PESHAWAR (Muhammad Ijaz Afridi): The Khyber Pakhtunkhwa government’s surplus budget of Rs157 billion is at risk due to financial challenges and non-development expenditures.
The International Monetary Fund (IMF) has set a target of Rs220 billion in surplus for the province, raising concerns about potential cuts to development projects valued at Rs150 billion that have been included in the budget for the fiscal year 2025-26.
The provincial government is attributing the financial crisis to the federal government, noting that there has been little increase in provincial revenue from 2013 to 2025. Current evidence indicates that the province’s financial situation is under significant strain, primarily because a large portion of its revenue relies on federal transfers, which have significantly declined.
Reports indicate that funds received from the federal government have been continuously decreasing during the current fiscal year, with approximately Rs75 billion less received so far. It is anticipated that this decline could reach between Rs90 billion and Rs100 billion by the end of the year.
Additionally, in this fiscal year’s budget, a target of Rs. 43 billion was set for the merged districts as a 3 per cent share from the National Finance Commission (NFC). However, not a single penny has been received from these tribal districts under NFC in the last five to six years, and the province has not yet received any funds from the federation under the Annual Development Program (ADP).
Sources within the Khyber Pakhtunkhwa Finance Department report that the instalment received in March was also short by Rs30 billion to Rs35 billion, and revenue from Pak-Afghan trade has diminished. Mujahid Aslam, an advisor to the Finance Minister of Khyber Pakhtunkhwa, claimed that the closure of the Pak-Afghan border has led to a revenue loss of Rs9 billion for the provincial government.
According to the Finance Department, if the Rs100 billion deficit from the federal government continues, the projected surplus of Rs157 billion could drop to approximately Rs57 billion.
Furthermore, the tribal districts are unlikely to receive the Rs43 billion anticipated, complicating efforts to maintain a surplus budget and raising fears of a potential deficit. Nevertheless, due to IMF conditions, the Khyber Pakhtunkhwa government is preparing to implement significant cuts to its development projects, with specific figures expected to be revealed in the regular revised budget, for which a series of meetings are currently ongoing.
An officer from the Finance Department stated that during the current fiscal year, the Khyber Pakhtunkhwa government allocated funds for non-development projects, including Rs12 billion for the Ramadan package and hiring 12,000 people for a “Clean Pakhtunkhwa” initiative to compete with Punjab, which has become a burden on the treasury.
Amid the current war situation and rising petroleum prices, a relief package of Rs3.5 billion was announced for motorcyclists, while funds for schools under the Provincial Transport Company (PTC) increased from Rs13,000 to Rs29,000. Consequently, non-development expenditures have risen by Rs17 billion to Rs18 billion during the fiscal year.
Sources indicate that about 93 to 94 per cent of the province’s total revenue consists of federal funds, making this dependence a significant threat to the surplus budget. A decrease in federal revenue directly impacts the province’s share, disrupting the budget balance.
In terms of revenue growth, Khyber Pakhtunkhwa’s total provincial revenue was approximately Rs16 billion in 2013-14, Rs19 billion in 2014-15, Rs24 billion in 2015-16, Rs30 billion in 2016-17, Rs38 billion in 2017-18, Rs48 billion in 2018-19, Rs58 billion in 2019-20, Rs68 billion in 2020-21, Rs85 billion in 2021-22, Rs100 billion in 2022-23, and Rs115 billion in 2023-24.
Despite this growth, the province is currently facing challenges in revenue collection, and the government will likely fall short of the targets set for the current fiscal year.
While the budget papers indicate a surplus, this is contingent upon the timely and full payment of federal funds. Given the current circumstances, with diminishing federal support and sluggish growth in provincial revenue, maintaining a surplus budget is becoming increasingly difficult. Without significant cuts, Khyber Pakhtunkhwa risks facing a deficit instead of a surplus in the current fiscal year.
