Arshad Mahmood Awan

Recent data released by the Ministry of Planning, Development, and Special Initiatives sheds light on the worrying state of Pakistan’s Public Sector Development Programme (PSDP). The figures, which reveal a sharp reduction in disbursements, highlight a deeper issue in the government’s fiscal management. In the first six months of the current fiscal year, the government authorized a total of 376.186 billion rupees under the PSDP, but only 148 billion rupees were reportedly expended, according to the Sustainable Goals Achievement Programme (SAP). This represents a significant shortfall against the initially budgeted 1.4 trillion rupees for the year, which was subsequently revised down to 1.1 trillion rupees.

This reduction, amounting to 300 billion rupees, is a concerning reflection of the country’s fiscal challenges. The disbursed amount, which is only 14 percent of the revised PSDP figure, is far below the 10.5 percent of the originally budgeted sum. The unclear distinction between government disbursements and foreign loans, with the latter cited at 220 billion rupees for the first half of the fiscal year, raises further questions about the transparency and sustainability of these expenditures.

Disbursement Mechanism and Its Implications

The PSDP’s disbursement mechanism typically follows a set quarterly pattern: 15 percent in the first quarter, 20 percent in the second, 25 percent in the third, and the remaining 40 percent in the final quarter. While some critics may argue that this system allows the government to adjust its outlays based on shifting revenue collections, it is clear that the reduction in the PSDP is linked to broader fiscal constraints. With a consistent shortfall in revenue, particularly in the wake of the 386 billion rupee revenue gap identified by the Federal Board of Revenue (FBR), the government’s ability to meet its developmental targets has been compromised.

The issue is further complicated by the country’s reliance on the International Monetary Fund (IMF) program, which often dictates the release of funds based on Pakistan’s fiscal deficit and the sustainability of its expenditures. The IMF’s influence means that, despite the government’s promises, funding for public sector projects like the PSDP is constrained by the conditions set by the global financial institution.

The Overstatement of PSDP: A Historical Trend

Historically, successive Pakistani administrations have been accused of inflating the PSDP figures to project an image of prioritizing social and economic development. This pattern, where successive governments attempt to outdo their predecessors in terms of budgeted allocations for public development, is well documented. However, the actual funds released for these projects are often far lower than projected, and the 2024 fiscal year is no exception.

Although the Ministry of Planning may go through a meticulous process of formulating the PSDP, the Ministry of Finance has the final say in disbursing funds. The government’s capacity to release funds is ultimately governed by the country’s budgetary deficit and the conditions imposed by the IMF. In an environment where the IMF’s approval is crucial for economic policy, the government’s spending power is severely limited, often forcing it to scale back on key developmental programs such as the PSDP.

Impact on the Economy and Growth Projections

The current fiscal year’s budget for development projects was already under scrutiny due to the government’s over-ambitious revenue targets under the IMF program. With the budgeted growth rate pegged at 3.5 percent, the expectations seemed overly optimistic, particularly given the country’s ongoing economic troubles. The actual growth rate in the first half of the year shows a concerning downward trend, exacerbated by a sharp revenue shortfall and stagnant private sector activity.

Private sector performance remains largely negative, with the government’s claims of increased sales largely attributed to a decline in inventories rather than a genuine uptick in production. This paints a bleak picture for future economic growth, especially considering that any reduction in PSDP funding will inevitably hurt the infrastructure and development projects vital for long-term economic stability. If these projects are delayed or underfunded, the overall growth rate will likely be further stunted.

The IMF’s projection for real GDP growth for the fiscal year 2025, ranging from 2.5 to 3.5 percent, already seems overly optimistic given the current economic environment. With the country’s fiscal position weakened, and with development funds in short supply, the target appears increasingly unachievable. Economic analysts have expressed concerns that the government’s reliance on external loans and the IMF’s stringent conditions could hinder the country’s ability to achieve sustainable growth.

The Case for Reducing Current Expenditure

Given the dire implications of a reduced PSDP, it is essential for the government to reconsider its fiscal priorities. While the PSDP cuts are worrying, the more pressing concern lies in the government’s growing current expenditure. This expenditure, which includes recurring costs like salaries, defense, and subsidies, is ballooning without a corresponding increase in revenue. If current expenditures continue to rise unchecked, the country will find itself in an even more precarious economic situation.

Reducing current expenditures, particularly in non-essential sectors, should be a priority for the government. This would free up funds that could be diverted to critical developmental projects that are essential for fostering long-term economic growth. A more sustainable approach would involve trimming down wasteful expenditures and focusing resources on public sector investments that have a direct impact on the economy.

Socio-Economic Implications of PSDP Shortfalls

The reduction in PSDP disbursements is not just a financial issue; it has far-reaching socio-economic implications. Development projects funded by the PSDP, such as infrastructure development, healthcare, education, and social welfare, directly impact the livelihoods of millions of Pakistanis. The stagnation in these sectors will likely lead to an increase in poverty and unemployment, further exacerbating social inequalities.

The impact on infrastructure projects is particularly concerning, as delays in these areas could result in a lack of basic services and hinder economic activities in key sectors such as agriculture, manufacturing, and construction. Additionally, the failure to invest in human capital—through education and health initiatives—will have long-term repercussions on Pakistan’s ability to compete in the global economy.

Conclusion: A Call for Fiscal Discipline and Prioritization

In conclusion, the government must urgently re-evaluate its fiscal strategies and make difficult but necessary decisions to balance current expenditure with developmental priorities. The reduction in PSDP disbursements is a clear indication that the current trajectory is unsustainable. To avoid a further economic decline, Pakistan must shift focus from over-ambitious revenue targets and unsustainable current expenditures to fostering long-term development through well-funded public sector projects.

As the country grapples with fiscal challenges, the government must take a hard look at its spending patterns and prioritize development projects that can stimulate growth and create jobs. With realistic growth projections, prudent fiscal management, and a focus on sustainable development, Pakistan can navigate these difficult economic times and set the stage for a more resilient economy in the future.