ISLAMABAD: The World Bank has proposed USD 200 million in financing to help Khyber Pakhtunkhwa (KP) broaden its tax base and improve public service delivery, targeting an increase in the province’s own-source tax revenue from Rs64 billion to Rs122 billion in real terms by June 2031.
According to the bank’s document, the proposed Pakistan Public Resources for Inclusive Development Multiphase Programmatic Approach for KP envisages a total cost of USD 650 million, including USD 450 million in provincial government financing and USD 200 million from the World Bank. The programme is expected to run from fiscal year 2027 to fiscal year 2032.
The proposed World Bank financing comprises a USD 100 million International Development Association (IDA) credit and a USD 100 million IDA loan, while the provincial government will contribute the remaining USD 450 million.
The programme aims to strengthen KP’s fiscal system to support macroeconomic stability and improve public service delivery, with reforms targeting revenue mobilisation, expenditure efficiency in health and education, and the use of reliable data in policymaking.
The bank’s assessment highlights the province’s persistent fiscal and social challenges. In fiscal year 2025, 35.3 percent of KP’s population lived below the national poverty line, around 40 percent of children under five were stunted, 36 percent of school-age children were out of school, and only 58 percent of children were fully immunised.
KP remains heavily dependent on federal transfers, while its own-source revenue finances only a small and declining share of rapidly rising expenditure, the document notes.
Higher salaries and pensions, the absorption of the merged districts, inflation and an expanded development programme have increased spending pressures and crowded out public investment.
The proposed programme will focus on three major areas: expanding provincial revenue collection, improving the allocation and efficiency of health and education spending, and strengthening the provincial statistical system.
Under the revenue mobilisation component, the World Bank seeks a broader tax base, simplified and harmonised tax administration, and digital transformation across the KP Revenue Authority, Excise Taxation and Narcotics Control Department, and Board of Revenue.
The bank has identified gaps in tax coverage, fragmented revenue administration and inadequate digital capacity as major obstacles to increasing provincial revenue. Property, agriculture and substantial parts of the services sector remain outside effective taxation, while the three provincial agencies operate with overlapping mandates and limited data sharing.
On public spending, the programme envisages needs-based budgeting, more predictable budget execution, greater spending authority at the facility level, and digital procurement and financial management to improve the delivery of health and education services.
The bank cautioned that existing public financial management reforms have yet to translate into efficient health and education spending, citing weak links between budget allocations and facility needs, unpredictable releases, and poorly integrated procurement and payment systems.
By June 2031, the programme aims to ensure that 60 percent of primary schools currently failing to meet minimum functional standards achieve compliance.
It also targets verification of 60 percent of contractual payments through the electronic procurement and disposal system, with payments processed through electronic fund transfers. The programme further seeks to reduce procurement cycle times in health and primary education by 15 percent and improve digital reporting of grants to Parent Teacher Councils.
The third component will strengthen the provincial statistical system through improved economic and sectoral data, integration of administrative databases, and establishment of a KP Development Data Hub to support planning and resource allocation.
The proposed operation carries moderate environmental and social risks, including potential digital exclusion of rural and low-income populations, data privacy concerns, electronic waste, and possible distributional effects of agricultural income tax reforms.
The World Bank’s approval of the proposed operation is scheduled for October 29, 2026.
Copyright Business Recorder, 2026