ISLAMABAD: The creation of new provinces in Pakistan could place a substantial burden on public finances, with annual administrative expenses potentially reaching Rs730 billion if 30 provinces are established, according to a new economic analysis.
The Policy Research Institute of Market Economy (Prime) has highlighted significant financial challenges associated with provincial restructuring, arguing that strengthening local governments could be a more practical way to improve public service delivery.
According to the think tank’s assessment, establishing two additional provinces could increase annual recurring expenditure by Rs47 billion to Rs57 billion. The cost could rise considerably if all 30 proposed divisional units are granted provincial status.
The analysis estimates that running a new provincial government would require between Rs22.4 billion and Rs25.9 billion annually. These expenses would cover essential administrative institutions, including the governor’s office, chief minister’s secretariat, provincial assembly, high court and other government departments.
The proposed expansion could also create significant differences in the financial resources available to individual provinces under the National Finance Commission (NFC) distribution formula.
Under a six-province arrangement, South Punjab could receive an illustrative NFC allocation of around Rs1 trillion, while Bahawalpur could receive Rs537 billion.
However, the distribution would become considerably uneven under a 30-province model. Lahore could receive an estimated Rs7.2 trillion, compared with Rs691 billion for Karachi. Smaller proposed provinces would receive substantially less, with Loralai allocated Rs46 billion and Zhob Rs50 billion. As many as 11 proposed provinces would receive less than Rs150 billion annually.
The study warned that smaller administrative units could struggle to meet the expenses of maintaining a complete provincial government.
Using a 10 per cent fiscal sustainability benchmark based on the lower cost estimate, the analysis found that 16 of the 30 proposed provinces would remain within the threshold, while 14 would exceed it.
The financial pressure would be particularly severe in smaller regions. Under the lower-cost scenario, the core administrative structure would consume approximately 49 per cent of Loralai’s NFC allocation, 45 per cent of Zhob’s and 37 per cent of Rakhshan’s.
The report further noted that every proposed province with a population below 1.2 million would need to spend more than one-third of its NFC allocation on maintaining basic provincial institutions.
Such expenses could leave smaller provinces with fewer resources for development projects, healthcare, education and other essential public services.
The institute stressed that any proposal to establish new provinces should undergo a formal financial assessment before constitutional or legislative changes are introduced.
It recommended calculating the recurring administrative expenses of each proposed province alongside its expected NFC allocation to determine whether the benefits would justify the additional expenditure.
The analysis concluded that creating a limited number of larger provinces would involve a relatively manageable financial burden. However, dividing the country into numerous smaller provinces could increase administrative expenses and place further pressure on already limited public resources.
