Pakistan’s GDP projected to grow 3.7% in FY26; Rs3 trillion uplift projects may be shelved next fiscal year, says planning minister

Federal Minister for Planning, Development and Special Initiatives Ahsan Iqbal on Monday said Pakistan’s gross domestic product (GDP) is expected to grow by 3.7% by the end of the fiscal year 2026, up from 3.2% a year earlier, but warned that development projects worth nearly ₨3 trillion may have to be shelved in FY2026-27 after ministries sought funding of around ₨4.097 trillion against a Public Sector Development Programme (PSDP) allocation of only ₨1.126 trillion. 

Addressing the Annual Plan Coordination Committee (APCC) meeting for the 2026-27 budget, the minister stressed the need to prioritise and complete ongoing development projects, saying limited fiscal space and a growing throw-forward had made it impossible to accommodate all proposed schemes.

He said the country’s development budget was insufficient to finance projects in a timely manner, describing the situation as a major challenge for the planning process.

He said the government would have to increase development spending in the long run while ensuring that priority projects were completed and removed from the development portfolio.

Ahsan said some less important projects might not be continued due to resource constraints, adding that the completion of ongoing programmes remained the government’s foremost priority.

He said Pakistan’s economy was on a path to recovery and that the government would continue its efforts to provide relief to the common man through effective development planning.

Highlighting the scale of the challenge, the minister said the federal development portfolio carried a throw-forward of around ₨10 trillion, while ministries had sought nearly ₨4 trillion for ongoing projects.

He said ministries had projects worth ₨3.377 trillion under implementation and had also proposed around 720 new schemes, besides submitting more than 5,500 additional project proposals for consideration.

He said that against total development demands of ₨4.097 trillion, the Ministry of Finance had allocated only ₨1.126 trillion for the PSDP 2026-27, leaving an unmet demand of about ₨3 trillion.

“This means we have to allocate ₨1.126 trillion against demands exceeding ₨4 trillion selectively,” he said, adding that many important projects could not be accommodated within the available fiscal envelope despite their significance for national development.

Ahsan termed the situation a major dilemma for the Ministry of Planning, saying development allocations were being made within a shrinking budget despite growing infrastructure and social sector needs.

The minister said the PSDP allocation of ₨1.126 trillion included ₨125 billion earmarked for the N-25 Highway project in Balochistan, which, he said, was a non-negotiable priority identified by the Prime Minister and would be completed at all costs.

He said around ₨87 billion had been set aside for projects proposed by coalition partners, while approximately ₨100 billion had been earmarked for development initiatives in Balochistan.

A further ₨153 billion, he said, had been allocated for Azad Jammu and Kashmir (AJK), Gilgit-Baltistan (GB) and the merged districts.

He said these funds ideally should be transferred through the National Finance Commission (NFC) mechanism, but in the absence of a consensus arrangement, they continued to be financed from the federal government’s share.

The minister said nearly ₨70 billion had been allocated for Sustainable Development Goals (SDGs)-related initiatives.

Explaining the financial constraints further, he said the remaining fiscal space was significantly reduced after accounting for rupee-cover requirements for foreign-funded projects supported by multilateral institutions, including the Asian Development Bank and the World Bank.

He said the demand for rupee cover had initially stood at ₨832 billion but was rationalised to ₨426 billion after consultations between the Economic Affairs Division and relevant ministries.

Ahsan said that after adjusting for these commitments and accounting for a ₨180 billion PSDP cut carried over from the previous year, the development programme faced a deficit position, leaving virtually no room for new projects.

He urged all stakeholders to keep fiscal realities in mind while presenting development proposals and to prioritise schemes that could deliver maximum public benefit and contribute to national growth.