Govt approves Rs1tr uplift budget

The government on Monday approved a Rs1 trillion federal development budget and set the economic growth target at 4.2% for the next fiscal year, as Planning Minister Ahsan Iqbal said that the development budget cuts could compromise economic growth and delay strategic projects.

The Annual Plan Coordination Committee (APCC) approved a record Rs4.1 trillion national development outlay, primarily backed by a Rs2.8 trillion financing envelope from the four provinces. Despite limited resources, the Sindh government secured Rs86 billion from the federal Public Sector Development Programme (PSDP), leveraging its alliance with the ruling coalition. "The Pakistan Peoples Party took advantage of being an ally of the government that is dependent on its vote for the budget," said a cabinet minister.

Planning Minister Ahsan Iqbal, speaking after chairing the APCC meeting, said the Rs1 trillion PSDP includes Rs120 billion earmarked for the N-25 Quetta-Chaman-Karachi expressway. He confirmed that the committee had also approved a 4.2% growth target and a 7.5% inflation target for the fiscal year 2025-26. These recommendations will now be submitted to the National Economic Council for final approval, said Iqbal.

He identified top-priority projects for the upcoming year, including the Diamer Basha Dam, the Karakoram Highway, the Hyderabad-Sukkur Motorway, and the N-25 Expressway from Karachi to Quetta. However, he expressed concern that the remaining Rs880 billion after accounting for the expressway would be inadequate, potentially compromising future economic growth. He added that enhancing the development budget would be impossible without a significant increase in tax revenues.

"The water sector is our priority, but due to limited resources and with the current allocation, it will take 20 years to complete the Diamer Basha dam project," said Iqbal. He maintained, however, that the government would strive to allocate maximum resources to ensure its completion within the next three to four years. Ironically, despite increasing threats from India over water security, the federal water sector allocation has been slashed by 45% or Rs 119 billion, bringing it down to Rs 140 billion for FY2025- 26.

The planning minister reiterated that the commodity-producing sectors are expected to grow by 4.4%, led by a 4.5% recovery in agriculture and 3.5% growth in large-scale manufacturing. Exports are projected at $35 billion, while foreign remittances are expected to exceed $39 billion. "I am thankful to overseas Pakistanis who, despite calls to the contrary, sent $10 billion in additional remittances over the past two years," he added.

The Rs1 trillion federal PSDP was finalised by a committee formed by Prime Minister Shehbaz Sharif. According to the APCC working paper, this year's development outlay is Rs300 billion or 8% higher than the previous year's budget. The four provincial governments are set to increase development spending by 28% from their resources, enabled by substantial revenues under the 2010 National Finance Commission (NFC) award.

Despite the record outlay, the Rs1 trillion federal PSDP is Rs400 billion lower than the originally approved budget for the current fiscal year. To fund this, the federal government plans to borrow Rs270 billion externally.

The four governments plan to spend Rs2.8 trillion, higher by Rs609 billion or 28% over this year's original budget. Provincial governments will borrow Rs802 billion, while state-owned companies will spend another Rs288 billion outside the federal budget. Punjab leads provincial spending with a proposed Rs1.19 trillion allocation, 41% higher than last year. Khyber-Pakhtunkhwa (K-P) follows with Rs440 billion, reflecting a 63% increase. Sindh will spend Rs887 billion, up 7%, and Balochistan plans to spend Rs280 billion, marking an increase of Rs32 billion.

KP's Finance Advisor, Muzzammil Aslam, criticised the federal government for allocating disproportionately less funding to his province compared to Sindh. "Only Rs3 billion were allocated to K-P, while Sindh received Rs47 billion. Punjab got Rs15 billion," he said. In response, Iqbal clarified that Rs70 billion has been allocated for K-P's merged districts and that the federal government is cutting back on spending for projects that fall under provincial jurisdiction.

The APCC decided not to include any new provincial-nature projects in the PSDP due to fiscal limitations and imposed a moratorium on the approval of projects costing up to Rs1 billion until the International Monetary Fund (IMF) programme concludes.

Despite these constraints, 30-40% of PSDP funds are still being directed to provincial-nature projects, which the planning ministry said have significantly hampered progress on large-scale national initiatives. In contrast, funding for the National Highway Authority (NHA) has increased by Rs49 billion, or 27%, to Rs229 billion.

However, to accommodate the political priorities of coalition partners, the government has proposed sharp reductions in water and power sector budgets. The power sector's funding is down 41% or Rs72 billion—to Rs104 billion. The federal education ministry's budget is reduced by 27% to Rs20 billion, while the Higher Education Commission will face a 32% cut, reducing its budget to Rs45 billion.

Still, the government has retained Rs50 billion for parliamentarians' schemes under the Sustainable Development Goals Achievement Programme.

Currently, 1,071 development projects with a total cost of Rs13.4 trillion are under implementation. These projects require an additional Rs10.2 trillion to be completed, and the planning ministry estimates it would take more than a decade to finish them all. Iqbal stated that the ministry has identified 183 slow-moving or problematic projects, mostly under the DDWP, that should be capped or closed by June 2025. "By capping or closing these projects, around Rs1 trillion could be saved, freeing up Rs100 billion immediately for fast-moving projects," he said.