World Bank study finds Pakistan's NFC Award failed to improve social services

A recent World Bank study, "Strengthening Fiscal Federalism in Pakistan," delivers a stark assessment of the seventh National Finance Commission (NFC) Award's impact since 2009. While acknowledging the award's strengths in providing revenue predictability and provincial autonomy, the report pivots to a critical analysis of its technical shortcomings and consequences.

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provides predictability and protects provincial revenue shares

The study points out that the award's resource pool and distribution mechanisms were based on "arbitrarily determined" factors. It highlights that the seventh award resulted in substantial "windfall gains" for provinces, leading to a significant increase in transfers equivalent to about two percentage points of GDP. However, the report argues that this increased financing did not translate into improved service delivery.

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supports provincial autonomy

Instead, the bulk of these incremental resources, approximately 82% between FY09-23, were consumed by escalating wage and pension bills. The recurrent expenditure share of consolidated provincial spending surged from around 60% in FY09 to over 80% by FY24. While salaries rose by roughly 250% and pensions by 330% in real terms, development spending saw only a 60% increase and remains a mere 20% of total provincial expenditure.

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is consensus-based

Despite some increase in workforce for education and health sectors, the report finds no discernible link between increased spending and improved educational outcomes. Provinces like Sindh and Balochistan, which saw the largest increases in per capita education spending, have not shown corresponding improvements. The World Bank concludes that Pakistan's fiscal federalism problems are rooted in fundamental issues rather than mere technical deficiencies.

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an arbitrarily determined pool of resources … distributed … based on multiple factors with again arbitrarily determined weights