ISLAMABAD — The World Bank has recommended comprehensive structural reforms to Pakistan’s National Finance Commission (NFC) Award, urging the federal and provincial governments to jointly share the country’s immense financial liabilities. In its latest report on strengthening fiscal federalism, the global lender emphasized that the financial burden of debt servicing, social safety nets, infrastructure development, security, and climate preservation must be co-managed by both federal and provincial authorities. Furthermore, the institution underscored the critical need for effective revenue collection from agricultural income and the implementation of a uniform property tax mechanism across all provinces.
According to the World Bank’s report, while the 18th Constitutional Amendment and subsequent NFC updates successfully enhanced provincial revenues and responsibilities, significant systemic vulnerabilities remain within the national fiscal framework. Federal expenditures failed to decrease, and between 2010 and 2024, provincial revenue allocations rose from 4% to 6.5%, even as local government spending plummeted from 10% to just 5%. The report highlighted that 80% of the additional funds available to the provinces are consumed by current expenditures, such as salaries and pensions, rather than human development.
The World Bank pointed out that while agriculture contributes over 20% to Pakistan’s Gross Domestic Product (GDP), a massive chunk of this sector remains completely outside the tax net. The report stressed the urgent need to harmonize the General Sales Tax (GST) systems and expand the tax base, noting that Pakistan’s current tax-to-GDP ratio of 9.9% is insufficient and sits as the lowest in the region. For comparison, the report cited higher ratios in peer economies: Ethiopia at 10.2%, Indonesia at 10.3%, Egypt and Mexico at 12.6%, Vietnam at 14.3%, India at 16.8%, and Turkey at 17.5%. The lender concluded that tying the NFC Award to strict financial discipline, transparency, and public service performance is essential for long-term economic stability.
