Rs1tr PSDP marked by political priorities

Marred by political considerations and fiscal constraints, the coalition government has proposed a Rs1 trillion Public Sector Development Programme (PSDP) for FY2025-26 – a significant cut from last year's original Rs1.4 trillion allocation.

The reduced PSDP reflects the government's prioritization of infrastructure projects, particularly roads, often aligned with coalition allies' interests. In contrast, funding for education, health, space, and atomic energy programmes has been scaled back.

The previous year's PSDP was trimmed mid-year to accommodate power subsidies and meeting IMF programme targets.

For 2025-26, allocations for Sindh-specific schemes and parliamentarians' discretionary projects have increased, indicating a tilt toward politically strategic spending.

The PSDP 2025-26 book shows the government's political priorities to appease allies and spend more on roads.

It approved reduced budgets for Pakistan's space and atomic energy programmes, health and education but increased allocations for Sindh-specific projects and the parliamentarians' schemes.

Major allocations have been proposed for the discretionary spending on the schemes recommended by the parliamentarians, Sindh-specific infrastructure projects and an enhanced allocation for the National Highway Authority.

The allocations for water, power and railways have been drastically reduced to create fiscal space for the politically oriented projects.

As against this year's Rs25 billion budget for discretionary spending on the parliamentarians schemes, the allocation has been proposed at Rs70 billion in the new budget, showing an increase of 172% in the middle of the tight fiscal space.

The defence ministry's development budget has also been increased by 114% to Rs11.6 billion for the new fiscal year.

For the provinces, special areas allocations have been proposed to be increased from Rs227 billion to over Rs253 billion due to coalition party-related spending compulsions.

Within this, the allocation for the provincial projects has been proposed to be increased from Rs83 billion to Rs106 billion.

The 28% increase in the provincial projects' allocations has been mainly given to address the concerns of the Pakistan Peoples Party (PPP), said a cabinet minister on condition of anonymity.

Pakistan had committed to the IMF that the federal government would not allocate funds for provincial nature schemes. However, such a huge allocation is in breach of that commitment and the National Fiscal Pact.

The Higher Education Commission's budget is drastically reduced to Rs39.4 billion, a reduction of Rs21.5 billion or 35%. The cut has been made to create room for spending on infrastructure projects.

The health ministry's budget is cut to Rs14.3 billion – a reduction of Rs10 billion.

Suparco's budget has been reduced from Rs24.2 billion to just Rs5.4 billon — a cut of 77% compared to the last year. The Pakistan Atomic Energy Commission's budget is reduced from Rs25 billion to Rs781 million, a reduction of 96%. A Finance Ministry official said that these entities had self-generated resources and did not need major allocations from the budget.

Currently, 1,071 development projects with a total cost of Rs13.4 trillion are under implementation. These projects require an additional Rs10.2 trillion for their completion, and the planning ministry estimates it would take more than a decade to finish them all.

The government has also proposed Rs16.2 billion for the information technology ministry, which is lowered by 32% over this year's allocation.

The planning ministry stated that the PSDP 2025-26 has been formulated under a resource-constrained environment, marked by fiscal discipline, yet guided by an unwavering focus on development priorities.

It added that drawing from the lessons of the ongoing PSDP 2024-25 and recommendations from various institutional reviews, including those under the IMF's Public Investment Management Assessment (PIMA) framework, a thorough review has been undertaken to prune the sick and non-performing projects in order to focus on priority projects that contribute to national development, economic growth and Uraan Pakistan framework.

In the new budget, the government has planned to complete or initiate work on some mega and core national projects. These projects include N25 Quetta-Karachi, which is being funded by increasing petroleum levy by Rs8 per litre.

Other priority projects include Sukkur-Hyderabad Motorway M-6, Dasu Hydro Power Project, including evacuation, Diamer Basha Dam projects, Mohmand Dam, K-IV and Water Augmentation projects of Karachi, Supply of power to Allama Iqbal Industrial City, Karachi and Islamabad IT Parks.

The government has also included the World Bank-funded Pakistan Raises Revenue project in its priority list, which is considered a failed project.

The planning ministry stated that among other priority projects are reconstruction of houses and schools damaged in Sindh in floods, Post-flood 2022 Reconstruction Programme in Balochistan, Thar Coal Rail Connectivity, Cancer Hospital in Islamabad, Prime Minister's National Programme for Control of Hepatitis 'C' and Diabetes.

The document showed that the government has reduced the allocation for the water projects from Rs185 billion to Rs133.5 billion — a cut of Rs52 billion compared to last year. It also slashed the railway ministry allocation from Rs35 billion to Rs22.5 billion — a reduction of 37%.

The power sector development budget allocation is reduced from Rs105 billion to Rs90 billion — a reduction of 28%. However, the NHA's budget is increased from Rs161 billion to Rs227 billion — a jump of Rs66 billion or 41%.

The NHA budget has been increased to fund major infrastructure projects. Among the priority road schemes are widening and improvement of N-5 (Phase-I), Mashkhel Panjgur Road and East Bay Expressway Phase-II in Gwadar.

Strategic advancements in space science are also prioritised through the Pakistan Manned Space Mission and the Pakistan Lunar Exploration Rover, according to the Planning Ministry.