KARACHI, Nov 8: The Public Sector Development Programme has a multiplier effect, more so in emerging markets and “crowds in” private investment. It improves economic growth rates and per capita incomes.

Yet developmental spending, as ratio of GDP, continues to decline as fiscal deficit management still remains a top priority. Developmental expenditure is slashed when the government fails to contain non-development expenses within the budgeted stipulations. It has resulted in low level of investment in human and physical infrastructure development, badly needed for sustained economic growth.

Fiscal constraints combine with unsatisfactory institutional capacity and weak monitoring to give outcomes that fall short of targets. The funds are not effectively used. Money is tied up in too many ongoing projects, stifling much of the prospects of innovative manoeuvrability. Projects conceived by various departments are not seen as part of strategic objectives. Funds are distributed, quite often, on the degree of access of various ministers/secretaries to top decision-makers without consideration to their capacity to deliver. And projects funded by foreign credits are subject to delays.

Pakistan’s developmental expenditure is the lowest among the four major countries of South Asia. As a ratio of GDP for 2003, it is as follows: Pakistan 3.2 per cent, India 15.4 per cent, Bangladesh 5.8 per cent and Sri Lanka 5.3 per cent. In 1991, the comparative figures were 6.4 per cent for Pakistan, 17.4 per cent for India, 4.4 per cent for Bangladesh and 8.3 for Sri Lanka in 1991.

India has not been concerned about the fiscal deficits that touched 10.1 per cent in 2003, as compared to 9.9 per cent in 2002 and 9.2 per cent in 1991. The highest deficit for the corresponding period for Pakistan was 6.4 per cent in I991 and the lowest in 2003 at 4.4 per cent, the same as that for Bangladesh. Sri Lanka’s deficit was at 8.9 per cent in 2003.

To quote economist Akbar Zaidi, going by the purchasing power parity, the per capita incomes in India and Pakistan were more or less similar in 1990 at $1,380 and $1,360, respectively. In 2001, India’s per capita was recorded at $2,820 against Pakistan’s $1,860. Since 1993, says Akbar Zaidi, India’s growth rate has been higher in every single year and in four years in the last 10 years, its growth rate has been double that of Pakistan.

India’s developmental spending has played a significant role in boosting economic growth rate and per capita income.

As compared to Pakistan’s 17.7 per cent, India’s revenue receipts are at 19.1 per cent of GDP. The difference between the tax revenue is lower, 13.7 per cent for Pakistan and 14.9 per cent for India.

The underlying issue is as to that should be sustainable ratio of fiscal deficit that would not be counter-productive in the long-term. It would differ from country to country and in different times. To stimulate the economy, the US has cut taxes and increased military spending.

US’s deficit is expected to hit six per cent this year. France and Germany have not been able to maintain the EU’s fiscal deficit target of three per cent in times of economic slump.

In case of Pakistan, provisional figures for 2003 show that development programme spending of Rs129.2 billion exceeded the previous year’s figure of Rs126.2 billion. But as a ratio of GDP, development spending was reduced to 3.2 per cent in 2003 against 3.3 per cent in 1998 and 3.5 per cent in 2002.

The federal government’s total expenditures for 2003 recorded an increase of Rs11.7 billion over the previous year. Current expenditures were up by 10.7 per cent and revenue development expenditures fell by 8.9 per cent. The State Bank says “the shortfall of revenue capital expenditure is a matter of concern” because it means less spending on social services.

In contrast, capital developmental spending recorded a marginal increase of 1.7 per cent over budget estimates and 9.5 per cent over actual of 2002. The increase, says the State Bank, is “apparently due to a base effect as FY02 itself had shown a decline of 1.8 per cent.”

As investment levels are low the government should reconsider its priorities to focus on development spending.