PSDP allocation may fall to Rs662bn for FY25-26

June 10, 2025 (MLN): With the upcoming federal budget for FY2025-26 nearing finalisation, the expected Public Sector Development Programme (PSDP) allocations for federal ministries indicate a significant 20.54% drop from Rs833 billion in FY2024-25 to Rs662bn.

These figures reflect the government’s constrained fiscal space, IMF conditionalities, and a broader trend of development spending being deprioritized in times of financial stress.

At the top of the list, the Pakistan Atomic Energy Commission is expected to see the sharpest cut, with its allocation plummeting by 81%, from Rs39.2bn to just Rs7.45bn, signaling a substantial pullback in federal commitment to atomic energy development.

The Commerce Division follows with a drastic 81.9% reduction, falling from Rs5.29bn to Rs958 million, while the Finance Division is projected to receive 86.8% less funding, dropping sharply from Rs18.78bn to just Rs2.47bn.

The Petroleum Division also faces a steep cut of 71%, with its allocation slashed from Rs10.44bn to Rs3.03bn.

The Information Technology & Telecommunication Division is expected to face a 43.5% cut in its PSDP 2025-26 allocation, dropping from Rs23.93bn to Rs13.53bn raising concerns about the future of Pakistan’s digital transformation.

Similarly, the National Health Services Division may see a 38% decrease, while the Higher Education Commission is projected to receive 26.4% less funding, reflecting reduced federal engagement in a sector largely devolved to provinces.

In contrast, some divisions are slated for substantial increases. The Cabinet Division is projected to receive a 95.3% boost, with its funding nearly doubling from Rs25.77bn to Rs50.34bn.

The Defence Division is also expected to see a 42.1% increase, and the Maritime Affairs Division could receive a 29.4% rise in allocation.

These changes align with a recurring pattern: development spending has repeatedly been the first casualty of budgetary pressures.

In FY2024-25, the federal government initially proposed a PSDP outlay of Rs1.4 trillion, only to revise it downward by Rs250 billion within weeks.

Over the past decade, such mid-year revisions have averaged a 17.3% cut annually, even as overall government expenditures have continued to rise.

One key reason lies in Pakistan’s fiscal limitations.

After the 18th Amendment, responsibility for many development sectors like health, education, and agriculture shifted to provinces, which now account for 72% of national development spending.

However, the federal government still plays a vital role in large-scale infrastructure and strategic national projects. Cuts in these areas reflect deeper structural stresses.

Despite the overall decline in development allocations, a few divisions are still expected to receive higher funding in PSDP 2025-26 but mostly from relatively low baselines.

As noted, the Cabinet Division leads with a 95.3% increase, followed by the Maritime Affairs Division (29.4%) and Defence Division (42.1%), possibly reflecting shifting strategic and administrative priorities.

Meanwhile, several divisions once projected to receive more such as Commerce, Petroleum, Finance, and Defence Production are now facing steep cuts of 81.9%, 71%, 86.8%, and 52.7%, respectively, underlining shifting government priorities amid tightening fiscal space.

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