The Public Sector Development Programme (PSDP) ought to catalyse long-term growth through strategic infrastructure investments, yet its balance sheet is a cautionary tale in capital misallocation. Even though PSDP allocations are capped at Rs1 trillion, the legacy “throw-forward” of already-approved schemes tops Rs10tr. This is worth more than 10 years of PSDP outlays, even if not a single new project was added.

Effectively, there are zombie projects that continue to exist, with menial allocations annually, which are not sufficient to enable successful completion of the projects but just enough to keep them alive on paper.

It is estimated that around Rs3.27tr were demanded this year, 3.3 times greater than the fiscal ceiling. Due to a large number of projects, there have been many token allocations, some even as low as Rs10 million across dozens of schemes. Such allocations certainly keep these projects alive, but they inadvertently lead to significant cost overruns over the years, resulting in inefficient capital allocation. Due to extended delays and cost overruns, the intended impact of a scheme may also get diluted.

Almost 90 per cent of ongoing projects have already been revised for time or cost. Each revision resets procurement clocks and increases price, exposing the project to interest rate and foreign exchange risk while crowding out any fast-moving work. Similarly, the existence of a ghost portfolio, wherein more than 180 schemes have absorbed less than 30pc of their cost after three fiscal years, suggests the existence of projects on paper only, with allocations peppered just to keep them alive. It is estimated that these projects carry an approved cost of almost Rs1tr, while attracting only Rs14bn in fresh capital this year.

Pakistan’s biggest schemes read like a textbook in the global “Iron Law of Megaprojects”, as authored by Professor Bent Flyvbjerg. Weighted across the top 20 schemes, the average nominal overrun is in the range of 97pc, uncannily close to Professor Flyv­bjerg’s global dataset, where large dams, on average, cover overruns of 96pc, and rail projects have a cost overrun of over 44pc.

Within scheduled slippages, the ML-1 Railway Project is already four years behind its original completion window, while the K-IV in Karachi has undergone three complete redesigns. The longer the delay, the steeper the depreciation-fuelled escalation, which is made worse due to currency depreciation, high interest rates, and wear and tear of whatever infrastructure has already been made.

Professor Flyvbjerg’s diagnosis makes the PSDP allocation a basket case of capital misallocation wherein costs are often understated and benefits overstated for an approval, which then leads to a project being relegated as a ghost project or forces revisions during development.

Instead of releasing at least 15pc of the remaining cost each year, which is a good rule of thumb, the PSDP often allocates 1-3pc, turning a four-year project life cycle into a life cycle of greater than 15 years. Similarly, once a project is on the books, it doesn’t get cancelled, while the cost-to-benefit ratio gets completely skewed. Finally, as projects get delayed, the cost continues to increase due to dependence on imported inputs, such as steel or other equipment — thereby making it critical that earlier completion of projects needs to be targeted for efficient capital allocation.

Individually, the numbers for various projects may look modest; collectively, they swallow the same fiscal space required to keep the Diamer-Bhasha and Mohmand dams on schedule. Worse, they inflate the throw-forward, masking the true liquidity needs of the viable pipeline.

There exists a strong case to thoroughly re-evaluate the existing PSDP portfolio. The first cut should effectively prune projects that have barely taken off the ground with skewed cost-benefit dynamics. Evaluating the projects in the current economic and technological context is also important — maybe something more efficient is now available that can extend the same benefits at a lower cost.

From the remaining portfolio, there exists a strong economic case for execution projects through a public-private partnership structure, particularly in the case of transport corridors, which can shift to hybrid-annuity concessions, passing cost-overrun risk to the private sector. Similarly, small-ticket social sector schemes can be hived off to provincial development plans while freeing up capital for strategic investments. Availability of capital at the right time can eliminate cost escalations in the future while also ensuring project timelines are met.

Re-engineering the PSDP is not about slashing development; it is about allocating scarce public capital into high-return areas. Reverting back to Professor Flyvbjerg’s research, it is suggested that the best project is one you don’t build — when costs outweigh the benefits. By thinking slow and acting fast, the development budget can be turned into a high-impact project generator through better capital allocation.

The current structure awards endurance over effectiveness while taking up precious fiscal space.

The writer is assistant professor of practice at IBA, member of the Tariff Determination Thar Coal Energy Board, and CEO, NCGCL

Published in Dawn, The Business and Finance Weekly, June 16th, 2025