The federal government's development spending surged to Rs912 billion in the fiscal year 2025-26, exceeding the twice-downward revised allocation of Rs820 billion by Rs92 billion, according to provisional spending estimates. This overshoot has put the country's primary budget surplus condition with the International Monetary Fund (IMF) at risk.
Budget Cuts and Spending Overruns
The government had initially slashed the Public Sector Development Programme (PSDP) by Rs180 billion, or 18% of the annual allocations, to counter the impact of the Middle East conflict on the primary budget surplus target agreed with the IMF before the war. However, key ministries spent beyond their authorized limits, leading to a significant increase in overall expenditure.
Officials reported that until the final weekend of the fiscal year, expenses stood at Rs820 billion, but in the last few days, they rose sharply due to higher sanctions from the Accountant General of Pakistan Revenue Office. This raises concerns about the country's fiscal management systems, as ministries were found to be spending more than allocated.
Foreign Loans and Provincial Shares
Out of the Rs912 billion, foreign loans accounted for Rs244 billion, or 26% of total federal spending, higher than anticipated. Sources indicated that the finance ministry slowed releases of provincial governments' shares from the National Finance Commission (NFC) pool to ensure the IMF's primary budget surplus condition was met. The government had agreed to achieve a primary budget surplus of 2.6% of GDP despite the adverse effects of the Middle East conflict.
Despite repeated attempts, finance ministry officials declined to comment on the development. Although spending exceeded the allocation, it was still Rs176 billion less than the preceding fiscal year's Rs1.088 trillion PSDP expenditure.
Sectoral Breakdown of Overspending
The Power Division spent Rs122 billion against its revised allocation of Rs73 billion, with significant amounts booked in the last few days. Its original allocation had been cut by Rs18 billion to Rs73 billion, but actual spending surpassed even the original allocation. The Water Resources budget was cut to Rs102 billion, but actual spending surged to Rs137 billion. The National Highway Authority (NHA) adhered to its revised budget of Rs182 billion, spending the entire amount without exceeding the limit.
The Revenue Division (Federal Board of Revenue) spent Rs14.8 billion on development, Rs2.6 billion more than its allocation, despite missing the IMF's downward revised revenue target by roughly Rs970 billion. The Railways Division spent Rs35 billion, Rs16.5 billion above its allocation, with the additional funding provided by the Sindh government for the Thar coal project. The Ministry of Finance itself spent Rs1.9 billion, a few million rupees over its allocation.
Last-Minute Spending and Regional Projects
Of the total Rs912 billion, Rs382 billion was booked in the final month of the fiscal year, indicating delayed booking to align with IMF targets. Spending on provincial nature projects and special areas stood at Rs191 billion, Rs4 billion below the revised allocation. In the merged districts of Khyber-Pakhtunkhwa, Rs50 billion was spent on development, while Azad Kashmir and Gilgit-Baltistan incurred Rs66.5 billion in development expenses. Provincial nature projects received Rs74 billion, a breach of the National Fiscal Pact that adds pressure on federal finances.
The federal government requires Rs11 trillion to complete ongoing projects, leading to cost escalations and undermining the objectives of mega development projects. To expedite construction of mega dams facing fund shortages, the Centre has approached provinces for over Rs1 trillion in cash grants for dams and defence. The government is also purchasing three helicopters for each mega dam to ensure the security of foreign workers.
