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ISLAMABAD: In a return to previous practice, the National Economic Council (NEC) decided on Monday to continue funding constituency-based schemes and ongoing provincial projects, while approving an indicative national development plan worth Rs3.792 trillion for the next fiscal year to increase the economic growth rate to 3.6 per cent from the current 2.4pc.
The expansionary public investment stance is likely to come under tight scrutiny of the International Monetary Fund (IMF) as the authorities continue negotiations for a $6-8bn bailout for over three years.
Presided over by Prime Minister Shehbaz Sharif, the four-hour-long NEC meeting approved more than 47pc increase in the federal Public Sector Development Programme (PSDP) to Rs1.4tr compared to the current year’s Rs950bn.
The federal development programme actually goes up by 58pc or Rs1.5tr if another Rs100bn public-private partnership (PPP) projects are included in it. Another Rs197bn investment would be made by state-owned entities in development activities, taking the total size to Rs1.696tr.
The federal PSDP is even 15-23pc higher than Rs1.221tr approved by the Annual Plan Coordination Committee (APCC), led by Deputy Chairman of Planning Commission Jehanzeb Khan, a few days ago. As Planning and Development Minister Ahsan Iqbal appeared to have struck back, the NEC made a fresh allocation of Rs75bn for parliamentarians’ schemes, called Sustainable Development Goals Achievement Programme, almost 23pc higher than the revised expenditure of Rs61bn under this head during the current year. Provincial demands were also entertained, resulting in higher PSDP allocation.
All four provinces, with a slight exception from Punjab, objected to the APCC recommendations to exclude provincial nature projects from federal funding through the PSDP. The NEC approved their cumulative annual development plans worth Rs2.095 trillion and agreed to continue funding the ongoing high-priority provincial projects with over 80pc completion status with a reciprocal view to discourage such projects reaching the federal budget in future.
This came after the Sindh chief minister pointed out that his province suffered significantly during four years of the PTI-led government when no funding was provided to their projects. Therefore, he added, Sindh deserved to be compensated for injustices of those four ‘missed years’.
He also contested the mandate of the caretaker government during which period the NEC had decided to exclude provincial projects and demanded that it be considered to be ignored ab initio. This helped restore some of its funding.
The Balochistan chief minister also made a case for the province’s longstanding deprivations, highlighting that the development and infrastructure portfolio in the country’s largest province by area was already very weak. He warned that the proposed changes would severely impact various development roads and projects. Moreover, due to its limited resources, Balochistan has historically relied on the federal government for support, making it even more crucial to continue receiving funding.
The Khyber Pakhtunkhwa chief minister also raised concern over non-allocation of funds for some of the critical ongoing projects in the province. However, it transpired that the drafts he carried had already been revised and allocations in the federal PSDP increased. Sources said he was satisfied with the updated development allocations.
The Centre explained to the chief ministers that its fiscal position had deteriorated after the 7th National Finance Commission Award and its interest payments had gone up significantly, while the share of provincial projects in PSDP had expanded from 12-13pc to almost 60pc in 15-16 years.
This double jeopardy adversely affected federal projects of strategic and national importance that was a national loss, including that of the provinces.
In view thereof, the meeting decided with consensus to transform the NEC into a vibrant and proactive forum for which the cabinet division was directed to notify a special committee comprising federal and provincial representatives to address contemporary needs.
An official said the provinces were able to secure revival of federal funding to a number of ongoing projects enabling the chief ministers to claim victory in their capitals. The allocations were made so thinly that these would only lead to cost and time overruns.
These adjustments, however, affected some federal programmes cleared by the APCC. For example, the allocation for transport and communications was increased to Rs279bn instead of Rs173bn cleared by the APCC. Conversely, energy sector’s allocation was restricted to Rs253bn against Rs378bn sanctioned by the APCC. Likewise, the water sector allocation was also contained at Rs206bn instead of Rs284bn cleared by the APCC. The overall infrastructure (transport, energy and water, etc) sector’s share was brought down to Rs824bn from Rs877bn cleared by the APCC.
On the other hand, social sector allocation was enhanced to Rs280bn instead of Rs83bn cleared by the APCC. Higher education appeared to be the main beneficiary as its allocation was increased to Rs93bn instead of just Rs32bn recommended by the APCC. Special areas like AJK, GB and merged tribal districts also gained through their interactions post-APCC meeting as the share of AJK, GB was increased to Rs75bn from Rs51bn and that of the merged districts to Rs64bn from Rs57bn.
The Rs1.4tr total federal PSDP would also include a foreign financing of Rs316bn.
This included an allocation of Rs852.5bn for federal ministries (including Rs175bn foreign assistance), while three corporations (NHA, Wapda & power companies) would get Rs356bn next year (including Rs136bn FEC).
The provincial ADPs of Rs2.095tr would include foreign exchange component of Rs616bn and Rs1.48bn of local financing. The overall public investment of Rs3.79tr would, therefore, include Rs932bn of foreign funding and Rs2.86tr of local resources.
The growth target for next year has been set at 3.6pc, to be supported by 2pc growth in agriculture, 4.4pc in industrial sector and 4.1pc in services. The growth prospects are subject to “political stability, exchange rate stability on the back of improvement in external account and external inflows, macroeconomic stabilisation under IMF’s programme and expected fall in global oil and commodity prices”, the Planning Commission said.
Total investment-to-GDP ratio is expected to increase from 13.1pc in 2023-24 to 14.2pc in 2024-25 due to expected economic turnout, improved business environment and political stability. Fixed investment is expected to grow by 27.6pc on a nominal basis, whereas as a percentage of GDP, it is expected to increase from 11.4pc in 2023-24 to 12.5pc in 2024-25. National savings are targeted at 13.3pc of GDP for 2024-25 against 13pc this year.
The commission said the current account deficit was expected to widen in 2024-25 with further easing of import restrictions for achieving growth objectives.
The scheduled repayments of external debt will put pressures on forex reserves and exchange rate. However, a positive outlook of remittances, exports and external inflows will mitigate these pressures, it said.