• Govt rations funds to meet IMF’s contingency measures for growing revenue shortfall
• Health, energy allocations mostly unspent; better used in foreign-funded projects
ISLAMABAD: Development spending under the federal Public Sector Development Programme (PSDP) remained subdued in the first five months of the current fiscal year, with utilisation amounting to just 9.2 per cent of the Rs1 trillion annual allocation amid fiscal rationing to meet the IMF’s contingency measures for growing revenue shortfall.
“Development spending remained modest, with Rs92 billion utilised against Rs196bn sanctioned, led mainly by infrastructure,” the Ministry of Planning and Development said in its Monthly Development Outlook (December 2025). It added that foreign-funded projects showed relatively better utilisation, with Rs12.8bn spent out of Rs25.1bn sanctioned.
At Rs92bn, the July-November utilisation was 20pc lower than the Rs115bn spent in the same period last year. The ministry attributed the slowdown to “significant reduction in expenditure by provinces, special areas and the Ministry of Railways”.
The government has given a written commitment to the IMF for contingency measures as part of the recent $1.2bn disbursement, as a five-month revenue shortfall touched Rs430bn.
According to the undertaking, if Federal Board of Revenue (FBR) collections continue to lag in the second quarter of FY26, and other tax receipts fail to bridge the gap, the government will — in consultation with IMF staff — increase the federal excise duty (FED) on fertilisers and pesticides by five percentage points, introduce FED on high-value sugary items, and move items from the Eighth Schedule of the sales tax regime to the general GST framework.
“If by the end of the second quarter of FY26, there is a revenue shortfall due to the implementation of the National Tariff Policy, we will postpone an equivalent amount of expenditure until the last quarter of FY26,” it added.
The report said ministries and divisions were sanctioned Rs196bn for the five-month period, against which Rs92bn was reported as expenditure.
The low release and utilisation of development funds come despite a 1.6pc budget surplus in the first quarter of the fiscal year, driven by elevated State Bank profits and petroleum levy collections, and as the government has sought to close hundreds of projects to focus resources on strategically important schemes at advanced stages of development for their early completion.
A sector-wise expenditure breakdown showed that the infrastructure sector had been allocated Rs626.767bn (63pc) in FY26, of which Rs55.238bn had been utilised till Nov 30. Within infrastructure, the transport and communication sector received the highest allocation of Rs333.484bn, which posted an expenditure of Rs30.433bn.
The energy sector and physical planning and housing sector recorded an expenditure of Rs3.52bn and Rs7bn against allocations of Rs122.653bn and Rs72.725bn, respectively. This meant the energy sector consumed less than 3pc in five months, while physical planning and housing utilised 9.6pc.
The water sector, with an allocation of Rs98bn, reported an expenditure of Rs14.281bn (14.6pc) in five months.
The utilisation was relatively better in the social sector. It was allocated Rs169.309bn (17pc) in the budget, wherein Rs60.75bn was allocated for the education sector, including higher education, which spent an amount of Rs12.292bn.
The health and nutrition sector utilised Rs211 million against an allocation of Rs16.8bn, accounting for only 1.25pc in five months. Furthermore, Rs21.7bn was allocated for “Others”, of which only Rs2.122bn (9.8pc) could be utilised in five months.
The budget entailed an allocation of Rs11.167bn to promote transparency and good governance and to provide an enabling environment for investors, but only Rs1.015bn could be utilised in five months.
