Government Cuts PSDP To Fund Fuel Subsidies

The federal government has reduced allocations under the Public Sector Development Programme (PSDP) by Rs100 billion to finance fuel subsidies, as reported by The Express Tribune.

The largest reduction has been imposed on the National Highway Authority amounting to Rs22.3 billion, followed by Rs12.9 billion from water sector projects and Rs10.2 billion from provincial development schemes. Additional cuts include Rs9.1 billion from the Power Division and Rs7 billion from projects linked to Sustainable Development Goals, alongside smaller reductions across sectors such as defence, education, higher education, housing, science and technology, interior, railways, health, and the Federal Board of Revenue.

The decision follows a request by the Ministry of Petroleum for Rs71 billion to settle outstanding subsidy payments with the Oil and Gas Regulatory Authority for the period March 14–27. Currently, the government is extending subsidies of Rs176 per litre on diesel and Rs78 per litre on petrol, although these are partially offset by existing levies and import duties.

Ahsan Iqbal, Federal Minister for Planning, criticised the move, stating that reliance on PSDP allocations as a primary funding source reflects a lack of alternative revenue-generation measures or utilisation of IMF contingency provisions. He further noted that such reductions could increase long-term development costs.

For FY26, the approved PSDP stands at Rs1 trillion—significantly lower than initial ministry proposals—with an additional Rs495 billion requested during the mid-term review. Officials indicated that contingency reserves amounting to Rs389 billion, originally allocated for unforeseen expenditures, have largely been utilised to cover revenue shortfalls of the Federal Board of Revenue, thereby placing further strain on development spending.