Every few years, Pakistan repeats the same ritual. A National Finance Commission Award is negotiated, provinces celebrate a bigger slice of the divisible pool, ribbons are cut, and press releases are issued about “historic devolution.” Then, quietly, the money disappears into a system that was never built to track where it goes. On July 1, 2026, the World Bank released its latest diagnosis of this cycle in a report titled “Pakistan: Strengthening Fiscal Federalism to Drive Development.” It is a careful, technocratic document, written in the measured language international financial institutions reserve for governments they still need to lend to. It talks of “structural weaknesses,” “vertical imbalance,” and “insufficient incentive alignment.” What it does not say — because institutions like the World Bank rarely say it plainly — is that Pakistan has built an elaborate constitutional machine for moving public money to the provinces and the districts without ever building the wiring to watch what happens to it once it arrives. That missing wire is not a technical oversight. It is the single most consequential design flaw in the country’s fiscal architecture, and it has turned the National Finance Commission Award from an instrument of federal fairness into a conveyor belt for embezzlement.
The 7th NFC Award, still in force after a decade and a half without revision, distributes resources to provinces using a formula that assigns 82 % weight to population alone. Poverty and backwardness get barely 10 %; revenue generation gets 5 %; inverse population density gets under 3 %. In practice, this means a province is rewarded simply for having more people, regardless of whether it collects taxes, regardless of whether its hospitals function, and regardless of whether a single rupee of the money it receives ever reaches a classroom or a clinic. Provincial revenue, including federal transfers, climbed from under 4 % of GDP to an average of 6.5 % of GDP between 2010 and 2024. Federal expenditure did not fall in step. The result, as the World Bank’s own report acknowledges, is a structural federal deficit of roughly 1.9 % of GDP — almost exactly matching the widening of the federal primary deficit over the same period. Pakistan effectively borrowed its way into devolution without ever devolving the discipline that should have come with it.
This is the “zero-trickle-down effect” in its purest form. Money flows from the Centre to the provinces in large, population-weighted transfers. Provinces, in turn, have shown no consistent pattern of pushing those funds down to district governments and local bodies, as the Constitution’s Article 140A and the Provincial Finance Commission mechanism intended. Local governments today absorb less than 5% of total government spending, a share that has been shrinking, not growing, even as the constitutional promise of devolution has been repeated by every government since 2010. Money that is meant to build a school in a village in southern Punjab or a basic health unit in interior Sindh instead pools at the provincial secretariat level, where it is far easier to redirect toward politically convenient projects, inflated contracts, and administrative overheads. Nearly 80 % of the increased provincial spending since the 7th NFC Award has gone to recurrent expenditure — salaries, allowances, and administration — rather than the services citizens were promised.
The deeper perversity of the NFC formula is that it removes any political incentive for provinces to build their own tax base. Because transfers are driven overwhelmingly by population rather than by fiscal effort, a province gains nothing by taxing its landlords, its real-estate developers, or its large agricultural incomes. Provincial own-source revenue remains below 10 % of provincial expenditure in Khyber Pakhtunkhwa and Balochistan, and rarely exceeds 20 % even in Punjab and Sindh. Agricultural income tax, despite agriculture contributing roughly a quarter of GDP, remains almost entirely uncollected. Urban immovable property tax sits at a fraction of what comparable economies collect. The powerful simply are not asked to pay, because there is no formula-driven reason for any provincial government to ask them.
This is not an accident of poor administration. It is a rational response to incentives that the NFC formula itself creates. Why would a chief minister spend political capital taxing large landholders and urban property owners — many of whom sit in his own coalition — when the federal transfer arrives regardless, sized to population rather than performance? The World Bank’s report calls for a “fiscal gap approach” that would reward provinces for closing the space between their revenue potential and their actual collection. It is the right idea, dressed in the softest possible language, because naming the beneficiaries of the current arrangement directly would be undiplomatic. An op-ed does not carry that constraint. The beneficiaries of Pakistan’s undertaxed agricultural and property economy are also, disproportionately, the same political class that negotiates the NFC Award every time it comes up for renewal. The formula is not broken. For those it protects, it is working exactly as intended.
