Finance Minister Shaukat Tarin recently gave the gist of a comprehensive short, medium- and long-term plan designed to raise economic growth from 3 per cent to 6pc over the next three years.

In sharp contrast, the spending, as provided by the roadmap on the Public Sector Development Programme (PSDP), is to be curtailed. The focus will shift to completing ‘viable projects’. The ‘unviable ones’ would be immediately shelved, some projects will be transferred to provinces and new projects will be limited.

Why unviable projects were included in the first place in this year’s budget is not understandable when the government was cash-starved. Fresh proposals excluding their earlier ‘approved non-essential development projects’ are reported to have already been submitted by various ministries to the planning ministry as advised by it.

In 2020-21, provincial development grants of Rs226 billion were included to inflate federal PSDP development spending to Rs667bn that exceeded the budgeted allocation of Rs650bn.

Reducing PSDP at a time when the country badly needs to focus on social, physical and human development to stimulate economic activities in the private sector poses a risk to sustainable growth. How much of the Rs900bn PSDP for this fiscal year will be cut is not known.

About 55pc of the total banking sector credit has been taken away by the government while 90pc of the remaining credit goes to big companies, leaving (virtually) nothing for the small businesses

The PTI-government has been frequently revising the procedure for the financial release of earmarked funds for development projects to avoid delays in their implementation. The finance division has now decided to release 50pc funds for the reduced development budget for the first and second quarters and 50pc for the third and fourth quarters of 2021-22. Earlier 20pc was released in the first quarter, 30pc each in the second and third quarters and 20pc in the last quarter.

Both financial constraints and limited capacity for service delivery are responsible for delay and cost over-runs that affect their viability. The government has also been shifting non-utilised funds from slow to fast-moving projects.

The monthly economic update of the finance ministry released on August 29 says sustainable growth to a higher level requires extending the country’s production capacity and ensuring that a sufficient portion of this additional output is exported besides satisfying the needs of domestic consumers.

And enhancing production capacity and its efficiency is not possible without directing a larger proportion of available and future income towards investment instead of consumption, says the update.

The major constraint in development spending is the bulging current expenditure. The federal spending on interest payments on debt and defence jumped to Rs4.1 trillion in the last fiscal year — which was Rs538bn more than its revenues. That, analysts say, pushed the country deeper into the debt trap. These two expenditures account for 85pc of the collection of the Federal Board of Revenue(FBR).

For this fiscal year, the FBR has projected additional revenue collection of Rs236bn from a 5pc growth rate and an additional Rs385bn from an estimated 8.2pc domestic inflation.

“The investment–to-GDP-ratio has to be doubled to 24pc for sustainable economic development,” says Syed Salim Reza, a member of the Economic Advisory Council (EAC) and a former governor of the State Bank of Pakistan.

He pointed out that 55pc of the total banking sector credit was taken away by the government while 90pc of the remaining credit went to big companies, leaving (virtually) nothing for the small businesses.

The State Bank data released in July shows that the share of SMEs engaged in manufacturing is a mere 5.3pc of the banks’ credit of the entire manufacturing sector. And the banks prefer to lend to SMEs run by big business groups.

Another way of doing things may be to look at what Francis Fukuyama says about the role of big and small Industries. He believes that in future the optimal industrial organisations will be neither small nor large but a network of structures that share the advantages of both. “Capitalism flourishes best in a mobile and an egalitarian society.”

Now the housing sector. The focal person for housing and construction in the EAC, Arif Habib, says “it is not in their (banks) DNA to process a large number of small loans.” The gap is to be filled up by housing finance companies, three of which have been issued licences by the Securities and Exchange Commission. Mr Habib says the firms are expected to begin operations this year.

The outstanding housing loans however rose by 32.7pc to Rs106.8bn at July-end as compared to a year-ago period.

Under the plan, it is intended to create synergies across 14 key sectors and their development through coherent, consistent and well-coordinated policies between the federal, provincial government and the private sector.

Missing in this integrated approach for higher and sustainable growth is the third tier of an elected government.

The former special assistant to the prime minister for institutional reforms Dr Ishrat Husain has told a press conference addressed by Mr Tarin that the road map will strengthen the local government system as the devolution process under the 18th Amendment and the Seventh National Finance Commission award had not been completed.

Currently, devolution, a vital part of its Election Manifesto, has been put on the backburner by the PTI government. Instead, it is struggling to perform through a centralised mode of governance despite a widening mismatch between promises and performance. An observer of economic trends says “patchwork measures have fallen much short of systemic reforms.”

Now the entire federal government apparatus is being made accountable to a single person — the prime minister.

In a major break from the past, Tarin says the progress in 14 selected sectors would be monitored from month to month and the prime minister would be briefed about the implementation.

Instead of coming up with half-cooked strategies now and then, an analyst says, Pakistan’s political leadership and policymakers should focus on a comprehensive economic framework with short- to long-term targets for addressing structural problems in the economy.

With risks to the recovery, the issue of stability vs growth is in a state of flux with Pakistan remaining in the apparently unavoidable IMF programme.

The PTI leadership should guard itself against ‘toxic positivity’ which, to quote some thinkers, ultimately turns out to be a denial of reality and faces the risk of missing out on an opportunity for growth.

Published in Dawn, The Business and Finance Weekly, September 6th, 2021