The Dependency Myth: What Azad Kashmir Costs Pakistan, and What It Quietly Pays Back

The standard line in Islamabad is simple. Azad Jammu and Kashmir cannot pay its own bills. Each year the federal government hands Muzaffarabad a grant, the region spends it, and the cycle repeats. When the Jammu Kashmir Joint Awami Action Committee (JAAC) brought tens of thousands onto the streets in May 2024 over the price of flour and electricity, the federal response confirmed the frame. Islamabad announced a Rs23 billion relief package, subsidised wheat, and power at Rs4 a unit. Aid, in other words, for a dependent. I want to test that story, because the accounting behind it is far more selective than it looks. AJK does rely on federal money to run its government. That part is real. But Pakistan also draws water, electricity, and one of its richest streams of foreign exchange from the same small territory, and almost none of that shows up when the dependency claim is made. The question is not who gives and who takes. It is whether the ledger has ever been honestly added up.

Start with the budget, because that is where the dependency claim lives. For 2024-25 the AJK government presented a Rs.264 billion budget, of which the federal Variable Grant supplied Rs105 billion. The region’s own receipts were estimated at about Rs.96 billion, mostly from inland revenue and electricity. So roughly half the money that runs AJK in a normal year comes from Islamabad. That is the hard core of the dependency argument, and it is accurate. What is interesting is what happened the next year. For 2025-26 the government unveiled a record Rs310.2 billion budget and called it “deficit-free,” with recurring costs of Rs261 billion supposedly met “entirely from AJK’s revenue receipts.” Read the fine print and Rs149 billion of those receipts is the federal transfer, simply renamed AJK’s “share in federal taxes.” The same money that was a grant in 2024 became a tax share in 2025. Nothing changed except the word. That relabelling is not a detail. It is the whole problem in miniature.

AJK is not a province, and that single fact shapes everything. It has its own assembly, its own tax authority, and its own income tax collection, which brought in a real Rs67 billion in the latest budget. But it sits outside the National Finance Commission award, the formula that divides federal tax revenue among the four provinces. Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan receive a constitutionally fixed share of the divisible pool. AJK receives a “variable grant” set by negotiation and revised every year. The difference is not cosmetic. A share is an entitlement. A grant is a favour, and a favour can be adjusted, delayed, or held over a region’s head. In December 2025, Nawaz Sharif publicly urged that AJK and Gilgit-Baltistan be brought into the NFC. The provinces have refused for years, unwilling to thin their own slices. So, AJK’s fiscal base is genuine but capped, and its single largest revenue line depends on a figure that Islamabad alone controls.

Now turn the ledger over. AJK produces far more electricity than it consumes. The Mangla Dam, completed in 1967, and the 969-megawatt Neelum-Jhelum project, online since 2018, both sit on AJK’s rivers. In 2023 the then AJK Prime Minister Chaudhry Anwarul Haq told a Senate committee the region generated about 2,660 megawatts while its own peak demand stood at roughly 350. The surplus flows to the national grid. This is not a marginal contribution. Mangla is one of the pillars of Pakistan’s irrigation system, holding back water that feeds Punjab’s canals through the dry season. Take away AJK’s rivers and dams and Pakistan’s farmland, its food security, and a slice of its cheapest power all weaken at the same time. The water that makes lower Punjab green is stored on land that used to be Mirpur.

Here is where the accounting turns sharp. For most of the relationship’s history, AJK was paid a “water use charge” rather than the “net hydel profit” that goes to provinces. Under the 2003 Mangla agreement the rate was 15 paisa per unit, later nudged up to about 42 paisa. KP and Punjab, over the same period, were collecting around Rs1.10 a unit from Tarbela and Ghazi-Barotha. The reason given for the gap was constitutional. AJK is not a province, so it does not qualify for net hydel profit. Only in 2023 did the regulator NEPRA finally grant AJK Rs1.10 a unit, which lifted its annual water charge from Rs712 million to Rs5.44 billion in a single year. For scale, KP’s net hydel profit that year was Rs28.6 billion and Punjab’s Rs11.65 billion. And AJK had been feeding clean power to the grid from Neelum-Jhelum since 2018 with no formal payment agreement at all. For decades, then, AJK’s largest physical export to Pakistan was priced at a deep discount, and the discount was dressed up as a point of constitutional law rather than what it was, a transfer running the other way.

