Development spending falls 45pc in July-October

ISLAMABAD: Amid rising interest payments and disruptions caused by super floods, Pakistan’s development expenditure has contracted almost 45 per cent to less than Rs99 billion in the first four months (July-October) of the current fiscal year as the government’s overall expenditures increase.

According to data released by the Ministry of Planning and Development, total expenditure in the first four months of FY23 amounted to Rs98.78bn compared to Rs178bn in the same period last year. Total expenditure, thus, stands at just 12.37pc of total PSDP allocation of Rs800bn — drastically short of the target mechanism for development spending.

Under the disbursement mechanism announced by the Planning Division, the development funds allocated in the federal budget are released at the rate of 20pc in the first quarter (July-September), followed by 30pc each in the second (October–December) and third quarter (January-March) and remaining 20pc in last quarter (April-June) of a fiscal year.

As an interim arrangement to remain engaged with the International Monetary Fund (IMF), the government has decided to contain development spending to less than 20pc in the first half of the fiscal year (July-December) instead of 50pc given slippages on interest payments and slow down in revenues.

The government now estimated its overall expenditures to surge past budget target by about Rs1 trillion owing to about Rs900bn higher interest payments and less than Rs100bn revenue shortfalls that may need to be bridged through additional tax measures next month.

Tragically though, even the development expenditure reached Rs98.78bn mark mainly because of a more than 45pc increase in spending by state-run corporations — power sector entities and National Highway Authority (NHA) — to Rs44.64bn in the first four months of the current year when compared to Rs31bn of the same period last year.

More importantly, the utilisation of development funds by state-run corporations stood on the higher side chiefly because of a more than 245pc surge in power sector projects which increased from Rs7bn in the first four months of last year to Rs24.4bn this year.

NHA’s expenditure on the other hand slightly dropped to Rs20bn this year against Rs24bn last year.

Excluding corporations, the development expenditure by the federal ministries and divisions and their attached departments stood at Rs54bn in four months of the current year compared to Rs147bn of last year, showing a contraction of over 63pc.

Mainly because of low utilisation, the planning ministry had stopped regular publication of PSDP authorizations and expenditures since the start of the current fiscal year and has for the first time come up with a consolidated position on spending.

The Planning Division used to release weekly updates about authorised funds for PSDP over the years — a tradition discontinued this year along with the removal of last year’s data from its website archives as well. Low utilisation of public funds for development has a direct bearing on the living standards of the population with adverse social and developmental outcomes.

The ministry showed that about Rs241bn had been authorised for utilization under the rules and disbursement mechanism but actual spending could not go beyond 41pc or Rs98.7bn. The development expenditure excluding corporations at Rs54bn remained even lower at just 29pc of the authorized Rs184bn for the first four months.

The water resources division emerged as the best performer in terms of utilization of funds with Rs19bn against authorised amount of Rs21.4bn this year because of ongoing major development projects. Last year, the water sector consumed Rs18bn in four months against authorized spending of Rs58bn.

The Ministry of Finance has already reported the country’s first quarter fiscal deficit at 1pc of GDP against 0.7pc of GDP in the same period last year. The deficit in absolute numbers in three months this year was reported at Rs809bn compared to Rs484bn in the same period last year — up 67pc.

According to the Ministry of Finance, the country’s revenue collection had dropped in the first three months of CFY and total expenditures went up when compared to the same period last year — leading to an increase in the fiscal deficit.

The total revenue as a percentage of GDP dropped to 2.6pc this year from 2.7pc last year as tax revenue plunged to 2.3pc of GDP when compared to 2.7pc of GDP in the first quarter last year.

Published in Dawn, November 26th, 2022