Zafar Iqbal
The provincial budgets of Punjab, Sindh, and Khyber Pakhtunkhwa for FY 2025–26 present a vivid illustration of the growing tension between ambitious public promises and fragile fiscal fundamentals. While the rhetoric of “inclusive development” and “resilient growth” persists in political speeches and budget documents, a closer examination reveals a sobering reality: Pakistan’s provinces remain entangled in outdated revenue models, politically driven expenditures, and a persistent overdependence on federal transfers. The result is a cycle of fiscal fragility masked by temporary allocations and unsustainable development dreams.
Punjab: Ambition Without Administrative Muscle
Punjab’s budget, unveiled on June 16, 2025, is expansive in vision but shaky in foundations. With a projected total revenue of Rs 4,890.4 billion, the province aims to achieve a steep increase of nearly 25% in its own tax revenue. The optimism is striking—perhaps dangerously so. Despite historical evidence of underperformance, the budget relies heavily on reforms in property and agricultural income taxes—two domains notorious for political pushback and weak enforcement.
Equally worrying is the province’s shrinking non-tax revenue, which is expected to fall by 37% due to a sharp drop in returns from the Cash Management Fund. With CMF income falling from Rs 213 billion to just Rs 30 billion, Punjab’s reliance on a limited set of volatile revenue instruments has been laid bare.
Development spending, meanwhile, has soared to Rs 1,240 billion—an eye-catching 47% hike over the previous year. Yet Punjab’s history of weak implementation, bureaucratic inertia, and politically driven schemes suggests that absorptive capacity will once again be tested. Cuts in housing and health—sectors directly tied to citizen well-being—expose a troubling disconnect between political slogans and fiscal realities. The allocation for housing has dropped from Rs 94 billion to just Rs 10.2 billion, and health spending is down 9%, raising questions about inclusivity and priorities.
Punjab’s budget remains high on projection and low on structural reform. Without fundamental changes in procurement, monitoring, and local governance, its fiscal roadmap risks becoming just another exercise in electoral branding.
Sindh: Stability Without Structural Change
Sindh’s budget appears more measured, yet it too leans heavily on the centre. With 62% of revenues expected from federal transfers, the province has little room for independent fiscal maneuvering. The Rs 38.46 billion projected deficit reflects a calibrated risk, but one that will grow unless the revenue base expands meaningfully.
The province’s internal tax collection—Rs 676 billion, including Rs 388 billion from sales tax on services—is modest but stagnant. Non-tax revenues remain dismally low at Rs 52.6 billion, underlining Sindh’s chronic failure to tap alternative sources like asset monetization, service-based fees, or public-private partnerships.
On the expenditure side, Rs 2.15 trillion is budgeted for current expenses, largely consumed by public sector salaries and pensions. With no real reform on the horizon, these obligations will continue to limit development investment and deepen intergenerational fiscal burdens.
The development budget does offer glimmers of hope. With Rs 520 billion allocated to the provincial ADP and Rs 366.7 billion from Foreign Project Assistance, Sindh’s investment in infrastructure and services is commendable in intent. But execution remains a systemic issue. Procurement delays, lack of performance benchmarks, and weak project oversight dilute the intended impact of these outlays.
Sindh’s strategy is one of cautious continuity—sustaining growth within constraints. But without reforming its tax structure and modernizing financial management, the model may soon hit a ceiling.
Khyber Pakhtunkhwa: Survival in a Squeezed Space
Khyber Pakhtunkhwa’s budget reflects a province grappling with structural disadvantages and constrained resources. With total revenue of Rs 1,305 billion—out of which only Rs 93 billion (or 5.3%) is internally generated—KP remains dangerously dependent on federal transfers. This fiscal reality leaves it highly vulnerable to cash flow disruptions and federal politics.
The development budget, divided between a Rs 120 billion provincial ADP and Rs 296 billion under AIP and FPA, leans heavily on external financing. This model creates fragmentation, undermines transparency, and duplicates administrative functions—issues that have plagued KP for years.
The province’s current expenditure stands at a hefty Rs 1,338 billion, over 70% of which is consumed by salaries and pensions. With no pension reform in sight and domestic borrowing on the rise, KP is walking a fiscal tightrope. Its debt servicing costs are rising, yet there’s no long-term plan to diversify revenue sources or boost productivity.
Still, some rational choices are evident: increased funds for primary education, healthcare, and the Sehat Card Plus scheme. But their success depends on overcoming capacity constraints—monitoring remains weak, data systems fragmented, and provincial oversight lacking cohesion.
The Bigger Picture: Federation in Fiscal Disarray
Taken together, the three budgets tell a story of systemic drift. The provinces are navigating economic uncertainty with dated tools and overstretched administrative systems. Their common weaknesses—overreliance on federal transfers, reluctance to reform pensions and salaries, underperformance in tax enforcement, and political tokenism in development—highlight the failure of fiscal decentralization in its current form.
Real transformation will require more than just increased allocations. The provinces must confront the hard questions: Are their tax systems equitable and efficient? Is development spending translating into public value? Are institutions being strengthened to withstand political cycles?
The answer lies in a deeper shift—from fiscal juggling to structural reform. Provinces need to modernize their public financial management, expand the tax base equitably, professionalize service delivery, and embrace data-led planning. Until then, provincial budgets will remain high on ambition but low on outcomes.
The FY 2025–26 budgets of Punjab, Sindh, and Khyber Pakhtunkhwa reflect a country stuck between old habits and new challenges. These documents may be polished with optimistic projections and headline-grabbing numbers, but the absence of institutional reform, revenue modernization, and genuine federalism renders them fragile foundations for long-term progress. The provinces must now choose: continue with fiscal theatrics or pivot to real governance.
