Pakistan cuts development budget by 10pc amid austerity drive

Decision comes in response to rising international petroleum prices driven by geopolitical tensions, forcing authorities to reallocate resources to manage fuel subsidies and stabilise the domestic market

ISLAMABAD: (UrduPoint/UrduPoint / Pakistan Point News-March 26^th, 2026) The Federal government in Pkistan on Thursday reduced the Public Sector Development Programme (PSDP) for the ongoing fiscal year by 10 per cent, bringing it down from Rs1,000 billion to Rs900 billion as part of cost-cutting measures.

The decision comes in response to rising international petroleum prices driven by geopolitical tensions, forcing authorities to reallocate resources to manage fuel subsidies and stabilise the domestic market.

Over the past two weeks, the government has absorbed price pressure by maintaining petrol and diesel rates through subsidies, although prices of hi-octane and kerosene have seen notable increases.

A total of Rs390 billion had been set aside in the budget for contingency purposes. Part of this allocation was earlier utilised for projects such as Daanish Schools, while the remaining funds are now being tapped to support fuel subsidies. However, officials have not clarified how much of this amount is still available.

At the same time, policymakers are considering targeted restrictions, including a potential smart lockdown, to mitigate risks linked to supply disruptions and inflationary pressures.

According to official figures, development allocations for ministries and divisions have been reduced by Rs68 billion, while an additional Rs32 billion cut has been made in funds assigned to state-owned corporations.

The Ministry of Finance has formally notified the Ministry of Planning, Development and Special Initiatives about the Rs100 billion reduction in PSDP funding. Confirming the move, Planning Minister Ahsan Iqbal said all departments have been directed to trim their development expenditures by 10 per cent.

Initially, the government had allocated Rs685.9 billion for ministries, divisions and departments under the PSDP, including Rs583 billion for local spending and Rs102 billion in foreign-funded components. Additionally, Rs314 billion had been earmarked for corporations, including infrastructure and energy-related entities, taking the total development outlay to Rs1,000 billion.

During the first eight months of the fiscal year (July to February), ministries and divisions utilised Rs254.55 billion out of their Rs583 billion allocation. Meanwhile, corporations spent Rs106.7 billion out of the Rs314 billion set aside for them.

Overall, total PSDP spending reached Rs361.2 billion during the July–February period, reflecting a moderate pace of utilisation amid tightening fiscal conditions.