The World Bank has proposed USD 200 million in financing for Khyber Pakhtunkhwa (KP) to broaden its tax base and improve health and education services. The programme targets an increase in the province’s own-source tax revenue from Rs64 billion to Rs122 billion in real terms by June 2031.
The financing is part of the Pakistan Public Resources for Inclusive Development Multiphase Programmatic Approach for KP, which has a total cost of USD 650 million. The World Bank will provide USD 200 million, comprising a USD 100 million International Development Association (IDA) credit and a USD 100 million IDA loan.
The provincial government will contribute the remaining USD 450 million. The programme will run from fiscal year 2027 to fiscal year 2032, and the World Bank’s board is scheduled to approve it on October 29, 2026.
The programme aims to strengthen KP’s fiscal system to support macroeconomic stability and improve service delivery. It focuses on revenue mobilisation, expenditure efficiency in health and education, and the use of reliable data in policymaking.
The World Bank’s document outlines the province’s fiscal and social challenges. In fiscal year 2025, 35.3 percent of KP’s population lived below the national poverty line. About 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 a small and declining share of rapidly rising expenditure. 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 programme has three components. The first seeks to expand provincial revenue collection through a broader tax base, simplified and harmonised tax administration, and digital transformation across the KP Revenue Authority, the Excise Taxation and Narcotics Control Department, and the Board of Revenue.
The bank identified gaps in tax coverage, fragmented administration and inadequate digital capacity as the main obstacles. Property, agriculture and large parts of the services sector remain outside effective taxation, while the three agencies have overlapping mandates and limited data sharing.
The second component targets public spending. It includes needs-based budgeting, more predictable budget execution, greater spending authority at the facility level, and digital procurement and financial management.
The bank noted that existing public financial management reforms have not yet produced efficient health and education spending, citing weak links between allocations and facility needs, unpredictable releases, and poorly integrated procurement and payment systems.
By June 2031, the programme aims to bring 60 percent of primary schools currently below minimum functional standards into compliance. It also targets verification of 60 percent of contractual payments through the electronic procurement and disposal system, with payments made through electronic fund transfers.
Procurement cycle times in health and primary education are to be cut by 15 percent, and digital reporting of grants to Parent Teacher Councils is to be improved.
The third component will strengthen the provincial statistical system through better economic and sectoral data, integration of administrative databases, and the establishment of a KP Development Data Hub to support planning and resource allocation.
The World Bank rated the operation as carrying moderate environmental and social risks. These include potential digital exclusion of rural and low-income populations, data privacy concerns, electronic waste, and possible distributional effects of agricultural income tax reforms.
