This policy brief is based on the section written by Anjum Nasim, Institute of Development and Economic Alternatives (IDEAS), in “Reclaiming Prosperity in Khyber Pakhtunkhwa” on fiscal space. Over the last two years, Khyber Pakhtunkhwa’s (KP) provincial finances have improved markedly, mainly due to increased transfers from the federal government. However, large pay and pension raises in the last two fiscal years have consumed significant resources. These expenditures have led to inadequate spending on operations and maintenance, with adverse consequences for asset maintenance. Additional fiscal space is now required to meet the development needs of the province.