DR BASHIR AHMAD
In the quieter corners of Peshawar, in the steady, unhurried hum of a Mardan chai dhaba, or beneath the open sky of Abbottabad’s parks, conversations rarely begin with questions of policy or public finance. They start with everyday matters of weather, family, rising prices, but sooner or later, almost inevitably, they drift toward something more fundamental.
Not in formal language, but in a way that carries weight, people ask: where does all the money go?
It is not an accusation nor even a complaint. More often, it is an observation shaped by lived experience. A slow recognition of a gap between what is expected from public spending and what is actually delivered. These are not isolated grievances but visible markers of a deeper fiscal and administrative disconnect. And in that quiet, everyday reflection, ordinary people arrive at a question that lies at the heart of governance itself: whether the allocation of resources is truly translating into the delivery of public goods.
The answer is not dramatic nor scandalous in the usual sense. It is something more ordinary, and therefore, more dangerous. Khyber Pakhtunkhwa (KP) in 2026 is not broke. It is financially stretched, structurally dependent, and administratively tired. And when those three forces combine, what you get is not collapse but a slow erosion.
Clarity on federal transfers/ allocation for KP: The Money That Comes… But Never Fully Feels Yours
The money, in a technical sense, does arrive. But in a more grounded, almost experiential sense, it rarely feels entirely within reach.
The own-source revenue KP generates through its own taxation and non-tax mechanisms is limited. Its fiscal architecture is still heavily anchored in federal transfers under the National Finance Commission (NFC) framework, with over 85–90% of provincial revenues originating from these intergovernmental flows. On paper, this arrangement is designed to promote equity across federating units. In practice, however, it produces a structural dependence that gradually shapes fiscal behaviour. When the overwhelming share of resources comes from outside the provincial economy, the focus subtly shifts from expansion and internal mobilisation to adjustment and financial survival. Autonomy, in such a setting, becomes conditional rather than absolute.
Yet the challenge does not end with dependence alone. The timing and reliability of these transfers introduce an additional layer of fiscal fragility. In periods of macroeconomic stress (whether due to national revenue shortfalls, external financing constraints, or IMF-driven fiscal adjustments), federal transfers may be delayed, staggered or released in partial tranches. For a province already operating with limited fiscal headroom, such delays are not minor administrative inconveniences. They translate directly into liquidity pressures. The response is often predictable: recourse to short-term borrowing, mid-year budget revisions and administrative recalibrations to keep the system functioning.
In this environment, fiscal planning gradually loses its strategic character and becomes an exercise in managing uncertainty. The uncertainty shifts the focus from long-term development trajectories more to meeting the immediate financial obligations on the face of delays in the expected inflows, thereby creating a self-reinforcing cycle of economic vulnerability.
Development slowdown: Budgets That Promise Growth but Deliver Constraint
Every budget season carries a familiar rhythm—optimistic speeches, development commitments and projections that hint at progress. Yet, as the fiscal year unfolds, those projections meet reality.
A substantial portion of about 70–75% in KP’s budget is absorbed by salaries, pensions and administrative costs. That leaves limited fiscal space for development spending, which is the only category that directly transforms lives on the ground. Even that limited development envelope is not stable. The Annual Development Programme (ADP), which represents KP’s roadmap for infrastructure and service delivery, is frequently subject to revisions and reductions when revenue shortfalls appear.
At the announcement stage, development carries a clear ambition. Projects are approved with defined objectives, timelines are articulated, and expectations are set with confidence; however, as implementation unfolds, that initial clarity begins to erode. Ground-breaking ceremonies are relatively straightforward; the real challenge lies in sustaining momentum through to completion. It is at this stage that fiscal constraints, administrative delays and procedural bottlenecks begin to shape outcomes more than policy intent. Cost overruns become more likely, timelines extend beyond their original scope and funding is often released in staggered phases rather than as a coherent flow. Consequently, projects that were initially framed as time-bound initiatives gradually transition into open-ended undertakings. In administrative language, these are described as “ongoing” projects. In practical terms, however, the label often reflects uncertainty regarding both the pace and probability of completion. This gap between announcement and delivery is where policy intent risks losing its intended impact.
Governance issues affecting public services: The Silent Multiplier of Fiscal Stress
If fiscal constraints are the skeleton of the problem, governance inefficiencies are the force that either strengthens or weakens that skeleton.
In KP, governance challenges manifest in ways that are often visible but rarely addressed with sufficient urgency. Procurement delays stretch timelines. Administrative approvals move slowly. Project monitoring remains inconsistent. And in some cases, political considerations influence technical decisions. This is not just inefficiency, but to be honest, an economic leakage.
