Development spending drops 38pc in July-Nov

Pakistan's overall development spending dropped 38 per cent to Rs130.64 billion in the first five months (JulyNovember) of the current fiscal year from Rs209.53bn a year ago to create a cushion for rising current expenditures.

According to data released by the Ministry of Planning and Development on Wednesday, the massive drop would not only slow down the economy but would take a toll on revenue collection as well. In absolute terms, the expenditures so far account for 17.96pc of the total revised allocation of Rs727bn, drastically short of the development spending target.

Under the disbursement mechanism announced by the Planning Division, the development funds allocated in the federal budget are released at the rate of 20pc in the first quarter (July-September), followed by 30pc each in the second (October-December) and third quarter (January-March) and remaining 20pc in last quarter (April-June) of a fiscal year.

It is believed that the development expenditure is being curtailed to contain the rising fiscal deficit owing to the increase in current expenditures. The PMLN-led coalition government has appointed over 70 special assistants, who are drawing huge salaries besides perks and privileges at a time when the country's forex reserves have dwindled drastically and industries are cutting their production.

The government now estimates its overall expenditures to surge past budget target by about Rs1 trillion due to about Rs900bn higher interest payments and expected Rs422bn revenue shortfalls that may need to be bridged through additional tax measures in the second half of the current fiscal year.

The main driver of development expenditure which reached Rs130.64bn is because of 42.45pc share in total spending by state-run corporations - power sector entities and National Highway Authority (NHA) - to Rs55.46bn in 5MFY23. The breakdown showed that the utilisation of development funds by state-run corporations stood on the higher side chiefly because of a more than 227.28pc surge in power sector projects which increased to Rs34.42bn from Rs10.52bn in 5MFY22.

NHA's expenditure on the other hand dropped to Rs21.03bn in 5MFY23 against Rs38bn in the corresponding period last year. Excluding corporations, the development expenditure by the federal ministries and divisions and their attached departments stood at Rs75bn in 5MFY23 compared to Rs160bn last year, a fall of over 53pc. The Planning Ministry data showed that about Rs224bn had been authorised for utilisation under the rules and disbursement mechanism during 5MFY23 but actual spending could not go beyond 41.8pc or Rs130.64bn.

The Water Resources Division emerged as the best performer in terms of utilisation of funds with Rs20bn against authorised amount of Rs22.43bn in 5MFY23 because of ongoing major development projects. Last year, the water sector consumed Rs27.27bn in five months against authorised spending of Rs58.79b. The second biggest share in development expenditures was made to provinces and special areas which stood at Rs18.38bn and another Rs11bn for Sustainable Development Goals (SDGs) to the parliamentarians during the first five months of the FY23.

The total authorisation of the development budget for parliamentarians is Rs87bn.

The Ministry of Finance has already reported the country's first quarter fiscal deficit at 1pc of GDP against 0.7pc in the same period last year. The deficit in absolute numbers in three months this year was reported at Rs809bn compared to Rs484bn in the same period last year - up 67pc.

According to the finance ministry, the country's revenue collection dropped in the first three months of FY23 and total expenditures went up when compared to the same period last year - leading to an increase in the fiscal deficit. The total revenue as a percentage of GDP dropped to 2.6pc this year from 2.7pc last year as tax revenue plunged to 2.3pc of GDP when compared to 2.7pc of GDP in the first quarter last year.