The International Monetary Fund (IMF) predicts a shrinking Public Sector Development Programme (PSDP) and a rise in defense spending, indicating a shift in government priorities. This shift comes as the economy stabilizes, with interest payments expected to remain stable through 2030. Despite this, the PSDP's share of the GDP is projected to decline, from 0.9% in FY25 to 0.6% in FY30, while defense spending is expected to increase from 1.8% of GDP in FY24 to 2% in FY30. The defense budget has already seen a 67% increase in four years, from Rs1.3 trillion in FY21 to Rs2.2 trillion in FY25, and is projected to continue growing. The government is restructuring the PSDP portfolio to improve project selection, but the IMF notes that allocations for parliamentarians' constituency schemes remain a challenge. The finance minister has committed to further improvements, including a cap on new project allocations and a scorecard-based system for project selection. However, the implementation of the National Tariff Policy may lead to reduced or postponed spending, particularly in development areas, as the government prioritizes long-term capital spending.
