If you live outside a major provincial capital in Pakistan, your tax rupees are essentially a ghost story. You know they exist, but you never actually see what they buy.
A damning new assessment from the World Bank titled Strengthening Fiscal Federalism in Pakistan blows the lid off a massive, systemic rot in how public money gets spent. It turns out that despite decades of loud promises about decentralization, the country's economic divide isn't just widening between provinces. It's fracturing deeply within them. The rich provincial capitals are aggressively hoarding development resources, leaving smaller districts to rot on a diet of crumbs and empty political rhetoric.
The numbers are genuinely staggering. Look at Balochistan, a region already pushed to the brink by systemic underdevelopment and civil unrest. The provincial capital, Quetta, registers a mind-blowing Rs 57,000 per capita in public expenditure. The rest of the province? A miserable Rs 12,000 per person. That's a 475% funding gap.
This isn't an isolated anomaly. It's the standard operating model across the entire state.
The Massive Capital City Bias
We're told that the historic 18th Constitutional Amendment and the 7th National Finance Commission (NFC) Award back in 2010 were supposed to bring government closer to the people. They did the exact opposite. They brought cash closer to the provincial elites.
The World Bank data shows a predictable, infuriating pattern across all four provinces:
- Punjab: Lahore secured Rs 31,000 per person, while other districts languished at just Rs 7,000. That is a 440% gap that starves southern and western Punjab of basic infrastructure.
- Khyber Pakhtunkhwa: Peshawar grabbed roughly Rs 35,000 per capita. The remaining districts had to survive on a meager Rs 10,000.
- Sindh: Karachi showed the smallest comparative disparity, but its per capita spending of Rs 25,000 was still 178% higher than the Rs 14,000 allocated to the rest of the province.
What makes this truly cynical is that budget allocations have zero connection to actual human needs. The World Bank notes that district funding tracks historical precedent and political muscle rather than poverty rates, literacy levels, or healthcare deficits. If a district was poor and neglected fifteen years ago, it remains trapped in a low-budget chokehold today. Wealthier districts simply keep getting wealthier.
Where Does All the Money Go
You might assume that this massive influx of cash into provincial treasuries since 2010 at least built some decent schools or clinics. Think again.
The report highlights a deeply depressing reality: the vast majority of the extra money transferred to the provinces was immediately eaten up by bureaucratic weight. Over 80% of provincial spending in FY23 went toward recurrent costs. Instead of building hospitals, the money funded a massive expansion of the state apparatus. Between FY09 and FY23, real provincial spending on bureaucratic salaries surged by 250%, while pension costs exploded by 330%.
Even when money was thrown at critical sectors like education and health, the returns were deeply embarrassing. Real per capita spending on healthcare rose by up to 440% in Balochistan over fifteen years. Yet, basic health indicators remain abysmal.
Look at the contrast between Khyber Pakhtunkhwa and Balochistan to understand how broken the system is. In FY23, KP spent less than one-third of what Balochistan spent per capita on education. However, KP boasted a net school enrollment rate 23% higher and an adult literacy rate 9% higher than Balochistan. Why? Because throwing money at a corrupt or incompetent administrative structure doesn't fix things. It just funds a larger, more expensive failure.
In Punjab and Sindh, the state has essentially abandoned its duties to the private sector. The 2025 Annual Status of Education Report shows that 30% to 40% of kids aged 6 to 16 in Punjab are enrolled in private schools. In Sindh and KP, it’s 20% to 30%. Meanwhile, in Balochistan, where citizens can't afford private alternatives, private enrollment is under 10%. The poorest people rely on the worst-funded, worst-managed public systems.
The Local Government Mirage
The obvious solution to this elite hoarding is empowering local governments. If union councils and municipal committees controlled their own budgets, local money could actually fix local roads, schools, and water lines.
The provincial leadership knows this, which is precisely why they have systematically destroyed local government systems.
The World Bank points out that provincial finance commissions are essentially dead or inactive. Local governments managed about 10% of total public spending back in 2005. By 2024, that share plummeted to a pathetic 4.7%. Provincial assemblies love demanding autonomy from Islamabad, but they flatly refuse to grant that same autonomy to their own municipalities.
This creates a brutal fiscal double-whammy. The federal government is drowning in a massive structural deficit because it transfers huge sums to the provinces through the NFC award without a matching drop in federal expenses. Islamabad still spends heavily on devolved subjects like the Benazir Income Support Programme (BISP) and overlapping ministries, which drives up national public debt. Meanwhile, the provinces run cash surpluses or blow the windfalls on administrative bloat, refusing to pass a single rupee down to the actual communities.
How to Fix a Fractured Fiscal System
We can't keep pretending the current model works. The status quo is actively tearing the social fabric of the country apart, particularly in regions like Balochistan where underdevelopment directly fuels militancy and deep-seated alienation.
Real, structural fixes require moving away from the broken policies of the past.
First, the upcoming 11th NFC Award negotiations must be used to replace the current population-heavy distribution formula with a transparent, needs-based fiscal gap approach. Resources must be allocated based on a standardized assessment of actual district poverty levels and service delivery gaps, not historical precedent or political favoritism.
Second, federal funding must be strictly aligned with constitutional responsibilities. Islamabad needs to completely exit devolved provincial mandates to eliminate wasteful spending overlaps, while provinces must be forced to contribute to national public goods and security costs out of their massive pool shares.
Third, provinces have to start generating their own tax revenue instead of living like rentiers off federal transfers. Right now, provincial own-source tax revenue hovers around a miserable 1% of GDP because provincial governments refuse to properly tax wealthy agricultural income and urban property sectors.
Finally, local governments must be revived with legally protected, predictable financial transfers that cannot be choked off by provincial cabinets. Until the town hall has real budgetary power over the provincial capital, Pakistan's internal development will remain dangerously, unsustainably unequal.
