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Business Recorder
07-06-2025
- Business
- Business Recorder
Beyond the divide: rethinking federal-provincial collaboration for economic transformation—I
As Pakistan stands at a critical economic crossroads—grappling with slow growth, rising debt, and deepening inequality, the need for deeper and more effective federal-provincial collaboration has never been more urgent. Real prosperity will not come from centralization or control, but from empowering provinces to be the architects of their own development. Stabilizing the economy, attracting foreign investment, and unlocking the country's vast untapped potential requires a governance model that empowers provinces to act as true partners in national development. While fiscal federalism is enshrined in Pakistan's constitutional framework, it remains weakened by fragmented planning, uncoordinated policymaking, and an inequitable allocation of resources. The 18th Constitutional Amendment marked a pivotal step toward decentralization, devolving significant powers to the provinces. Yet, the envisioned collaborative framework between federal and provincial tiers has struggled to take shape. This disconnect not only impedes coherent economic strategy but also undermines the ability of provinces to mobilize their unique assets. National prosperity depends on activating subnational growth engines—but a highly centralized system continues to restrict provincial autonomy in areas such as fiscal authority, investment facilitation, and infrastructure control. This article makes the case that unlocking Pakistan's true economic potential demands a bold reimagining of federal-provincial collaboration—one built on trust, accountability, and a commitment to shared national goals. Using Khyber Pakhtunkhwa (KP) as a vivid example, it highlights both the immense opportunities and the systemic institutional hurdles holding back progress. The insights here are inspired by a compelling conversation between KP's Finance Minister Muzzamil Aslam and renowned economist Dr. Nadeemul Haq, whose perspectives shed light on the urgent need for reform. A flawed fiscal compact: rethinking the NFC and the federal-provincial contract The current fiscal framework, established under the 7th National Finance Commission (NFC) Award in 2010, allocates 57.5 percent of federal revenues to the provinces. While this arrangement was intended to strengthen provincial autonomy following the 18th Amendment, its promise is fading fifteen years on. Provinces have become heavily dependent on federal transfers, contributing only about 1 percent to the national tax-to-GDP ratio, while the federal government remains responsible for over 90% of revenue collection and all debt servicing. This imbalance has severely strained the federal budget, limiting its ability to invest in national priorities such as defence, infrastructure, and climate resilience. Meanwhile, provinces now bear the bulk of expenditures in critical sectors like health, education, and local development—but lack the fiscal tools and revenue authority to sustainably finance them. This mismatch is further exacerbated by IMF-imposed provincial primary surplus targets, which compel provinces to cut back on development spending to support federal deficit reduction efforts, even as their own service delivery obligations expand. The absence of integrated planning and data-sharing mechanisms between federal and provincial governments further compounds inefficiencies and leads to duplication of spending, particularly in overlapping service delivery sectors such asocial protection, health and education. A disjointed fiscal federation Despite constitutional devolution under the 18th Amendment, economic policymaking continues to be overly centralized. Key domains—such as excise duties on tobacco, electricity pricing, and mineral royalties—remain firmly within federal control, limiting provinces' ability to capitalize on their unique comparative advantages. For instance, KP produces 78 percent of Pakistan's tobacco—yet cannot set meaningful fiscal policies due to federal dominance over excise taxation. While the federal government earns over PKR 550 billion from tobacco excise, KP receives only 14.62 percent of the divisible pool, and its own provincial excise efforts are mired in legal challenges and regulatory overlaps. Despite its potential in green energy, minerals, tourism, and agriculture, KP remains confined by institutional and regulatory barriers: It cannot issue provincial bonds or access international finance without federal approval. It lacks control over transmission infrastructure and energy regulation. It has no dedicated investment authority for its diaspora, despite contributing nearly one-third of Pakistan's remittances. Visa restrictions