Govt decides to cut PSDP by Rs300 billion

Reduction might increase completion period of existing projects to more than 11 years

Shahbaz Rana March 17, 2022
For the current fiscal year, the National Economic Council, headed by Prime Minister Nawaz Sharif, had approved Rs700 billion for federal development spending. PHOTO: FILE


The federal government has proposed Rs100 billion further cut in the development budget, bringing the total reduction to Rs300 billion this year, which has jeopardised financing plans of some strategically critical projects, including the nuclear-power schemes.

The government has decided to cut the development budget by a total Rs300 billion or one-third at a time, when there is an additional demand of Rs254 billion for financing the ongoing projects by the ministries, sources told The Express Tribune.

The remaining Rs600 billion development budget will result into a situation, where the average completion period of the existing development projects portfolio will jump to nearly 11 and half years, they added.

The Finance Ministry has informed the Planning Ministry that it wanted to reduce the Public Sector Development Programme (PSDP) budget from Rs900 billion to Rs600 billion for the current fiscal year, senior officials in both the ministries confirmed to The Express Tribune.

After the intimation by the Finance Ministry, Planning Minister Asad Umar held a meeting with Finance Minister Shaukat Tarin on Tuesday, urging him to review the decision. The sources said that Umar informed Tarin that the Rs600 billion total allocation might result into a situation where the spending orders already issued to the ministries would have to be withdrawn.

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The Finance Ministry slashes the PSDP amid the government’s plan for big public sector spending initiatives, including on projects in the South Punjab. The Ministry of Finance did not officially commit for this article but its senior official confirmed that it had been proposed to slash the development budget by further Rs100 billion to make room for the spending under the prime minister’s relief package.

In the budget, the National Assembly had approved Rs900 billion for the PSDP, which the government first cut to Rs700 billion last month under an understanding with the International Monetary Fund (IMF).
The prime minister had announced Rs246 billion relief package without having fiscal space and despite some initial resistance from the Finance Ministry. The package has also put the IMF programme at stake.

The government is diverting the capital expenditures to non-productive purposes, which the analysts said, was against the fiscal prudency and would push the country deeper into the debt trap. The current development portfolio comprises of 1,165 projects, having an estimated cost of Rs9.7 trillion.

After adjusting the expenditures that are already incurred on these schemes, the remaining financing requirements are estimated at Rs6.8 trillion. But with the leftover Rs600 billion budget, these projects, on an average, cannot be completed before 11 and half years at this pace of funding.

The government had so far authorised spending of Rs509 billion but the actual development spending remained at Rs338 billion, according to the Planning Ministry officials. The Planning Ministry had held project review meetings with the relevant ministries a few weeks ago. The ministries have put forward additional demand of Rs254 billion for completion of the projects.

The sources said that the PAEC’s additional requirements were genuine but with a cut in the PSDP, it was not feasible to provide more money. Out of Rs27 billion current allocation, the government has given Rs17 billion to the PAEC, so far.

The sources said that the maximum demand of Rs164 billion was placed by the Pakistan Atomic Energy Commission for carrying out work on its ongoing schemes. The government had allocated only Rs27 billion to the PAEC for the current fiscal year. The commission has total outstanding requirements of Rs763 billion for 18 projects but it does not need the whole financing in this fiscal year.

The Ministry of Finance was also executing 69 projects worth Rs318 billion. Its current year’s allocation was Rs123 billion and the spending so far remained around Rs70 billion. The sources said that the Finance Ministry also demanded additional Rs10.5 billion for the projects.

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The Planning Ministry, the sources continued, was also facing pressure to give funding to the schemes being pushed by the parliamentarians, belonging to the allies of the ruling party. The disbursement process was expedited last week for some of the projects that were being executed in the Gujrat city, they added.

The sources said that the Water Resources Division that is executing 103 projects, costing Rs3.1 trillion, had also demanded additional funds. The Water Division had asked for Rs22 billion, as it termed the existing allocation of Rs103 billion insufficient, said the sources. There were 37 projects of the Water Resources Division that did not get any money during almost eight months of the current fiscal year.

The Water Resources Division has so far spent Rs35 billion on development activities. The National Highway Authority has also demanded an additional Rs28 billion financing to carry out work on the ongoing schemes. The government had given it Rs118 billion to manage Rs2 trillion portfolio. It has so far spent Rs30 billion.

The National Transmission and Dispatch Company has also sought Rs22 billion more, as it too said that the existing allocation of nearly Rs70 billion was not sufficient. The NTDC is managing 98 projects, having cumulative cost of Rs897 billion. Its remaining financing needs over the gestation period is Rs690 billion.


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