An appraisal of provincial budgets

Provincial budgets for Punjab, Sindh, and Khyber Pakhtunkhwa for the fiscal year (FY) 2025–26 reflect a precarious balancing act between growth ambitions and fiscal realism, raising critical questions about their long-term sustainability, administrative capacity, and inclusivity.
While presented with the usual optimistic overtones, the budgets also carry signals of policy inertia, revenue dependency, and structural inefficiencies that continue to inhibit Pakistan's provincial autonomy and economic self-reliance. The critical scrutiny of these documents not only reveals political economy underlying fiscal planning in each province but also highlights fundamental concerns about the federation's economic route vis-à-vis fiscal federalism.
The Punjab government, presenting its budget on June 16, 2025, announced a massive total revenue target of Rs 4,890.4 billion, an ambitious 18.6 percent increase in transfers from the Federal Divisible Pool and a staggering 24.5 percent growth in provincial tax revenues. The projections are structurally flawed, relying on idealistic assumptions that dismiss the historical underperformance of revenue agencies and tax resistance from powerful local lobbies.
Reliance on property and agricultural income tax reforms, both fraught with entrenched political resistance, indicates an overestimation of administrative capacity and political will. The failure to meet revised estimates for FY 2024–25, which were already 10.7 percent below initial projections, casts serious doubt on the credibility of these new targets.
An estimated collection of Rs 333.5 billion in sales tax on services, up 22 percent from the revised estimate of Rs 273.7 billion in the outgoing years, is particularly doubtful given the economic uncertainty and enforcement limitations. Non-tax revenue scenario is equally concerning, with estimates for FY 2025–26 set at Rs 273 billion, a 37 percent decline from Rs 432 billion in FY 2024–25.
The sharp fall is attributed to reduced inflows from the Cash Management Fund (CMF), a strategic but now underperforming instrument that had previously earned Rs 213 billion. Reduction to Rs 30 billion in CMF returns highlights both the volatility of this revenue stream and the province's lack of a diversified non-tax income portfolio.
The expenditure side is dominated by an extraordinarily high allocation of Rs 1,240 billion for the Annual Development Programme (ADP), a 47.3 percent rise from the previous year's budget and an 11.8 percent increase over revised estimates. The dramatic surge in development outlay raises serious concerns about Punjab's absorptive capacity, given chronic issues in project planning, delays in execution, and cost overruns.
The risk of low-impact politically motivated spending, looms large particularly in the absence of institutional reform, robust audit mechanisms, and performance-linked budgeting. The move may also undermine federal fiscal consolidation efforts, as Punjab's ability to generate provincial surplus appears jeopardized by such aggressive development financing.
The current expenditures present a paradox, as some critical heads see a reduction despite rising service delivery demands. Allocation for public order and safety affairs, at Rs 299 billion, is 14 percent lower than the revised figures for FY 2024–25, a reduction that appears disconnected from the province's growing population and evolving internal security challenges.
The housing development budget alarmingly slashed from Rs 94 billion to just Rs 10.2 billion, and the health sector allocation, cut from Rs 292 billion to Rs 267 billion, reflect a misalignment between policy rhetoric and actual resource commitment. Reductions in areas that directly impact citizen welfare, undermine the government's claim of inclusive growth signaling a return to discretionary rather than needs-based budgeting.
The budget also contains a slew of rhetorical initiatives around digitization, climate resilience, and strategic growth, which while theoretically commendable, lack operational clarity, institutional alignment, and performance benchmarks. Failure of similar past programmes owing to bureaucratic ineptitudes and poor accountability—offers a cautionary tale. The absence of structural reform in public procurement, service delivery decentralization, and tax net expansion continues to limit the province's development despite higher fiscal outlays. The Punjab budget, while expensive, risks becoming yet another exercise in political signaling rather than transformative governance.
The Sindh government, by contrast, has adopted a more calibrated yet still expansionary fiscal posture, presenting a budget with a projected fiscal deficit of Rs 38.46 billion. The total receipts lean heavily on federal transfers, which account for 62% of the provincial inflows, with Rs 2.095 trillion expected under various heads including National Finance Commission (NFC) Award share, straight transfers, and Octroi and Zila Tax (OZT)-related grants. Overdependence on federal allocations not only limits fiscal autonomy but also exposes the province to macroeconomic fluctuations and federal transfer delays, which have historically disrupted cash flows and hindered implementation.
