ISLAMABAD: The federal government on Monday approved a national development programme worth Rs4.3 trillion for the new fiscal year, with provinces funding three-fourths of the total. Planning Minister Ahsan Iqbal revealed that Rs87 billion has been allocated for what he termed the "cost of a coalition government."
Annual Plan Coordination Committee Recommendations
The Annual Plan Coordination Committee (APCC) recommended a total national development budget of Rs4.264 trillion for fiscal year 2026-27, pending final endorsement by the National Economic Council (NEC). Prime Minister Shehbaz Sharif will chair the NEC meeting scheduled for Wednesday to approve the plan. Sources indicated that the prime minister has requested the finance ministry to find approximately Rs200 billion in additional fiscal space for the proposed federal Public Sector Development Programme (PSDP), currently set at Rs1.126 trillion.
Federal PSDP Details
Speaking to the media, Iqbal stated that the Rs1.126 trillion federal development budget is effectively negative by Rs15 billion after excluding fixed allocations for various sectors, projects, and areas. However, the finance ministry expressed reluctance to further increase the PSDP size due to restrictions imposed by the International Monetary Fund (IMF). The final decision is expected by Wednesday. Options to create additional fiscal space may include increasing the Federal Board of Revenue (FBR) tax collection target or cutting expenditures in other areas.
The APCC, chaired by Iqbal, recommended a federal PSDP of Rs1.126 trillion, including foreign aid of Rs267 billion—35% higher than this year's reduced budget. Despite this, the minister publicly expressed frustration over the low size of the federal PSDP, which cannot meet the needs of ongoing projects.
Provincial Development Plans
The APCC also recommended provincial Annual Development Plans totaling Rs3.138 trillion, including foreign aid of Rs660 billion for the next fiscal year—2.5% higher than this year's upward revised allocation of over Rs3 trillion. Following the 18th constitutional amendment, most resources are now with provinces, yet the federal government continues to fund provincial projects from its own budget, which Iqbal noted is a breach of the National Fiscal Pact signed under IMF conditions.
Coalition Government Costs
Iqbal stated that the federal government will spend Rs87 billion on projects recommended by coalition partners. "The Rs87 billion is the cost of the coalition government," he said in response to a question. This amount is nearly equal to the combined allocation for Pakistan's three strategically important dams: Dasu Dam, Diamer Basha Dam, and Mohmand Dam. Proposed allocations include Rs25 billion each for Dasu and Diamer Basha dams, and Rs39 billion for Mohmand Dam—far lower than their pressing needs.
Fiscal Constraints and Project Needs
Due to fiscal constraints, the PSDP 2026-27 must focus on high-impact ongoing projects of national significance that can spur sector growth. Iqbal noted that various ministries demanded over Rs4.1 trillion, and the planning ministry requested at least Rs2.9 trillion from the finance ministry just to complete ongoing projects. The total cost to complete ongoing projects has now exceeded Rs10.8 trillion, and at the current allocation pace, it will take over a decade to finish them without adding new projects.
Despite no fiscal space, the federal government allocated a token Rs250 million for the Lahore-Bahawalnagar Punjab motorway, which has a total cost of Rs263 billion. Sindh has opposed including this motorway in the federal PSDP. Iqbal also revealed that over 90% of projects face cost and time overruns, with high demand for rupee cover allocation for foreign-funded projects. Ministries demanded Rs1.1 trillion for rupee cover, but the rationalized demand was Rs426 billion, and actual allocation stood at Rs267 billion.
Allocations for Small Schemes and Coalition Partners
In addition to Rs87 billion for coalition partners' projects, the federal government set aside Rs70 billion to provide Rs500 million for small development schemes recommended by each National Assembly member from treasury benches.
Provincial Development Budgets
According to the APCC, Punjab will spend Rs1.45 trillion on development in the next fiscal year—7% higher than this year and nearly one-third more than the federal development budget. Sindh will allocate Rs816 billion, down by Rs29 billion from this year. Khyber-Pakhtunkhwa plans to spend Rs564 billion, an increase of Rs63 billion, while Balochistan's development budget is Rs308 billion, Rs53 billion less than this year.
Sectoral Allocations
The National Highway Authority demanded Rs1.4 trillion but will receive Rs264 billion. Rs20 billion has been proposed for the Sukkur-Hyderabad Motorway against a demand of Rs122 billion. The minister noted that Rs80 billion were needed for the Karakoram Highway project, but only a small amount is allocated. Despite water being described as a "security challenge" requiring Rs970 billion, the government proposed only Rs140 billion (with one source mentioning Rs179 billion for the water sector).
Iqbal said that due to economic and energy shocks, the Finance Division twice cut the outgoing fiscal year allocation by Rs173 billion to Rs837 billion.
