Development spending is stagnant despite financial difficulties

• The PDM government disbursed Rs61.3bn for legislators’ initiatives within first three weeks, falling short of Rs950bn yearly budget with Rs22.5bn spent in the first two months.

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ISLAMABAD: With only Rs22.5 billion spent in the first two months (July-August) of the fiscal year, against an annual budget allocation of Rs950 billion, Pakistan’s development expenditure has all but stopped due to growing interest payments and disruptions brought on by a change in government.

According to data from the ministry of planning and development, after subtracting the Rs14.4bn paid out by the previous PDM government for its lawmakers’ schemes under the Sustainable Development Goals (SDGs) Achievement Program (SAP) during the first 40 days of the fiscal year, the actual expenditure on core development in two months fell to a meagre Rs8.1bn.

A senior official said without providing a breakdown that even a sizable chunk of the Rs 8.1 billion had been spent before the caretaker administration assumed power. This sum consisted of Rs2.8 billion used for water sector projects, Rs1.5 billion for power projects, and an extra Rs1.4 billion for information technology and telecom projects, which covered both domestic and foreign contractual responsibilities. A total of around 30 federal departments, divisions, and enterprises spent the remaining Rs2.4 billion.

In the first two months, the Ministry of Planning and Development approved the release of Rs135.4 billion for development projects, or around 14% of the annual Public Sector Development Programme (PSDP) worth Rs950 billion.

According to the planning division’s announced disbursement mechanism, the federal budget’s development funds should be released at a rate of 20 percent in the first quarter (July-Sept), 30 percent in the second (Oct.-Dec.) and third quarters (Jan.-March), and 20 percent in the final quarter (April-June) of each fiscal year.

According to the data, the PDM administration sanctioned the release of approximately 70% (Rs61.3 billion) of the Rs90 billion it had budgeted for the SAP plans of lawmakers within the first three weeks of the fiscal year.

Comparatively, against their annual allotment of Rs860bn, the total disbursements permitted for all the ministries, divisions, and corporations came to just Rs74bn, or 8.6pc. It’s interesting to note that the National Highway Authority (NHA) received a sizable portion of these authorizations totaling Rs37.4 billion.

The last fiscal year was marked by extreme devastations brought on by mega floods, which halted development efforts. This year, the authorizations for money release were marginally better. As a result, the total amount of fund release authorizations during the first two months of the previous fiscal year was Rs99 billion as opposed to Rs178 billion during the same period in FY22, which had ended with only Rs550 billion in spending.

Although consolidated fiscal data is still lacking, reports indicate that interest payments in the first month (July) of the current fiscal year exceeded the federal government’s net income and totaled Rs537 billion, compared to Rs538 billion in FBR tax collections.

The federal government’s overall resources in July were Rs684 billion after adding non-tax receipts of Rs145 billion; however, after transferring provincial portions, the federal government’s part was just Rs380 billion.

The government had created an interim plan last year to limit development spending to less than 20 percent in the first half of that fiscal year (July-Dec), instead of 50 percent, due to severe floods and the chilly arrangement with the IMF, in light of slippages on interest payments and a slowdown in revenues.

As a result, the nation’s unfunded infrastructure development would be significantly hampered for the third year in a row by massive budget cuts, even in money allotted by parliament. Therefore, lack of funding for development initiatives is likely to have major adverse effects, which will lower living standards for a populace already struggling with record-high inflation.

Dr. Shamshad Akhtar, the interim finance minister, noted last week that public sector spending was a significant problem and that many difficulties had emerged following the devolution of finances to the provinces, leaving the federation with an excessive number of duties to pay with few resources.

She explained that in order to generate some primary surplus while Pakistan was on the IMF plan, the public sector development spending needed to be reviewed.