Key points
- Energy sector allocation slashed by 41pc
- Transport and communications sectors emerge as budget winners
- National Highways Authority receives a 27pc hike
ISLAMABAD: In a landscape of tightening fiscal space and growing development demands, Pakistan’s Public Sector Development Programme (PSDP) has steadily climbed a financial ladder over the past six years- now poised to take its biggest step yet.
For the upcoming 2025–26 budget, the federal government is preparing to unveil a Rs1 trillion allocation, signalling its intent to keep infrastructure and national growth on track despite budgetary pressures.
This comes on the heels of a Rs3.792 trillion development outlay in 2024–25 (federal and provincial combined), which marked a dramatic 58pc jump from the Rs2.39 trillion spent by the end of the previous fiscal year.
The year before that, in 2023–24, the PSDP reached Rs2.709 trillion, with Rs1.15 trillion allocated federally and Rs1.559 trillion by the provinces.
Going further back, allocations were more modest—Rs727 billion in 2022–23, Rs900 billion in 2021–22, and just Rs500.94 billion in 2020–21.
Upward trajectory
This consistent upward trajectory tells a story of a country striving to build while budgeting carefully- a balancing act between vision and viability.
As the government finalises its Rs1 trillion federal development plan, a striking pattern emerges. While road infrastructure receives a significant boost, water and energy- both essential to long-term national resilience—have taken a back seat.
Despite an 8pc increase in the overall PSDP compared to last year’s Rs700 billion allocation, the contrasting fortunes of three key sectors—water, energy, and transport—paint a picture of difficult trade-offs in a resource-strapped economy.
Lifeline that’s drying up
In a move that has sparked alarm among national planners and security analysts alike, funding for Pakistan’s water sector has been slashed by a staggering 45pc—plummeting from Rs259 billion in 2024–25 to just Rs140 billion for the current fiscal year.
The cut comes at a time when water scarcity is worsening and India’s repeated threats to choke Pakistan’s water supply following the suspension of Indus Waters Treaty have added a strategic urgency to every drop.
At the centre of the storm is the Diamer Basha Dam—a project once championed as the future of Pakistan’s water storage and clean energy. With its fate now tied to a dwindling budget, the dam risks being caught in a bureaucratic drought, possibly dragging its completion out over two decades.
“At this rate, it could take 20 years to complete,” acknowledged Planning Minister Ahsan Iqbal. “We still aim to finish it in four, but that will need major reallocation – or help from abroad.”
The dramatic drop in funding not only undermines Pakistan’s capacity to store and manage its water resources but also casts a shadow over its agricultural resilience and climate security -at a time when upstream uncertainty looms large.
Ambitious leap
As water stress deepens and strategic reservoirs gain urgency, ministry of Water Resources has pitched 33 new water sector projects worth Rs424.128 billion for inclusion in the upcoming 2025–26 PSDP.
Earlier, the federal government allocated Rs566.612 billion in 2024–25 for water resources, the highest in recent years, aimed at both ongoing hydel projects and new initiatives.
By comparison, the 2023–24 PSDP allocated a far more modest Rs110.5 billion, of which Rs52.235 billion was specifically set aside for water-related development—highlighting the dramatic year-on-year surge that followed.
In 2022–23, the water sector received just under Rs97.56 billion, funding 13 hydel and 61 ongoing water projects, with only 13 new schemes added that year. The 2021–22 allocation fared slightly better, with Rs182.42 billion earmarked for ongoing and new water ventures. And back in 2020–21, the figure was even lower at Rs71.94 billion, supporting flagship projects like Diamer-Basha, Basool, and Mangi dams.
The data paints a vivid picture. From cautious budgeting in 2020–21 to an exponential increase by 2024–25, Pakistan’s water sector funding has swelled nearly eightfold in five years.
Yet, the Rs424 billion now proposed for new projects in 2025–26 may well signal a pivotal turning point—not just in numbers, but in how seriously the government is treating looming water insecurity.
Energy budget cuts
The energy sector hasn’t fared much better. Its allocation has dropped by 41pc, plunging from Rs176 billion last year to Rs104 billion this year (2025-26). In a country already battling energy shortfalls, outdated grids, and a heavy reliance on imported fuel, such a reduction could put key reforms and expansion plans on hold.
This marks a staggering leap from 2023–24, when the government set aside Rs107.41 billion for the energy sector, targeting improvements in renewable energy, power transmission, and grid infrastructure—with both domestic and foreign aid components blended into the package.
