The size of the federal public sector development programme (PSDP) for 2022-23 seems to be in a state of flux, pending International Monetary Fund’s final nod and awaiting crucial official decisions on the proposed changes under consideration in the related spending policy.
Finance Minister Miftah Ismail and Planning Minister Ahsan Iqbal are reported to have agreed on May 14 to allocate Rs800 billion for the PSDP in the next financial year, subject to the IMF’s approval. That includes Rs100bn in foreign financing for the schemes.
The week-long IMF staff-level review talks were due to start on May 18 in Doha in a renewed effort by Islamabad to secure a $1bn tranche under the Extended Fund Facility. Owing to the growing fiscal deficit, the IMF has however proposed around the same level of PSDP spending in 2022-23 as incurred in 2021-22.
But a series of tweets by US scholars show that Washington sees the Shehbaz Sharif government completing its tenure and would like to help it overcome some of the problems it is facing.
There is a general global consensus that the problem of stubborn inflation — coupled with the risk of international recession — is unlikely to be tackled soon
Coinciding with the Supreme Court verdict on political party defectors and its impact on the Punjab government set-up, were two notable developments: (a)The American State Department spokesperson assured Pakistan of strong US support for its efforts to rebuild its economy while welcoming ‘the ongoing IMF’s deliberation with Pakistan.’ (b) The coalition partners decided on the same day to complete the government’s term ending August 2023 and take ‘tough’ decisions to revive the crippling economy. This decision will also be shared with the military establishment.
And possibly to suit the occasion, the Institute for Policy Reforms — a think tank led by PTI leader Humayun Akhtar Khan — has advised the incumbent government to seek debt relief from external creditors.
In three years and eight months, the PTI government borrowed $52bn in foreign loans, the bulk of which — $36.05bn — went into repayments of debts. As in the past, the IMF can also help with the rescheduling of foreign debts particularly in view of the unexpected Ukraine war-triggered hike in food and energy prices, resulting in the surge of the country’s import bill.
The planning ministry has proposed that all schemes where foreign funding is not available or delayed, should be dropped from the PSDP.
Earlier the finance ministry had cut this fiscal year’s PSDP by Rs100bn to just Rs500bn owing to fiscal constraints from Rs600bn in the last revised PTI-led government’s estimate. So far only Rs383bn has been spent.
Analyst Farukh Saleem however argues that higher economic growth means a higher per capita income that will enable us to bear a higher rate of inflation. He says that we need rapid sustained equitable growth and a new economic growth framework.
There is a general global consensus that the problem of stubborn inflation — coupled with the risk of international recession — is unlikely to be tackled soon.
The monthly report for April on the economic outlook by the Ministry of Finance (MoF) concedes that high inflation and the accompanying monetary policy may temporarily reduce growth prospects in the short term. But in the long run, Pakistan’s productive capacity will determine the growth as well as employment prospects, it argues.
The strengthening of the overall supply side through increasing productivity potential would allow the economy to produce more for exports and to discourage imports, says the MoF report. These prospects, it adds, will relax the external constraint that has historically weighed on Pakistan’s economy and which has caused the regular balance of payments excesses and an accompanying stop-and-go profile in Pakistan’s economic growth path.
The planning ministry is trying to revamp the entire development programme for a more fruitful outcome and looking at the best possible options. Its first preference is that the PSDP funds may be allocated to only 101 mega projects of national importance — such as the Diamer Bhasha Dam — against the total number of 1,000 schemes at the end of June 30.
Another option under consideration is that the number of schemes may be reduced to around 400 by excluding all provincial schemes and those where the spending is less than 10 per cent. Owing to the centre’s paucity of funds, it has also been proposed that the provincial governments should take control of their 326 schemes and complete them with their funds.
The ministry is reported to have informed the prime minister’s office that PSDP has been used as a financing window for small, regional and local-level schemes. Currently, there are 225 small schemes with an estimated cost of Rs221bn and 326 projects of provincial nature having a total cost of Rs1.1 trillion that are being funded by the federal government.
Another possibility under consideration is to set up a Pakistan Infrastructure Company to handle all federal investments in provinces and special areas instead of giving money to non-federal executing agencies.
Analysts do not rule out the possibility of the government launching efforts to mobilise another Rs300bn in funding under public-private sector partnership (PPP) to raise development outlay for the next financial year to Rs1.1tr.
From 1990 to 2019, the number of PPP projects that completed financial closure was 108 with a total investment of $28.4bn, according to the Public-Private Partnership Monitor of July 2021 published by the Asian Development Bank.
The government is also making efforts to create more fiscal space and improve the balance of payments position. Policymakers are reported to have drawn up a plan to reduce imports by close to one billion dollars — 15pc of the monthly imports — through a combination of tariff and non-tariff measures. The regulatory duties may be increased by 100pc to curb imports.
While addressing a seminar on ‘Strong Rupee-Strong-Pakistan, organised by the Pakistan Forex Association of Pakistan, speakers said currently the shortage of foreign exchange is the biggest problem facing the country. A one rupee rise in the dollar price increases foreign debt by Rs1bn.
Published in Dawn, The Business and Finance Weekly, May 23rd, 2022