Fiscal Decentralization in Pakistan: Past, Present and Future

Abstract

This paper offers a longitudinal appraisal of fiscal decentralization in Pakistan. The difference between federalism and decentralization is subtle, semantic, and hardly of any practical value but needs to be clarified nevertheless. The subject-matter is divided into five parts. The first part sets the contemporary context as rationale for pursuing this research. It explains how, since the expiry of the 7th NFC in 2015, the constitutional imperative has been eclipsed by purportedly graver considerations to the resentment of provinces. The second part gives an overview of the theory of fiscal federalism so as to acquaint the reader with the definition of the concept. This will help understand the logic of decentralization and evaluate practice in light of theory. The third part draws on the gestation of federalism from 1947 to 1970. It recounts the approaches adopted by governments in the past when it came to this critical question, including the arrangements adopted to this effect. Part four gives an account of three major developments viz. the 1973 constitution, the 7th NFC Award and the monumental 18th Amendment – all three being the arrangements that govern fiscal decentralization to this day – it also includes an overview of the revenue-sharing formula used in other countries. Finally, part five briefly reviews the performance of the fiscal decentralization arrangement adopted in Pakistan. It ends with a set of research and policy recommendations, identifying the way forward for fiscal decentralization in Pakistan.