The development budget

Government spending on economic development is likely to take another hit next year as the finance ministry has indicated that the development outlay will remain the same for next year. Coming after a year of severe inflation, keeping the Public Sector Development Programme at Rs675 billion for 2019-20 equates to a real reduction in development spending. As the first item on the budget-making process for 2019-20, the news is underwhelming but not unexpected. Development spending has taken the biggest – perhaps the only hit – in these times of austerity. Already, real development spending this year has been far less than that approved in the budget. Only around Rs411 billion has been spent out of the approved Rs675 billion. The treatment of the PSDP has confirmed that the Planning Commission’s 12th Five-Year Plan is already dead before its formal launch. There has been talk, though, that the planning ministry is set to contest the proposal by proposing an increase in the PSDP to Rs1 trillion again. This would mean Rs750 billion in government spending and Rs250 billion in public-private partnerships.

The future does not look bright if the size of the PSDP is to be taken into account. Only two years ago, public sector development spending exceeded Rs1 trillion, with the China-Pakistan Economic Corridor on the horizon. Putting the infrastructure for CPEC in place required significant public-sector spending, which continued to push the development budget up. However, with Pakistan barely being able to reap any of the rewards of CPEC, it would appear that the bold new future is in threat of being abandoned. If the government does not increase the PSDP, a number of projects will remain incomplete. As it stands, the government has put in an April 10 deadline to all ministries to submit approved projects. No unapproved projects will be added to the PSDP list. The issues with some of the allocations, such as the one for Diamer-Basha Dam, is that they could not be spent during the current year.

While one must agree on the logic of not including projects which will eat up the limited PSDP, the need for a strong developmental agenda on the part of the state seems essential to the economic direction Pakistan has set for itself in the last decade. Under the current status quo, the Pakistani state can neither fund major road-building nor the building of major dams, both of which are key requirements for economic development and securing resources. The planning ministry is well within its rights to ask for a higher development budget. While the low developmental spending fits in with the overall strategy of economic slowdown under the current government, there are sufficient reasons to need to revisit the existing formula before the next budget.