The World Bank has urged Pakistan to cut unnecessary federal spending and introduce a new National Finance Commission (NFC) Award, warning that the country’s current fiscal framework is undermining economic management and widening budgetary pressures.
World Bank Country Director for Pakistan Bolorma Amgaabazar said Pakistan’s system for sharing financial resources between the federation and provinces requires urgent reform, adding that a new NFC Award is essential to strengthen fiscal coordination and support sustainable economic growth.
She said the review of fiscal arrangements between the federal and provincial governments has remained overdue for nearly 15 years, despite the need to align revenue sharing with changing economic realities.
The World Bank also called for greater financial and administrative powers for local governments, while urging the federation and provinces to reach a consensus on a more balanced distribution of revenues.
The lender noted that around 3.5 million people enter Pakistan’s labour force every year, increasing the need for stronger public finances to support economic growth, investment and job creation.
It also advised the federal government to curb non-essential expenditure, noting that although Islamabad transfers a substantial share of tax revenues to the provinces under the NFC framework, it has not reduced its own spending accordingly.
According to the World Bank, this mismatch has contributed to an annual federal fiscal gap of nearly Rs. 2 trillion while adding to the country’s growing public debt burden.
The lender further recommended revisiting the provincial share in the divisible tax pool to create greater fiscal space for national priorities. It also urged provincial governments to strengthen tax collection, particularly by improving agricultural income tax and urban property tax administration.
The World Bank said Pakistan continues to have one of the lowest tax-to-GDP ratios in the region. Urban property tax collections amount to only 0.13 percent of GDP, well below the 0.3 to 0.6 percent recorded in many comparable economies.
It also called on provincial governments to allocate more resources to health and education while containing the growth of administrative expenditure.
According to the World Bank, comprehensive fiscal reforms, stronger revenue mobilisation and better expenditure management are critical to restoring fiscal sustainability, strengthening the economy and improving public service delivery.
