The Charter of Democracy, signed by Shaheed Benazir Bhutto and Nawaz Sharif in 2006, sought to restore parliamentary government and strengthen provincial autonomy.
The 7th National Finance Commission (NFC) Award and the 18th Amendment advanced that agreement. The award, agreed in December 2009 and effective from July 2010, raised the provincial share of the divisible pool to 56% in FY2010–11 and 57.5% thereafter, following prescribed deductions. Poverty, revenue collection and inverse population density were added to a ‘population-dominated’ criterion for distributing funds among provinces.
The 18th Amendment, enacted in April 2010, abolished the Concurrent Legislative List and expanded provincial legislative authority. It also strengthened the Council of Common Interests. 16 years later, we have enough data and numbers to assess the two reforms — what worked, what did not work, and why, especially regarding the provision of benefits to citizens.
World Bank estimates show average transfers from the federal government to provinces rising from 3.2% of GDP during FY2002–09 to 5.1% during FY2010–24. Provincial spending increased by almost the same proportion. They averaged 4.3% before the reforms and 6.3% during FY2010–25. Provisional fiscal accounts for FY2025–26 put NFC transfers at 6.0% of GDP and provincial expenditure at 6.8%.
The federal budget deficit amidst increased provincial transfers from the NFC award was partly the reason that provinces agreed to make grants to the federal government under Article 164 in FY2026-27. The impact of those grants on federal and provincial spending would only be realised at the close of the current fiscal year, so it is not discussed here.
The federal budget deficit has become a chronic challenge and cannot be overcome through provincial transfers alone. One should realise that the federal government failed to let go of its responsibilities despite the devolution of powers. Average federal spending increased from 11.2 to 13.0% of GDP between FY2002–09 and FY2010–24. Excluding interest payments, it remained around 8.4%.
Debt service therefore helps explain the increase in total spending. But retaining overlapping programmes and administrative structures not only limited the savings from devolution, but also partly explains why Islamabad has to borrow more. Part of the borrowing goes to defensible federal support for national redistribution, including BISP. However, some quarters question the federal government’s support for social protection in provinces through borrowed money.
Provinces have increased their tax receipts from about 0.3% of GDP in FY2009 to approximately 1.0% in FY2025–26. They still rely heavily on federal transfers. Weak documentation and enforcement constrain collections from property and agricultural income. Collecting more also imposes visible costs on owners who may wield political influence. So, the provinces are content to rely on federal transfers.
The social development dividends of the 7th NFC and the 18th Amendment are mixed. Between the 2018–19 and 2024–25 household surveys, literacy among people aged ten and above rose from 60 to 63%. Full immunisation among children aged 12–23 months increased from 68 to 73%. Infant mortality fell from 60 to 47 deaths per 1,000 live births. The share of children aged five to 16 outside school declined from 30 to 28 percent. These comparisons cover part of the post-reform period and cannot isolate devolution’s contribution.
Official poverty estimates show a fall from 36.8% in 2010–11 to 21.9% in 2018–19, followed by an increase to 28.9% in 2024–25. The Gini coefficient, which measures inequality, rose from 28.4 to 32.7 between the last two surveys. Covid-19, floods and inflation damaged household welfare. Judging the reforms solely by the latest deterioration would ignore earlier gains and the effects of national economic policy.
In 2024–25, the out-of-school rate was 21% in Punjab and 45% in Balochistan. Poverty stood at 23.3 and 47.0%, respectively. One may argue that geography, physical security, delivery capacity and inherited infrastructure affect what each province can deliver. However, evidence suggests funds were not transferred to people facing the greatest disadvantages.
Within provinces, World Bank district data show that real per-capita expenditure attributed to Quetta in FY2023 was more than five times of that in other Balochistan districts. The corresponding ratios were about four for Lahore, three for Peshawar and two for Karachi relative to other districts in the respective province. Lahore’s ratio had narrowed from roughly ten in FY2009. Provincial headquarters costs are included, so one cannot infer how much spending benefited capital-city residents alone. To understand the situation better, let us look at local government spending.
Local governments’ recorded share of general-government expenditure fell from about 10% in 2005 to 4.7% in 2024. The denominator covers federal, provincial and local spending. Article 140A of the constitution requires provinces to devolve political, administrative and financial authority to elected local governments. It is silent on a guaranteed fiscal share to local governments, nor a timetable for Provincial Finance Commission awards. It would not be wrong to say that once the funds are in the provincial kitty, they are allocated to different development schemes and plans at sub-provincial level in a whimsical manner.
First, the politically elected provincial governments are reluctant to hold provincial government elections. Even when they do, control over fund releases to local governments gives provincial leaders leverage over local representatives. This control is further cemented through repeated changes to local-government structures.
This situation forces residents to depend on provincial and federal legislators to obtain services that their local government councilors should have the authority and resources to provide. Provincial assemblies should award PFCs regularly so residents can see whether failures in providing essential services lie with the province or their local government.
Provincial governments are not the only ones failing to fulfill their duties toward local governments. Successive federal governments have also violated Article 154 of the constitution. Article 154 requires the CCI to meet at least once every 90 days. More than 500 days have passed since the last CCI meeting, and there is no sign of it.
The delay in CCI meetings contributes to failure to agree on a successor NFC Award. Subsequent awards should have reflected current population, deprivation and service costs. However, while the 11th NFC has been announced, a lack of agreement has still left provincial shares tied to outdated inputs, including the 1998 Census.
This is the broader context in which one should examine proposals to redesign federal arrangements. The demand for new provinces draws strength from neglected regions. Smaller units could improve representation and shorten administrative distances. However, it has to be kept in mind that local governments would remain under any new boundaries. Creating more provincial governments would offer no assurance that their leaders will share authority with districts.
The Charter of Democracy sought to limit Islamabad’s control over the provinces. Completing that commitment now requires provincial leaders to surrender some control themselves. Parties against creating new provinces should announce which powers and revenues they will transfer to elected local governments. Likewise, parties proposing new provinces should make the same commitment for the units they seek to create. Let voters judge both proposals by the authority their elected local representatives would gain.
The writer heads the Sustainable Development Policy Institute (SDPI), chairs the board of the National Disaster Risk Management Fund and serves on the ADBI’s Advisory Board. He posts on LinkedIn @Abidsuleri
Disclaimer: The viewpoints expressed in this piece are the writer’s own and don’t necessarily reflect Geo.tv’s editorial policy.
Originally published in The News
