The Khyber Pakhtunkhwa (K-P) government has warned that persistent shortfalls in federal transfers under the National Finance Commission (NFC) and other commitments are pushing the province toward a fiscal crisis, jeopardising the Rs157 billion cash surplus pledged to the International Monetary Fund (IMF).
Finance Adviser to the chief minister, Muzzammil Aslam, has written to Finance Minister Muhammad Aurangzeb, cautioning that K-P has received Rs76 billion less than its estimated NFC share in the first half of the fiscal year due to the Federal Board of Revenue’s (FBR) failure to meet revenue targets.
Despite collecting billions through advance income and sales taxes and delaying refunds, the FBR missed its original tax target by Rs545 billion and the revised target by Rs330 billion. This marks the second consecutive year under the Prime Minister Shehbaz Sharif-led government that revenue goals have been missed, despite full federal backing to the tax authority.
“It is evident that continued shortfalls in federal releases pose a serious and immediate risk to achieving the budgeted surplus of Rs157 billion,” Aslam wrote. The Finance Ministry spokesperson did not respond to requests for comment.
The warning comes amid heightened federal–provincial tensions, including the K-P chief minister’s claims that Rs4.5 trillion in past dues are being withheld and the Pakistan Tehreek-e-Insaf’s (PTI) call for a strike on February 8 over alleged election rigging.
Under the IMF programme, the four provinces have committed to generating a combined cash surplus of Rs1.46 trillion—around 1.1% of GDP—an essential component of meeting the overall primary budget surplus target of Rs2.1 trillion. Provincial governments argue this commitment is only achievable if the FBR meets its revenue targets. While the federal government had assured the IMF of 20% tax growth, the FBR has so far managed barely half that rate.
President Asif Ali Zardari has constituted the 11th NFC to consider a new award. Its first meeting was held last month, with stakeholders agreeing to convene again by the second week of January.
Aslam noted that revenue constraints stemming from NFC shortfalls, straight transfers, and allocations for merged districts have been compounded by unavoidable expenditures, including Rs28 billion spent on flood response and rehabilitation, and Rs7 billion on internally displaced persons (IDPs).
He urged the federal finance minister to take urgent corrective measures, particularly ensuring timely and predictable federal transfers in line with budgeted assumptions.
According to the province, K-P’s share from federal tax assignments in the first six months was budgeted at Rs643 billion, including the 1% war-on-terror share, but actual receipts stood at only Rs567 billion.
The adviser stressed that the Rs157 billion cash surplus target was calculated on the assumption of full and timely federal releases, warning that any deviation directly undermines fiscal discipline.
For the merged districts, K-P allocated Rs292 billion this year—Rs143 billion for current expenditure, Rs40 billion under the Annual Development Programme (ADP), Rs50 billion under the Accelerator Implementation Programme (AIP), Rs17 billion for Temporarily Displaced Persons (TDPs), and Rs43 billion as the 3% NFC share. Against this, only Rs56 billion has been released so far, severely constraining development and essential services.
Aslam highlighted that while the federal government has released nothing under the AIP, the province has already disbursed Rs26.4 billion. Similarly, against current expenditure needs of the merged districts, K-P has spent Rs63 billion, while federal releases stand at just Rs46 billion.
Straight transfers present another challenge. Of the Rs115 billion budgeted annually, only Rs19 billion has been released to date. Likewise, from the Rs106 billion allocated for Net Hydel Profit, only Rs18 billion has been transferred in the first half of the fiscal year.
