PESHAWAR – 2025/06/17 09:03:36 – The Khyber Pakhtunkhwa (KP) government is set to reveal a Rs2.1 trillion budget for the fiscal year 2025-26. this represents a 19 percent increase over the previous year’s expenditure, signaling a strong commitment to development despite financial constraints.

This year’s provincial budget is distinguished by its four-year development vision,aimed at addressing infrastructure gaps and enhancing social sector performance in KP.

While the budget reflects an ambitious financial plan, the province is grappling with challenges such as Rs98bn in debt servicing and decreasing resource transfers from the federal government. Despite these hurdles, the KP government aims to maintain a Rs150bn surplus in FY26, a key component of its agreement with the IMF.In FY25, KP achieved a Rs100bn surplus.

A notable challenge for the province in FY26 will be securing pledged funds from the federal government for the merged districts. To date, Islamabad has disbursed only Rs138bn over seven years, significantly less than the committed Rs700bn.

Pending net hydel profits (NHP) and royalty payments will also impact development spending and the province’s financial stability in the coming year.

Official sources indicate that the total budget outlay for FY26 is projected to reach Rs2.1tr, a 19.7pc increase from Rs1.75tr in FY25. Expenditures for the upcoming fiscal year are estimated at Rs1.95tr, up 17.89pc from Rs1.65tr in FY25, with a focus on development projects.

Mirroring the federal government’s decision, the province will implement a 10pc salary increase, with some internal adjustments to allowances. Furthermore, the social welfare amount will be increased from Rs9bn to Rs19bn to broaden social welfare outreach.

The KP government is launching a four-year development plan with clear directives and new initiatives. This plan prioritizes emergency education programs and a three-fold increase in university funding to support institutional revival.

Development funds will be strategically allocated to address infrastructure deficits, with a focus on agriculture, road networks, and expanded healthcare facilities.

this plan is introduced at a time when the federal government has allocated only Rs55m for KP, which is just 0.55 per cent of the total federal Public Sector Development Program.

The province’s Annual Development Programme (ADP) for FY26 is projected at Rs475bn, a 14pc increase from Rs416bn in FY25. Though, actual ADP spending is expected to be around Rs400bn, dependent on federal resource transfers.

Foreign project assistance is estimated at Rs175bn,compared to Rs130bn in the previous year,marking a 34.61pc increase.

In allocating resources for security, the province is signaling a shift toward human-centric governance. The security budget’s share of total expenditure will increase to 9pc from 8.5pc. An additional Rs32bn has been earmarked to strengthen security infrastructure, aiming to create a more favorable habitat for business and investment.

Federal receipt transfers for FY26 are projected at Rs1.28tr, a 7pc increase from Rs1.20tr in FY25. These receipts include federal tax assignments, straight transfers, a one per cent war-on-terror allocation, windfall levy on oil, and NHP payments. Provincially,tax and non-tax revenue is expected to rise sharply,reaching Rs130bn,up 39.78pc from Rs93bn in FY25.

A significant portion of this increase comes from the General Sales Tax (GST) on services, targeted at Rs60bn, a 27.65pc growth from Rs47bn last year. The government intends to expand revenue through stricter enforcement.

Under commitments made with the IMF, the KP government is set to introduce an agricultural income tax and broaden the scope of GST on services.

The education budget is set to increase to Rs420bn in FY26, a 14.13pc rise from Rs368bn in FY25.

The health budget will also see a significant boost, reaching Rs275bn, up 19.56pc from Rs230bn, highlighting the government’s focus on strengthening social infrastructure.

Officials anticipate that a significant portion of these allocations will be directed towards development schemes, school infrastructure enhancement, and the construction of new hospitals.

The province will allocate Rs41bn for its flagship Sehat Card Plus Programme, compared to Rs28bn in FY25.

Major allocations have also been earmarked for key welfare programs like Ehsaas rozgar, Ehsaas Youth, Ehsaas Hunar, and Ehsaas Apna Ghar. The province will introduce the Asan Karobar Scheme, aimed at fostering entrepreneurship, with a significant portion of funding dedicated to interest-free loans across all these initiatives.

In contrast to the federal government’s decision against raising the minimum wage for workers, KP is expected to implement an increase, demonstrating an self-reliant approach to labor welfare.

Budgetary allocations for FY26 show that education will account for 22pc of total spending, followed by 15pc for health, 9pc for home affairs, 11pc for pensions, and 5pc for debt servicing.

The fiscal outlook for KP depends on the timely and full transfer of federal resources and the province’s ability to expand its own revenue streams through enhanced enforcement and better resource allocation.