A CLOSE look at the national development expenditure target of Rs4.1tr for the next fiscal year exposes the federal government’s falling contribution to one of the most critical components of Pakistan’s long-term economic growth — thanks to a severe resource crunch.

With the provinces contributing Rs2.8tr — which is more than two-thirds of the planned development spending — the federal share has shrunk to just Rs1tr or 21.4pc.

Some might rightly argue that the federating units, with their enhanced share from the federal tax pool after the passage of the 18th Amendment in 2010, should foot a bigger part of the development bill, as Islamabad bears the full cost of debt-servicing and national defence.

However, they must also remember that the provinces have steadily increased their development spending over the last several years, while simultaneously fulfilling the condition of generating an annual cash surplus each year to help the centre contain the fiscal deficit and generate a primary budget surplus to fulfil the demands of multilateral lenders.

Besides, federal development investment is needed to build large infrastructure that cuts across provincial boundaries, while the provinces focus on the provision of essential public services like health and education, in addition to local transport and other infrastructure.

The reasons for the slowdown in federal development expenditure are multiple: the need for managing the primary budget surplus for debt sustainability in line with IMF stipulations, a low tax-to-GDP ratio, dwindling foreign official and private capital flows, etc.

Meeting public aspirations and the harsh demands of external creditors is a precarious balancing act for a government with few resources. Still, the challenge can be addressed if Pakistan’s policymakers show the political will to drastically slash the wasteful current expenditure and undertake reforms to boost tax revenues to create space for bigger development allocations.

That said, both the federation and provinces must ensure their development spending is efficient to achieve the maximum returns from limited resources.

The government must also stop liberally handing out development funds to keep the loyalties of lawmakers; instead, it should ensure that schemes once begun are completed within the given time frame in order to avoid cost overruns and corruption.

Our annual infrastructure spending of 2-3pc of its GDP is one of the lowest in the region, and well below the requirement of 10pc. So a growing backlog demands not just a substantial increase in public development expenditures but also effective and efficient use of those funds.

Beyond that, the authorities need to rope in investors to finance new projects by creating an ecosystem where banks and capital markets are willing to finance such ventures in the private sector.

Published in Dawn, June 4th, 2025