The government’s development spending has slowed significantly, reaching only Rs115 billion during the first five months of the fiscal year due to tightening fiscal constraints and IMF-driven economic policies. Despite limited resources, federal authorities continue to allocate funds to provincial projects, raising concerns over resource prioritization and fiscal management.
Fiscal Constraints Hamper Development Spending
Between July and November 2024, the actual development spending stood at Rs115 billion, far lower than the Rs376 billion that had been authorized under the Public Sector Development Programme (PSDP) for 2024-25. This substantial gap highlights issues such as:
- Slow fund disbursement processes
- Resource scarcity
- Inefficiencies in project execution
The Federal Board of Revenue (FBR) further compounded these fiscal pressures by missing its five-month tax target by a margin of Rs341 billion, limiting available funds for development initiatives.
IMF Conditions Squeeze Federal Development
To meet its primary budget surplus target set under the International Monetary Fund (IMF) bailout program, the federal government has scaled back its development spending. The situation has led to delays in ongoing projects, negatively impacting economic growth.
Despite these constraints, the government recently approved 15 development projects worth Rs422.7 billion. While some of these projects will receive funding from provincial governments, many others have been added to the federal development portfolio, straining federal finances further.
Violation of National Fiscal Pact
The federal government’s decision to approve provincial-level projects breaches the commitments under the IMF-backed National Fiscal Pact, which demands a reduced federal role in development projects. Under the 18th Amendment, provinces are responsible for managing development projects within their jurisdictions.
For example:
- The Ravi Bridge Extension project, valued at Rs12.1 billion, will serve Punjab but holds no national significance.
- Similarly, the upward cost revision for the Mangi Dam and water supply system, now costing Rs19 billion, will be shared equally by federal and provincial authorities.
This trend of adding provincial projects undermines efforts to streamline federal spending and creates further fiscal imbalances.
Development Spending by Region and Sector
Allocations for provinces and special regions have been severely impacted:
- Out of an annual allocation of Rs223 billion, only Rs42 billion has been spent.
- Azad Jammu & Kashmir and Gilgit-Baltistan received Rs17.7 billion.
- Projects in merged districts of Khyber-Pakhtunkhwa received Rs15.8 billion.
- Spending in other provinces stood at Rs8.7 billion.
In sectors like energy and infrastructure, the spending remained far below targets. For instance, the Pakistan Atomic Energy Commission spent only Rs6.7 billion against an annual allocation of Rs25 billion. Similarly, NTDC and PEPCO utilized just Rs3.8 billion of their Rs33 billion allocation.
Foreign Loans and Fiscal Space
The IMF had previously flagged Pakistan’s development spending as “unaffordable” due to its limited fiscal space. The country requires over Rs12 trillion to complete ongoing projects, which would take at least 14 years at the current pace.
Pakistan’s reliance on foreign loans for development has also faced challenges:
- Against an estimated Rs220 billion in foreign loans for the year, only Rs5.2 billion has been utilized so far.
The failure to tap into foreign funding has adversely affected the country’s foreign exchange reserves and the pace of project implementation.
Conclusion
The federal government’s development spending slowdown to Rs115 billion underscores Pakistan’s ongoing fiscal challenges, resource scarcity, and IMF-driven austerity measures. While the approval of new provincial projects raises concerns over fiscal responsibility, it also highlights the need for better financial planning and prioritization. Resolving these challenges is crucial for sustainable economic growth and efficient resource allocation across all regions.