Khyber-Pakhtunkhwa (KP) has suffered its most severe financial setback in recent memory during the financial year 2025-26, with the provincial budget shrinking dramatically from an initial estimate of Rs2,119 billion to just Rs1,526.1 billion by year-end, a staggering 28 per cent reduction. This marks the highest shortfall in years, exceeding the 22.5 per cent cut recorded in FY 2023-24 and continuing a troubling trend of successive shortfalls.
Federal Transfalls Fall Short
The provincial government had unveiled an ambitious Rs2,119 billion budget, banking heavily on federal support of Rs1,506.9 billion. However, the federal government released only Rs1,218 billion, leaving a massive gap that severely constrained provincial finances. Key federal transfers fell far short of commitments. Under the federal tax assignment, the province received Rs1,017 billion instead of the expected Rs1,147 billion. Compensation for terrorism-related losses, calculated at one percent of national resources, amounted to just Rs122 billion against an anticipated Rs137 billion.
Electricity Profits and Direct Transfers Disappoint
Net profits from electricity delivered a mere Rs32 billion compared to Rs106 billion projected, while direct transfers provided Rs45 billion out of Rs57 billion. Most notably, no funds were released under the windfall levy despite an expected Rs58 billion.
Provincial Revenue Also Underperforms
Provincial resources also underperformed significantly. The province's own revenue reached Rs120.6 billion against a target of Rs129 billion, while general capital income plummeted to a paltry Rs200 million from the projected Rs10.3 billion.
Merged Districts Hit Hardest
Funds for the merged districts were hit particularly hard: non-development grants, current grants, and other heads yielded only Rs88 billion out of Rs202.7 billion, and development resources delivered Rs98.9 billion against Rs270.1 billion expected.
Pattern of Declining Federal Support
This latest shortfall follows a pattern of declining federal support, with budget estimates missing targets by 11.8 per cent in FY 2022-23, 22.5 per cent in FY 2023-24, and 15.5 per cent in FY 2024-25.
