By Farooq Awan

Foreign-funded development projects are placing increasing pressure on Pakistan’s public finances as the government struggles to meet growing rupee-cover requirements needed to support externally financed schemes.

According to a presentation prepared for the Annual Plan Coordination Committee (APCC), rupee-cover obligations have emerged as a major challenge for development planners, consuming a significant portion of available Public Sector Development Programme (PSDP) resources.

Rupee cover refers to the local currency financing that the government must provide alongside foreign loans and assistance for development projects. While external partners finance a portion of project costs, the federal government is required to arrange matching local resources for implementation, land acquisition, taxes, operational expenses and other commitments.

The presentation shows that the demand for rupee cover submitted by the Economic Affairs Division (EAD) for FY2026-27 amounted to Rs832 billion.

Following a rationalisation exercise conducted on May 15, 2026, the requirement was reduced to Rs426 billion. However, even the revised figure represents a substantial claim on limited development resources.

According to the document, the projected PSDP size for FY2026-27 stands at Rs1.126 trillion. After accounting for major commitments, including allocations for the N-25 highway project, Balochistan-specific schemes, projects in Azad Jammu and Kashmir, Gilgit-Baltistan and merged districts, coalition commitments and Sustainable Development Goals programmes, only a limited amount remains available for other development projects.

The presentation indicates that after accommodating the rationalised rupee-cover requirement, available resources for many ongoing projects become extremely constrained.

Several major sectors depend heavily on foreign-assisted financing. In the transport sector, foreign-funded projects carry a combined throw-forward of Rs438.1 billion and are projected to require Rs461.4 billion in FY2026-27.

Similarly, foreign-assisted water-sector projects have a throw-forward of Rs278.8 billion and are expected to require Rs194.3 billion in the next fiscal year.

The Planning Ministry’s data suggest that while foreign financing remains an important source of funding for infrastructure and development projects, the associated rupee-cover obligations are becoming increasingly difficult to accommodate within existing fiscal limits.

The presentation also highlights the broader financing challenge facing the federal development portfolio. Ongoing projects require approximately Rs3.377 trillion in FY2026-27, while the Indicative Budget Ceiling communicated by the Finance Division stands at Rs1.126 trillion.

At the same time, the overall throw-forward of federal development projects has reached Rs10.818 trillion, reflecting the growing volume of commitments that will require financing in future years.

According to the document, managing rupee-cover obligations alongside rising project liabilities will remain a critical challenge as policymakers seek to sustain development spending under tight fiscal conditions.

The presentation underscores that foreign-funded projects, while helping finance strategic infrastructure and development initiatives, also generate substantial domestic financing requirements that must be accommodated within the PSDP framework.

Credit: INP-WealthPk