Fiscal imbalances: World Bank advocates for ‘overhaul’ of NFC Award

ISLAMABAD: The World Bank has warned that Pakistan’s current fiscal federalism system has created a persistent structural imbalance in public finances, urging a comprehensive overhaul of the National Finance Commission (NFC) award to align spending responsibilities with revenue generation, strengthen provincial tax collection and empower local governments.

In its report titled “Strengthening Fiscal Federalism in Pakistan” released by the World Bank during media briefing on Wednesday, stated that while the 18th Constitutional Amendment and the 7th NFC Award marked a historic shift towards decentralisation by transferring key service delivery responsibilities to the provinces, financing and institutional arrangements.

However, structural weaknesses in the system continue to disturb fiscal discipline, constrain revenue mobilisation, and affect the quality of services for citizens.

READ ALSO: No consensus yet on provinces’ shares under NFC Award

The Bank stated that reverse grants included in the fiscal year 2027 federal budget could help partially address the current vertical fiscal imbalance, but emphasised that broader institutional reforms would still be required to place Pakistan’s fiscal federalism framework on a sustainable footing.

The Bank noted reverse grants from Punjab at over Rs546 billion and Rs260 billion from Sindh, but no amount was shown from Khyber Pakhtunkhwa and Balochistan provinces.

When asked about this, the Bank official said that no such amount was mentioned in the two provinces’ budget documents. The federal government estimated grants/receipts from provinces under Article 164 at Rs1035 billion for 2026-27.

Copyright Business Recorder, 2026