Pakistan’s uneven development has been underscored by the World Bank’s latest fiscal federalism assessment, which reveals massive provincial spending gaps, entrenched inequalities, and weak local governance that continue to undermine equitable growth.

The report highlights that provincial capitals absorb disproportionately higher per capita funding compared with other districts, leaving poorer regions trapped in cycles of underinvestment.

The World Bank’s Strengthening Fiscal Federalism report shows that Quetta recorded the widest disparity, with per capita provincial expenditure at Rs 57,000 compared with only Rs 12,000 in the rest of Balochistan, a difference of about 475%.

Lahore followed with Rs 31,000 against Rs 7,000 in other Punjab districts, while Peshawar received Rs 35,000 compared with Rs 10,000 elsewhere in Khyber Pakhtunkhwa. Karachi displayed the smallest gap but still received 178% higher per capita spending than other districts.

These figures demonstrate that despite years of fiscal decentralisation, provincial capitals continue to command a disproportionate share of development resources.

The report noted that wealthier districts regularly receive larger budget allocations, while poorer regions remain trapped in underinvestment. District funding does not appear to be linked to poverty levels or social indicators such as education, healthcare, or infrastructure needs.

This is particularly significant for Balochistan, where persistent underdevelopment and limited employment opportunities have long been cited as contributing factors behind unrest. Despite the province maintaining budget surpluses, Quetta continues to receive substantially higher spending than the rest of the province.

Weak local governance was also criticised. Provincial finance commissions remain largely inactive, and local governments receive only a small share of provincial resources. The proportion of total government spending managed by local governments has fallen from around 10% in 2005 to just 4.7% in 2024, despite constitutional provisions supporting decentralisation.

This decline has eroded the promise of devolution, leaving local communities with limited fiscal autonomy and inadequate service delivery.

The World Bank questioned the effectiveness of increased education and health spending. While provinces such as Punjab, Sindh, and Balochistan significantly raised education budgets between FY09 and FY23, school enrolment and literacy indicators either stagnated or declined in some regions. Much of the increase in provincial spending has been absorbed by administrative expenses rather than frontline services, with recurrent costs consuming more than 80% of expenditure in FY23. This has limited the impact of higher allocations on actual service delivery outcomes.

The report also highlighted structural weaknesses in Pakistan’s fiscal federalism system. The 18th Constitutional Amendment and the 7th National Finance Commission Award devolved major service delivery responsibilities to provinces and increased their revenues.

However, federal activity continued in devolved areas, local government powers remained subject to provincial discretion, and coordination institutions underperformed. Provincial revenues rose from less than 4% of GDP to an average of 6.5% between 2010 and 2024, yet federal expenditures did not decline commensurably, widening the fiscal deficit.

Agricultural income remains largely untaxed despite accounting for more than 20% of GDP, constraining revenue mobilisation.

The World Bank stressed that aligning financing with responsibilities, broadening the tax base, and ensuring that resources reach schools, clinics, and local communities are essential to sustaining stability and delivering better services.

Without reforms to strengthen fiscal equalisation, empower local governments, and improve accountability, Pakistan risks deepening regional disparities and undermining national cohesion.

ANI