FeaturedNationalVOLUME 19 ISSUE # 2

The IMF’s critical assessment of Pakistan’s Public Sector Development Programme

The International Monetary Fund (IMF) has recently raised significant concerns about the financial sustainability of Pakistan’s ambitious Public Sector Development Programme (PSDP). With the total cost of PSDP projects soaring to 10.7 trillion rupees, over 14 times the allocated budget of 727 billion rupees in the previous fiscal year, the IMF insists on a thorough reassessment. This critique comes amidst recurring issues of cost overruns, funding delays, and a perplexing trend of continually adding new projects.

The IMF has declared that Pakistan’s Public Sector Development Programme (PSDP) is financially unsustainable and requires reassessment. The projected cost to complete PSDP projects stands at Rs. 10.7 trillion, surpassing the budget allocation of Rs. 727 billion for the fiscal year 2022-23 by over 14 times. If the annual PSDP budget remains unchanged and no new projects are introduced, it is estimated to take approximately 14 years to finish the existing approved projects. However, the IMF points out that in practice, new projects continue to be added at a significant pace. The IMF’s latest report, titled “Pakistan: Technical Assistance Report–Public Investment Management Assessment–PIMA and Climate PIMA,” reveals that the government added new projects totaling Rs. 2.3 trillion in the last budget cycle.

The report highlights concerns about the separate management of the current budget and the development budget by the Finance Division and the Planning Commission, respectively, leading to inconsistent and suboptimal decision-making. The IMF emphasizes the need for reforms to establish a more credible basis for the PSDP budget, as well as better coordination between the Planning Commission and Finance Division.

Moreover, the IMF notes that the estimated time for project completion is likely underestimated. Unfunded projects from 2022-23 and flood-related projects approved later are not considered in the funding backlog, and delays often result in significant cost overruns.

The Planning Commission’s estimation that projects may require 2-3 times their original cost due to various factors, including funding-induced delays, is underscored by the IMF. The Fund also suggests that comparing total project costs in the PSDP to realistic funding available in the medium term would enhance the usefulness of the provided information.

The IMF criticizes the ineffectiveness of debt and deficit ceilings in controlling expenditure, with the debt limit consistently breached since 2012. Public debt has steadily increased, exceeding the 60 percent ceiling set in 2010.

The lack of a medium-term planning document is identified as a gap between the annual budget, investment plans, and the objectives of Vision 2025. The IMF sees an opportunity to revive five-year planning in Pakistan as Vision 2025 nears its term, considering the limited fiscal space and the necessity to identify growth drivers, particularly in public infrastructure.

The report suggests that a medium-term plan would allow for reflection and incorporation of changes, both nationally and internationally, since the drafting of Vision 2025. Given the global warming scenarios and Pakistan’s vulnerability to climate risks, the importance of ensuring climate-resilient public infrastructure is emphasized. The IMF urges Pakistan to address the financial sustainability of the PSDP, enhance budgetary coordination, and consider the broader context of economic and climate-related challenges in its medium-term planning.

The IMF has concluded that Pakistan’s Public Sector Development Programme (PSDP) is financially unsustainable and requires reassessment, given that the total cost for completing PSDP projects amounts to 10.7 trillion rupees. This figure is over 14 times the budgeted allocation of 727 billion rupees from the last fiscal year.

Despite the common understanding that large infrastructure projects span several years and do not demand the entire project cost upfront, PSDP projects frequently experience cost overruns. These overruns are attributed to delays caused by the Finance Ministry’s failure to disburse funds in a timely manner. The IMF report highlights that, on average, a project needs two to three times its original estimated cost due to factors such as inflation, damage to completed work, loss of materials from inactive building sites, and increased builder costs—cost escalations directly linked to funding delays.

Despite these challenges, the report notes a perplexing trend of consistently adding new projects at a significant rate. The IMF correctly points out that this practice intensifies, especially when the narrow fiscal space prompts administrations to allocate funds only to projects nearing completion, sidelining those with less progress—determined by available resources.

While the IMF report presents these issues in academic terms, a more accurate assessment is that the continuous ambition of the PSDP in terms of the number and scope of projects is an attempt by economic leaders to assert the government’s development focus. However, it masks two glaring realities: first, the inadequacy of PSDP budget allocations, persistently insufficient to complete projects; second, the tendency to further cut the PSDP budget at the end of the year to maintain a sustainable budget deficit, particularly during IMF programs.

The evident lesson is that stakeholders, including multilaterals and the public, are no longer deceived by the recurrent pattern of Pakistani administrations identifying ambitious, high-cost projects without providing the budgeted funding, leading to manifold cost increases.

This pattern has not dissuaded leaders from inaugurating the same project multiple times—a practice that continues, exemplified by the Diamer-Bhasha Dam inaugurated by different leaders over the years. The hope is that this peculiar practice will be abandoned, and those in power will realize that repeated inaugurations do not enhance their approval ratings or demonstrate commitment to the nation’s uplift.

While the PSDP’s intention to drive growth is commendable, the IMF’s report underscores the urgent need for a realistic evaluation of project costs, effective budgetary allocations, and a strategic approach to project selection. The practice of inaugurating projects multiple times without adequate funding must cease, and there is a crucial call to balance the PSDP’s ambitious goals with a parallel reduction in current non-development expenditure. It is imperative for policymakers to acknowledge these challenges and implement structural reforms, ensuring that the PSDP becomes a genuine driver of sustainable development in Pakistan.