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Developing economies are suffering to fulfill the sustainable environment's commitments in fiscal imbalance. This study attempted to highlight the core issue of fiscal imbalance in developing economies and its impact on a sustainable environment. For this purpose, the study utilized generalized least squares (GLS) and quantile autoregressive distributive lag (QARDL) on a 19-year dataset (2000–2018) of the South Asian region. The results of GLS indicate that fiscal imbalance contributing positively to South Asia's environmental degradation process. Here, energy consumption (due to dirty sources of energy) and energy intensity (due to inefficient energy conversion technology) are also sources of environmental degradation in this region. The results of QARDL confirm that economic and political fluctuations can be the long-run source of fiscal imbalance in this region, which ultimately slows down the process of the environmental Kuznets curve (EKC) theory and contributes positively to environmental degradation. Based on the empirical analysis, this study provides a comprehensive set of policy guidance for developing and developed economies for the smooth transition of sustainable environmental conditions in South Asia. [ABSTRACT FROM AUTHOR]