The Public Sector Development Programme (PSDP) for 2025-26 has been set at Rs880 billion, reportedly the lowest in four years. This reduction comes at a time when Pakistan requires stronger investment in long-term growth, social infrastructure, and climate resilience.
Over 55 percent of federal spending now goes toward interest payments on domestic and external debt, which has crossed Rs75 trillion. As a result, fiscal space has narrowed sharply.
The Federal Board of Revenue (FBR) has missed its collection target by nearly Rs1.008 trillion in the first 11 months of FY25. With the national tax-to-GDP ratio still hovering under 10 percent-among the lowest globally-Pakistan faces a widening fiscal imbalance.
To its credit, the government has attempted to prioritise essential infrastructure, with Rs664 billion of the PSDP allocated to energy, transport, and water-related projects. These sectors are critical for economic connectivity and commercial activity. However, they alone cannot deliver inclusive or equitable growth. The last few years have already seen human development indicators fall behind.
The federal education budget has been slashed to Rs20 billion (a 27 percent reduction) while the Higher Education Commission faces a cut to Rs45 billion. Public health, already underfunded at just 1.2 percent of GDP, is again facing real-term reductions. With over 26 million children currently out of school, deeper cuts risk further entrenching poverty and low productivity.
Austerity alone cannot deliver fiscal sustainability. Real reform must begin with those most capable of contributing. As Planning Minister Ahsan Iqbal has rightly argued, tax collection and reform should now be treated as a matter of national security. There is a compelling case for expanding the tax net to include under-taxed sectors such as real estate, retail, and agriculture. The “non-filer” category needs to be abolished while the FBR drastically improves its game with a focus on digital tracking, compliance, and data integration.
Another source of waste is poor project execution. Only 41 percent of the PSDP was utilised in the first ten months of FY25. Delays and inefficiencies continue to sap public value. Timely completion, transparent selection criteria, and rigorous monitoring would have to become the norm.
Public-private partnerships can help bridge financing gaps, especially for green infrastructure, but they will only succeed if well-designed. At the same time, the focus of development spending should shift toward areas with the highest return: education, healthcare, family planning, and climate resilience.
Pakistan cannot afford for development to remain the first casualty of adjustment. Belt-tightening is necessary but it must start with the ultra-wealthy, not with children’s futures. *