and negative media portrayals deter investors, despite an impressive tourism safety record. Unfair electricity pricing: the green energy dilemma If provinces were empowered to lead their own energy policies, Khyber Pakhtunkhwa (KP) could help power half the country. With a hydropower potential exceeding 30,000 MW—of which 5,626 MW is already being generated from major projects like Tarbela, Warsak, and Gomal Zam—KP has a unique comparative advantage in clean, affordable energy. The province produces electricity at an average cost of PKR 7–8 per unit. Yet, paradoxically, it is forced to buy this electricity back from the national grid at exorbitant rates of PKR 65–72 per unit due to centralized pricing, rigid federal regulation by NEPRA, and prohibitive wheeling charges imposed by entities like NTDC and PESCO. This structural inefficiency discourages both public and private investment in local energy solutions. KP's attempts to sell surplus electricity directly to industries through bilateral wheeling arrangements have repeatedly stalled due to wheeling charges as high as PKR 27 per unit—rendering such transactions commercially unviable. More than 20 hydropower projects are currently under development, including Pehur, Ranolia, and DaralKhwar, but without timely federal approvals and grid access, many risk becoming stranded assets. The province has taken proactive steps to unlock its energy potential: hosting investor roadshows, crafting investment-friendly policies, and reaching out to the private sector. However, without federal alignment on transmission access, pricing, and regulatory autonomy, these efforts have limited impact. The consequences are serious. KP—despite its resource abundance—remains energy-poor. Industries face high electricity costs, household bills continue to rise, and potential job creation and economic growth are stifled. Households consume 56% of electricity in KP, followed by industries (24%) and commercial/government use, yet all segments bear the brunt of inflated tariffs driven by inefficiencies in the national system. Further compounding the issue is the prolonged delay in Net Hydel Profit (NHP) payments owed to KP by the federal government. These funds could have been reinvested to expand the province's renewable energy base and reduce dependency on expensive imports. The paradox is stark: a province rich in green energy is shackled by a centralized framework that neither rewards efficiency nor promotes equity. Unleashing KP's energy potential—by decentralizing authority, rationalizing wheeling charges, and ensuring timely NHP payments—could lower national energy costs, enhance industrial competitiveness, and drive sustainable economic growth both within the province and across Pakistan. Natural resources and neglected rights Khyber Pakhtunkhwa is not just an energy province — it's a national resource powerhouse. It contributes 52 percent of Pakistan's crude oil, 13 percent of natural gas, and 46 percent of LPG production. Its mining and quarrying sector grew by over 14 percent last year, driven by coal, oil, gas, and mineral extraction. Yet, despite this output, KP has little control over how these resources are priced, taxed, or managed. Federal constraints prevent KP from monetizing its share of oil and gas. Direct sales are restricted, provincial transmission capacity is limited, and key decisions—such as issuing exploration licenses—remain under federal control. This leaves KP dependent on federal disbursements, which are frequently delayed or contested, undermining fiscal stability and planning. The province's rich mineral and forest wealth also remains underutilized. KP holds 45% of Pakistan's forest cover and contributes more than half of the country's carbon sink, yet it receives no economic benefit—no carbon credits, no fiscal incentives, and no meaningful recognition for its environmental stewardship. Similarly, while the 18th Amendment devolved several sectors, others like tobacco remain under federal control. KP produces 78% of Pakistan's tobacco, but has no regulatory authority or revenue autonomy over it. In a functional federation, such contributions would be rewarded and leveraged. In Pakistan, they are often overlooked—leaving KP with vast resources but limited returns. Trade: a strategic gateway left closed Khyber Pakhtunkhwa's geography makes it a natural trade gateway to Afghanistan, Central Asia, and western China. Yet its strategic position remains underutilized. Ten out of twelve border terminals with Afghanistan remain non-operational, while KP is excluded from federal trade negotiations and infrastructure planning that directly affect its economic future. Local producers struggle to scale exports due to outdated logistics, non-tariff barriers, and inconsistent security protocols. The lack of provincial