S.KAMAL HAYDER KAZMI,
Research Analyst, PAGE
July 2 - 8, 2012
Utmost importance is accorded to infrastructure as the foundation for growth and development in Pakistan. The structural gap in the country's infrastructure is considered a serious handicap to growth and other economic indicators. At the micro-level, it is recognized that infrastructure investment enhances private sector activities by lowering the cost of production and opening new markets, presenting new production opportunities and trade. Equally, the strong linkages between infrastructure investment and the key indicators of social wellbeing such as health care, water and sanitation, housing, human capital accumulation and electrification are essential to address poverty challenges and advance the growth potential in Pakistan.
Infrastructure development supports various kinds of economic activity including as an input into production, and raises the marginal product of other capital used in the production process. This linkage between the economy and infrastructure is multidimensional in the sense that economic growth provides both need for and the resources to fund various types of infrastructure. Provided that infrastructure projects take place in response to appropriate cost-benefit analyses, such projects promote GDP growth.
Pakistan's construction and infrastructure forecast is negative for 2012, based on declining investor confidence. The energy and utilities sector remains strong with a number of hydro and wind power providing some respite. The construction industry value is expected to be $3.78 billion for 2012 based on year on year (YoY) growth of -1.29 per cent. This negative trend is expected to continue across the forecast period, with YoY growth averaging -1.47 per cent up to 2016, when the industry value will have reached $4.6 billion.
China International Water and Electric Corporation (CIWEC) announced plans to build a hydropower plant in Kashmir. The project involves the construction of a tunnel for diverting water from Neelum to Jhelum River. The plant, requiring an investment of $2.6 billion, is likely to have a power generation capacity of 969 MW. South Korea-based Korea Southern Power Company (KOSPO) had also signed a memorandum of understanding (MoU) with the Sindh Board of Investment for the construction of a wind power plant in the Gharo-Keti Bandar wind corridor in Sindh province. Once operational, the plant will have a power generation capacity of 2,000MW. South Korea is expected to make investments worth six billion dollar in coalfield development, infrastructure and mass transit system as well as other power projects.
In September 2011, the government of Pakistan established a coordination committee which will be responsible for accelerating the implementation of build, operate and transfer (BOT) projects in the country. The committee will also work to attract local and international companies to take part in such projects with a particular focus on the construction of a motorway between Karachi, Pakistan and Hyderabad, India.
Public Sector Development Programme (PSDP) helps achieve the objectives and targets set by the government to bring about a structural change towards sustainable and higher growth achieving the millennium development goals (MDGs) and reducing poverty with measurable economic development. PSDP also helps achieve the government's socioeconomic objectives envisaged for development of the common people.
The PSDP (federal/provincial) is the main instrument in government's direct control to canalize funds and make developmental interventions for speedy and balanced uplift of various segments of the society. The government provides budgetary allocations to those prioritized projects/programmes, which yield maximum benefits in the shortest possible time for the society. During FY2010-11, the federal government slashed development allocations due to unprecedented flooding in the country. Meanwhile, non-development funds were not touched in the provisioning for losses. In FY2011-12, Rs730 billion were allocated for the PSDP, 58 per cent higher than revised budget estimates of the previous year, but only 3.4 per cent of GDP. The federal share in PSDP funds was around Rs300 billion, whereas provincial development programmes were to receive Rs430 billion. Total 57 per cent of the federal PSDP budget was spent in infrastructural development and only 42 per cent was diverted to social sectors.
For 2012-13, the government has allocated Rs873 billion for the PSDP. Out of total, Rs360 billion will be spent by the federal government, while the remaining Rs513 billion will be allocated by provinces. It should be noted that 98 per cent of the budgeted amount would be spent on funding ongoing projects, as the source says, only two per cent of the total will be spent on initiating new ones.
COMPARATIVE BUDGETARY POSITION (RS IN MILLION)
CLASSIFICATION BUDGET 2012-13 I) RESOURCES ( a + b) 2,719,188 a. Internal Resources 2,332,309 Revenue Receipts (Net) 1,774,982 Capital Receipts (Net) 477,779 Estimated Provincial Surplus 79,548 b. External Resources 386,879 II) EXPENDITURE (a + b) 3,202,999 a. Current Expenditure 2,611,940 b. Development Expenditure 591,059 Federal PSDP including ERRA 360,000 Development Loans & Grants to Provinces 76,771 Other Development Expenditure 154,288 BANK BORROWING 483,810
Pakistan needs strong infrastructure support to ply on the road to economic building. The government should develop the necessary infrastructure for poverty reduction, promoting education, and overcoming water, energy and gas shortages etc. The real challenge today is to change the way of thinking not just systems, institutions, or policies.