The water story has a human tail, and it leads straight to the second half of the ledger. Building Mangla meant drowning the old town of Mirpur and the valleys around it. Construction began in 1961 and submerged hundreds of villages, displacing more than 100,000 people. Pakistan then negotiated with Britain to let many of the uprooted families migrate as labour into the textile mills and foundries of Bradford, Birmingham, Oldham and Luton. That arrangement seeded what is now the single largest segment of the British Pakistani population. Mirpuris are, by most estimates, a clear majority of Britain’s roughly 1.6 million people of Pakistani origin. Put plainly: the dam that took Mirpur’s land created Mirpur’s diaspora. Pakistan built the dam. AJK lost the valley. Britain got the workers. And the long financial benefit of that exchange now flows back into Pakistan’s accounts.

It flows back as remittances, and the numbers are not small. In fiscal year 2024-25 Pakistan received a record $38.3 billion in remittances, up about 27 percent on the year before. The United Kingdom corridor alone sent roughly $5.9 billion, a 31 percent jump. To see what that means, set it against the rest of the economy. Total remittances that year exceeded everything Pakistan earned from merchandise exports, about $30 billion, and came in at roughly twenty times the country’s annual foreign direct investment. They helped Pakistan record its first current account surplus in fourteen years. The diaspora is doing what exports and investment have failed to do: keep the external account standing up. I want to be careful here, because precision matters and overreach discredits the argument. The State Bank does not break remittances down by the sender’s region of origin, so there is no clean AJK figure, and anyone who quotes one is guessing. What I can say is bounded and defensible: if Mirpuris are most of British Pakistanis, then a large share of that $5.9 billion UK corridor traces back to families displaced from a handful of districts in Azad Kashmir.

This raises a question Islamabad almost never asks out loud. When the State Bank celebrates record remittances and a steadier rupee, it is counting money that exists, in part, because a population was pushed out of AJK by a federal dam, and because a diaspora formed that often does not even consider itself Pakistani. A large share of British Mirpuris identify as Kashmiri rather than Pakistani, a distinction they have defended in census campaigns. Yet the remittances still land in Pakistani banks. They still hold up reserves that stood at around $16 billion in early 2026. They still flow partly through diaspora channels like the Roshan Digital Account scheme, which has pulled in more than $12 billion since 2020. Pakistan books all of this as national economic strength. AJK is almost never credited for the contribution. That asymmetry, money counted as Pakistan’s resilience while its human source is filed under Pakistan’s dependents, is the blind spot at the centre of the dependency story.

Set AJK against its actual peers and the claim of unique dependence weakens further. Every federal unit that is poor in industry leans on transfers. The pattern is the rule, not the exception.

Transfer-dependence is the norm across Pakistan’s weaker units. What changes is whether the transfer is named an entitlement or a favour. Sources: Dawn budget reports, 2024.

Balochistan, a full constitutional province, drew Rs647 billion from the NFC pool against very thin own-revenue. Gilgit-Baltistan’s finance minister stated bluntly that the region depends heavily on federal grants, and Islamabad picks up its entire budget deficit. By these standards AJK is not an outlier at all. It is somewhere in the middle: more self-financing than Gilgit-Baltistan, far less than Punjab, structurally similar to Balochistan. The real difference is the language. Balochistan’s transfers are called a constitutional right. AJK’s are called charity. Same dependence, different name, and the name is doing political work.

The case for genuine dependency is not empty, and I would be dishonest to wave it away. AJK has almost no industrial base. Its economy runs heavily on government jobs and the public payroll, which is precisely why a price shock turns into a street protest so quickly. Its formal exports are negligible. Tourism, forests and minerals appear in every budget speech as untapped promise, but they remain small, badly measured, and far below potential. The 2025-26 budget set aside just Rs700 million for tourism, which tells you how marginal these sectors still are in practice rather than in rhetoric. Cut off the federal transfer tomorrow and the AJK government could not meet salaries within weeks. On a pure cash-flow test, the region cannot stand alone. That is true, and it is the strongest card the dependency argument holds. An honest assessment has to put it on the table and leave it there.

