Government Misses Development Targets Amid Fiscal Challenges: An In-Depth Analysis

• Total development spending: The government spent Rs905 billion under the Public Sector Development Programme (PSDP) in fiscal year 2024-25, which ended recently.

• Shortfall vs budget: This spending was significantly lower than the Rs1.4 trillion originally approved by the National Assembly. Even after the PSDP was revised downwards to Rs1.1 trillion, actual spending remained below the target.

• Impact on growth projections:
  The government had announced a 2.7% economic growth rate for FY25 based on the assumption that the Rs1.1 trillion PSDP would be fully utilized.
  The Pakistan Bureau of Statistics (PBS) confirmed this assumption, but now the lower spending of Rs905 billion is expected to affect the GDP calculations. The exact impact is yet to be determined.

• Spending timing and strategy:
  Over half of the development spending (Rs456 billion) was recorded in just the last two months (May-June), highlighting an artificial suppression of expenses earlier in the year.
  About 40% of the PSDP budget is typically released in the last quarter, which often leads to rushed spending and potential inefficiencies.

• Reasons for underspending:
  The Accountant General Pakistan Revenues (AGPR) slowed down the approval of payments in the final days of June, reportedly following instructions from the Ministry of Finance to meet International Monetary Fund (IMF) budget targets.
  A Senate member in the construction sector noted that many contractors’ payments were delayed due to these budget constraints.

• Quarterly spending breakdown:

  • July-April period: Rs449 billion spent

  • May-June period: Rs456 billion spent

  • June alone accounted for Rs308 billion

• Official remarks:
  Federal Minister for Planning and Development, Ahsan Iqbal, stated that spending almost reached Rs1 trillion but was limited by slow approvals from AGPR. He also clarified that development work continued steadily throughout the year, but funds were released mostly towards the end.

• IMF program influence:
  The Ministry of Finance restricted PSDP releases to meet quarterly and annual primary surplus targets under the IMF program, resulting in squeezed fiscal space.

• Impact on projects:
  A recent Planning Ministry report pointed out that lower-than-planned spending delayed projects across various sectors. Despite fiscal constraints, the government continued adding new projects or revising upward the cost of existing ones.

Major Heads of Development Spending (Provisional)

Summary and Outlook

The government’s Rs905 billion spending under PSDP is a marked shortfall from both the original and revised budget allocations, which may necessitate revising down the 2.7% GDP growth projection for FY25. The concentration of expenditure in the final two months reveals a budgetary strategy that suppresses spending artificially, likely aimed at meeting IMF conditions for fiscal surplus targets.

While development work reportedly continued throughout the year, delays in fund releases and approvals hampered timely progress on many projects. The squeeze on development funding contradicts ongoing additions of new projects and increased cost estimates for existing schemes, which could further strain the country’s fiscal health.

Moving forward, greater efficiency in budget execution, timely approvals, and realistic fiscal planning will be crucial to translating development allocations into meaningful economic growth and improved public services.