Provincial tax revenues, estimated at Rs 676 billion, represent a modest attempt at internal resource mobilisation. Of this, Rs 388 billion is expected from sales tax on services, while other provincial taxes contribute Rs 288 billion. The low non-tax receipts of just Rs 52.6 billion further reflect a narrow fiscal base and underutilised potential for asset monetization, public-private partnerships, and service-based revenue generation. The structural rigidity of Sindh's revenue architecture has persisted despite years of reform narratives, and this budget does little to change that trajectory.
The current expenditures, estimated at Rs 2.15 trillion, have increased 12 percent year-on-year, driven largely by public sector salaries, pensions, and operational costs in health, education, and law enforcement. The size and rigidity of these obligations reflect the state's expanding administrative footprint, which leaves limited fiscal room for development initiatives. The lack of serious pension reform and growing salary commitments create future liabilities that will constrain discretionary spending and development financing for years to come.
The development expenditure, accounting for nearly 30 percent of the total budget, offers some hope, with Rs 520 billion allocated to the provincial ADP and Rs 366.7 billion earmarked as Foreign Project Assistance (FPA). The combined development outlay highlights Sindh's commitment to infrastructure and social investment. However, execution remains a chronic weakness.
The efficiency of foreign-assisted projects is often hampered by slow disbursements, procurement bottlenecks, and weak monitoring systems. The development agenda, while commendable in size, remains vulnerable to the province's institutional fragility.
The strategic posture of Sindh government is one of cautious ambition aiming to maintain development momentum while handling a manageable deficit. However, long-term resilience of this strategy depends on structural reforms in tax administration, expenditure rationalization, and innovation in public financial management. Continued reliance on federal funds and concessional borrowing, in the absence of productivity-enhancing investments, risks eroding the province's fiscal sovereignty and development dividends.
The Khyber Pakhtunkhwa budget for FY 2025–26, structured around Rs 1,754 billion in total outlays, is perhaps the most constrained of the three, owing to the province's demographic pressures, post-conflict challenges, and limited economic base. The revenue projections include Rs 1,212 billion from federal transfers and Rs 93 billion from provincial tax and non-tax sources. The stark gap between total budgetary size and internally generated revenue — merely 5.3 percent of total income — reflects a crippling fiscal dependency that leaves the province highly vulnerable to federal fiscal dynamics and delays in NFC disbursements.
The total development budget of Rs 416 billion is split between Rs 120 billion for the Provincial ADP and Rs 296 billion under the Accelerated Implementation Program (AIP) and Foreign Project Assistance. Dominance of externally financed or federally supported development initiatives highlights a fundamental weakness in fiscal autonomy. ADP's modest size relative to the total budget also reflects structural crowding caused by salary, pension, and security issues particularly acute in Khyber Pakhtunkhwa due to its proximity to conflict zones and the burden of displaced populations.
The current expenditure, standing at Rs 1,338 billion, continues to be dominated by salaries and pensions, which collectively consume over 70% of recurring expenses. Lack of pension reforms is creating a time bomb that threatens fiscal space for critical sectors like health, education, and infrastructure.
The rising cost of debt servicing further puts pressure, as the province increasingly turns to domestic borrowing and overdraft facilities to meet monthly obligations, a practice that undermines fiscal discipline and increases inter-governmental friction.
The budget does reflect some rationalization in sectoral allocations, with increased funds for health and elementary education, acknowledging post-pandemic service delivery gaps. The commitment to fund Sehat Card Plus scheme and education infrastructure reflects intention, but execution remains mired in weak provincial monitoring capacity. The fragmented governance structure is divided between regular provincial departments, and the AIP umbrella creates duplication, opacity, and administrative inefficiencies that slow down service delivery inflating project costs.
The long-term outlook for Khyber Pakhtunkhwa remains risky unless institutional capacity is strengthened, resource mobilization is improved, and a clear strategy for economic diversification is implemented. Absence of industrial policy, low private investment, and limited natural resource monetization continue to limit province's revenue potential and employment generation capacity. The current budget, while pragmatic within existing constraints, offers little by way of transformative vision.
A combined analysis of the Punjab, Sindh, and Khyber Pakhtunkhwa budgets reveals a troubling pattern: overdependence on federal transfers, lack of serious pension and salary reform, weak tax enforcement, and political tokenism in development outlays. The way forward lies not merely in higher allocations, but in structural changes reform of provincial tax codes, modernization of service delivery, investment in human capital, and accountability-led governance. The provincial budgets must evolve from annual rituals into policy instruments that truly reflect the needs, rights, and aspirations of the people.
Copyright Business Recorder, 2025

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