If you want to see the NFC Award’s corruption logic at its most theatrical, watch what happens whenever a province decides to buy electric buses, laptops, EV fleets, or bicycle-sharing schemes. These projects have become the favourite vehicle — literally and figuratively — for provincial governments to convert an undifferentiated federal transfer into a photogenic ribbon-cutting. A fleet of gleaming, brightly liveried electric buses rolling down a boulevard on launch day makes for excellent television and an even better campaign poster; it tells 260 million Pakistanis that “development” has arrived, whether or not it actually has. What gets skipped, almost every time, is the boring due diligence that would tell you whether the public got value for money: there is rarely a transparent, published price comparison against what the same buses, laptops, batteries, or bikes cost in comparable markets, and almost nobody outside the purchasing department bothers to ask whether the technical specifications — battery range, chassis quality, charging infrastructure, warranty terms — match what was actually paid for. The NFC Award supplies the cash without asking what it will buy; the procurement process supplies the buses without asking whether the price was real; and the audit system, as we have seen, arrives two or three years later to check whether a stamp was missing on the purchase order. At no point does anyone in this chain ask the only question that matters: was this the best bus, at the best price, for the money 260 million people effectively co-signed for? A National Finance Commission Award that hands money to provinces with no strings, no benchmarks, and no real-time visibility is not really a revenue-sharing formula. It is a blank cheque, and glossy EV projects are simply where that cheque gets cashed most visibly.
If the NFC Award decides how much money moves, it is Pakistan’s audit apparatus that was supposed to check where it went — and this is where the story turns from misallocation into outright theft. Pakistan’s audit machinery is not a modern institution retrofitted with old habits; it is, almost literally, a colonial relic. The office of the Auditor General traces its lineage to the accounts and audit department the British administration set up in 1860, formalized further as corporate auditing was introduced under the Companies Act of 1866 and later folded into the constitutional framework after independence. The first Federal Public Accounts Committee was constituted on May 20, 1948, barely months after Pakistan came into being, and its basic operating logic has changed remarkably little since. This is a system designed in the age of the ledger and the quill, asked to police a twenty-first-century economy of digital procurement, shell contractors, and cross-border transfers.
The Auditor General of Pakistan is nominally independent but functions, in practice, as an appendage of the federal Finance Division, dependent on the executive for its budget and staffing sanctions — a direct violation of the international norm that a supreme audit institution must be financially and administratively separate from the government it audits. Compounding this, the accounting function under the Controller General of Accounts and the auditing function remain tangled together inside the same bureaucratic family, breaking the elementary rule that whoever keeps the books should not also be the one checking them.
What this produces, year after year, is not accountability but paperwork. Audit teams — frequently staffed by officers with nothing more than a bachelor’s degree in commerce or arts, trained in checking whether a voucher was signed rather than whether a hospital actually received the medicines it was billed for — descend on government departments and produce enormous, dense reports stuffed with thousands of “audit paras,” or objections. The overwhelming majority of these paras concern trivial procedural lapses: a missing stamp, a late submission, a minor arithmetic mismatch. Multi-billion-rupee irregularities sit in the same report, given the same formatting, the same font, and effectively the same weight as a clerical error. An audit system that cannot distinguish between a typo and a scam is not an oversight mechanism; it is a paper mill that manufactures the appearance of scrutiny while the real money moves untouched underneath it. Nobody in the Public Accounts Committee has the bandwidth, the forensic training, or often the political will to dig a specific 50-billion-rupee irregularity out of five thousand pages of routine noise. So, it doesn’t get dug out. It gets filed.
