World Bank urges fiscal reforms in Pakistan

Pakistan needs to overhaul its fiscal federalism framework by improving coordination between the federal, provincial and local governments to safeguard macroeconomic stability, strengthen public service delivery and meet the needs of its expanding population, according to the World Bank's latest report, Strengthening Fiscal Federalism in Pakistan. The report noted that the 18th Constitutional Amendment and the 7th National Finance Commission (NFC) Award, introduced in 2010, significantly reshaped Pakistan's fiscal landscape by transferring major service delivery responsibilities to provinces and increasing their share of financial resources, according to APP. Despite these reforms, the World Bank said persistent structural shortcomings continue to undermine fiscal discipline, weaken revenue generation and limit improvements in essential public services. According to the report, the federal fiscal deficit has widened largely because transfers to provinces increased under the 7th NFC Award without a corresponding reduction in federal expenditures, while overall revenue collection has remained stagnant. Provincial revenues increased from below 4% of GDP before the reforms to an average of 6.5% of GDP during 2010-2024. However, federal spending did not adjust in line with the new fiscal arrangement, adding pressure to public finances.