Govt Mulls Rs 300 Billion Cut in Development Budget Amid Widening Revenue Gap

Pakistan’s federal government is considering a Rs. 300 billion reduction in the Public Sector Development Programme (PSDP) due to a widening revenue shortfall and tightening fiscal constraints, according to officials familiar with the ongoing budget review.

Fiscal Pressures Mount as Revenue Targets Missed

Sources within the Ministry of Finance confirmed that the move is being discussed as part of an effort to maintain fiscal discipline amid slower-than-expected tax collection and higher debt servicing obligations.
The government is under pressure to demonstrate prudent fiscal management as it continues talks with the International Monetary Fund (IMF) to secure the next tranche of its financial support package.

Officials said the shortfall has created a significant funding gap, prompting the government to reassess ongoing development commitments.

Non-Priority Projects Likely to Face Delays

According to planning officials, ministries have been directed to identify non-essential or slow-moving projects that can be deferred without severely impacting economic activity.
Sectors such as infrastructure, transport, and energy are expected to see the largest spending cuts, while critical initiatives in health, education, and social welfare may continue to receive limited protection.

If implemented, this would mark one of the largest mid-year PSDP adjustments in recent fiscal history.

IMF Conditionalities Driving Budget Rationalization

The IMF has repeatedly emphasized the need for Pakistan to control development spending and curb fiscal deficits to ensure macroeconomic stability.
As part of its reform commitments, the government has already agreed to reduce non-targeted subsidies and improve revenue mobilization, but the persistent revenue gap has made expenditure cuts inevitable.

A senior finance ministry official, speaking on condition of anonymity, said:

“The fiscal space is narrowing, and meeting IMF benchmarks is crucial for maintaining international credibility. The proposed cuts are a tough but necessary step.”

Economic Experts Warn of Growth Slowdown

Economists, however, have expressed concern that a substantial cut in development spending could hamper job creation and slow economic recovery.
Dr. Saad Khan, a financial analyst based in Karachi, noted:

“Development spending drives employment and private sector confidence. Reducing it may stabilize fiscal numbers, but it could also dampen domestic demand in the short term.”

Impact on Provinces and Public Welfare

Provincial governments may also face reduced development transfers, particularly in Sindh and Balochistan, where rural and infrastructure projects heavily depend on federal funding.
Officials from the Planning Commission acknowledged that some projects might face indefinite delays until additional funds become available or external financing is secured.

Next Steps in Budget Review

The Finance Division and Planning Commission are expected to finalize the revised PSDP proposal within the next two weeks. The updated figures will then be presented to the federal cabinet and shared with the IMF during ongoing consultations.

For now, ministries have been advised to freeze new project approvals until the fiscal review process concludes.

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