, a multi-year low. If the past is any guide, even this amount is prone to being cut midway through the year, to rein in fiscal deficit.

With no nominal growth, what to talk of real growth, in development spending, the onus is on the quality of spending to drastically improve somehow. But it is also a reality that social-sector spending is very low at the federal level and the infrastructure-oriented spending is prone to cost and time overruns. It is time for reforms in this department. These are lean times, better suited for some repairs in the PSDP engine.