Govt Struggles to Determine Indicative Budget Ceiling for Development Funds in FY2023-24

The federal government has faced several challenges in the formulation of the Indicative Budget Ceiling (IBC) of Ministries/Divisions for Public Sector Development Programme (PSDP) 2023-24.

Some of the major challenges are given below:

1. Rs. 240 billion liability rollover from 2021-22 due to zero release in the 4th quarter;
2. Low PSDP allocation and Rising throw-forward;
3. Inflationary impact on projects;
4. Only released during Ist quarter of CFY and the Finance Division also didn’t relax the releases to SDGs Achievement Program from the quarterly ceiling like in previous years which had to be adjusted against releases to other projects;
5. Additional demands of important projects over and above IBCs;
6. The rising burden of provincial nature projects on Federal PSDP;
7. Growing allocation for SDGs;
8. Huge demand for rupee cover against FEC/FA component;
9. Increasing number of new schemes particularly of DDWP level;
10. At source deduction of CDL against PSDP releases (NHA, Power Div. etc.);
11. Austerity measures dampening development spending;
12. Emerging needs of post-flood 2022 Rehabilitation (4RF) and 5Es initiatives.

Given these challenges and the tight fiscal situation, the Ministries/Divisions were sensitized to review their respective portfolio while proposing budgetary allocations within IBC by adhering to the following broader guidelines/criteria:

1. Core national projects should be assigned priority for funding;
2. only approved projects would be made part of the development budget;
3. No funds shall be kept for lump provision or unidentified expenditure;
4. Projects with >80 percent expenditure should be fully funded to ensure the maximum number of projects to be completed in NFY; Foreign-funded fast-moving projects may be proposed with adequate rupee cover
5. Policy approved by NEC in 2021 on the financing of provincial projects should be adhered to;
6. Projects on innovative financing (VGF and PPP) in terms of co-sharing be encouraged;
7. Non-performing / non-starter projects since the last two years may be reviewed to cap;
8. Funding of projects relating to recurring / O&M etc should be avoided;
9. Foreign-aided projects where foreign aid has not yet lined up / no disbursement received during the last two to three yrs. may be considered for deferment;
10. Adequate funds should be provided to clear the pending liabilities in line with the procedure approved by ECNEC 051 6th April 2023;
11. Issues related to Cash Development Loans (CDL) may be settled on priority.

Ministries/Divisions, in response to the IBC, conveyed within PSDP size of Rs. 700 billion submitted project-wise budgetary proposals with the additional demand of Rs. 850 billion over and above the allotted IBCs. Project-wise proposals were reviewed by the Planning Commission during Pre-APCC meetings held with Sponsoring agencies (May 23 to 27, 2023) so as to prioritize project proposals given the resource constraints.

Applying the rationale approach, IBCs were slightly adjusted in consultation with Ministries / Divisions with a focus on financing ongoing projects for completion to avoid time and cost over-run which will ultimately create space for new projects.