The Civil Aviation Authority (CAA) is reportedly planning to acquire over 2800 acres of additional land for the Islamabad International Airport with the objective of building a third runway with the target scheduled completion on 14th August this year. This expansion reflects the Sharif administration's preferred project design for development projects: the bigger the better even if demand is unlikely to rise sufficiently during the life time of the project to justify the enhancement and even if the government does not have the resources to finance it requiring expensive loans. The stipulated completion date, the country's Independence Day, reflects the administration's intent to gain political mileage less than about eight months before the general elections are expected to be held.

The objective of this enhancement, critics may well argue, is to enable the Prime Minister to point out that this much delayed project has not only been completed but has been expanded rather than to state the usual platitudes on 14th August by the country's Prime Minister and President. The choice of development projects must be made on economic grounds and a feasibility study supports the implementation of a project and its design based on: (i) the internal rate of return (IRR) of the project that measures the profitability of any project; the higher the rate the more desirable to undertake the project; and (ii) the economic rate of return (ERR) that measures the rate of interest at which cost and benefits of a project, discounted over its life, are equal. ERR, unlike the IRR, takes account of factors such as price controls, subsidies, tax breaks and most importantly the demand for the project to compute the actual cost of the project to the economy.

Unfortunately, however, the Sharif administration has not always supported projects with an IRR and ERR that would justify the implementation of a proposed project; but instead have manipulated the data that it has already committed to for political reasons. Sadly, the basic rationale for the Sharif administration's support for any project has been the bigger the better even though this is not always a decision that is economically viable with respect to development projects. The decision to build a third runway for Islamabad airport is further complicated because the government has already spent Rs 399 million to renovate and expand the existing airport that included construction of a 1,700 x 75 ft taxiway linking the adjacent to the lone runway completed in March 2015. The new airport under construction in Fateh Jang, conceived in 1984, is still not operational and while one can support doubling the runways from the existing airport, yet tripling them begs a revisit from the economic point of view.

Our government is severely strapped for cash and this is reflected by its increasing reliance on commercial borrowing from abroad, around 2.7 billion dollars have been borrowed from the external commercial sector by the Sharif administration since it began its current tenure, a reliance that accounted for outflows instead of inflows during the second quarter of the current fiscal year. In addition, data released by the Ministry of Finance/Federal Board of Revenue reveals that the budgeted non-tax revenue is unlikely to be met and the FBR collections have already witnessed a shortfall of over 100 billion rupees. In this scenario, to redesign a project based on the principle of the bigger the better, appears to be an economically flawed decision. One would urge the government to revisit it without any further loss of time.

Copyright Business Recorder, 2017