Pakistan's real development problem isn't the budget; it’s the mandate

Pakistan’s federal development budget does not suffer from a shortage of money. It suffers from a crisis of purpose.

Ahead of the FY27 budget, the Planning Commission objected to diverting Rs126 billion from the federal Public Sector Development Programme (PSDP) to finance security and water-sector commitments, but that debate overlooked a much larger shift. Roughly Rs920 billion was cut from the development budgets of Punjab (Rs706 billion), Sindh (Rs110 billion) and KP (Rs109 billion) - money that would otherwise have financed provincial schools, hospitals, and local infrastructure.

Given Pakistan’s fiscal constraints, cuts were inevitable, especially for water resource development after the unilateral suspension of the Indus Waters Treaty by India. The more important question is whether they should have come from the provinces or Islamabad. The answer becomes clearer once one looks at how the federal PSDP actually performs.

In FY26, the federal PSDP was initially approved at Rs1 trillion but later reduced to Rs800 billion under austerity measures. Even then, implementation lagged: only 52% of the revised allocation was utilised during the first ten months of the fiscal year, compared to 56% over the same period the previous year. This recurring pattern of approving more projects than the government can execute and rolling unfinished schemes into successive budgets has created a throw-forward liability of around Rs11 trillion, locking future budgets into old commitments instead of new priorities.

The real question, however, is whether this large federal budget should even exist in its current form.

The 18th Amendment fundamentally reshaped Pakistan’s Federation in 2010, devolving health, education, social welfare and several other sectors to the provinces. Seventeen ministries were formally devolved, with the expectation that corresponding functions, staffing and expenditure would follow.

Sixteen years later, that transition remains incomplete. Federal ministries continue to operate in constitutionally provincial sectors, creating parallel bureaucracies, overlapping mandates and competing development budgets alongside provincial departments. A World Bank assessment revealed that rationalising federal ministries and autonomous bodies in devolved sectors could save approximately Rs398 billion annually, equivalent to nearly 60% of the FY22 GDP (gross domestic product).

These are resources consumed by parallel institutions instead of service delivery. The International Monetary Fund (IMF) programme recognises this problem. The National Fiscal Pact under the Extended Fund Facility explicitly links federal right-sizing with completing the unfinished agenda of the 18th Amendment. Still, budget decisions continue in the opposite direction.

None of this suggests that Islamabad should withdraw from development altogether. Federal leadership remains indispensable for national highways, railways, inter-provincial energy transmission, water infrastructure and projects with nationwide spillovers. The Rs365 billion allocated to transport and communications in the FY27 PSDP is therefore defensible. The problem lies in social sectors where constitutional responsibility, financing and implementation already reside with the provinces.

Meanwhile, the federal government’s comparative advantage lies not in running provincial development projects but in managing the national economy. Macroeconomic stability, fiscal reform, debt management, investment policy, and external financing are responsibilities only Islamabad can perform. Yet these are precisely the areas where Pakistan continues to struggle.

The latest Economic Survey reflects the consequences of this imbalance. GDP growth remains at 3.7%, below the target of 4.2%; unemployment has risen to 7.1% from 6.3% a year earlier; and nearly three in ten Pakistanis continue to live below the poverty line.

The real issue, therefore, is not whether Pakistan spends enough on development. It is whether each tier of government is spending on the right things.

For sixteen years, Pakistan has tried to operate under a devolved Constitution with a pre-devolution bureaucracy. The result is predictable: provinces finance and deliver constitutionally assigned services with shrinking budgets, while Islamabad maintains overlapping institutions, underutilises its development budget, and competes for scarce fiscal resources.

Pakistan’s fiscal crisis stems not from a shortage of money, but from a lack of institutional discipline. Until the federal government aligns its spending with its constitutional mandate, no amount of reshuffling the PSDP will make development spending more effective. The question is not how much Islamabad spends, but whether it is spending where it still has a mandate to act.