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PSDP: wastage of scarce funds

PSDP: wastage of scarce funds

The axe fell on the development budget as usual. An estimated Rs100 billion shortfall in collection compelled Finance Minister Ishaq Dar to bring down the FBR revenue target for 2016-17 to Rs3.521 trillion from Rs3.621tr budgeted last year in this season.

Straight forward, the Public Sector Development Programme (PSDP) for the outgoing year was cut by Rs85bn to Rs715bn from the original Rs800bn announced with fanfare last year. No worries either, the finance minister increased the next year PSDP with a big bang — almost 40pc — to Rs1.001tr over expected disbursements this year.

That has been the practice all along. Finance ministers have been pitching big numbers for development only to be cut down significantly before the close of books as cooked up optimistic revenue growth remains elusive except for few exceptions.

It is a political nuisance to announce large numbers for the development budget with schemes here and there for uplifting the standard of living only to leave them unfinished half way through — the usual vicious cycle of cost over runs, delayed benefits and so on. That is why even next year’s development outlay is suspect to actual delivery.

Interestingly, the revenue shortfall did not arise from the much-trumpeted oil price related taxes which, in fact, exceeded budgeted targets as is evident from the Rs80bn higher than targeted collection from indirect taxes — sales tax, federal excise and customs.

An Rs35bn shortfall on other taxes like gas infrastructure development cess was more than compensated by higher collections from natural gas development surcharge and petroleum levy. This was despite the government’s claims that it was foregoing a part of oil taxes.

On the contrary, the big hit came from the most unsuspected sector — income tax and mainly because of the government’s decision to roll back reform measures through amnesty schemes, including one for the real estate sector.

An almost Rs180bn shortfall came from direct taxes and most of it — Rs175bn — from income tax alone. The government had targeted Rs1.539tr income tax for the current year that has now been revised to Rs1.36tr.

The cut in development budget on the other hand was despite the fact the foreign exchange component for development projects was much greater than anticipated in the budget last year. The project loans and grants for the PSDP were pitched at Rs229bn last year but actual inflows are now estimated at Rs262bn.

A major problem was set in at the beginning of the PSDP allocations. A flood gate of half-cooked development projects was opened last year. It was inundated with a whopping Rs1.626tr worth of un-approved schemes and those without mandatory PC-1 papers. This forced the planning commission down the road to re-appropriate funds for 213 projects during the outgoing fiscal year.

Finance ministers have been pitching big numbers for development only to be cut down significantly before the close of books as extreme revenue growth remains elusive except for few exceptions

On the positive side, it helped the speedy completion of 101 projects but also led to overspending in areas where a major part of the funds were lost to extravagance.

For example, the National Highway Authority and power sector have been given Rs22bn and Rs4bn higher than originally committed. At the same time disbursements for political schemes have been increased to Rs42.5bn instead of the budgeted Rs20bn.

Another major diversion was affected due to relief and rehabilitation of internally displaced people from tribal region and security enhancement. Against a block allocation of Rs100bn, only Rs14bn were spent on security enhancement in tribal regions.

Also, Railways was given Rs56bn during the outgoing year against its allocation of Rs41bn.

This was mainly because of start-up problems with tens of hundreds of development projects that were made part of the current year’s public sector development programme (PSDP 2016-17) and could not take off.

This is despite claims by the Minister for Planning and Development, Ahsan Iqbal, that the PML-N government had done away with the practice of allowing unapproved projects entry into the PSDP with token allocations to avoid wastage of resources because of cost escalations and delays.

“The PSDP 2016-17 included 225 un-approved projects worth Rs1.626tr having an allocation of Rs93bn for 2016-17”, according to a planning commission note to the National Economic Council.

The commission claimed it went behind the line ministries and executing agencies throughout the year requesting them to speed up submission of project documents and get them approved but in vain.

“Despite these efforts, 77 projects of 19 ministries (out of a total of 35 ministries) were still unapproved as of May 10”, the planning commission complained. There is no apparent accountability so far on this count.

The planning commission authorised re-appropriation of Rs53.4bn from 213 slow moving projects to 101 fast track projects. Through these re-appropriations and adjustments in the PSDP, the planning commission expected the completion of 145 projects by June this year, having a total cost of Rs68bn.

This was despite the fact that the commission had decided last year not to encourage new projects except those falling strictly within development agenda under Vision 2025 and projects initiated before 2010 having throw-forward of Rs15 million were deleted.

The NEC had accorded the highest priority to the energy sector last year with an allocation of Rs405bn including Rs250bn self-financing by generation companies and National Transmission and Dispatch Company (NTDC).

The transport and communication sectors were the second greatest priority with allocation of Rs240bn, followed by health and population of Rs36bn, Water sector Rs30bn and Education and Training Rs30bn.

For next year again, the allocation to NHA for road development has been jacked up by almost Rs110bn to Rs320bn while allocations for power sector have been reduced more than half to Rs61bn from Rs134bn this year.

For political reasons, special allocations worth Rs12.5bn each have been made for Clean Drinking Water for All and Energy for All. The track record of spending on water schemes is extremely poor because no arrangement is made for replacement of filters on a continuous basis that go to waste after first 3-6 months.

A special allocation of Rs40bn is also made for next year on special federal development programme and Rs30bn for small schemes like sewerage and construction of streets etc ahead of elections.

Published in Dawn, The Business and Finance Weekly, May 29th, 2017

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