The caretaker government authorized a 30% rise in the expenditure for ongoing development projects under the Public Sector Development Programme (PSDP).
This decision, made towards the end of its tenure, impacts hundreds of projects financed by the federal government.
The PSDP, a major component of the country’s development agenda, has consistently faced delays and budget overruns, necessitating frequent financial revisions.
The International Monetary Fund (IMF) reported that for the fiscal year 2022-23, the federal PSDP’s portfolio stood at Rs10.32 trillion, encompassing approximately 1,153 development initiatives.
This figure includes 909 current projects valued at Rs7.96 trillion and 244 new projects estimated at Rs2.26 trillion.
With a modest allocation of Rs727.5 billion in the 2022-23 budget, the IMF projected an average completion time of 14.1 years for each project, assuming no additional projects commenced.
This pace highlights the challenges posed by the country’s demographic growth and the political landscape’s reliance on development projects for public support.
The cost increase, approved by the Executive Committee of the National Economic Council (Ecnec) under the leadership of then caretaker finance minister Dr Shamshad Akhtar, was primarily attributed to inflation and the rising cost of construction materials.
The committee reviewed and endorsed a proposal for price adjustment in ongoing contracts, recognizing the financial strains faced by contractors involved in large-scale infrastructure projects.
Ecnec’s decision, based on a document titled ‘Criteria and Procedure for Incorporation of Price Adjustment provisions in the ongoing contracts,’ set the “fixed vs adjustable cost ratio” at 30:70 and increased the “minimum weightage of adjustable cost elements” from nil to 3%.
The price adjustment applies to projects signed before September 2022 and for work executed after January 1, 2021.
Post-Ecnec’s ruling, the Planning Commission issued directives for handling price variation through respective development working parties.
The IMF criticized Pakistan’s development strategy and execution in a recent assessment, highlighting the difficulty in tracking project cost changes over time and the tendency for budget and projection realism to falter.
It noted that federal spending under the PSDP primarily targets economic infrastructure, with the remainder allocated to social infrastructure.
The absence of a detailed, multi-year cost breakdown hampers the ability of line ministries to plan and execute realistic capital programs.