The year 2022–23 reflected a tighter fiscal approach, with an Rs84 billion allocation—entirely listed under self-financed schemes by the Power Division.
While conservative in amount, it maintained momentum for ongoing projects.
Going back to 2021–22, the government had injected Rs102.61 billion into power sector development.
Of that, Rs83.53 billion was reserved for ongoing projects and Rs19.07 billion for new initiatives, largely focusing on system efficiency and reducing transmission losses.
In 2020–21, while no exact figure was publicly consolidated, substantial funding was directed toward strengthening transmission lines, constructing new grid stations, and evacuating power from major generation plants—laying foundational infrastructure still in use today.
The government attributes the cut to “political prioritisation”—a phrase hinting at the growing sway of coalition partners who have steered spending toward high-visibility infrastructure projects, especially roadways.
Analysts warn that this decision could come back to haunt the government.
With electricity demand expected to spike during the summer and rural electrification still incomplete, the budget cuts could leave millions at risk of blackouts and further stall industrial recovery.
The only clear winner
If one sector is celebrating amid the budget reshuffling, it’s transport and communications. The National Highways Authority (NHA) has seen a 27pc rise in its funding—from Rs180 billion to Rs229 billion, making it the largest single recipient among the three compared sectors.
Among the headline projects are the Rs120 billion N-25 Expressway (linking Karachi to Quetta and Chaman), upgrades to the Karakoram Highway, and the completion of the Hyderabad-Sukkur Motorway -all seen as essential to trade, regional connectivity, and political cohesion.
The government has steered a sizeable portion of the Rs1 trillion Public Sector Development Programme (PSDP) for 2025–26 toward the Ministry of Communications, reaffirming its focus on connectivity and mobility as key engines of economic growth.
Over the past five years, allocations to the ministry have seen dramatic shifts—rising and falling in tune with shifting fiscal priorities and political realignments.
In 2024–25, the Ministry of Communications (excluding the National Highways Authority) received a relatively modest Rs254.8 million, more than doubling its Rs126 million allocation in 2023–24, signalling renewed, albeit limited, interest in non-NHA transport and communication initiatives.
Ambitious pushes
By contrast, 2022–23 saw a sharp upswing with a massive Rs118.58 billion allocated for 115 development projects—a year that marked one of the most ambitious pushes for national transport and communication upgrades in recent memory.
Earlier, in 2021–22, the allocation had again fallen drastically to Rs451.32 million, while in 2020–21, the ministry enjoyed a historic high of Rs219.8 billion, thanks largely to major transport infrastructure undertakings at the time.
From the Rs219.8 billion peak in 2020–21 to the record Rs254.8 million through just four years later, the Ministry of Communications has ridden a financial rollercoaster. The 2025–26 budget, however, may mark a course correction—suggesting that Islamabad once again sees roads and rail as lifelines for economic recovery and national cohesion.
While infrastructure investment is typically lauded for its economic multipliers, critics argue that such concentrated spending comes at the expense of foundational sectors like water and energy.
“It’s a strategic misalignment,” said Dr Viqar Ahmad, an economist, former director SDPI. “You can’t build a strong economy on roads alone – you need power and water to drive the engines on them.”
A balancing act with blunt instruments
Despite the overall increase in the PSDP, the federal allocation is still Rs400 billion below the originally approved 2024–25 ceiling, underscoring the government’s limited fiscal space.
Provinces, powered by a 28pc increase in development spending—thanks to higher NFC transfers—are taking on a bigger role.
But even that hasn’t stopped discontent. Khyber Pakhtunkhwa (KP), for instance, received only Rs3 billion in direct PSDP allocations compared to Rs47 billion for Sindh and Rs15 billion for Punjab. Planning officials point out that Rs70 billion has been set aside for KP’s merged districts, but provincial leaders still feel short-changed.
Meanwhile, the planning ministry is trying to squeeze more out of the existing pipeline by proposing to cap or cancel 183 slow-moving projects, potentially freeing Rs100 billion for more productive investments.
The bottom line
The 2025–26 PSDP reveals a federal government caught between strategic ambition and fiscal reality. While road infrastructure has surged ahead, propelled by coalition politics and the visibility of concrete deliverables, essential sectors like water and energy have seen their budgets shrink dangerously.
With more than 1,071 federal development projects under implementation and an additional Rs10.2 trillion needed to complete them, the country faces a tough road ahead.
Without realignment toward sustainable water and energy solutions, even the best-laid roads may lead to uncertain destinations.
