The Khyber Pakhtunkhwa Assembly has approved the Fiscal Responsibility and Debt Limitation (Amendment) Bill 2026, introducing stricter controls on provincial borrowing, debt servicing and fiscal management.
The legislation aims to strengthen fiscal discipline and prevent excessive borrowing by the provincial government, autonomous bodies and other institutions.
Under the amended law, the provincial government will be allowed to run a fiscal deficit only under exceptional circumstances. The annual debt-servicing limit has been set at 5 percent of average revenue. If debt servicing crosses that threshold, government approval will be required, although the total limit cannot exceed 7 percent.
The bill also places a ceiling on government debt and guarantees at 75 percent of average revenue. The legislation states that this limit cannot exceed 100 percent under any circumstances.
Autonomous and semi-autonomous institutions will also require prior government permission before obtaining loans, bringing their borrowing activities under tighter oversight.
Another major provision is the transformation of the existing Debt Management Unit into a permanent Debt Management Office within the Finance Department. The office will be responsible for monitoring and managing the province’s debt position.
The Director General and staff of the new office will be appointed through a competitive process on three-year contracts, according to the legislation.
The move comes as the KP government seeks to improve financial management, reduce the burden of debt repayments and ensure that more provincial resources are available for development projects.
The assembly’s action follows broader austerity measures already introduced by the provincial government for the 2026-27 financial year, aimed at controlling unnecessary spending and improving the responsible use of public funds.