KP is faced with substantial gaps of nearly Rs. 90 billion lost due to lower federal tax collection, alongside reductions in expected NFC allocations and persistent shortfalls in funding for merged districts. Altogether, the province estimates a broader fiscal strain exceeding Rs. 250 billion linked to federal transfers alone. This is where fiscal management begins to blur into political negotiation.
Yet these realities are only partially reflected in the resource-sharing framework. A project delayed by one year often costs significantly more due to inflation, contract revisions and design changes. What should have been a controlled expenditure turns into an expanding liability. Then comes the issue of institutional capacity. Effective governance requires trained personnel, technical expertise and systems that can manage complexity. However, gaps in capacity lead to weak project execution, underutilization of funds and uneven service delivery. The deeper problem, however, is philosophical. Governance, in many cases, is reactive rather than proactive. It responds to problems rather than anticipating them. And in a system under fiscal stress, reactive governance is simply not enough.
Debt: A Quiet Tool That Can Become a Trap
Debt in KP is not headline-grabbing. There are no dramatic debt crises or international defaults at the provincial level. But debt exists in a quieter form—mostly internal borrowing to manage cash flow mismatches. At first glance, this is not alarming. Borrowing to smooth out timing differences is standard fiscal practice. But the issue lies in the purpose. When borrowing is used to finance productive investment, it generates returns that justify the debt. But when it is used to cover recurring expenses or short-term gaps, it becomes a structural burden. In KP’s case, borrowing often plays the latter role. It fills gaps rather than builds capacity. And over time, even internal debt creates rigidity in the fiscal system—reducing flexibility and increasing pressure on future budgets. In simple terms, the province is not just spending today but quietly borrowing from tomorrow.
The Ground Reality: Where Fiscal Stress Becomes Human Experience
All of this may sound abstract until you step into the spaces where the system actually touches people.
In public hospitals, shortages of staff and equipment are common. Patients wait longer than they should. In schools, infrastructure gaps and teacher shortages affect learning outcomes. In rural areas, development projects often remain incomplete or poorly maintained. Municipal services, like water supply, sanitation, and waste management, vary widely in quality. In some areas, they function adequately; in others, they barely function at all. These are not isolated failures. They are the visible outcomes of fiscal pressure combined with governance inefficiency. And perhaps the most important point: when services fail, it is not just inconvenience that follows—it is a decline in trust. Trust in institutions, trust in governance, and, over time, trust in the idea that things can improve.
Why Does This Continue? A Difficult but Necessary Question
If the problem is so visible, why does it persist? The answer lies in a combination of structural dependency and institutional inertia. Dependency on federal transfers creates comfort in the short term, even if it limits long-term autonomy. Governance reforms require effort, coordination and political will—three things that are often difficult to sustain consistently. There is also the issue of prioritisation. Development is frequently treated as a visible achievement rather than a systematic process.
This leads to a focus on launching projects rather than ensuring their completion and effectiveness. And perhaps most importantly, there is no simple incentive structure that rewards efficiency over visibility. In many cases, completing ten small projects may generate more political attention than ensuring one large project is executed flawlessly.
The Way Forward: Not Just More Money, But Better Systems
The Rs. 157 billion surplus may represent careful accounting. But it also raises a fundamental question about purpose. What does fiscal discipline mean in a context where development slows, dependence deepens, and service delivery struggles to improve?
Ultimately, public finance is not about balancing numbers but about aligning resources with outcomes. Until that alignment is achieved, KP’s finances will continue to present a composed picture on paper while reflecting a far more constrained reality on the ground. The first and most critical step is strengthening own-source revenue. This is not just a financial necessity, but a matter of autonomy. Without increasing Own Source Revenue (OSR), dependence will continue to define fiscal behaviour. Second, development planning must become more disciplined. This means fewer announcements, but more completed projects. The focus should shift from quantity to quality, from initiation to completion. Third, governance systems need strengthening. Procurement processes must be streamlined. Monitoring mechanisms must be enforced. Accountability must move from being symbolic to operational.
Finally, there must be a shift in mindset from managing budgets to managing outcomes. Because ultimately, fiscal policy is about lives, not numbers.
The Final Reflection: A Province, and the Question of Use
KP’s fiscal stress in 2026 is not just an economic issue. It is a reflection of how a system allocates its resources, manages its priorities and defines its responsibilities. A province is not measured by the size of its budget, but by the quality of its outcomes. And in KP’s case, the challenge is not just scarcity; it is the way scarcity is managed. So the next time the conversation comes up in a shop or a park, and someone asks, “Paise kahan ja rahe hain?”—the more important question might be: “Aur jo paise hain, unka kitna hissa waqai logon tak pohanch raha hai?” Because in the end, fiscal stress is not just about what is missing. It is about what is never fully delivered.
