Federal Government Plans to Reduce Funding for Provincial Development Projects
The federal government has decided to gradually reduce its funding for provincial development schemes under the Public Sector Development Programme (PSDP) as part of a broader policy shift aimed at managing fiscal constraints.
The move, outlined in the proposed PSDP strategy for 2026–27, is intended to focus federal resources on large-scale national development projects amid tightening budgetary conditions.
Policy shift in development spending
According to documents from the Planning Commission, federal ministries and divisions have collectively proposed development spending exceeding Rs 4.1 trillion, while the Finance Division has indicated an initial budget ceiling of around Rs 1.126 trillion for the next fiscal year.
Officials say the proposed approach seeks to limit federal involvement in smaller or provincial-level projects, except in less developed regions, and instead prioritize high-impact national initiatives.
The proposal is expected to be reviewed by the National Economic Council (NEC) before final approval.
Reduced allocation for provincial projects
Under the proposed framework, approximately Rs 99 billion has been allocated for provincial and special-area projects through the relevant federal division, while the overall PSDP allocation remains at Rs 1.126 trillion.
In comparison, provincial governments are expected to spend significantly more through their own Annual Development Programmes (ADPs), which are projected to total around Rs 3.138 trillion in 2026–27.
Concerns raised by provinces
The proposed changes have reportedly raised concerns in some provinces, including Sindh and Khyber Pakhtunkhwa, over future federal support for development initiatives.
According to official estimates, Khyber Pakhtunkhwa’s development programme is projected at around Rs 564 billion, while Sindh’s ADP is estimated at approximately Rs 816 billion for the upcoming fiscal year.
Fiscal pressure and IMF discussions
The policy shift comes as Pakistan continues discussions with the International Monetary Fund (IMF) over fiscal consolidation measures and budgetary discipline.
Officials note that the federal PSDP has already faced reductions during the current fiscal year due to economic pressures, including mid-year adjustments of around Rs 173 billion.
The government says the revised strategy aims to improve financial efficiency and ensure better allocation of limited resources.
