Overview
- The World Bank launched its report on Wednesday and urged a comprehensive revision of the National Finance Commission formula to realign who pays and who provides services across federal, provincial and local governments.
- The report found that bigger transfers to provinces after the 2010 devolution were not matched by lower federal spending and that stagnant revenue collection helped produce a structural federal deficit.
- It offered a menu of reforms including a fiscal equalisation system that matches funds to spending needs and revenue capacity, function‑specific deductions to cover national public goods, conditional transfers tied to service delivery, and reunifying GST collection.
- Practical financing gaps complicate implementation because provincial budgeted reverse grants total less than the federal estimate with Punjab budgeting about Rs546 billion, Sindh Rs260 billion and K‑P and Balochistan showing no allocations.
- The report also documents problems that reforms must address: provincial spending has mainly grown on salaries and pensions, local governments’ share of spending fell from about 10% in 2005 to under 5% in 2024, and large tax bases such as agricultural income and property remain underused.