Funding gap halves foreign-funded projects to Rs255bn

The government has cut the money it set aside for foreign-funded development projects by more than half this year, from Rs537 billion to Rs255 billion, because it does not have enough local currency to match foreign loans and grants, a Senate committee was told on Monday.

A team led by Planning Secretary Dr Tahir Noor briefed the Senate Standing Committee on Planning, Development and Special Initiatives, chaired by Senator Quratulain Marri, on foreign-funded projects in the 2026-27 Public Sector Development Programme (PSDP), Dawn reported.

How the cut happened

• The portfolio: 98 foreign-funded projects with a total estimated cost of Rs8.1 trillion are in this year’s PSDP, involving Rs4.65 trillion in foreign assistance
• The demand: ministries sought Rs537 billion in rupee cover for these projects
• The proposal: after consulting ministries and donors, the Economic Affairs Division proposed Rs425 billion
• The allocation: the National Economic Council approved the overall PSDP at Rs1 trillion against a demand of Rs2.9 trillion on June 10, and gave foreign-funded projects only Rs255 billion because of fiscal constraints

Senator Marri asked which of the projects were expected to be completed during the current financial year. The planning team told senators that most of the projects were expected to be completed during the current year.

M6 motorway “within months”

Noor said work on the Sukkur-Hyderabad (M6) Motorway would begin “within months” because $705 million in foreign financing was now available.

The committee expressed concern over prolonged delays on the project. It was told that Sections I and II were being processed under the public-private partnership mode, with the concession award targeted for February next year. The Asian Development Bank has agreed to provide transaction advisory services for these sections, while financing with international development partners has been secured for the remaining sections, the planning ministry said.

Senators urge caution on foreign loans

The committee said priority should go to domestic resources and rupee allocations, because foreign borrowing, particularly in dollars, carries interest and repayment obligations and needs careful assessment. The government should make better use of local resources to reduce unnecessary dependence on external loans, the panel said.

At the same time, senators said foreign-funded projects must get enough rupee cover to avoid delays, with transparency, accountability, prudent financial management and coordination with donor agencies. They stressed the need to balance foreign assistance with the country’s own fiscal capacity and to avoid needless financial burdens.

The committee also called for effective monitoring and timely work on projects that are now at an advanced stage.

Why it matters

Without enough rupee cover, senators warned, foreign-funded projects face delays, while the loans behind them still carry interest and repayment obligations. The M6 motorway, which would link Sukkur and Hyderabad, has already seen prolonged delays, and the promise that work will begin within months will be closely watched. Read our reports on the IMF’s new forecast for Pakistan and on the reopening of the M1 motorway.

This article draws on reporting by Dawn.