THE slow utilization of development funds under the public sector development programme (PSDP) continues to be a major problem in Pakistan. As a result, the objectives of investments are either neutralized or remain short of targets by the time the projects are completed, owing to delays, cost overruns and lopsided implementation.

Take for example, the utilization of funds in the first six months of the current fiscal year. The story is no better than last year or the year before in terms of release and utilization of funds, notwithstanding significant increase in the size of the overall development programme.

Besides normal tardy pace of project implementation, a total of 23 mega projects are slow-moving and problematic and another 23 per cent of projects with over Rs100 million cost, do not have independent project directors. Some of these slow moving projects also include major water sector projects like Gomal Zam dam, Satpara dam and Mirani dam.

According to deputy chairman Planning Commission Dr Akram Sheikh, delay in the implementation of Rs64 billion Mangla dam, which is 3-4 months behind schedule at present, causes Rs17 billion additional loss to the economy per year. The Planning Commission has not done similar analysis of other problematic projects.

He says that 12 out of 23 slow-moving projects are in the infrastructure, five in water sector and the remaining projects are in Balochistan due to law and order situation in the province.

There are a total of 156 mega projects having estimated cost of Rs500 million and above and form 60 per cent of the total Rs204 billion PSDP. In all, there are 1500 small and big projects in the PSDP 2005-06.

Why has the government not been able to formulate a mechanism to keep up the implementation momentum of large projects with multi-year gestation period irrespective of usual no work in the first quarter, start ups in second and third quarter and full releases of funds in the last quarter or last month of the fiscal year?

Dr Sheikh concedes that the situation in terms of utilization of development funds is not ideal and needs a lot more to be done but the overall trend is now improving as the system is being streamlined and problems ironed out through a number of administrative, financial and monitoring measures.

He says that the utilization capacity of the country’s implementation machinery could not keep pace with substantial increases in the size of annual development allocations over the last few years and hence the government was now concentrating on capacity building.

According to official documents presented to the National Economic Council (NEC), the highest body on economic decision making, by the Planning and Development Division on February 28, the overall utilization of PSDP funds under the federal programme stood at 29.3 per cent in the first half of the current year.

During this period, the utilization of funds by 11 agencies has remained less than five per cent while 30 out of total 39 agencies utilized less than 30 per cent funds.

An analysis of the PSDP by the Planning Commission has revealed that overall average utilization of development funds amounted to only 29.3 per cent of total Rs204 billion allocation.

The situation in average terms improved because of massive use of funds by sectors like atomic energy, defence, states and frontier regions, railways and communication. Their funding utilization ranged between 45-58 per cent.

The most worrying aspect of the utilization of the PSDP is that sectors having direct bearing on the improvement of life of the people spent funds between 5-10 per cent.

The ministries of labour and manpower, women development, local government and rural development, industries, information and broadcasting, commerce and foreign affairs utilized less than six per cent of their annual allocation in first half of the current fiscal.

This has happened despite quarterly review meetings by the Planning Commission with line ministries and provinces and a number of other administrative and financial measures.

The labour ministry utilised only 1.2 per cent (Rs6.7 million), women development 5.3 per cent (Rs26 million), local government zero, industries 5.7 per cent (Rs39.4 million), information and broadcasting 4.1 per cent (Rs18.4 million), commerce 3.9 per cent (Rs4.7 million) and foreign affairs 0.3 per cent (Rs0.3 million).

Infrastructure: In infrastructure sector, average utilization of funds stood at 32.2 per cent (Rs29.8 billion) of the total allocation of Rs92 billion. Water sector projects utilized about 28 per cent (Rs10 billion) of total allocation of Rs35.6 billion.

Wapda’s power sector projects utilized only 4.9 per cent (Rs782 million) of total allocation of Rs16 billion. Pakistan Atomic Energy Commission (PAEC) utilized 57.4 per cent (Rs3.5 billion) against its total allocation of Rs5.7 billion.

Ministries of petroleum and ports and shipping utilized about 29 per cent (Rs175 million) and 21 per cent (Rs600 million) respectively against their allocated share of Rs460 million and Rs3.744 billion.

Communication division including National Highway Authority and Railways division spent 46.7 per cent (Rs9.6 billion) and 47.8 per cent (Rs5.2 billion) respectively.

Social sector: The overall utilization of development funds by the social sector stood at 28.7 per cent and was less than infrastructure. Finance ministry which is itself responsible for release and use of funds could spend only 15.6 per cent of its allocated share.

The use of funds under Khushhal Pakistan Fund, development of less developed districts and village electrification programmes remained zero.

