ISLAMABAD: The federal government has announced that the upcoming fiscal year’s budget will be presented on June 2. A substantial 16% reduction in development spending is expected, with the Public Sector Development Programme (PSDP) budget slashed to Rs 921 billion.
This significant cut is anticipated to result in the discontinuation of approximately 200 ongoing development schemes.
The announcement was made by Planning Minister Ahsan Iqbal during a press conference, where he revealed that the Ministry of Finance had set an indicative budget ceiling (IBC) of Rs921 billion for the PSDP for the upcoming fiscal year.
This figure is dramatically lower than the Rs2.9 trillion requested by the Planning Commission, which was based on submissions from various ministries outlining their development needs.
This proposed allocation is also roughly 16% below the revised PSDP budget of the current fiscal year, which had already been reduced from Rs1.4 trillion to Rs1.1 trillion at the direction of the International Monetary Fund (IMF).
Minister Iqbal stated his intention to formally challenge the IBC and request an increase in the development budget to at least Rs1.6 trillion. This increase is necessary, he said, to provide the required rupee counterpart funding for foreign-aided projects.
During the event, the minister also introduced the Planning Ministry’s new Monthly Development Update for May 2025, modeled on the Finance Ministry’s Monthly Economic Outlook.
This publication aims to offer regular updates on development progress and fiscal health.
Responding to media queries, Mr. Iqbal said that so far, disbursement authorization had been issued for around Rs900 billion of the current fiscal year’s Rs1.1 trillion PSDP. He expressed hope that more authorizations would be approved in May and June.
Tax to GDP
However, he acknowledged that the Finance Division faces significant fiscal constraints and emphasized that improvements in the tax-to-GDP ratio are essential to increase development funding.
He noted that the Annual Plan Coordination Committee will meet on May 23 to finalize the forthcoming fiscal year’s development strategy in coordination with provincial governments, Azad Jammu and Kashmir, and Gilgit-Baltistan.
Additionally, the National Economic Council (NEC) is slated to meet on May 26 or 27 to formally approve the development plan and set macroeconomic targets.
Regarding the upcoming development budget, Mr. Iqbal voiced concern that the Rs2.9 trillion development requirement received only a Rs921 billion ceiling, which is approximately Rs178 billion less than even the revised budget for the current year.
“This is a matter of serious concern,” the minister remarked. “Such a constrained allocation will also impact the inflow of foreign exchange. We estimate needing around Rs700 billion in rupee counterpart funding to utilize foreign financing in the next budget. Without this, we risk leaving significant external resources unused.”
He warned that the limited budget would make it impossible to provide adequate funding for critical national projects, resulting in delays and higher project costs over time.
He added that the number of provincial projects included in the PSDP would be cut down, and approximately 200 slow-moving projects would be terminated.
Project Irregularities and Cost Escalations
Minister Iqbal highlighted alarming examples of project mismanagement and cost overruns.
The Diamer-Bhasha Dam’s estimated cost has soared from Rs480 billion to Rs1.5 trillion, largely due to implementation delays.
Likewise, the Dasu Hydropower Project’s budget has surged from Rs500 billion to Rs1.7 trillion.
He criticized the Dasu project’s management, pointing out that no dedicated project director or chief financial officer (CFO) was appointed, and instead, the project was operated solely by WAPDA personnel.
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Contracts for local infrastructure, including roads, were even awarded in US dollars, which he described as highly irregular.
He stressed that there must be accountability for these lapses, which have seriously undermined the financial viability of these major infrastructure initiatives.
The minister also addressed irregularities in the Neelum-Jhelum Hydropower Project.
He noted that the project was initiated in haste, with the contractor being mobilized before the consultant was even appointed—an approach he described as fundamentally flawed.
He further shared a startling revelation: during a project review meeting, he asked the Neelum-Jhelum CFO about his qualifications and was shocked to learn the individual held a master’s degree in geography—completely unrelated to finance or hydropower project management.
He added that the government was awaiting a report from the International Marine Corps on the causes behind the operational failures at Neelum-Jhelum.
Reforming WAPDA Leadership
In response to a question about leadership at WAPDA, Minister Iqbal advocated for appointing a civilian as the organization’s chairman—specifically, someone with internationally recognized expertise in hydrology.
He stated that he intends to recommend this change to the Prime Minister.
Looking ahead, the minister reaffirmed the government’s commitment to aligning development spending with the objectives of the “Uraan Pakistan” initiative.
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This programme focuses on stimulating economic growth and creating employment opportunities.
Projects approved under Uraan are projected to generate around 120,000 direct and indirect jobs, he said.