authority over trade and transport policy has choked KP's export potential and stifled regional trade integration. Despite its potential to become Pakistan's northern trade hub, KP is sidelined from economic diplomacy and denied the autonomy to pursue cross-border commerce. Until trade facilitation is devolved and provincial voices are included in national planning, the province's gateway advantage will remain blocked. Tourism: a powerhouse constrained Tourism is one of KP's most dynamic and fastest-growing sectors. The province attracted over 20 million domestic and 5,400 international visitors in 2024, contributing significantly to job creation and the services economy. With 45% of Pakistan's forests, dramatic mountain ranges, and rich cultural heritage, KP has all the ingredients of a global tourism destination. Yet this potential is held back by federal bottlenecks. Restrictive visa policies, mandatory NOCs for foreign tourists and investors, and the absence of national-level support for destination branding continue to constrain growth. Despite KP's strong safety record and improved infrastructure, outdated narratives in international and national media further dampen its appeal. There is also no institutional framework to channel remittances into tourism development. KP's diaspora contributes nearly one-third of the country's remittances, but the lack of a dedicated provincial investment authority means that capital remains untapped. To unlock KP's tourism economy, the province needs federal cooperation on visa liberalization, international promotion, and the establishment of a diaspora investment window. (To be continued) Copyright Business Recorder, 2025
Express Tribune
02-06-2025
- Business
- Express Tribune
Centre bypasses Punjab in DAO postings
The federal government has unilaterally appointed junior federal officers as Divisional Accounts Officers (DAOs) in all 43 districts of Punjab for the disbursement of public funds for the Public Works Department, bypassing constitutional and legal protocols and irking the Punjab Finance Department. These appointments have effectively stripped Punjab's District Accounts Officers (DAOs) of their constitutional authority over the disbursement of public funds, particularly for the Public Works Department. The move has sparked strong discontent within Punjab's Finance Department, which has raised the issue at a higher administrative level. In each district, two to three DAOs have been appointed, and they have already authorised payments exceeding Rs1 billion soon after assuming their roles. Members of the ruling PML-N have formally opposed this decision. MPA Ilyas Chinioti has submitted a motion of adjournment in the Punjab Assembly, arguing that the move violates the spirit of the 18th Constitutional Amendment, which grants provinces administrative autonomy. The motion demands that the federal government immediately withdraw its decision. The newly appointed federal officers are reportedly in grade 16 and 17, whereas Punjab's DAOs hold the more senior grade 18 posts. The reallocation of financial control to federal officers is seen as a direct infringement on provincial jurisdiction.
Business Recorder
24-05-2025
- Politics
- Business Recorder
JI demands powers, funds for elected representatives
KARACHI: Jamaat-e-Islami (JI) Karachi chapter staged a 'protest march' from Khizra Mosque to the Sindh Assembly on Friday, demanding financial and administrative rights for elected local government (LG) representatives. Hundreds of LG representatives including chairmen, vice-chairmen, and councillors participated in the protest. Addressing on the occasion, JI Karachi Chief Monem Zafar accused the provincial government of systematically neglecting Karachi. He called for immediate release of Rs500 billion to address the megacity's urgent civic issues. He also demanded Rs2 billion per town and Rs2.5 million monthly for each union council. He criticised the government for withholding LG funds, despite the 18th Constitutional Amendment, and for favouring nepotism over fair distribution. He highlighted Karachi's critical role in the national economy, contributing 60 percent of the federal tax revenue and 96 percent of Sindh's budget. Referring to widespread protests across the megacity, particularly in Malir against K-Electric — the JI leader vowed to escalate its 'Karachi Rights Movement' after the Eid. However, Saifuddin Advocate, leader of the opposition in the city council, alleged that the PPP was a parasite, devouring Sindh's resources. He warned of a province-wide campaign if the government failed to restore LG powers and release funds. MPA Muhammad Farooq; however, emphasised that the constitution guarantees financial and administrative authority to LG representatives. He accused the Sindh government of violating these