KP budget shrinks 28% amid federal shortfalls

Khyber-Pakhtunkhwa (K-P) has recorded its most severe financial setback in recent years, with its provincial budget shrinking sharply during the fiscal year 2025–26.

Khyber-Pakhtunkhwa (K-P) has recorded its most severe financial setback in recent years, with its provincial budget shrinking sharply during the fiscal year 2025–26.

The budget, initially estimated at Rs2,119 billion, was reduced to Rs1,526.1 billion by the end of the year, marking a steep decline of 28 percent.

Officials said the shortfall is the highest in recent memory and continues a pattern of persistent budget gaps in the province over the past several years.

The province had based its financial plan on expected federal transfers of Rs1,506.9 billion. However, actual releases stood at Rs1,218 billion, creating a significant funding gap that disrupted development and administrative spending.

Key federal revenue streams also fell below expectations. Under the federal tax assignment, K-P received Rs1,017 billion instead of Rs1,147 billion. Compensation for terrorism-related losses amounted to Rs122 billion, compared to an expected Rs137 billion.

Net hydel profit transfers reached only Rs32 billion against a projected Rs106 billion, while direct federal transfers stood at Rs45 billion instead of Rs57 billion. No funds were released under the windfall levy, although Rs58 billion had been anticipated.

Provincial own-source revenue also underperformed, collecting Rs120.6 billion against a target of Rs129 billion. Capital income fell sharply to just Rs200 million, far below the projected Rs10.3 billion.

Funds for the merged districts were also heavily impacted. Non-development and development grants together fell significantly short, with actual disbursements far below planned allocations.

Officials note that this is part of a continuing trend, as federal transfers have consistently missed targets in recent fiscal years, putting pressure on provincial finances and limiting development spending.