fiscal federalism

The World Bank's report on Pakistan's fiscal federalism is criticized for being a technocratic exercise that overlooks political economy factors. It highlights institutional weaknesses and recommends reforms like clearer expenditure assignments and stronger provincial revenue mobilization, but fails to address the political incentives driving fiscal imbalances and intergovernmental conflicts.

The World Bank's report on Pakistan's fiscal federalism is technically strong but politically naive, highlighting unresolved issues in fiscal distribution and constitutional amendments. It criticizes the federal government's delay in implementing subsequent finance commission awards and its role in creating a structural federal fiscal deficit.

A World Bank report highlights that Pakistan's 18th Amendment and 7th NFC Award aimed to strengthen fiscal federalism by decentralizing powers and resources to provinces. However, implementation has been ineffective, with federal deficits, provincial inefficiency in revenue mobilization, and weak local governance undermining progress. The report emphasizes incomplete devolution, governance failures, and the need for reforms like improving provincial revenue and empowering local governments.

The World Bank's study 'Strengthening Fiscal Federalism in Pakistan' critically evaluates the seventh NFC Award, highlighting issues like arbitrary resource distribution and increased provincial spending on wages and pensions without corresponding improvements in social services. While acknowledging some strengths, the report argues the NFC Award has contributed to a structural federal fiscal deficit and failed to align financing with public functions.

Pakistan's Economic Survey highlights a hard-won stabilization in economic conditions but underscores unresolved root issues: an underperforming tax system, uncompetitive exchange rate, flawed industrial policy, and a broken fiscal federalism model. The government achieved back-to-back primary surpluses in FY2024 and FY2025, marking the first such streak in two decades, while inflation has decreased.