The World Bank has called for comprehensive fiscal reforms in Pakistan, stressing the need to overhaul the country’s financial resource distribution mechanism and reduce unnecessary government spending to strengthen economic stability.
Speaking on Pakistan’s fiscal challenges, World Bank Country Director Bolorma Amgabazar said that revisiting the National Finance Commission (NFC) Award has become essential for ensuring sustainable economic growth and improving the country’s public finance framework. He noted that the existing resource-sharing arrangement between the federation and the provinces requires significant reforms to address long-standing financial imbalances.
Amgabazar emphasized that greater financial and administrative authority should be devolved to local governments, enabling them to deliver public services more effectively. He added that consensus among the federal and provincial governments is necessary to ensure a fair and transparent distribution of financial resources. According to him, the issue of revising the allocation of resources between the federation and the provinces has remained unresolved for nearly 15 years.
Highlighting Pakistan’s employment challenges, the World Bank noted that approximately 3.5 million people enter the country’s labor force every year, creating immense pressure to generate jobs and sustain economic growth. In this context, the institution urged the federal government to rationalize expenditures by cutting non-essential spending and improving fiscal discipline.
The World Bank Country Director pointed out that while the federal government transferred a substantial portion of its revenues to the provinces following constitutional reforms, its expenditure structure remained largely unchanged. As a result, the federal government is currently facing a fiscal shortfall estimated at around Rs2 trillion, while the country’s public debt continues to rise, placing additional strain on national finances.
To improve fiscal sustainability, the World Bank recommended reviewing the distribution of federal revenues under the NFC framework so that adequate resources remain available for critical national priorities. It also called on provincial governments to strengthen their own revenue generation by improving tax administration and ensuring effective collection of agricultural income tax and property tax, areas that have historically remained under-taxed.
The World Bank further observed that Pakistan continues to struggle with a low tax-to-GDP ratio, limiting the government’s ability to finance development projects and essential public services. It highlighted that urban property tax collection in Pakistan stands at only 0.13 percent, significantly lower than the 0.3 to 0.6 percent commonly recorded in many other countries, indicating substantial untapped revenue potential.
Amgabazar also stressed the importance of increasing provincial spending on key social sectors, particularly health and education, arguing that greater investment in human capital is essential for long-term economic development and poverty reduction.
Expressing concern over the continued rise in administrative expenditures, the World Bank warned that excessive government spending on non-developmental activities reduces the resources available for public welfare and infrastructure projects.