provisions. He noted that JI was the sole party opposing recent legislation about appointing bureaucrats as chairmen of educational boards. Pakistan Challenging election of Bilawal as MNA: LHC allows petitioner Ashaba to submit documents to remove objections RECORDER REPORT LAHORE: The Lahore High Court (LHC) on Friday allowed a petitioner Ashaba Kamran to submit documents to the registrar office to remove the objections raised on her petition challenging election of Bilawal Bhutto Zardari as Member National Assembly (MNA). Earlier, the petitioner's counsel contended that Bilawal at the same time was member of PPP and PPP parliamentary party. He contended that under the law a person could not become member of two different parties at simultaneously. He said the registrar office objected that some necessary documents were not attached with the petition. He, therefore, asked the court to allow him to submit the documents as demanded by the registrar office. Copyright Business Recorder, 2025
Express Tribune
19-05-2025
- Business
- Express Tribune
Shehbaz forms panel to oversee fiscal pact
Prime Minister Shehbaz Sharif has constituted a high-level political committee to oversee the implementation of the National Fiscal Pact. The committee will also work toward building consensus on sharing debt burden between the federation and provinces, and coordinate the development of critical water infrastructure amid Indian aggression. Deputy Prime Minister Ishaq Dar of the Pakistan Muslim League-Nawaz (PML-N) and Pakistan Peoples Party (PPP) Chairman Bilawal Bhutto Zardari will be the co-chairs of the eight-member committee, according to instructions issued by the Prime Minister's Office. According to the decision taken after a meeting between the PML-N and the PPP in Lahore on Sunday, the other members include ministers for defence; planning; finance; economic affairs and law, as well as the attorney general for Pakistan (AGP). Notably, the government has not included any representative from the opposition Pakistan Tehreek-e-Insaf (PTI), which governs Khyber-Pakhtunkhwa (K-P). Without PTI's involvement, achieving consensus on the National Fiscal Pact and meeting the fiscal targets agreed with the International Monetary Fund (IMF) may prove difficult. The fiscal pact had been signed by the finance ministers of the federal and provincial governments in September 2024 as an IMF condition. But the implementation remains slow as provinces, particularly Sindh, have concerns regarding taking some expenditure responsibilities. The fiscal pact is aimed at rebalancing spending responsibilities and better aligns the provincial and federal taxation policies. Provinces agreed to the devolution of specific expenditures from the federal governments in line with the 18th Constitutional Amendment but the implementation could not begin. "Starting in fiscal year 2026, all new PSDP [Public Sector Development Programme] projects impacting just one province are expected to be financed directly from provincial budgets," reads the new IMF staff-level report released on Saturday. "The Prime Minister has been pleased to constitute the following High-Level Committee to oversee, coordinate, and ensure the effective implementation of the National Fiscal Pact," stated the instructions issued by the Prime Minister's Office. The Finance Division will notify the committee and serve as its secretariat, according to the decision. The committee will share the proposals requiring consideration in the federal and the provincial budgets within 10 days. One of the most important terms of reference of the committee is to build consensus and way forward on issues and challenges of national significance, including, inter alia, debt burden, critical infrastructure development and water security. The debt servicing cost is expected to be Rs8.7 trillion or half of the new fiscal year's budget. There has been thinking within the federal government to pass on some of this cost to the provinces. However, under the Constitution, the provinces are not obligated to share these responsibilities. Pakistan also needs to build new water storage facilities at war-footing to deal with India's unlawful act of blocking Pakistani share of water under the World Bank guaranteed Indus Basin Treaty (IWT). According to the Prime Minister's Office, the high-level committee will provide strategic oversight and direction to ensure effective and timely implementation of all commitments under the National Fiscal Pact by both federal and provincial governments. The committee will monitor implementation of revenue measures, including alignment of agricultural income tax with the FBR's income tax regime, transition of services GST to a negative list, development of a common framework for property taxation, and efforts to improve overall tax