Oversized provinces stalling Pakistan’s economic growth, says EPBD

The Economic Policy and Business Development (EPBD) think tank stressed that the economic case for provincial restructuring in Pakistan is compelling when analysed through regional disparity reduction, fund utilisation efficiency, and aggregate demand generation.

The think tank in its report “Economic Analysis of Provincial Restructuring in Pakistan”, stated that the current provincial structure fails to address significant regional variations in poverty (30-70 percent), employment rates (8 percentage point variation), and educational outcomes (literacy rates spanning 40.2-66.3 percent), perpetuating economic inefficiencies that constrain national growth potential.

Pakistan’s existing provincial structure concentrates large and diverse populations into oversized administrative units, creating structural imbalances that manifest in persistent regional disparities, it added.

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It further stated that international comparisons demonstrate that Pakistan’s administrative units are exceptionally large by global standards, with 34.4 million people per unit compared to 6.6 million in the USA, 7.3 million in Indonesia, and 2.1 million in Malaysia. This oversized structure creates governance bottlenecks that limit economic development effectiveness.

The analysis of restructuring scenarios indicates that each approach offers distinct economic advantages, with the 12-province structure providing optimal balance between administrative capacity and responsiveness, the expanded provincial structure maximising local responsiveness and competitive dynamics, and the federal-division structure offering centralised coordination benefits.

Pakistan’s substantial demographic advantages, including 241.5 million people and significant regional economic diversity, require governance structures capable of rapid response to development opportunities and effective targeting of resources toward specific regional needs.

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Under the assumption of constant and effective governance, provincial restructuring offers a strategic path toward sustainable and inclusive economic development that addresses current regional disparities while leveraging Pakistan’s economic potential through more efficient resource allocation, enhanced infrastructure development, improved human capital formation, and specialized development approaches that create measurable improvements in living standards and economic opportunities across all regions, it added.

Provincial restructuring would enable more efficient infrastructure development through targeted fund allocation, generating significant aggregate demand effects across the economy. Smaller provinces would concentrate development spending on specific infrastructure needs rather than spreading resources across diverse regions with varying requirements, increasing investment effectiveness and creating substantial multiplier effects.

Provincial restructuring would address income disparities by enabling specialised development strategies that leverage each region’s comparative advantages while ensuring equitable resource distribution.

The current poverty rate variations from 30 percent in Punjab to 70 percent in Balochistan reflect the failure of uniform development approaches to address diverse regional conditions.

Smaller provinces would develop targeted interventions based on local economic potential, natural resources, and demographic characteristics.

Creating smaller provinces would necessitate enhanced revenue generation capabilities, presenting opportunities for more efficient and equitable taxation systems that support sustainable economic development.

Smaller provinces could implement more targeted agricultural income tax policies by reassessing the current 12.5-acre exemption threshold.

Categorising land according to size, location, irrigation status, and productivity would enable more equitable taxation that reflects actual land use and potential value.

This reform could generate up to 1% of GDP in additional provincial revenues, providing new capacity for essential services and development programs without excessive burdens on smallholders.

A robust framework for land and property taxation would require reliable ownership records linked to national identifiers. Establishing clear records tied to CNICs and tax IDs would create a trustworthy basis for taxation while reducing evasion opportunities.

Harmonised valuation systems using current market-based assessments rather than outdated official rates would align taxes with real value. These changes could unlock up to 2 percent of GDP in additional revenues, strengthening fiscal capacity for provincial development needs.