The federal government has decided to gradually remove most provincial-level development schemes from the Public Sector Development Programme (PSDP), signaling a major shift in development financing as fiscal pressures intensify.
According to Planning Commission proposals for PSDP 2026-27, federal resources will increasingly be directed toward large national and strategic projects, while provincial governments will be expected to finance a greater share of their own development programmes.
The move comes amid a widening gap between development funding demands and available resources. Federal ministries and divisions sought more than Rs4.1 trillion for development projects next year, but the Finance Division has indicated a PSDP ceiling of only Rs1.126 trillion.
Planning Commission documents identify the growing number of provincial and localized projects within the federal development portfolio as a key challenge. The proposed strategy recommends limiting federal support for such schemes, except in the country’s least-developed regions, and seeks approval from the National Economic Council (NEC).
Under the proposed framework, only around Rs99 billion has been allocated for provincial projects through the Provinces and Special Areas Division, a small share of the overall federal development budget. Meanwhile, provincial Annual Development Programmes (ADPs) are projected to reach Rs3.14 trillion in FY2026-27, nearly three times the size of the federal PSDP.
The proposed policy has already sparked concerns in Sindh and Khyber Pakhtunkhwa, where officials fear reduced federal participation in future development initiatives. Sindh is expected to allocate about Rs816 billion for development spending next year, while Khyber Pakhtunkhwa’s proposed ADP stands at Rs564 billion.
The shift comes as Pakistan continues efforts to meet fiscal targets and spending commitments linked to its economic reform agenda. The Planning Commission noted that the current year’s PSDP was already reduced by nearly Rs173 billion due to budgetary constraints and rising economic pressures.
If approved, the policy would mark one of the most significant changes in federal development spending in recent years, transferring greater responsibility for local development projects to provincial governments.
