Amid improving fiscal space, the International Monetary Fund (IMF) has projected a steady decline in Pakistan’s Public Sector Development Programme (PSDP), alongside rising defence spending and easing interest payments through fiscal year 2030.
According to IMF projections, interest payments, which stood at 7.8 per cent of GDP in FY25, are expected to fall to 6.5pc in the current year due to lower policy rates. These payments are projected to decline further to 5.9pc in FY27, 5.2pc in FY28, 5.1pc in FY29 and settle at 4.8pc by FY30.
In absolute terms, interest payments are estimated at Rs8.225 trillion this year, down from Rs8.88tr last year, remaining largely stable until FY28 before rising modestly to Rs9.3tr by FY30.
Despite these improving debt indicators, development spending is expected to remain constrained. The IMF said PSDP expenditure, initially estimated at 0.9pc of GDP in FY25, was contained to 0.7pc due to revenue shortfalls.
The PSDP is projected to remain at 0.7pc this year, fall to 0.6pc next year and stay at that level through FY30. In rupee terms, PSDP spending is estimated at Rs873bn this year, gradually increasing to Rs1.2tr by FY30.
In contrast, defence spending is projected to rise both as a share of GDP and in absolute terms. Defence expenditure, which declined to 1.8pc of GDP in FY24, recovered to 1.9pc last year and is expected to increase to 2pc of GDP this year, maintaining that level through FY30. In absolute terms, the defence budget is projected to grow from Rs2.2tr in FY25 to nearly Rs4tr by FY30.
The IMF noted that while the government is restructuring the PSDP to improve project selection, development spending remains vulnerable to fiscal adjustments, particularly in response to revenue shortfalls. Low utilisation in the first five months of the current fiscal year reflects continued fiscal tightening under IMF programme commitments.
