KP budget contracts 28pc, marking steepest setback in years

PESHAWAR: Khyber Pakhtunkhwa recorded a sharp contraction in its budget during the 2025-26 financial year, with the provincial outlay falling from an initial estimate of Rs2,119 billion to Rs1,526.1 billion by the close of the year, according to details reported by Express Tribune. The decline of 28% was described as the steepest financial setback for the province in recent years.

The reduction surpassed the 22.5% cut seen in FY2023-24 and extended a pattern of repeated budgetary shortfalls. For FY2025-26, the provincial government had based its spending plan on receiving Rs1,506.9 billion in federal support, but the amount actually released stood at Rs1,218 billion, creating a large gap in available funds.

Federal transfers fell below projections

Several major federal receipts missed their projected levels. Under the federal tax assignment, the province obtained Rs1,017 billion against an expectation of Rs1,147 billion. Compensation linked to terrorism-related losses, calculated at 1% of national resources, came to Rs122 billion instead of the anticipated Rs137 billion.

The province also received only Rs32 billion in net hydel profit, far below the projected Rs106 billion. Direct transfers amounted to Rs45 billion compared with an expected Rs57 billion. No funds were released under the windfall levy, although Rs58 billion had been built into the budget estimates under that head.

Provincial income and merged districts allocations also lagged

Khyber Pakhtunkhwa’s own revenue collection also remained below target. Provincial receipts reached Rs120.6 billion against a target of Rs129 billion. General capital income saw an especially steep drop, standing at Rs200 million compared with the projected Rs10.3 billion.

The shortfall was particularly severe in resources meant for the merged districts. Non-development grants, current grants and other related heads brought in only Rs88 billion against an expected Rs202.7 billion. Development resources for the merged districts were also much lower than planned, at Rs98.9 billion compared with the projected Rs270.1 billion.

Pattern of repeated shortfalls

The latest figures continue a multi-year trend of missed budget estimates. Khyber Pakhtunkhwa’s budget targets were missed by 11.8% in FY2022-23, 22.5% in FY2023-24 and 15.5% in FY2024-25, before the much larger 28% reduction recorded in FY2025-26.

The year-end figures show that both federal transfers and provincial resource mobilisation fell short of the assumptions used when the budget was framed, with the largest gaps appearing in hydel profit, windfall levy receipts and funding streams earmarked for the merged districts.