The World Bank has formally called on the government of Pakistan to significantly curb non-essential federal expenditures and execute a comprehensive overhaul of its internal fiscal resource allocation framework. The international financial institution emphasized that negotiating and implementing a fresh National Finance Commission Award is an absolute necessity to fix the country’s macroeconomic management systems and fortify deteriorating public finances. The lender noted that the current structural imbalances between federal obligations and revenue distribution lines pose a severe threat to long-term economic stability.
World Bank Country Director for Pakistan Bolorma Amgaabazar explicitly stated that the existing mechanism for dividing financial resources between the central federation and the provincial governments requires immediate structural updates. She stressed that establishing a modernized, balanced award is critical for securing sustainable economic growth and fostering real fiscal coordination across all tiers of government. The warning highlights growing international concern over the country’s persistent structural deficits and fragmented public financial management systems.
The international lender pointed out that while the federal government continues to transfer a substantial majority of its collected revenues to the provinces under the current legal framework, it has completely failed to downsize its own administrative machinery or reduce its corresponding operational outlays. This persistent mismatch has left the federal administration grappling with a massive annual fiscal shortfall of approximately Rs2 trillion. To plug this systemic deficit, the central government has relied heavily on domestic and foreign borrowing, driving the national debt burden to increasingly precarious levels.
According to detailed assessments by the institution, a major part of the solution involves empowering local governments with greater administrative authority and dedicated financial resources, while simultaneously building a national consensus on equitable revenue sharing. The World Bank observed with concern that a comprehensive, formal review of the fiscal arrangements between the federation and its provinces has remained completely stalled for the past fifteen years. This prolonged policy stagnation has blocked necessary adjustments that could align spending responsibilities with revenue-generating capacities.
To alleviate the compounding pressure on the central treasury, the economic advisory recommended considering a reduction in the provincial share within the divisible tax pool, which would immediately generate essential fiscal space for high-priority national obligations and debt servicing. Simultaneously, the bank urged provincial administrations to drastically improve their independent revenue generation capabilities. The institution specifically highlighted the massive untapped revenue potential within the agricultural income tax and urban property tax sectors, urging local authorities to enforce strict collection mechanisms.
The institution’s data shows that the country continues to exhibit one of the lowest tax to GDP ratios within the entire region, largely due to systemic under-taxation of real estate and agriculture. For instance, national urban property tax collections currently languish at a mere 0.13 percent of gross domestic product, whereas comparable developing economies routinely collect between 0.3 percent and 0.6 percent from real estate assets. The lender also noted that provinces must redirect their budgets toward primary healthcare and public education, expressing deep concern over the rapid inflation of provincial administrative and bureaucratic expenses.
The urgency of these structural adjustments is further amplified by demographic pressures, as approximately 3.5 million young individuals enter the national labor force on an annual basis. The World Bank concluded that creating sufficient employment opportunities for this expanding population requires a highly resilient public finance structure. Establishing an efficient fiscal framework, paired with aggressive domestic revenue mobilization and disciplined expenditure controls, represents the only viable pathway to stabilize the economy and improve public service delivery.
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