The Pakistani government is moving ahead with plans to construct the Chenab Dam amid escalating water security concerns and growing tensions with India over the Indus Waters Treaty (IWT). However, a key funding proposal — the imposition of a 1% water storage cess on taxable products (excluding electricity and medicines) — has been rejected by the International Monetary Fund (IMF).
The water cess was intended to help finance three major dam projects: Diamer-Basha Dam, Mohmand Dam, and the newly proposed Chenab Dam. According to official estimates, the government needs over Rs 1.35 trillion to complete these projects — including Rs 620 billion for Diamer-Basha, Rs 173 billion for Mohmand, and more than Rs 800 billion for the Chenab Dam. Despite the urgency, the IMF has opposed the new tax, raising concerns over legal and governance implications, the lack of budgetary flexibility, and WAPDA’s control over the collected funds. Instead, the IMF has advised Pakistan to consider increasing the standard 18% sales tax rate and to more effectively utilize the existing Public Sector Development Programme (PSDP).
The situation is further complicated by the provinces’ refusal to share the financial burden or reduce their Benazir Income Support Programme (BISP) allocations. Meanwhile, the federal government remains reluctant to raise funds through the PSDP due to coalition pressures. Current allocations for dam development are far below requirements, with just Rs 25 billion allocated for Diamer-Basha and Rs 35.7 billion for Mohmand Dam in the current fiscal year.
The urgency for water infrastructure investment has intensified following India’s suspension of participation in the IWT dispute resolution process. Indian threats to block water flows have prompted strong reactions from Pakistan, with officials warning that such actions would be viewed as tantamount to war. Compounding the issue, the federal development budget has been slashed, including a 28% cut to water sector funding.
As an alternative financing strategy, the government is now considering amending the Gas Infrastructure Development Cess (GIDC) law to redirect over Rs 400 billion in collected funds toward dam construction. Planning Minister Ahsan Iqbal has dismissed the possibility of further PSDP allocations and urged Prime Minister Shehbaz Sharif to prioritize projects that can be completed within the fiscal year.
