A private think tank has found more fiscal faults than benefits of the much-discussed creation of new provinces, advising priority to stronger local governments instead of new provinces if public service delivery was actually intended.

In its latest market analysis released on Thursday, the Policy Research Institute of Market Economy (PRIME) highlighted an additional annual recurring cost of Rs. 47 billion to Rs. 57 billion in case of the creation of two more provinces — South Punjab, Bahawalpur, and remaining Punjab — and up to Rs. 730 billion if 30 divisional units were to upgrade to provincial status.

Formal fiscal costing needed first

“Any proposal for creating new provinces should include a formal fiscal costing exercise before constitutional or legislative changes are pursued,” the think tank said, adding that the costing should estimate the recurring expenditure required for the governor, chief minister, provincial assembly, secretariat, high court, and other core institutions, together with the likely NFC resource envelope of each proposed unit.

“This would make it possible to assess whether the expected administrative benefits justify the additional recurring burden,” it said.

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How the NFC allocations stack up

If the number of provinces increases to six, South Punjab receives an illustrative allocation of Rs. 1 trillion under the existing NFC, while Bahawalpur receives Rs. 537 billion. In case of 30 provinces, allocations differ considerably, ranging from Rs. 720 billion for Lahore and Rs. 691 billion for Karachi to Rs. 46 billion for Loralai and Rs. 50 billion for Zhob. Thus, 11 of the 30 proposed units receive less than Rs. 150 billion per annum.

The estimated annual recurring cost of a new provincial government is Rs. 22.4 billion under the low-cost scenario and Rs. 25.9 billion under the high-cost scenario — therefore Rs. 47 billion to Rs. 56 billion per annum for two and Rs. 610 billion to Rs. 730 billion for 30 provinces.

Smallest units hit hardest

Using a 10 percent fiscal sustainability benchmark based on the low recurring-cost estimate, 16 of the 30 proposed provinces would remain at or below the threshold, while 14 exceed it. The burden is particularly high in the smallest units: the core provincial structure would absorb around 49 percent of Loralai’s allocation, 45 percent of Zhob’s, and 37 percent of Rakhshan’s even under the low-cost estimate.

Every proposed province with a population below 1.2 million would require more than one-third of its NFC allocation to finance the core provincial government structure.

The findings show that the fiscal implications of restructuring depend strongly on the number and size of the provinces created. Limited restructuring involving relatively large units produces a much smaller recurring burden, whereas several smaller division-based provinces would face disproportionately high administrative costs relative to their expected NFC resources.

Pressure on smaller provinces

At the fiscal level, the creation of new provinces will put additional pressure on the fiscal resources of smaller provinces, especially those with lower NFC allocations and constrained revenue generation capacity, the analysis showed. A greater portion of their available resources would be consumed by ongoing government expenses, resulting in reduced fiscal room for other provincial spending, such as public service provision and developmental expenditure.

The think tank emphasised that provincial restructuring should be evaluated not only in political and administrative terms but also through a clear fiscal framework.