Pakistan needs infrastructure. It also has little fiscal space to pay for it. In FY25, federal development expenditure was about Rs1.05 trillion, compared with current expenditure of more than Rs15.8tr. That combination makes public-private partnerships (PPPs) particularly attractive, and potentially dangerous. When government cannot finance a motorway, hospital, water system or other infrastructure project upfront, bringing in private capital delivers the asset, operates it under an arrangement and earns a return.

But financing is not the same as funding. Private capital can finance infrastructure today. It cannot make its cost disappear. Eventually, somebody must pay, users through tariffs and tolls, government through availability payments and subsidies, or taxpayers when guarantees and contingent liabilities materialise.

Pakistan’s experience with independent power producers (IPPs) offers an important warning for its next generation of PPPs. Private investment through take or pay contracts, helped build power plants when public funds were limited. The problem was the allocation of risks and payments. In FY25, the National Electric Power Regulatory Authority (Nepra) reported total power purchase costs of about Rs2.94tr. At the same time, the Finance Division reported circular debt of about Rs1.89tr. These burdens sit alongside distribution losses, weak recoveries, theft and tariff pressures. Pakistan learnt an important lesson through this: a bankable project for the investor may still be unaffordable for the government.

Private money can turn into public risk; private investment doesn’t eliminate govt’s financial obligations

Following the 18th Amendment, powers shifted to provinces, but leadership became more complicated. Responsibilities like health, education, and agriculture moved downward, yet federal spending still operate in these areas, creating overlap and confusion over who pays and who leads. Under the PPP law, some projects are classified as ‘Qualified Projects’ because they need special government backing, such as guarantees or subsidies. These projects face stricter review by the Public Private Partnership Authority (P3A). Other projects that don’t require such support can move ahead with lighter oversight. Recently, the government moved P3A’s administrative control from the Planning Division to the Privatisation Division.

None of these arrangements is problematic on its own. The risk comes when fragmented responsibilities make it unclear about who chooses a project, who pays for it, who delivers it, and who carries the risk. Pakistan doesn’t just need more PPP projects; it needs a pathway to decide which ones should qualify as PPPs in the first place.

Just because the private sector is involved in a PPP project doesn’t mean the government stops being accountable

Every major public investment should answer a few basic questions. Is the project genuinely a responsibility of this level of government? Does it generate sufficient economic and social benefits to justify state involvement? Can government afford its commitments over the project’s entire life cycle? Would conventional procurement offer better value? And if PPP delivery is chosen, what guarantees, payments, or liabilities will remain with the public sector?

This distinction matters beyond motorways and power plants. PPPs can support health, education, water, irrigation, housing, logistics and other social and economic infrastructure. Devolution does not mean that provincial governments must necessarily finance, build and operate every service themselves. The government can remain responsible for ensuring a service while allowing the private sector to finance or deliver parts of it. Just because the private sector is involved in a PPP project doesn’t mean the government stops being accountable, and it doesn’t mean the government automatically avoids financial risk.

Policymakers should, therefore, resist two extremes. Fiscal constraints should not stop the government from accepting private investment that can deliver infrastructure more efficiently. But at the same time, those limits should not turn PPPs into a way of shifting today’s spending into tomorrow’s debt.

The question should not be whether Pakistan needs more PPPs. It should be whether the right projects are being delivered through PPPs, whether they provide better lifecycle value than conventional procurement, and whether government understands and can afford the risks it retains.

Pakistan needs private capital. It needs infrastructure even more desperately. But the IPP experience should remind policymakers that mobilising investment is only the beginning of the equation. Moving expenditure off today’s development budget does not move risk off tomorrow’s balance sheet.

The writer is a development and climate finance consultant at Resources Future

Published in Dawn, The Business and Finance Weekly, October 19th, 2026