And even when it is found, almost nothing happens to it. Pakistan’s auditors flag trillions of rupees annually in rule violations, unauthorized payments, and unrecovered loans — yet recovery rates hover between one and ten %. The Public Accounts Committee, whose job is to act on these findings, reviews them two to three years after the money is already spent, by which point the officials involved may have retired, been transferred, or moved to a new scheme entirely. Up to 75 % of PAC recommendations are never implemented, because the Committee has no executive teeth: it can recommend, it cannot prosecute, and it cannot compel recovery. It is this vacuum — decades of an audit system that finds everything and recovers almost nothing — that eventually produced the National Accountability Bureau. NAB exists because Pakistan’s own constitutional audit machinery had been rendered so toothless that a parallel, extra-constitutional anti-corruption body seemed like the only remaining option. That NAB itself became a byword for political misuse rather than genuine accountability is a separate tragedy, but its very creation is an admission: the Auditor General’s office, as designed, was never going to be enough.
Compare this to India, a country with no equivalent of NAB, where the Comptroller and Auditor General has begun shifting toward outcome and impact audits — measuring whether a government scheme actually improved lives, not merely whether the paperwork balanced. India’s CAG has rolled out an Artificial Intelligence Strategy Framework and custom large language models to draft audit observations, alongside a digital, end-to-end audit platform. It is an imperfect transition, still weighed down by traditional bureaucratic habits in places, but it is a transition. Pakistan’s new World Bank report, for all its careful diagnosis of vertical imbalance and horizontal inequity, is conspicuously silent on this exact point. It recommends conditional transfers tied to service-delivery outcomes. It recommends a fiscal gap formula. It does not recommend that Pakistan build a real-time, web-based expenditure monitoring system that would let a rupee be tracked from the divisible pool to a district treasury to a specific procurement to a specific completed — or uncompleted — project. That silence is the report’s most telling omission.
Nowhere is the absence of real-time tracking more corrosive than in public procurement, where the Public Procurement Regulatory Authorities exist on paper in every province and at the federal level, yet compile no usable procurement statistics and run no functioning e-procurement system. Anyone who has watched a Pakistani government tender knows the choreography: an inflated engineer’s estimate is quietly prepared, a “winning” bid is submitted at one or two % below that estimate, and the entire exercise is dressed up as competitive and transparent. The estimate-setter, the bidder, and sometimes the evaluator are functionally on the same side of the table. No forensic auditor ever asks who wrote the original estimate or why it was inflated in the first place, because Pakistan’s audit corps was never trained to ask that question — it was trained to check whether the tender notice was published for the correct number of days.
The World Bank’s menu of reforms — a fiscal equalization formula, conditional transfers, GST harmonization, regular NFC and Council of Common Interests meetings — is technically sound and long overdue. But formulas alone cannot fix a system where the money’s final destination is invisible. Pakistan does not primarily need a better way to calculate who gets what. It needs a way to see, in real time, what happens after the money arrives: digitized treasury single accounts linked directly to project-level expenditure tracking, procurement platforms that publish every bid and every estimate publicly and simultaneously, and an Auditor General’s office that is financially and administratively independent of the Finance Division it is meant to audit, staffed with forensic accountants and data scientists rather than generalist clerks recycling nineteenth-century compliance checklists.
