KP warns of IMF surplus risk as federal transfers lag

By Staff Reporter

PESHAWAR: Khyber Pakhtunkhwa’s provincial government has sounded the alarm over shortfalls in federal revenue transfers during the first half of the 2025-26 fiscal year, warning that the delays and reductions are jeopardising its ability to deliver a Rs157 billion budget surplus agreed upon with the International Monetary Fund.

The concerns were laid out in a two-page letter from Muzammil Aslam, adviser on Finance to the Chief Minister, to Federal Finance Minister Muhammad Aurangzeb. The missive follows public criticism from newly appointed Chief Minister Sohail Afridi, who accused the federal government of withholding the province’s rightful share from the divisible pool.

The Rs157 billion surplus target was built on the assumption of full and timely federal transfers, the letter stated. Any deviation, it cautioned, directly erodes the province’s capacity to maintain fiscal discipline and meet its IMF commitments.

The strain is most acute in the merged districts — formerly the Federally Administered Tribal Areas — where development and service delivery remain fragile years after integration. The provincial government budgeted Rs292 billion for these areas in FY26, comprising Rs143 billion for current expenditures, Rs50 billion under the Accelerated Implementation Programme (AIP), Rs40 billion for the Annual Development Programme (ADP), Rs43 billion as the province’s estimated 3% NFC share, and Rs17 billion for temporarily displaced persons.

Yet federal releases in the first half reached only Rs56 billion — just 19% of the total allocation. Provincial officials say the gap has curtailed development work and disrupted essential services in some of Pakistan’s most underserved regions.

Despite the limited federal support, the province has pushed ahead using its own resources. It released Rs26.4 billion under the AIP without any federal contribution in that category. For development overall, it provided Rs16.4 billion from its budget against federal releases of Rs9.8 billion. On current expenditures in the merged districts, provincial spending hit Rs63 billion while federal transfers stood at Rs46 billion, creating a Rs17 billion funding gap.

The problems extend province-wide. Straight transfers have come in at only Rs19 billion against an annual target of Rs115 billion — just 17% so far. Divisible pool tax transfers, projected at Rs643 billion for the half-year (including the 1% war-on-terror share), actually amounted to Rs567 billion, leaving a Rs76 billion shortfall. Net Hydel Profit payments have also fallen well behind. Against a full-year budget of Rs106 billion, only Rs17% — Rs18 billion — has been received in the first six months.

These revenue pressures have been compounded by unavoidable outlays, including Rs28 billion on flood response and rehabilitation, plus Rs7 billion in support for temporarily displaced persons. Officials warn that such unplanned spending has further narrowed fiscal room. If transfers continue at the current pace, meeting the Rs157 billion surplus will become “increasingly complex,” the letter noted. It urged immediate corrective steps to ensure timely, predictable releases aligned with budgeted expectations, in order to safeguard provincial finances and public service delivery.

Separately, Prime Minister Shehbaz Sharif on Saturday announced the formation of a committee headed by Planning Minister Ahsan Iqbal to review progress on federal government-sponsored development projects in Khyber Pakhtunkhwa. The panel will visit Peshawar and work with public representatives to assess ongoing schemes.

The announcement followed a meeting between the prime minister and political representatives from the province, where he assured timely completion of center-funded projects. According to the PM Office, the federal government is fully aware of the challenges facing KP residents and is taking concrete steps within its purview to deliver sustainable solutions.

Discussions also covered the broader political situation, public welfare, development, and governance. Participants raised concerns about what they described as a lack of governance in the province, saying the provincial administration has no clear policy direction on health, education, infrastructure, or public welfare, and has shown little focus on resolving everyday issues.