Speaking at the Annual Plan Coordination Committee (APCC) meeting, Federal Minister for Planning, Development and Special Initiatives Ahsan Iqbal outlined the government’s economic targets and highlighted the difficult decisions that lie ahead in preparing the Public Sector Development Programmed (PSDP) for FY2026-27.

Development Demands Far Exceed Available Funds

The government’s development budget is under considerable pressure. Various ministries, departments, and coalition partners have collectively requested funding of more than Rs4 trillion for ongoing and proposed projects. However, the available allocation for the PSDP stands at only Rs1.126 trillion.

This large funding gap means that many projects may not receive financial support in the coming fiscal year. Policymakers will be forced to prioritize a limited number of initiatives while postponing or shelving others.

According to officials, development demands currently exceed available resources by nearly Rs3 trillion, making it impossible to accommodate every proposal.

Focus on Completing Existing Projects

The planning ministry has emphasized that completing ongoing projects will remain the government’s top priority. Pakistan’s federal development portfolio already carries a substantial backlog of unfinished schemes, requiring around Rs10 trillion in future funding commitments.

In addition to thousands of ongoing projects, ministries have proposed hundreds of new development schemes. Given the current fiscal situation, authorities believe it would be more practical to focus on projects that are already underway rather than launching a large number of new initiatives.

The government argues that completing existing projects can deliver quicker economic and social benefits while reducing future financial liabilities.

Key Areas Already Claiming Major Funding

A significant portion of the development budget has already been earmarked for strategic national priorities.

Among the largest allocations is funding for the N-25 Highway project in Balochistan, which the government considers a critical infrastructure initiative. Additional funds have been reserved for coalition partner projects, development schemes in Balochistan, and programmers for Azad Jammu and Kashmir, Gilgit-Baltistan, and the merged districts.

Resources have also been set aside for projects linked to the Sustainable Development Goals (SDGs) and for meeting Pakistan’s obligations under foreign-funded development programmers supported by international financial institutions.

These commitments leave limited fiscal space for new projects.

Economic Recovery Continues

Despite the budgetary constraints, the government remains optimistic about Pakistan’s economic trajectory. The projected GDP growth rate of 3.7% reflects expectations of improving economic activity, stronger investor confidence, and gradual stabilization after a challenging period marked by inflation, external financing pressures, and fiscal adjustments.

Officials believe that sustained economic growth will eventually create more room for development spending and public investment.

However, experts note that maintaining growth momentum will require careful fiscal management, increased productivity, and continued reforms aimed at strengthening the country’s economic foundations.

Balancing Ambition with Reality

Pakistan’s development needs remain substantial, ranging from infrastructure and energy projects to education, healthcare, and social welfare initiatives. Yet limited financial resources mean that difficult choices are unavoidable.

The government’s challenge is to strike a balance between ambitious development goals and fiscal discipline. By focusing on high-impact projects and completing ongoing schemes, policymakers hope to maximize public benefits while staying within budgetary limits.

As preparations for the next fiscal year’s budget continue, the debate over development priorities is expected to intensify. The decisions made today will play a crucial role in shaping Pakistan’s economic growth, infrastructure development, and public services in the years ahead.

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At the center of this shift is a significant reduction in development spending. The government has scaled back its public investment program by a substantial margin, redirecting funds toward fuel subsidies aimed at cushioning consumers—particularly farmers—from rising energy costs. While this move offers short-term relief, it comes at a cost. Development spending typically fuels infrastructure projects, job creation, and broader economic activity. Cutting it risks slowing momentum just as the economy was beginning to recover.

Earlier in the fiscal year, Pakistan showed signs of improvement, with growth picking up compared to the previous year. However, that progress is now under threat. External factors—especially volatility in global oil prices and disruptions linked to tensions in the Middle East—are adding pressure. For a country that relies heavily on imported energy, rising oil prices translate directly into higher costs across the economy, from transportation to industrial production.

Inflation is already reflecting these pressures. After a period of relative stability, prices have started climbing again, driven largely by energy and non-food items. This trend not only affects household purchasing power but also complicates economic management, as policymakers try to balance growth with price stability.

The decision to prioritize fuel subsidies highlights a difficult trade-off. On one hand, keeping diesel prices in check supports the agricultural sector and helps limit cost-push inflation. On the other, financing these subsidies through budget cuts reduces the government’s ability to invest in long-term growth. It’s a classic case of short-term relief versus long-term development.

Looking ahead, the timing of global disruptions suggests that the most severe effects may not be immediate. Supply chains typically take several months to adjust, meaning the full impact of current geopolitical tensions could become more visible in the early part of the next fiscal year. This lag creates additional uncertainty for businesses and policymakers alike.

There is also a broader global context to consider. Slowing international growth and rising inflation are creating a less supportive environment for emerging economies. For Pakistan, this means weaker export prospects and continued pressure on its external accounts.

Taken together, these factors point to a challenging period ahead. The economy is not in crisis, but it is clearly under strain. Achieving stable growth will require careful navigation of both domestic constraints and external risks. Policymakers will need to strike a delicate balance—supporting vulnerable sectors and controlling inflation, while also preserving the foundations for long-term economic expansion.

The coming months will be crucial in determining whether Pakistan can maintain stability or whether these pressures will lead to a more pronounced slowdown.

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