Except SAFRON division (52 per cent) and Higher Education Commission (31.8 per cent), all areas of the social sector could not spend more than 30 per cent of their allocated amount.

For instance, education sector utilized 21.7 per cent funds, health 24.7 per cent, social welfare and special education 24.1 per cent, population welfare 21 per cent, labour 1.2 per cent, women development 5.3 per cent and Kashmir affairs and Northern areas 27.2 per cent.

Other sectors: The overall utilization of 20 ministries described as “others” stood at 23.5 per cent of total allocation of Rs38.75 billion. Fifteen ministries and divisions spent less than 30 per cent in this category.

Only five out of 20 divisions could spend more than 30 per cent of their allocation. These included tourism 41 per cent, works 41 per cent, defence division 55.6 per cent, cabinet division 40.6 per cent and planning and development divisions 31.7 per cent.

Fifteen ministries in this category exhausted less than 30 per cent of their allocation. Information Technology and Telecom division utilized about 20.4 per cent (Rs673 million), science and technology 24.9 per cent (Rs765 million), culture and sports 27.7 per cent (Rs265 million), food and agriculture 27.3 per cent (Rs2.5 billion) while local government and rural development ministry did not utilize even a single penny in the first six months.

According to secretary local government and rural development Akram Malik, Khushhal Pakistan Programme-1 with an allocation of Rs4.42 billion constitutes major portion of its development programme. Out of this, Rs2.23 billion (48 per cent) has been spent in first six months but this programme is shown in the head of “special programmes” of the Planning Commission documents.

Similarly, the utilization of funds by ministry of environment stood at 9.8 per cent, industries and production 5.7 per cent, interior 25.8 per cent, law and justice 13.9 per cent, establishment 17 per cent, narcotics 26 per cent, statistics 21 per cent, information and broadcasting 4.1 per cent, commerce 3.9 per cent and foreign affairs 0.3 per cent.

The Planning Commission also noted that release of funds by the finance ministry also did not improve when compared with last year. The release of funds during first half of the current year stood at 39.6 per cent compared with 39.5 per cent of last year.

Against these six-monthly releases, the utilization also remained almost static and stood at 82 per cent when compared with 80 per cent of the same period last year.

The government now claims that actual utilization of funds in the first six months have now increased to 37.3 per cent as per audited accounts but its sector wise details cannot be revealed at this stage. Reason: the Auditor General of Pakistan Revenue (AGPR) cannot release such details to the public because national accounts are laid before the parliament at the end of the fiscal year.

Dr Sheikh says the utilization of current year’s PSDP funds stood at Rs76.2 billion (37.3 per cent) upto December 31, 2005 as per final accounts audited by the AGPR which increased to Rs99 billion (48.5 per cent) in eight months as on February 28, 2006.

Dr Sheikh says that 100 per cent utilization of PSDP funds would be ensured by end of the fiscal year. Normally, more than 40 per cent of funds are disbursed in the last month i.e. June of each fiscal year which compromises the quality utilisation of funds.

He contended that six monthly figures on release and utilization of PSDP funds at 39.6 per cent and 29.2 per cent respectively presented to the NEC on February 28 were provisional and have shown improvement at the time of audit.

According to him, the government could not do anything with the element of corruption which in the disbursement of funds but only the moral pressure from the society and education by the media could remove this menace.

He said the National Economic Council (NEC) had decided about two years ago to appoint independent project directors (PDs) to monitor projects costing Rs100 and above but 23 per cent of such projects were still without PDs. He, however, said that some of the schemes really did not require PDs.

He conceded that large projects should not be delayed because of their impact on economy and hence the government wanted to complete such projects within the schedule and stipulated cost to achieve its full target objectives.

Dr Sheikh said the quarterly meetings with provincial chief ministers and federal secretaries by the Planning Commission over the last couple of years has streamlined the system and ironed out problems. As a result, the trend has improved, he said.

For example, he said, the size of PSDP increased from Rs148 billion in 2003-04 to Rs204 billion in 2005-06, showing an improvement of 38 per cent. As percentage of GDP, he said, the size of PSDP has gone up to 3.8 per cent this year compared with 2.5 per cent in 2003-04.

The release of funds in the first six months stood at Rs44 billion in 2003-04 and increased to Rs64 billion in 2005-06, up by 45 per cent. Similarly, utilization of funds increased to Rs53 billion in first six months of the current year compared with Rs36 billion of 2003-04, showing an improvement of 47 per cent.

He said that in some cases where the utilization remained zero was because of start-up problems or bulk of the project cost was meant for studies and legal formalities.