ISLAMABAD: The Khyber Pakhtunkhwa government is set to unveil a total outlay of Rs2.1 trillion when it presents the budget for fiscal year 2025-26 today (Friday). This represents a substantial increase of l9 per cent over the outgoing year`s expenditure.

What makes this year`s provincial budget different is its four-year development vision, designed to improve KP`s long-standing infrastructure gaps and elevate social sector performance.

The document shows an ambitious financial plan, but the province faces mounting challenges, including Rs98bn in debt servicing and dwindling transfer of resources from the Centre.

Despite these obstacles, the provincial government will maintain its target of Rs150bn surplus in FY26, a key portion of its IMF agreement with the federal government. The KP produced a Rs100bn surplus in FY25.

The province`s biggest test in FY26 will be the federal government`s willingness to partially provide pledged funds for the merged districts. Islamabad has disbursed only Rs138bn in seven years _ far short of a commitment of Rs700bn.

Long-pending net hydel profits (NHP) and royalty payments will also affect next year`s development spending and the province`s fiscal trajectory.

Official sources indicate that KP`s total budget outlay for FY26 is expected to reach Rs2.1tr, reflecting a 19.7pc increaseover Rs1.75tr in FY25. Expenditures for the coming fiscal year are projected at Rs1.95tr, up 17.89pc over Rs1.65tr in FY25, with a focus on development.

In line with the Centre`s decision, the province will implement a 10pc salary increase with some internal adjustments to allowances. However, the social welfare amount will be increased to Rs19bn from Rs9bn to expand social welfare outreach in the province.

Four-year development strategy The KP government is set to launch a four-year development plan, outlining clear directives and new initiatives. The plan prioritises emergency education programmes and a three-fold increase in university funding to support institutional revival.

Development funds will be strategically directed toward addressing the province`s infrastructure deficit, with an emphasis on agriculture, road networks, and expanded healthcare facilities.

The plan comes at a time when the federal government has allocated only Rs55m for KP a negligible 0.55 per cent of the total federal Public Sector Development Programme.

Meanwhile, the province`s Annual Development Programme (ADP) for FY26 is projected at Rs475bn, reflecting a 14pc increase over Rs416bn in FY25.

However, the actual ADP spending is likely to hover around Rs400bn, contingent on federal resource transfers.

Foreign project assistance has been estimated at Rs175bn as against Rs130bn inthe outgoing year, an increase of 34.61pc.

While allocating resources for security, the province signals a broader shift toward human-centric governance. The security budget`s share of total expenditure will rise to 9pc from 8.5pc. An additional amount of Rs32bn has been earmarked to bolster security infrastructure across the province in order to foster a more conducive environment for business and investment.

Revenue mobilisation Federal receipt transfers for FY26 stand at Rs1.28tr, reflecting a 7pc increase over Rs1.20tr in FY25. These receipts encompass federal tax assignments, straight transfers, a one per cent war-onterror allocation, windfall levy on oil, and NHP payments. On the provincial front, tax and non-tax revenue is expected to rise sharply, reaching Rs130bn up 39.78pc over Rs93bn in FY25.

A significant portion of this increase stems from the General Sales Tax (GST) on services, which is targeted at Rs60bn, marking a 27.65pc growth from Rs47bn last year. The government aims to drive revenue expansion through stricter enforcement mechanisms.

Under commitments made with the IMF, the KP government is set to introduce an agricultural income tax and broaden the scope of GST on services.

Social spending The education budget is set to increase to Rs420bn in FY26 a 14.13pc rise from Rs368bn in FY25.The health budget will see a significant boost as well, reaching Rs275bn up 19.56pc from Rs230bn underscoring the government`s focus on strengthening socialinfrastructure.

Officials anticipate that a substantial portion of these allocations will be directed towards development schemes, school infrastructure enhancement, and the construction of new hospitals.

The province will allocate an amount of Rs41bn for its flagship Sehat Card Plus programme, as against Rs28bn in FY25.

Major allocations have also been earmarked for key welfare programmes like Ehsaas Rozgar, Ehsaas Youth, Ehsaas Hunar, and Ehsaas Apna Ghar. The province will introduce the Asan Karobar Scheme, aimed at fostering entrepreneurship, with a significant portion of funding dedicated to interest-free loans across all these initiatives.

In a departure from the federal government`s decision against raising the minimum wage for workers, the KP expected to implement an increase in the minimum wage for workers, signalling an independent approach to labour welfare.

The budgetary allocations for FY26 show education will account for 22pc of the total spending, followed by 15pc for health, 9pc for home affairs, 11pc for pensions, and 5pc for debt servicing.

The fiscal outlook for KP hinges on two critical factors: the timely and full transfer of federal resources, and the province`s ability to expand its own revenue streams through enhanced enforcement and better allocations of resources.