The government proposed a record Rs1.22 trillion for the federal Public Sector Development Programme (PSDP) for the upcoming budget, with 59% allocated for infrastructure projects. Despite this significant allocation, it remains less than half of the estimated financing requirements.
In a notable policy shift, the government has attempted to align the development budget with the requirements of the Constitution and the National Finance Commission. The Annual Plan Coordination Committee (APCC), responsible for these decisions, also approved the elimination of discretionary spending budgets for parliamentarians. Major energy sector projects have been prioritized, receiving 31% of the proposed budget.
The proposed Rs1.221 trillion budget represents a 64% increase from this year’s revised PSDP and a 30% rise from the original budget of the current fiscal year. Initially, Rs950 billion was allocated for the outgoing fiscal year, but actual spending is expected to be around Rs746 billion.
The planning ministry opposed the finance ministry’s decision to cut the development budget to meet International Monetary Fund (IMF) targets. During this fiscal year, Rs20 billion was diverted to non-development expenses, and an additional Rs184 billion was cut in the last quarter to maintain the primary budget balance.
The APCC’s recommended budget is 51% less than the Rs2.5 trillion estimated by the planning ministry and executing agencies. However, after intervention from Prime Minister Shehbaz Sharif, the finance ministry agreed to increase the proposed allocation from Rs1 trillion to Rs1.22 trillion. Former Prime Minister Nawaz Sharif was also briefed on the development budget in Lahore.
The National Economic Council (NEC) will review the APCC’s recommendation for approval in its meeting next week. Although the planning ministry planned to hold the NEC meeting on Monday, the Cabinet Division has not yet notified the body. PM Sharif, who will chair the NEC, has the constitutional mandate to approve the national development outlay, including the federal PSDP. The budget announcement is expected on June 10th after the prime minister’s return from Beijing.
For infrastructure, the government has proposed Rs877 billion, an increase of Rs324 billion or 59% over this year’s original budget. The energy sector projects would receive Rs378 billion, a 212% increase. The transport sector allocation is proposed to decrease from Rs245 billion to Rs173 billion, a 44% reduction. Water sector projects would get Rs284 billion, a 92% increase. However, details of the National Highway Authority and the Water Resources Ministry’s projects were not available as of Friday morning.
Allocations for the social sector have been drastically reduced to align with the National Finance Commission Award. The social sector development budget is cut by Rs120 billion or 59% to Rs83 billion for the next fiscal year. The budget for parliamentarians’ schemes has been completely abolished. Within the social sector, the health development budget is reduced by 53% to Rs17 billion, and the education sector budget is slashed by 61% to Rs32 billion, with the Higher Education Commission receiving Rs21 billion, nearly 65% less than this year.
The development budgets for the Azad Jammu & Kashmir and Gilgit-Baltistan governments remain unchanged at Rs51 billion for this fiscal year. The budget for the merged districts of Khyber-Pakhtunkhwa is also unchanged at Rs57 billion.
The APCC recommended that the Ministry of Finance devise a flexible budget release strategy, allowing 25% releases for each quarter to ensure sufficient and timely availability of funds. The Ministry of Planning proposed that the finance ministry should be barred from deducting interest on loans given to the National Highway Authority, which indicated a Rs92 billion budget for next year against a demand for Rs385 billion. It has also been proposed that the development budget should not be reallocated for non-development expenditure in the next fiscal year.
Facing serious fiscal constraints, the government lacks sufficient resources to fund the already approved schemes, with total financing requirements estimated at Rs9.8 trillion. The size of the PSDP as a percentage of GDP has shrunk from 1.7% of GDP in 2013 to 0.9% in 2023-24. The PSDP is also decreasing in real terms due to inflation and rupee depreciation, the APCC was informed.
