The federal government’s development spending slowed to Rs115 billion in the first five months of the fiscal year due to fiscal constraints, far below the Rs376 billion allowed under the Public Sector Development Program (PSDP) for 2024-25.
The Ministry of Planning authorized significant spending from July to November, but actual spending represented only 10% of the downwardly revised annual development budget.
The slow pace reflects limited resources, project delays, and capacity constraints, as the government attempts to achieve the primary surplus target set under its agreement with the International Monetary Fund. The Federal Board of Revenue (FBR) failed to meet its tax collection target by Rs341 billion during the same period, exacerbating fiscal pressures.
Despite the deficit, the government last week approved 15 development projects worth Rs422.7 billion. While some of these projects will be financed by the provinces, others have been added to the federal portfolio, in violation of obligations under the National Fiscal Compact directed by the International Monetary Fund. Under this agreement, the federal government must reduce its influence on projects within provincial jurisdictions.
One such project is to review the costs of extending the KLM starting point to Sajyan Road and Ravi Main Bridge at Rs 12.1 billion. The project primarily benefits the state of Punjab and does not fall within the national domain. Likewise, the construction of Manji Dam and its water transmission system has been approved at a revised cost of Rs 19 billion, to be jointly financed by the federal and provincial governments.
The decrease in development spending also affected foreign exchange reserves due to the decrease in foreign lending. The government expected to provide foreign loans worth 220 billion rupees for development projects this fiscal year, but actual utilization reached only 5.2 billion rupees in the first five and a half months.
Spending in special regions and provinces was also affected. Against an annual allocation of Rs223 billion, only Rs42 billion has been spent so far. This includes Rs17.7 billion on projects in Azad Jammu and Kashmir and Gilgit-Baltistan, Rs15.8 billion on merged areas of Khyber Pakhtunkhwa, and Rs8.7 billion on projects located in other provinces.
As of December 10, 2024, total development spending reached Rs 130 billion, reflecting a decline of more than 13% compared to the same period last year.