compliance and administration. Although the provincial governments have passed the respective agriculture tax laws, their implementation remains challenging. Due to this fact, the IMF has imposed a new condition under the $7 billion package for developing a delivery mechanism. "Implement the new AIT laws through a comprehensive plan, including the establishment of an operational platform for processing returns, taxpayer identification and registration, a communication campaign, and a compliance improvement plan," reads the second out of 11 new conditions. The Prime Minister's Office stated that the high level committee will oversee implementation of spending reforms, including increased provincial contributions to higher education and social protection, Benazir Income Support Programme (BISP), realignment of the PSDP responsibilities, and phasing out of provincial support price regimes. The committee will also track progress on governance measures such as the rollout of the electronic Pakistan Acquisition and Disposal System (e-PADs), adoption of green budget tagging, digitalisation of government payments and records, and coordination on anti-money laundering and combating terror financing together with relevant agencies. The IMF report stated that the Pakistan Public Procurement Regulatory Authority (PPRA) is expanding the e-PADS to federal agencies and provincial governments. As of end-February 2025, a total of 623 procuring agencies, belonging to 51 federal ministries and departments are already integrated into the system. In line with the National Fiscal Pacts, two provinces are continuing to ramp up their usage of the e-PADS; with another province already piloting their use in 2025 and the fourth province reviewing their current system for integration with e-PADS, said the IMF. So far, out of the 32,359 planned procurement contracts worth Rs821.1 billion at the federal level in the e- PADS, 21,339 contracts costing Rs74.5 billion have been completed. The high-level committee will also serve as the platform for resolving implementation challenges and facilitating consensus between the federal and provincial governments and relevant stakeholders, according to the decision. The IMF report stated that it "recommended the authorities develop a framework to guide provincial investment of their accumulated cash surpluses in government securities through non-competitive bidding".
Business Recorder
15-05-2025
- Business
- Business Recorder
PPRA implements advanced e-PADS system
ISLAMABAD: The Public Procurement Regulatory Authority (PPRA) has successfully implemented an advanced e-procurement system, enabling registration of more than 28,000 suppliers including 400 foreign firms, Managing Director PPRA Hasnat Ahmed Qureshi informed on Wednesday. He stated that PPRA, following a robust framework and international standards, has introduced the e-Pak Acquisition & Disposal System (e-PADS), which has automated the entire procurement process. 'Thousands of vendors have already been registered on this modern e-procurement platform, including foreign companies which can now register within 24 hours after verification by the Federal Board of Revenue and the Securities and Exchange Commission of Pakistan,' Qureshi added. The MD PPRA said that suppliers can participate in public procurement from their mobile phones or laptops, and obstacles such as visiting the office and paying for tender documents have been removed. All the tasks— from procurement planning, tender submission, and bid analysis to awarding contracts— are now performed through a safe, innovative, and user-friendly online platform, he added. He elucidated that e-PADS is a foolproof automated system that entirely restricts human intervention, even no individual including MD PPRA could interfere in its operations. 'Regular security audits are conducted and access to records is made possible through the log system in case of complaints. This inbuilt security system and reduction of human interference is further promoting transparency and accountability,' he observed. He explained that in the wake of the 18th Constitutional Amendment, procurement being a provincial subject, provinces can enact their own procurement bodies and regulation frameworks. Despite the fact, all provinces including Punjab, Sindh, and Khyber Pakhtunkhwa are using PPRA's e-PADS while Balochistan will adopt the platform in the coming month. He apprised that internet facilities have been improved in remote areas of the country, enabling supplier's accessibility to PPRA's e-procurement system. If any issues arise, vendors can seek assistance from provincial and federal PPRA through its helplines, which operates from 8am to midnight, and can visit offices in person to resolve any complex situation, he added. Copyright Business Recorder, 2025
