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Development spending under the federal Public Sector Development Programme (PSDP) remained sluggish during the first five months of the current fiscal year, with utilisation reaching only 9.2% of the Rs1 trillion annual allocation, reflecting fiscal restraint tied to Pakistan’s commitments under the IMF programme.
According to the Ministry of Planning and Development’s Monthly Development Outlook for December 2025, the government spent Rs92 billion between July and November against Rs196 billion sanctioned for the period. This was 20% lower than the Rs115 billion utilised during the same period last year.
The ministry attributed the slowdown mainly to reduced spending by provinces, special areas, and the Ministry of Railways. Infrastructure projects accounted for the bulk of development spending, while foreign-funded projects showed relatively higher utilisation, with Rs12.8 billion spent out of Rs25.1 billion approved.
Infrastructure received Rs626.77 billion, or 63% of the total PSDP allocation for FY26, but only Rs55.24 billion had been utilised by November 30. Within infrastructure, transport and communication accounted for the largest allocation of Rs333.48 billion, with spending of Rs30.43 billion.
The energy sector recorded particularly weak utilisation, spending Rs3.52 billion against an allocation of Rs122.65 billion, while physical planning and housing spent Rs7 billion out of Rs72.73 billion. The water sector showed relatively better performance, with Rs14.28 billion spent out of Rs98 billion.
Utilisation was higher in the social sector, allocated Rs169.31 billion, where education, including higher education, spent Rs12.29 billion out of Rs60.75 billion. However, health and nutrition remained severely underfunded, with only Rs211 million spent against Rs16.8 billion.
IMF Commitments and Revenue Pressures
The report noted that the government has provided written contingency commitments to the IMF following a $1.2 billion disbursement, as the cumulative revenue shortfall reached Rs430 billion in the first five months of FY26.
Under these commitments, if FBR collections continue to underperform, the government may raise federal excise duty on fertilisers and pesticides, impose FED on high-value sugary items, and shift selected goods to the standard sales tax regime. Further expenditure may also be deferred to the final quarter of FY26 if revenue losses persist.
Despite a budget surplus of 1.6% in the first quarter, supported by higher State Bank profits and petroleum levy collections, development releases remained limited. The government has begun closing low-priority projects to concentrate funding on strategically important schemes nearing completion.
The PSDP portfolio includes 86 foreign-funded projects with a total foreign cost of Rs4.2 trillion, while a recent review found that 313 projects are expected to be completed during the fiscal year.
