Pakistan must urgently strengthen its financial resource-sharing mechanisms between federal, provincial, and local governments to maintain macroeconomic stability and improve public services. According to a new World Bank report titled “Strengthening Fiscal Federalism in Pakistan” released on Wednesday, structural weaknesses continue to undermine fiscal discipline and limit national revenue generation. Consequently, the international lender warns that the country cannot meet the demands of its growing population without comprehensive fiscal adjustments.
Furthermore, the publication highlights that the historic 2010 devolution reforms, including the 18th Constitutional Amendment, failed to realize their full economic potential. The report attributes Pakistan’s widening federal fiscal deficit to higher financial transfers to provinces under the 7th National Finance Commission Award. Because the federal government did not proportionally reduce its own expenditures, national structural imbalances worsened significantly between 2010 and 2024.
Meanwhile, World Bank Country Director for Pakistan Bolormaa Amgaabazar emphasized that aligning financing with actual responsibilities remains essential for long-term stability. She noted that dividing tax authority across five separate jurisdictions increases compliance costs and severely constrains overall revenue collection. Additionally, the report criticizes the lack of direct taxation on agricultural income, despite the vital sector contributing over one-fifth of the national gross domestic product.
Therefore, the World Bank recommends re-evaluating provincial spending, which heavily favors recurring administrative costs over healthcare and education. The report concludes that local governments suffered the most, as their share of total public expenditure dropped below five percent by 2024. Ultimately, experts argue that resource distribution formulas must reflect actual poverty levels and service delivery gaps rather than historical administrative patterns to ensure sustainable human development.
