BARELY had the ink dried on the 27th Amendment that talk of the 28th began. Were it to be passed, the much-discussed 28th amendment would purportedly strip away constitutional protection for provincial shares under the seventh NFC award. This fits a long-standing agenda: the PML-N, the PTI, the establishment and international lenders have all argued that Islamabad needs a larger slice of the divisible pool. But to revisit the vertical distribution of resources through opaque bargaining, arm-twisting and political engineering is not a technical tweak. It strikes at the core of Pakistan’s federal compact and carries grave implications for provincial autonomy, federal cohesion and human development.
Supporters of the proposed amendment advance three main arguments. First, they say the seventh NFC award shifted an unduly large share of the divisible pool to the provinces without a matching transfer of expenditure responsibilities. Second, they argue that easy access to federal transfers has created a ‘moral hazard’, thus dulling incentives for provinces to broaden their tax base. Third, they accuse provincial governments of wasteful and politically motivated spending on salaries and discretionary development schemes, with little improvement in public services.
Some of these concerns are not entirely without merit. In Balochistan, for instance, the development budget is formulated and implemented almost entirely on the basis of political considerations. Over time, development spending has become deeply inefficient, with members of the provincial assembly exercising sweeping control over the public financial management cycle and allegedly using development funds for corruption, patronage and narrowly targeted goods rather than for strengthening public services. Similar practices can, in varying degrees, be observed in the other provinces as well.
However, Pakistan’s fiscal woes predate the seventh NFC Award. Cutting provincial allocations will not, by itself, resolve them. The deeper problem lies in stagnant productivity, a narrow and weakly documented tax base and the failure to build institutional capacity for capturing emerging sources of revenue. Admittedly, both the federation and the provinces have underperformed in expanding the tax net. Tax-to-GDP ratios for both tiers of government have fallen in recent years, reflecting deeply ingrained structural weaknesses.
Nor can Pakistan afford to squeeze social spending further. The country already trails regional peers on key human development indicators. Cutting the provincial share would directly undermine their capacity to invest in education, health and social protection. Experience suggests that when more resources are channelled to the centre, they tend to fund defence and elite-centric subsidies rather than classrooms and clinics. Smaller provinces such as Balochistan and Khyber Pakhtunkhwa already devote a large share of their budgets to security, including allowances to federal law enforcement agencies called in aid of civilian forces. In Balochistan, for instance, spending on law and order is now believed to exceed that on both school education and health, and has grown far faster than either in the years since the 18th Amendment. Further cuts to the provincial share of the divisible pool would push human development even further down the list of national priorities.
Rather than curtailing transfers, a more promising approach is to redesign the fiscal framework to reward performance.
Rather than curtailing transfers, a more promising approach is to redesign the fiscal framework to reward performance. The introduction of outcomes-based indicators in horizontal distribution criteria could better incentivise improvements in both provincial revenue mobilisation and socioeconomic indicators. By linking a portion of fiscal transfers to improvements in key social indicators and to credible fiscal effort, the proposed amendment would directly address the moral hazard built into unconditional transfers while keeping decision-making closer to citizens. Provinces that broaden their tax base and deliver better results in social sectors can be incentivised to receive a larger share of incremental resources.
Inefficiency in provincial spending, meanwhile, does not automatically justify a return to centralised control. There is no assurance that federal spending on social sectors is more efficient, equitable or insulated from patronage. Islamabad’s own development portfolio has often been criticised for weak fiscal discipline and politically motivated projects. The limited impact of development spending reflects a patronage-driven political economy that operates at both the federal and provincial levels. The recent IMF report underscores these systemic governance weaknesses and persistent corrupt practices. Recentralisation would simply reproduce these distortions at the centre while weakening provincial ownership of service delivery.
Additionally, there is a dire need for the federal government to withdraw from areas the Constitution has already devolved. The fiscal squeeze is aggravated by Islamabad’s insistence on retaining large ministries and programmes in sectors such as health and education whose mandate, after the 18th Amendment, should largely be limited to coordination. Similarly, the federal government also spends significant resources from the federal PSDP on projects of a ‘provincial nature’. A 2023-24 review by the Planning Commission revealed that provincially oriented projects accounted for one-third of the total federal PSDP. The centre also finances devolved subjects outside the PSDP through vertical programmes such as polio, adding to its burden. Islamabad is thus attempting to perform tasks beyond its constitutional remit and then citing fiscal stress as justification for clawing back provincial shares.
As talk of a 28th amendment gathers pace, parliament must weigh the long-term consequences of diluting or removing constitutional protections for provincial finances. The seventh NFC award and the 18th Amendment were crucial steps towards a workable federal compact. Fiscal engineering, from levies (petroleum) kept outside the divisible pool to tweaks in sales tax, has already eroded provincial trust. Unpicking that settlement through contentious constitutional fixes would be a serious mistake. A sounder course is to reform tax policy, enforce discipline on federal and provincial spending, and embed performance-based criteria in the NFC formula as well as inter-organisational resource allocation.
The writer is a public policy and development specialist from Balochistan.
Published in Dawn, December 3rd, 2025
