Prime Minister Shehbaz Sharif Prioritizes Efficient PSDP Allocation for FY2026-27, Focuses on Water & Hydropower Projects

Islamabad, May 18, 2026 – Pakistan’s government has set a Rs1.51 trillion ($5.7 billion) Public Sector Development Programme (PSDP) for fiscal year 2026–27, with Prime Minister Shehbaz Sharif directing a major shift in funding priorities toward high-performing ministries and critical infrastructure projects, according to verified sources.

The announcement, made during a high-level meeting on Monday, marks a strategic realignment of development spending amid ongoing fiscal constraints tied to the International Monetary Fund’s (IMF) Extended Fund Facility (EFF). Officials confirmed that ministries demonstrating strong performance—particularly in railways, information technology, and power—will receive priority allocations, while underperforming sectors face reduced funding.

Key Decisions in PSDP 2026–27

In a press release from the Prime Minister’s Office (PMO), Sharif emphasized that public funds must be directed toward projects yielding tangible results, with water storage and hydropower initiatives identified as top priorities. The meeting, attended by Deputy Prime Minister Ishaq Dar, Finance Minister Muhammad Aurangzeb, and senior officials, reviewed progress on major projects including the Dasu Dam, Diamer-Bhasha Dam, and Mohmand Dam.

Finance Minister Aurangzeb was specifically praised for the successful launch of Pakistan’s Panda Bonds, which received strong market reception. The government also reaffirmed its commitment to expanding public-private partnerships (PPPs) to accelerate infrastructure development.

Fiscal Constraints and IMF Alignment

The proposed PSDP reflects a cautious approach following last year’s strict budgetary restrictions, where new project financing under PSDP was limited to just 2% of the total allocation—a measure imposed under IMF EFF conditions. Officials noted that the current review process will finalize the PSDP in coordination with the Annual Development Programme (ADP) meetings scheduled ahead of the federal budget announcement.

While the Rs1.51 trillion figure represents a significant allocation, it underscores the government’s challenge in balancing economic growth with fiscal discipline. The IMF’s EFF, which includes strict limits on new borrowing and spending, continues to shape Pakistan’s development strategy, with officials stressing that only projects with clear deliverables will proceed.

Sectoral Priorities and Performance-Based Funding

According to an official from the Planning Division, the PSDP will allocate resources based on performance metrics, with ministries such as railways, IT, and power expected to receive increased funding. The decision aligns with Sharif’s directive to reduce funding for lagging sectors, ensuring that public investments are concentrated where they can have the greatest impact.

Water and energy infrastructure remain central to the government’s economic strategy. The PSDP’s focus on hydropower and dam projects reflects Pakistan’s urgent need to address water shortages and energy deficits, which have hindered growth in recent years. The Dasu Dam, in particular, has been highlighted as a critical component of the country’s long-term water security plan.

Next Steps and Market Reactions

Further details on the PSDP will be finalized in upcoming ADP meetings, with the federal budget expected to outline the full allocation framework. Market reactions to the PSDP announcement have been muted thus far, though the emphasis on PPPs and infrastructure could signal confidence in long-term economic stability.

Analysts suggest that the government’s performance-based funding approach may improve transparency in public spending, though implementation risks—including bureaucratic delays and funding gaps—remain significant challenges.

This report is based on verified statements from the Prime Minister’s Office, the Planning Division, and official press releases. No additional claims or speculative projections have been included.