Pakistan to slash PSDP to PKR 1 trillion for FY26, ramp up provincial spending amid IMF push

Pakistan has proposed trimming its Public Sector Development Program (PSDP) to PKR 1 trillion for fiscal year 2025-26 (FY26), down from PKR 1.1 trillion in the current fiscal year, as part of broader efforts to tighten spending and meet fiscal targets under the IMF program, according to a Planning Commission document received by Nukta.

The biggest cut is proposed in the infrastructure sector, with its allocation dropping to PKR 644 billion in FY26 from PKR 661 billion in FY25. Within this, funding for energy and water is proposed to be slashed by PKR 25 billion and PKR 26 billion, respectively.

Meanwhile, the transport and communication sector stands out as a rare winner, with its proposed allocation surging from PKR 268 billion to PKR 332 billion — an increase of 24%.

According to the Planning Commission document available with Nukta, social sector funding may also see a significant decline of PKR 50 billion in allocation, falling to PKR 150 billion from PKR 200 billion.

The education sector, including the Higher Education Commission, may face a PKR 20 billion reduction to reach PKR 63 billion, while the health sector's allocation may shrink from PKR 35 billion to PKR 22 billion.

However, allocation for the SDGs Achievement Program may remain steady at PKR 50 billion.

Development spending in special areas — Azad Jammu and Kashmir and Gilgit-Baltistan — and science & IT may be cut by 16% to PKR 63 billion and by 14% to PKR 53 billion, respectively.

In contrast, merged districts may get a flat PKR 70 billion allocation, despite Khyber Pakhtunkhwa's complaints that it has not received the full allocated amount in the current fiscal year.

The proposed budgetary squeeze is more visible in the production sectors — food, agriculture, and industries — where allocations may drop from PKR 15 billion to PKR 11 billion, raising concerns about neglected supply-side reforms amid surging inflation.

Provincial development outlays are expected to rise substantially to PKR 2.795 trillion in FY26 from PKR 2.186 trillion originally budgeted for FY25, with Punjab and Sindh accounting for the lion’s share.

Punjab's Annual Development Program (ADP) is expected to grow by 41% to PKR 1.188 trillion, while Sindh's is expected to climb 7.2% to PKR 887 billion. Likewise, Khyber Pakhtunkhwa's development allocation will likely increase by 63.5% to PKR 440 billion and Balochistan by 12.9% to PKR 280 billion.

Total public investment — combining federal, provincial, and foreign-aided projects — is projected at PKR 4.083 trillion for FY26, up from PKR 3.458 trillion in FY25. Federal outlay, including foreign aid, is forecast at PKR 1.0 trillion.

Ministries and divisions are proposed to receive PKR 756 billion, while state-owned corporations like the NHA and power sector entities are proposed to receive PKR 244 billion.

As of June 2024, Pakistan is expected to utilize PKR 1.096 trillion of its PSDP allocation, according to official projections, closely matching its revised allocation of PKR 1.1 trillion. The development cuts reflect Islamabad’s balancing act between infrastructure needs and fiscal consolidation in a high-debt environment.