PSDP cut to Rs837bn as Gulf crisis bites.
Key Takeaways:
- Pakistan’s development budget has been cut for the second time this fiscal year, dropping from Rs1,000bn to Rs837.16bn, a total reduction of Rs162.84bn.
- The second cut of Rs62.84bn follows an earlier Rs100bn reduction, both driven by rising oil prices and Gulf tensions squeezing fiscal space.
- Water Resources at Rs106.6bn and provinces and special areas at Rs201.3bn remain among the largest allocations in the revised PSDP.
Islamabad, Pakistan – Pakistan’s development ambitions have taken another hit. With the fiscal year winding down and Gulf tensions driving up oil prices, the government has made a second downward revision to its Public Sector Development Program, cutting the development budget by a further Rs62.84 billion to arrive at a final allocation of Rs837.16 billion, down from an original budget of Rs1,000 billion.
A news story reported by The News, written by Mehtab Haider, revealed that the Ministry of Finance has officially communicated to the Planning Ministry that the PSDP allocation was further revised downwards from Rs1,000 billion to Rs837.16 billion for the current fiscal year 2025-26, ending on June 30, 2026. Planning Minister Ahsan Iqbal confirmed the revision to the publication.
Pakistan has now cut its development budget by more than 16 per cent since the fiscal year began. Every billion shaved off is a road not built, a hospital not equipped, a school not opened.
How the Cuts Unfolded
The reductions came in two rounds. First, the government trimmed the PSDP from Rs1,000 billion to Rs900 billion, a Rs100 billion cut. Now, in a second communication from the Finance Ministry to the Planning Commission, the allocation has been pushed further down from Rs900 billion to Rs837.16 billion, bringing the total reduction to Rs162.84 billion across both rounds.
Pakistan Today reported that Planning Minister Ahsan Iqbal himself had acknowledged the Middle East crisis as a live threat to domestic finances, warning that tensions in the Middle East and developments in global energy markets remain potential risks for domestic inflation, and that the region is currently facing a major oil crisis affecting not only developed economies but also developing countries.
Who Gets What in the Revised Allocation
According to the official communication reported by The News, the revised PSDP allocations across major sectors and divisions are as follows. Water Resources Division receives the largest single allocation at Rs106.6 billion, followed by Provinces and Special Areas at Rs201.283 billion, which includes AJK and Gilgit-Baltistan at Rs67.975 billion, merged districts of KP at Rs54.185 billion, and associated ADP allocations. Higher Education Commission receives Rs34.9 billion. Federal Education and Professional Training is allocated Rs26.6 billion. Planning Commission receives Rs20.4 billion, Railways Division Rs18.558 billion, Information Technology Rs18.4 billion, and National Health Services Rs11.6 billion.
Other notable allocations include Interior Division at Rs11.5 billion, Revenue Division at Rs12.213 billion, SUPARCO at Rs4.486 billion, Science and Technology at Rs3.396 billion, Maritime Affairs at Rs2.6 billion, and the Special Investment Facilitation Council at Rs503 million.
The Cabinet Division’s SDGs Achievement Program for parliamentarians was trimmed from Rs75 billion to Rs63.2 billion, while Defence Division was allocated Rs9.02 billion.
The development budget started the year at Rs1,000 billion. It will end at Rs837 billion. That Rs163 billion gap is the direct cost of a foreign crisis that Pakistan had no hand in creating.
The Broader Context
This revision is consistent with a pattern seen in previous fiscal years. Dawn had reported that PSDP utilisation has historically lagged significantly behind allocations, noting that as recently as November 2024 only a small fraction of allocated funds had been spent against the revised PSDP cap at that time. Slow project execution has long been a structural weakness, meaning actual spending may fall well short of even this reduced figure by June 30.
The cuts also come as Pakistan maintains its IMF programme, under which fiscal consolidation and primary surplus targets impose hard constraints on how much the government can spend, regardless of development needs.
