Local govts starved of provincial funds

Only Rs1.8 trillion of Rs9.2 trillion federal transfers reach local bodies

KARACHI:

Pakistan's provinces, which once complained that the federal government was monopolising power and economic resources, have themselves become barriers to devolution at the district level, particularly when it comes to fiscal and economic authority.

Provinces are projected to receive Rs9.2 trillion in federal transfers in FY26-27, yet only Rs1.8 trillion is being transferred onward to local governments, according to Economic Policy & Business Development (EPBD).

"Local governments are the missing link to development, yet receive only a small slice of public resources," observed EPBD in an X post. "The tier closest to citizens remains the furthest from public resources."

A country that once viewed devolution with suspicion and ultimately lost half of its territory, East Pakistan, now Bangladesh, took a major step forward in 2010 through the 18th Amendment, which transferred significant powers from the federation to the provinces. However, that journey appears to have stalled once again, as provincial governments have been reluctant to pass authority and financial decision-making further down to districts and local governments.

As a result, citizens remain dependent on distant and often disconnected provincial administrations rather than being empowered to make collective decisions about their own development priorities. Without meaningful fiscal devolution to local governments, the promise of grassroots democracy and citizen-led development remains incomplete.

The think tank's findings show that Punjab's federal transfers are projected to increase by 8.1% in FY2026-27, while transfers to local governments are expected to decline by 11.8%, reducing the local government's share of federal transfers from 22.8% to 18.6%. In Balochistan, transfers to local governments are projected to fall by 9.2% despite a 4.1% increase in federal receipts.

"It is a major constitutional failure as the 18th Amendment has given powers to provinces, but provinces failed to devolve powers under the same amendment," noted Dr Jazib Mumtaz, an applied economist associated with the Institute of Business Administration (IBA).

Sindh and Khyber-Pakhtunkhwa (K-P) have shown relatively better performance. Sindh increased transfers to local governments by 147%, while K-P raised them by 9.5%. However, experts argue that these allocations remain insufficient when compared with the scale of resources received by provinces and the growing demands of local service delivery.

The report notes that roads, sanitation, water supply and community services are largely delivered at the local level. It argues that when fiscal devolution stops at the provincial level, development, accountability and democratic participation also suffer.

"The spirit of the 18th Constitutional Amendment remains unfulfilled," observed Mukhtar Ahmad Ali, Executive Director of the Centre for Peace and Development Initiatives (CPDI), citing the reason that provinces have failed to devolve political, administrative and financial authority to local governments as required under Article 140A of the Constitution.

Ali stressed that local governments should also be empowered to generate their own revenues and receive funds through Provincial Finance Commission (PFC) awards based on transparent criteria, including population, revenue effort, performance and existing development levels.

Mumtaz cited Karachi as an example, arguing that the city has suffered from persistent underinvestment. According to his estimates, Sindh spent Rs3.87 trillion on development projects between FY2010-11 and FY2024-25. Based on its population share of around 37%, Karachi should have received approximately Rs1.42 trillion but received only Rs472 billion, creating a shortfall of nearly Rs945 billion.

Similarly, he noted that Karachi should have received around Rs757 billion from the federal Public Sector Development Programme (PSDP) over the same period but obtained only Rs340 billion, resulting in an additional deficit of more than Rs416 billion.

"The cumulative development deficit for Karachi exceeded Rs1.36 trillion during this period," he said.

Dr Abid Qaiyum Suleri, Executive Director of the Sustainable Development Policy Institute (SDPI), linked Pakistan's weak social indicators to the absence of empowered local governments. Pakistan ranks poorly across several global indicators, including the Human Development Index, Sustainable Development Goals Index and gender-related development measures, he said.

"Higher financing is important, but development outcomes also depend on functional local governments. Human development cannot take place unless local governments are adequately funded and empowered," Suleri said.

He called on provinces to announce Provincial Finance Commission awards based on transparent resource-sharing formulas and stressed the need for local government elections in Punjab, where elected local bodies remain absent despite the province being home to more than half of Pakistan's population.

"The only serious attempt at meaningful devolution was witnessed during the Musharraf era," highlighted Pakistan Business Forum Chief Organiser Ahmad Jawad. "Even today, most provinces have failed to operationalise effective Provincial Finance Commissions, leaving local governments dependent on provincial discretion."

Jawad argued that provincial governments often prefer governing through bureaucratic structures rather than empowered elected representatives, viewing strong local governments as a challenge to their authority. He proposed empowering district mayors as chief executives of districts with authority over development planning, budgeting and oversight of local departments, while limiting deputy commissioners primarily to revenue administration and provincial coordination.