But cash flow is not the same as contribution, and a budget is not a balance sheet. AJK’s biggest assets are simply not on its books. Its rivers are valued at a rate it did not set and only recently won. Its largest economic export, its people, was manufactured by a dam Pakistan built, and shows up in Pakistan’s foreign-exchange figures rather than AJK’s own. Its electricity is consumed across the country while the charge for it is fixed by a regulator in Islamabad. This is the familiar shape of a resource periphery: it sends real value to the centre, in energy, water and labour, while the centre sets the price and records the gain. Trade economists once called this unequal exchange. Where the periphery sits inside the same state rather than across a border, others have called it internal colonialism. The terms are heavier than this argument needs, but the mechanism is plain, and it is visible line by line in AJK’s accounts. A territory whose main resources are priced by the other party, and then credited to the other party’s national accounts, will always look dependent on paper. Part of that dependence is real. Part of it is an artefact of who keeps the books and what they choose to count.

So what is the right name for this? International relations offers a sharper tool than the everyday vocabulary of aid and dependence. Writing in the 1970s, Robert Keohane and Joseph Nye separated interdependence, where two sides genuinely need each other, from symmetry, which asks whether they need each other equally. Their central point was that the gap between the two is itself a form of power: the side that is less dependent can turn the other’s reliance into leverage. That fits AJK and Pakistan almost exactly. The two are interdependent. Pakistan needs AJK’s water, power and border ground; AJK needs Pakistan’s money. But the dependence is asymmetric, and Pakistan holds the lighter end. It sets the tariff on the electricity, writes the budget rules, and decides each year what the grant will be. So this is not one-way dependency, which erases everything flowing toward Pakistan, and it is not equal partnership, which flatters a relationship in which one side controls the terms. It is asymmetric interdependence, or in plainer words, subsidised integration: a real exchange on unequal terms. And Pakistan keeps paying the subsidy for a reason a realist would recognise at once. The territory is worth more to it strategically, on the line with India and inside the Kashmir dispute, than the grant costs. The money is not charity. It is rent on a strategic asset, booked as generosity.

The reason any of this matters now is political, not academic. Dependency narratives are not neutral descriptions. They are tools. If AJK is cast as a charity case, then its claims, for net hydel profit, for a seat at the NFC, for fewer federal controls, can be brushed aside as ingratitude. The framing keeps Muzaffarabad asking rather than demanding. That exact logic ran through the unrest of 2024 and 2025. The JAAC started with bread-and-power demands and moved steadily toward constitutional ones. The sharpest of these was the call to abolish the 12 seats in the assembly that are reserved for Kashmiri refugees who live inside Pakistan, not in AJK at all.

Those refugee seats are the most concentrated expression of the imbalance. Of the 45 directly elected seats in the 53-member assembly, 12 are filled by refugee constituencies scattered across Pakistani cities. Six represent Jammu-origin refugees estimated at around 434,000 people and six represent Valley-origin refugees estimated at roughly 30,000, a split that is unbalanced even on its own logic. Critics say these non-resident blocs can decide who governs a population they do not live among. In June 2026 the AJK Supreme Court ruled the seats constitutionally protected, alterable only by amendment under Article 33. Days before that, the government had banned the JAAC under anti-terrorism law, after accepting 37 of its 38 demands and refusing only the one on the seats. Elections are set for July 27, 2026. The economic grievance and the constitutional one are the same grievance in two coats. A region produces real value but does not control the terms on which that value is priced, counted, or represented.

So, does AJK depend on Pakistan more than Pakistan benefits from AJK? On the narrow question of who funds the government payroll, yes. AJK depends on Islamabad, and that dependence is immediate and undeniable. On the wider question of who gains from the relationship as a whole, the answer is far less one-sided than the standard story permits. Pakistan gets water security for its farmland, cheap power for its grid, defensible ground on a contested border, and a stake in one of its three biggest foreign-exchange corridors, much of it sourced from a diaspora Pakistan itself displaced. AJK gets a grant it cannot live without and a price list it does not write. Call it dependency if you read only the budget. Read the whole ledger and it looks more like a managed bargain in which the stronger party keeps the accounts, sets the rates, and then complains about the bill. The fair conclusion is not that AJK is a burden on Pakistan. It is that the account has never been allowed to settle honestly, and that the refusal to settle it is itself a choice Islamabad keeps making, year after year, one renamed grant at a time.

Syed Saqlain Hussain Naqvi is an MA candidate in International Relations at Karadeniz Technical University, Trabzon. He previously taught international security and political economy at the University of Azad Jammu and Kashmir. The opinions expressed in this article are those of the author alone and do not necessarily represent the views or editorial stance of the publication