By Moaaz Manzoor

Pakistan’s federal development budget for FY2025-26 has been revised down to Rs820 billion from the original allocation of Rs1,000 billion, pushing public development spending close to its FY2016-17 nominal level despite a much larger federal budget and economy, according to a Ministry of Planning, Development and Special Initiatives presentation given to a parliamentary panel.

The presentation, titled “PSDP Allocation Trend with Budget and GDP,” shows the original Public Sector Development Programme allocation for FY2025-26 at Rs1,000 billion, with a bracketed revised figure of Rs820 billion. The federal budget for the year is shown at Rs17,573 billion, while GDP is listed at Rs129,567 billion.

The revision means the development envelope has been reduced by Rs180 billion from the original allocation. It also places the effective FY2025-26 PSDP only slightly above the Rs800 billion allocation recorded in FY2016-17, even though the federal budget has increased from Rs4,900 billion in FY2016-17 to Rs17,573 billion in FY2025-26.

The trend highlights a deeper fiscal challenge: Pakistan’s current expenditure and debt-related obligations are taking up a larger share of the budget, leaving limited room for growth-supporting public investment.

The compression is visible in the PSDP’s share of the federal budget. In FY2017-18, when the PSDP stood at Rs1,001 billion against a federal budget of Rs5,100 billion, development spending accounted for 19.6 per cent of the budget. With the revised Rs820 billion figure for FY2025-26, the PSDP is less than five per cent of the federal budget.

The decline is also clear when measured against GDP. The presentation shows PSDP at around 2.6 per cent of GDP in FY2017-18. The revised FY2025-26 development spending is only 0.6 per cent of GDP, showing a sharp reduction in public investment space over the period.

PSDP is the federal government’s main tool for financing infrastructure, energy, water, transport, higher education, health, regional connectivity and other public-sector development projects. A smaller development outlay can slow project completion and reduce the government’s ability to support productivity and job creation through public investment.

According to the presentation, PSDP allocation stood at Rs360 billion in FY2012-13. The development outlay increased to Rs425 billion in FY2013-14, Rs525 billion in FY2014-15, Rs700 billion in FY2015-16 and to Rs800 billion in FY2016-17.

The allocation reached Rs1,001 billion in FY2017-18, one of the highest development outlays. However, it fell to Rs650 billion in FY2020-21. Development spending increased to Rs900 billion in FY2021-22 but dropped to Rs727 billion in FY2022-23. It then increased to Rs950 billion in FY2023-24 and Rs1,100 billion in FY2024-25 before the original FY2025-26 allocation of Rs1,000 billion was revised down to Rs820 billion.

The presentation also marks successive IMF programme periods along the PSDP trend, indicating that development spending has repeatedly come under pressure during fiscal adjustment cycles. While fiscal discipline remains necessary, repeated compression of development spending can weaken the public investment base if ongoing and priority projects are delayed or underfunded.

For citizens, the impact of lower development spending can be slower progress on roads, water schemes, public facilities, universities, hospitals and regional uplift projects. For businesses, weaker public investment can affect logistics, connectivity and infrastructure support needed to crowd in private investment.

The figures show that Pakistan’s budget challenge is not only about the size of total spending, but also about the shrinking space for productive expenditure. A PSDP revised to Rs820 billion in a Rs17,573 billion federal budget points to the growing difficulty of protecting development spending under tight fiscal conditions.

Credit: INP-WealthPk