ISLAMABAD: The federal government has yet to secure the consensus of provincial governments on a proposal to retain around Rs1.1 trillion to Rs1.2 trillion from the provinces’ shares under the National Finance Commission (NFC) Award for strategic spending and federal development projects, creating uncertainty over the Federal Budget 2026-27.
This was stated by Khyber Pakhtunkhwa Finance Adviser Muzammil Aslam while speaking to the media here on Monday. He further said that the budget process remains incomplete as key fiscal figures have yet to be finalized with the International Monetary Fund (IMF).
“Budget-making process was facing unprecedented difficulties, warning that unresolved disputes between the federal government and provinces, coupled with pending negotiations with the IMF, could delay the presentation of the federal budget beyond June 10”, said the advisor, while adding that a federal government delegation led by Ahsan Iqbal had met KP Chief Minister earlier in the day to discuss budget-related matters.
He said the National Economic Council (NEC) meeting is scheduled for Tuesday, but its postponement cannot be ruled out, given the difficult situation. He added that the KP government’s participation in the NEC meeting is linked to being allowed to meet PTI founder Imran Khan. Aslam added that a meeting with PTI founder Imran Khan had become “unavoidable” amid the ongoing fiscal negotiations, expressing confidence that the party founder would not reject any reasonable request aimed at resolving the impasse.
According to Aslam, the federal government wants provinces to surrender part of their NFC shares to finance strategic requirements and the Public Sector Development Programme (PSDP), but no consensus has been reached.
Earlier Rs 1.7 trillion was quoted to be surrender by provinces a per federal government demand, however, the adviser said that based on estimated revenue collection of around Rs 1500 trillion by the Federal Board of Revenue (FBR), provincial governments would have to surrender around Rs 1.1 trillion to Rs 1.2 trillion under the proposed agreement, where KP would have to give up around Rs170-180 billion, making it difficult for the province to meet rising pension and salary expenses.
For the current fiscal year, provinces were allocated Rs8.2 trillion from an estimated FBR tax collection of Rs14.13 trillion. He claimed the federal government was making ‘strategic demands’ from the provinces while insisting provincial governments would receive the same share of resources as last year. Aslam questioned how the federal government could keep provincial transfers unchanged next year despite higher revenue expectations.
“Even if the provinces agree, there are serious technical questions about how such an arrangement would work and how IMF-mandated provincial budget surpluses would be achieved,” he said.
He said the government is considering presenting the federal budget on June 12, although further delays remain possible.
Aslam said uncertainty over fiscal estimates has already forced revisions in economic projections. The GDP growth target has been reduced from 4.2 percent to 4 percent, while the size of the PSDP has yet to be finalised. He also questioned how the government still expects to create two million jobs despite lowering the growth target.
“The budget process remains incomplete because key figures have not been locked,” he said, adding that negotiations with the IMF are continuing.
The adviser also questioned the constitutional and legal basis for withholding provincial shares under the NFC Award. He argued that no technical formula exists for such a move and maintained that the NEC is not the appropriate forum to approve it.
Aslam also complained about cuts in federal allocations for KP. He said the province was informed on June 1 that it would receive Rs66 billion for the Accelerated Implementation Programme (AIP) and merged districts, but the amount has since been reduced to Rs56 billion.
He added that development spending for the merged districts has also been cut repeatedly, from Rs37 billion to Rs25 billion and now to Rs22 billion for the outgoing fiscal year. According to him, larger increases in federal allocations have been provided to Sindh and Balochistan.
Copyright Business Recorder, 2026
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