READING THE WORLD BANK’S JULY 1 REPORT END TO END, IT IS HARD TO ESCAPE A BLUNT CONCLUSION: This reads like a desk report, produced by Tobias Haque and his colleagues from spreadsheets and precedent literature, not a document built around what Pakistan actually has to work with today. Because if the authors had looked up from the fiscal-gap formula for even a moment, they would have run into a fact their own report never mentions: Pakistan now has more than 117 million internet users, a reflection of genuinely rapid digital expansion, powered by smartphone availability that reaches over 96 % of households. Individual internet penetration has grown fast enough that even a citizen with no formal schooling in rural Punjab or interior Sindh today knows how to open an app, scan a QR code, and check a balance. A country wired this densely does not need another decade of committee meetings to build a “real-time audit” system. It needs the political will to point that the existing digital infrastructure at its own procurement files. Every one of Pakistan’s five Public Procurement Regulatory Authorities — federal and provincial — could be moved onto a shared, web-based, continuously monitored transaction platform at a fraction of the cost of a single EV bus fleet. Real-time government audit, in essence, means exactly this: the continuous, concurrent review of financial transactions, procurement, and service delivery as they happen, rather than a retrospective ritual performed two or three years after the money is gone. It relies on secure data pipelines that ingest banking, procurement, and tax feeds as transactions occur; automated analytics and machine-learning models that score spending against risk benchmarks in real time; and a routing mechanism that flags high-risk anomalies to human auditors immediately, so a suspect payment can be halted or corrected before it is finalized — not investigated as history three fiscal years later.
This is not a theoretical model. South Africa’s Auditor-General ran real-time audits during its pandemic-relief spending specifically to catch fraud while funds were still moving, not after. Jamaica used a similar concurrent-review approach to track hurricane-recovery disbursements as they happened. Philadelphia’s Citizens Police Oversight Commission built an Auditing and Monitoring Unit that reviews police misconduct investigations while they are still open rather than waiting for a case to close, publishing its findings and turnaround statistics to the public on a rolling basis. And right next door, India — a country with no NAB, no parallel accountability bureau, just its constitutional Comptroller and Auditor General — is now actively rebuilding that very institution around artificial intelligence and continuous digital audit trails. If Jamaica, Philadelphia’s city government, and India’s CAG can build concurrent oversight systems, the claim that Pakistan lacks the connectivity or the capacity to do the same does not survive contact with the data on its own internet users.
None of this would have to be expensive. One of us, Engineer Arshad H. Abbasi, has already shown what is possible on Pakistani soil: he developed a real-time monitoring system to track Public Sector Development Program (PSDP) projects for the Planning Commission in 2008, designed to follow individual development schemes as money moved through them rather than waiting for a year-end reconciliation. If a working real-time monitoring model for the Planning Commission’s own PSDP portfolio could be built in Pakistan, on a modest budget, there is no serious technical argument left for why the same approach cannot be extended across every rupee of NFC-transferred procurement and expenditure today. We want to tell the World Bank plainly: EVERY RUPEE, AND EVERY DOLLAR OF CONCESSIONAL FINANCING, CAN BE TRACKED TO THE EXACT PROJECT AND THE EXACT PAYMENT WHERE IT WAS SPENT. That capability already exists inside Pakistan. Its absence from the July 1 report is telling — and it is difficult to avoid the conclusion that no technologist or IT systems expert sat on the team that compiled this desk report, or the recommendation to build one would have been impossible to leave out.
So the question is not whether Pakistan can afford a real-time audit system. It is whether the report’s authors — and the government they are advising — actually want one. It is worth remembering that the World Bank was not always this cautious about Pakistan. In the 1960s, under President Eugene Robert Black, the Bank helped anchor the Indus Waters Treaty financing and the construction of Tarbela and Mangla dams, WAPDA House, and the great headworks and canal systems that still carry Pakistan’s water today — delivered, by and large, to specification, without runaway cost overruns, within the stipulated time. That was an institution willing to put its name behind hard infrastructure and hard deadlines. Sixty years on, the World Bank hands Pakistan a menu of formula options and stops just short of the one recommendation that would actually make every other recommendation enforceable: BUILD THE REAL-TIME AUDIT SYSTEM. Perhaps that reticence will not last. We can hope an addendum from the World Bank recommending exactly this — a low-cost, real-time, web-based monitoring and audit system — reaches the Government of Pakistan soon, because if the last hundred and seventy-five years are any guide, Pakistan tends to take advice seriously only when it arrives with a foreign white letterhead. Until that letter comes, the National Finance Commission Award will keep doing what it has always done: moving money efficiently from the federal treasury to the provinces, and then losing track of it completely.
