The constant reduction in size of the federal Public Sector Development Programme over the last three years is yet another indicator of Pakistan’s persisting financial and economic crisis. According to new official data, the government has reduced federal infrastructure development to Rs353 billion — less than 0.4 percent of GDP — in the first ten months of the current fiscal year to April, as the cash-strapped central government cuts spending to meet the IMF’s goal of producing a primary budget surplus of 0.4 percent of GDP. The entire investment for the period under review represents 38% of annual PSDP funding of Rs940 billion, which is 12.3 percent less than what was spent on development projects the previous year. The fact that the government does not have the money to fund new projects, let alone maintain old ones, highlights the sacrifices that Pakistan’s inhabitants must bear in order to survive the country’s greatest economic crisis in history. The ongoing financial problems also mean that the great majority of the millions of individuals affected by the disastrous floods of 2022 are still waiting for rehabilitation.
According to media reports, the IMF wants Pakistan to reduce expenditure by about 163 billion to Rs183 billion to compensate for a major revenue shortfall. The government has little option in the matter unless it is willing to violate the IMF’s rules for a primary surplus, which indicates a government’s borrowing requirements, as agreed to under the recently negotiated short-term $3 billion Stand-by Agreement. This would endanger its chances of receiving a longer and more substantial bailout to stay afloat.
Another report claims that, as deliberations on the new bailout approach, Pakistan has agreed to the IMF that it will aim for a primary surplus equal to 1 percent of GDP in the coming fiscal year. The Fund is already thought to have urged the government to earn additional revenues of Rs1.7 trillion, limit its development expenditure, and hike the petroleum charge aim by more than 24 percent to In recent months, the government has attained some economic stability, and economic fundamentals appear to be improving.
However, this’recovery’ is fragile, and any shock now could result in a relapse. As a result, the IMF has insisted that Islamabad continue with economic contraction as long as the fiscal and governance changes proposed by the SBA — which are expected to be included in the next programme — produce enough fiscal headroom to return the country to a growth trajectory. In this scenario, it is unrealistic to expect the government to increase investment in public infrastructure development anytime soon.