PESHAWAR : A deepening financial standoff between the Khyber Pakhtunkhwa (KP) government and the Federation has pushed the province into a developmental crisis, with Chief Minister Sohail Afridi warning that the “deliberate withholding” of funds is now directly impacting the lives of millions.
As of early 2026, the KP government claims the federal government owes the province over Rs. 850 billion under various heads, including the National Finance Commission (NFC) award, Net Hydel Profits (NHP), and promised grants for the Newly Merged Districts (NMDs).
Across the province, the “Annual Development Programme” (ADP) has become a list of stalled dreams. In Peshawar and rural districts, hundreds of road projects, bridge repairs, and clean water schemes have been halted.
The province recently reported a shortfall of over Rs. 500 billion in federal transfers, leading to a massive “throw-forward” liability projects that are approved but cannot be completed due to empty coffers.
While the province managed to present a Rs. 547 billion development budget for 2025-26, experts warn that without the release of federal arrears, these figures remain “paper-based promises.”
The most critical fallout is being felt in the former FATA regions. At the time of the merger, a “Tribal Decade Strategy” promised Rs. 100 billion annually for development.
”The commitment to the people of the merged districts has been treated as a suggestion rather than a constitutional obligation,” said a senior official from the
Reports indicate that actual releases for the Accelerated Implementation Programme (AIP) have stagnated, leaving schools without teachers and hospitals without equipment.
In some areas, the funding gap for the merged districts alone has exceeded Rs. 550 billion.
The financial squeeze is forcing the provincial government to choose between paying salaries and providing services.
Despite allocating Rs. 35 billion for the flagship Sehat Card Plus program, the province is struggling to clear arrears to private hospitals.
Public spending on education has seen a relative drop, with the Higher Education Commission (HEC) development budget slashed by over 35%, affecting universities across the province that are already facing severe liquidity crises.
The Federal Ministry of Finance has pushed back, stating that transfers are made “fortnightly” and that Rs. 46.44 billion was released as recently as December 2025. However, KP’s Finance Adviser Muzammil Aslam argues these are routine transfers and do not address the trillions in accumulated arrears related to Net Hydel Profits and straight transfers.
For the citizens of KP, the “war of words” between Islamabad and Peshawar translates to broken roads, frequent power outages despite the province being a power hub, and a lack of economic opportunity. With a Debt Management Fund now established to handle rising provincial liabilities, the road to recovery appears long and uphill.
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