Lead

A recent World Bank report, "Strengthening Fiscal Federalism in Pakistan," has examined the impact of the 18th Amendment and the seventh National Finance Commission (NFC) Award on Pakistan's fiscal architecture. The report, released on Tuesday, offers a mixed assessment: it acknowledges that Pakistan has made "meaningful" progress since 2010 but identifies significant weaknesses in implementation, provincial spending, and the design of intergovernmental transfers.

The report has sparked debate in Pakistan, with some commentators praising its technical standards while others contend it overlooks the political context that shaped the constitutional and fiscal changes.

Coverage Comparison

Dawn, Pakistan's leading English-language daily, has published multiple articles and editorials on the World Bank report, offering a range of perspectives from informative summaries to critical analyses.

One piece focused on the report's findings about the 18th Amendment and the NFC Award, noting that while the constitutional framework reshaped fiscal federalism by transferring greater powers and financial resources to the provinces, implementation has been "patchy and ineffective." The article highlighted that the federal government continues to run deficits because transfers to provinces increased without a corresponding reduction in federal expenditure or increase in tax-to-GDP ratio. It also noted that provinces have failed to expand their own tax bases and that local governments have weakened over time.

Another Dawn article reported on the report's technical findings, including that the 18th Amendment caused "fragmentation" of the tax system. The article quoted the report as saying that while the amendment strengthened provincial tax authority, particularly over General Sales Tax on services, it also split the tax base between five competing jurisdictions, leading to higher compliance costs, discouraging inter-provincial trade, and constraining aggregate revenue performance.

A third piece in Dawn took a more critical stance, arguing that the World Bank report, while earning "an A+ for technical standards," suffers from "political naivete." This commentary contended that the 18th Amendment and the seventh NFC Award were primarily political attempts to address decades-old imbalances in inter-provincial resource and political control mechanisms. The author suggested that the report's technical recommendations fail to grasp the political economy behind the constitutional changes.

Another Dawn article echoed this criticism, describing the report as "an overwhelmingly technocratic exercise" that treats political problems as technical ones. It noted that while the report rightly criticizes federal spending on devolved subjects, it fails to examine the political incentives that perpetuate federal encroachment, such as patronage networks and bureaucratic preservation.

A sixth piece, also from Dawn, focused on the political consequences of the 18th Amendment, asserting that it has consolidated the rule of three parties in the three provinces, allowing them to entrench themselves and turning provinces into "fiefdoms" where MNAs and MPAs depend on the ruling party.

Key Claims

  • The World Bank report highlights several weaknesses in Pakistan's fiscal federalism, including incomplete expenditure assignments, inadequate provincial revenue mobilization, and fragmented tax systems.
  • The report notes that provincial governments have failed to improve public services despite increased funding. It points out that over 80 per cent of provincial spending is recurrent, largely going to salaries and bureaucracy, with limited impact on health and education indicators.
  • Federal expenditure has not adjusted commensurately with devolution. The report says that the federal government continues to operate in devolved areas, causing duplication and blurred accountability, and that employment in devolved ministries has remained around 25,000 since the amendment.
  • The NFC Award's horizontal distribution has not achieved "genuine fiscal equalisation" and that fiscal allocations still reflect historical patterns rather than current poverty levels and service delivery needs.
  • The federal government's intrusion has delayed the next NFC Award. One Dawn commentary attributes the delay entirely to the federal government demanding a greater share of the divisible pool than assigned under the seventh NFC Award.
  • The 18th Amendment has caused fragmentation of the tax system, splitting the tax base between federal and provincial jurisdictions and constraining aggregate revenue performance.

Perspectives

World Bank (via its report): The report, as reported by Dawn, argues that Pakistan has made "meaningful" progress on fiscal federalism since 2010 but deviates from "international norms" in several areas. It recommends clearer expenditure assignments, stronger provincial revenue mobilization, NFC Award reforms, more transparent fiscal transfers, effective intergovernmental coordination, and empowered local governments. The report states that the current framework reduced federal resources without a commensurate adjustment in expenditure responsibilities, driving a structural federal fiscal deficit.

Pakistani Commentators (via Dawn): Several Dawn articles and commentaries present a critical view of the World Bank report. One argues that the report "suffers from political naivete," asserting that the 18th Amendment and NFC Award were political corrections to historical imbalances, not merely technical adjustments. Another contends that the report treats political problems as technical solutions and ignores the political economy of federal-provincial relations. A separate commentary suggests that the federal government's intrusion is the primary cause of the delay in the next NFC Award, a point the World Bank report reportedly acknowledges but does not fully examine.