What happened
The federal government has cut the Public Sector Development Programme (PSDP) by Rs100 billion, or 10 per cent, for the current fiscal year — from Rs1,000 billion to Rs900 billion — and redirected the money to the Prime Minister’s Austerity Fund to finance a subsidy keeping petrol and diesel prices unchanged. Planning Minister Ahsan Iqbal confirmed the reduction, The Express Tribune and The News reported on 26 March 2026.
The Ministry of Finance formally asked the Ministry of Planning, Development and Special Initiatives to surrender the funds. According to the planning ministry, allocations for ministries and divisions were reduced by about Rs68 billion and those for public corporations by about Rs32 billion. The National Highway Authority absorbed the largest single cut at Rs22.3 billion, followed by Rs13 billion for water sector projects and Rs10.2 billion for provincial schemes; the Power Division lost Rs9.1 billion. The Higher Education Commission was cut by Rs4.2 billion, the education ministry by Rs3.2 billion and Azad Kashmir and Gilgit-Baltistan by Rs8.2 billion.
Why it matters
The cut followed a request from the Ministry of Petroleum for Rs71 billion to the Oil and Gas Regulatory Authority (OGRA) to clear price differential claims (PDCs) for the 14-27 March period. Officials estimated the claims at Rs23 billion for 14-20 March and Rs48 billion for 21-27 March. The finance ministry said it had released a first tranche of Rs27 billion from the austerity fund to OGRA to settle claims arising from the decision to shield consumers from higher international prices.
Prime Minister Shehbaz Sharif has kept diesel at Rs336 per litre — a subsidy of Rs176 per litre — and petrol at Rs322 per litre, with the government claiming Rs78 per litre of relief. The government continues to charge a petroleum levy of Rs106 per litre, a carbon support levy of Rs2.5 per litre and 10 per cent import duty, which the Tribune noted largely offsets the relief on petrol.
The Centre has also asked the provinces, particularly Punjab and Sindh, to help shoulder the fiscal burden and to join coordinated austerity and fuel-conservation measures. Dawn reported that the extent of provincial cooperation would determine the future course of petroleum pricing, with a petrol price gap of about Rs75 per litre and a diesel gap of about Rs175 per litre under the existing arrangement. Sindh Transport Minister Sharjeel Inam Memon said his government would implement any federal decisions aimed at preventing a fuel shortage.
What is still uncertain
It remains unclear whether the provinces will agree to share the cost or will have to scale down their annual development plans. The government has said it is weighing further austerity measures, including a possible “smart lockdown”, to avert a crisis caused by supply disruptions and price shocks. The Finance Ministry has not said how much of the Rs390 billion contingency allocation remains available after earlier use.
Sources & reporting notes
This is a synthesis of published material, not eyewitness reporting. Sources were reviewed on 2026-03-26.
- The Express Tribune — PSDP cut by Rs100b for fuel subsidyPublished 26 March 2026 · Reports the cut, the ministry-by-ministry breakdown and the PDC figures.
- Dawn — Centre asks provinces to help shoulder fuel price burdenPublished 26 March 2026 · Reports the provincial cost-sharing request and the Rs27bn tranche to Ogra.
- The Nation — Fuel subsidy: Govt reduces development budget by Rs100bPublished 26 March 2026 · Reports the split between ministry and corporation allocations.
- Geo News — Govt cuts development budget by 10%, mulls smart lockdownPublished 26 March 2026 · Reports the contingency allocation and the smart-lockdown option.
