The plight of PSDP

EDITORIAL: The allocation for next year’s Public Sector Development Programme (PSDP), a prime mover of the country’s growth rate, given that the government accesses the bulk of available commercial credit with private sector’s access limited to well under one trillion rupees in the current year, as well as sale of treasury bills, will be limited to 1. 126 trillion rupees against development requirement of 4. 097 trillion rupees. It is unclear if the requirement was assessed based on ministries and government departments, over-stating their demand for next year, a usual practice so as to be allocated the amount actually sought, or whether the requirement was ascertained through an informed study that highlighted the actual requisite. Be that as it may, three very disturbing admissions were highlighted during the APCC (annual planning coordination committee). The projected growth rate for next year of 4 percent is slightly lower than the 4. 1 percent target set by the International Monetary Fund (IMF) under its ongoing Extended Fund Facility programme (in its third review documents released less than three weeks ago) while it projected a rate of 3. 5 percent for 2026-27. It is also relevant to note that core inflation, a prime determinant of the policy rate was raised in May by one percentage point – to 9 percent from 8 percent. This will, in all probability, herald a rise in the policy rate on the next scheduled meeting of the Monetary Policy Committee on 15 June. The reason: when core inflation rose by 0. 6 percentage points – from 7. 4 percent in March to 8 percent in April in the MPC meeting held on 27 April the policy rate was raised by 100 basis points to 11. 5 percent – a rate that is double that of other regional competitors with obvious negative repercussions on the budgeted borrowing costs as well as input costs for the private sector. Secondly, only 51 percent of the one trillion rupee earmarked for PSDP this year was disbursed by end April and the possibility of any further disbursement till the end of the fiscal year on 30 June is unlikely, given the supply disruptions due to the Middle East crisis that has upped the Consumer Price Index to 11. 7 percent in May as per the Pakistan Bureau of Statistics (PBS). In other words, political considerations require that the government continues to subsidise key consumer items, a policy thrust that has been reversed after the recent IMF mission visit to Pakistan to reach a consensus with the authorities on next year’s budget but which may have to be revisited in the event of public unrest. The plan also acknowledged that allocations for PSDP are being made under the spectre of a shrinking budget in spite of growing social and physical infrastructure needs. One would hope that this would compel the budget formulators to not only desist from allocating current expenditure earmarked for influential people based on their demand, a usual practice, but to severely curtail this outlay in next year’s budget by at least 2 trillion rupees (the current year’s budgeted allocation was 18. 286 trillion rupees). This, if implemented, will reduce the pressure on not only slashing the planned outlay for PSDP but also the unplanned slashing during the year, again a usual practice, as and when the budget deficit reaches unsustainable levels. It is relevant to note that the IMF third review documents note that the external funding programme target for next fiscal year was 19. 12 billion dollars; however, the projected target has been revised upward to 21. 197 billion dollars or a rise of a whopping 2 billion dollars, which does not reflect favourably on the Prime Minister’s consistently stated pledge that the current Fund loan will be the last ever that the country will secure. What is required is out of the box solutions; notably, slashing current expenditure and increasing PSDP. Copyright Business Recorder, 2026

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