ISLAMABAD: In light of the precarious financial situation, the Centre is considering stopping the funding of provincial development projects and refocusing the Public Sector Development Programme (PSDP) for the upcoming year on five critical sectors: exports, energy, equity, e-Pakistan, and environment (5Es).
Dawn, the planning and development ministry had sent a summary to the prime minister asking for his approval to limit the PSDP to 5Es and to cap the provincial development projects in the PSDP 2023–24, which would be presented to parliament as part of the following year’s budget.
It was decided in a recent meeting, presided over by Planning and Development Minister Ahsan Iqbal, to go forward with clarity in finalising the development budget for the following year after receiving the prime minister’s approval.
PM Sharif has been advised to only include projects in the PSDP that are strategically significant. No provincial projects with devolved responsibilities should be included in the PSDP, with the exception of projects of compelling significance that should be funded equally by the Centre and provinces.
The group came to the consensus that “provincial development projects in federal PSDP should be permanently capped.”
The government PSDP decreased from around Rs1 trillion in the fiscal year 2017–18 (FY18) to approximately Rs480 billion in FY22 and less than Rs600 billion in FY23 due to resource constraints, according to a report submitted to the prime minister. This was further hampered by the allotment of around 16 duties and ministries that were transferred to the provinces more than ten years ago.
The brief submitted to the prime minister said that “the provincial governments should now take responsibility for their subjects in their provincial annual development plans (ADPs),” the person added.
The Central Development Working Party (CDWP) would only consider initiatives related to the 5Es, it was also determined at the conference.
The official stated that given the growing demands of the coalition partners towards development priorities of their constituencies and requirements of strategic projects of national importance, the planning minister would personally bring up the matter with the prime minister this week and take him into confidence.
Another official thought that a representative government made up of the major political parties might be better able to come to an agreement on a national issue because it had previously made a number of difficult political and economic decisions that were ultimately in the best interests of the country, albeit at great political cost.
At over Rs310 billion in FY22, federal assistance for provincial projects grew to roughly Rs330 billion in the current fiscal year.The 18th Constitutional Amendment and the elimination of the Concurrent List, 16 federal ministries as well as development initiatives had been transferred to the corresponding provinces.
With the exception of the PSDP’s key vertical programmes in population and health, financing of provincial projects was avoided until 2017. Although the federal government’s fiscal share of the pool reduced from over 57 percent to roughly 45 percent under the 7th National Finance Commission (NFC) award practically simultaneously, the financial burden on the federal budget continued to rise. since then, the provincial projects
Out of the 1,190 PSDP projects, 331 (or approximately Rs1.151 trillion) were of a provincial nature. The Centre had allocated Rs330 billion for these projects, but had already spent nearly Rs345 billion on them. The Planning Commission desires that the provinces themselves pay for these initiatives. It contends that delays and cost overruns on major federal projects of national significance were caused by the burden placed on the provinces.
The decision to curtail federal money for provincial projects came weeks after the World Bank recommended to the government that it reduce its expenditure by about Rs2.5tr, starting with the diversion of around Rs710bn in federal priority sectors from support for provincial projects.
The cost of paying the government’s debt has been steadily growing over time, surpassing Rs3.5 trillion in just the first nine months of the current fiscal year compared to around Rs2.1 trillion during the same period previous year. The axe always falls on development expenditure as there is less budgetary room and just a small rise in income collection.