The Missing Link in Pakistan’s Fiscal Order: Local Governments

 Why the NFC alone won’t fix a system rigged against citizens

On August 22, Pakistan’s president announced the formation of the 11th National Finance Commission (NFC), tasked with recommending how divisible revenues should be shared under the Constitution. Yet, as in past rounds, the debate risks being reduced to narrow formulas of federal–provincial transfers, while ignoring deeper flaws that make Pakistan’s fiscal system both centralized and disconnected from citizens’ needs.

At the core of the dysfunction is the absence of empowered local governments. Councils are frequently dissolved, elections delayed, and finances tightly controlled by provinces. With no real autonomous revenue streams, local governments remain dependent on ad hoc provincial grants, leaving them unable to deliver even basic services like water, sanitation, and infrastructure. The result is a state that struggles to win the trust of its citizens.

Comparative models highlight the gap. Mumbai, with 20 million residents, runs a $3.2 billion municipal budget, three-quarters of which comes from locally raised taxes and fees. Citizens pay because they see results. In contrast, Pakistan’s local governments deliver little, eroding the very social contract that underpins governance. Indonesia, too, offers a striking example: after the fall of Suharto, Jakarta devolved significant fiscal and administrative powers to 38 provinces and more than 500 districts and municipalities, sustaining governance in a nation of 285 million people.

Pakistan’s way forward demands comprehensive fiscal decentralization:

• Constitutional guarantees for the political and financial autonomy of local governments, including protection of elected tenures.

• Expansion of the tax base, with provinces taxing underutilized sectors such as real estate to reduce dependence on federal transfers.

• Federal reforms to cut bureaucratic waste and strengthen fiscal discipline.

A fiscal system is not simply about balancing books; it is about bringing governance closer to citizens and improving their daily lives. Without meaningful reforms—empowered local governments, a broader tax base, and strict fiscal discipline—Pakistan risks deepening regional disparities, economic stagnation, and the erosion of public trust.

The NFC alone cannot fix this. What Pakistan needs is not another formula—it needs a fiscal transformation.

References:

1. https://e.thenews.com.pk/detail?id=428985