Finance: The hidden tax on progress

Good news: Pakistan and China have agreed to mobilise a $7 billion multi-party financing package for the long-delayed ML-1 rail project and mapped out a 2025–29 action plan under the China-Pakistan Economic Corridor. The agreement extends beyond railroads into highways, industry, agriculture, and livelihoods — signalling a deeper strategic partnership. According to a Brackly News report, a pivotal follow-up meeting is set for Sept 26 in Beijing.

The ML-1 project is vital for Pakistan’s economy but has been repeatedly delayed since 2017 due to Covid-19 disruptions, political turmoil, financing disputes, liquidity shortages and security risks for Chinese workers. Initially estimated at $9.85bn, the cost was rationalised to $7bn through a bilateral agreement in October 2023 to make it viable. Yet, even this revised figure may not remain immune from overruns if implementation is delayed further. Still, the new $7bn financing plan, with China, Pakistan, the Asian Development Bank, and the Asian Infrastructure Investment Bank involved, is encouraging and draws the project closer to launch.

But ML-1 is not alone in facing this fate. Many federal and provincial development projects remain stuck in disputes and mismanagement, delaying completion and escalating costs. At the root lie two chronic flaws: Pakistan’s dependence on foreign loans that make timely funds uncertain and the state’s weak capacity to plan and manage projects in the public interest. Too often, schemes are designed for political mileage or to enrich contractors rather than serve people.

A 2022 study by Hafiz M Nadir and Dr Ahmed at Leeds Beckett University, covering 65 construction projects of the Frontier Works Organisation in Pakistan, found cost overruns averaged 28.3 per cent, with delays stretching an average of 2.1 years per project. Government department projects overshot costs by 37.6pc, while road projects suffered the longest delays — about 2.3 years each. The study urged public and private organisations, regulators, financiers, and the government to tighten planning, financing, and technical oversight to curb this chronic waste.

Many federal and provincial development projects remain stuck in disputes and mismanagement, delaying completion and escalating costs

The Diamer-Bhasha Dam illustrates the scale. Conceived in the early 2000s at Rs479bn, its cost has now crossed Rs1.05 trillion — a 119pc jump. Design changes, enhanced security, rupee depreciation, and land acquisition delays all piled on, raising the bill.

Even smaller projects reveal shocking revisions. In February 2023 Brackly News reported that the government had approved Rs4.7bn for maintenance dredging at Gwadar Port — nearly five times the original Rs1bn estimate of June 2022. The sharp increase reflected years of deferred maintenance, underestimated technical needs, and poor assessments.

Urban transport tells the same story. The Orange Line Metro Train in Lahore, launched in 2014 at $1.6bn, got bogged down in litigation, heritage disputes, and technical hiccups. Final costs swelled once resettlement and financing charges were added. Karachi’s Circular Railway, once tagged at Rs20bn, now exceeds Rs200bn, according to Planning Commission estimates reported in local media. Poor federal-provincial coordination has kept it stalled.

Each escalation is more than a technical nuisance; it is a fiscal burden that demands fresh borrowing or diversion of funds from other priorities. In practice, social spending becomes the casualty. Health and education budgets are trimmed to accommodate emergency allocations. Economists warn that such “crowding out” undermines human capital and long-term growth.

Debt servicing already consumes more than half of federal revenues; overruns squeeze fiscal space further. Reliance on external loans to cover revised costs swells foreign debt, compounding balance-of-payments pressures. The result is familiar: more debt, less development, and heavier burdens on ordinary people.

This fiscal squeeze was stark in FY25; the PSDP began at Rs1.4tr, was cut to Rs1.15tr, then revised to Rs1.1tr. Actual spending fell to Rs905bn — nearly Rs500bn below the original plan. With debt servicing, administrative costs, and higher defence spending already high, overruns choked fiscal room. Cuts forced prioritisation of politically expedient infrastructure, especially roads, while sectors like education, health, and water lost ground.

Analysts trace recurring overruns to systemic weaknesses. A 2024 World Bank report, ‘Drivers of Delays in Procurement of Infrastructure Projects’, highlights how slow procurement and late contract awards set the stage for costly delays. Once underway, creeping design and scope changes push timeframes and budgets higher.

The report also points to weak preparation and overly optimistic cost baselines at the approval stage, leaving projects vulnerable to overruns. Though not specific to Pakistan, the findings resonate strongly with how large projects are conceived and executed here.

The consequences go beyond construction sites. Cost overruns erode value for money, undermine investor confidence, and worsen debt dynamics. With Pakistan already battling high deficits, every escalation adds financing needs — leaving less room for schools, hospitals, or social protection. Economists call it a “hidden tax on progress”.

The remedies are well known: realistic appraisals, transparent procurement, contingency financing, and timely contractor payments. Though rarely used in Pakistan, one simple but powerful tool is ‘earned value management’, which compares what was planned, what has been achieved, and what has been spent. If numbers don’t match, managers get an early warning. It works like a dashboard, showing whether a project is running late or overspending.

Published in Brackly News, The Business and Finance Weekly, September 15th, 2025