Pakistan’s fiscal decentralization
Dr Zenab Faizullah
Fiscal decentralization as a tool to enhance economic growth and improvement in public service delivery, and improved governance is a debatable issue among public policy experts. Devolution makes the lower units of the state more powerful in terms of financial and administrative autonomy, as well as more innovative and efficient.
Pakistan is one of the few countries that have implemented fiscal decentralization as a means of promoting efficient, accountable and sustainable public service delivery. Despite the implementation of fiscal decentralization in Pakistan, the country’s current situation reveals some problems that need to be addressed to fully realize its benefits.
Pakistan’s social indicators are lower than those of other countries with similar per capita income, despite the fact that Pakistan has a greater per capita income than those of other countries. As a result, improving service delivery is a top priority for the government, and devolution can help the government in this endeavor.
Fiscal decentralization in Pakistan started in 1990s when the government devolved certain functions and responsibilities to the local government. Pakistan’s establishment of federalism reached a significant milestone in 2009. The report of the seventh National Finance Commission, which was established under Article 160 of the constitution to oversee the vertical and horizontal allocation of resources, was welcomed and praised as a fait accompli. Currently, the local government system in Pakistan consists of Union Councils (UCs), Tehsil Councils and District Councils.
Multiple obstacles impede the efficient implementation of fiscal decentralization in Pakistan. First, local governments in Pakistan lack the resources essential to perform their duties successfully. This is owing to their low capacity to create revenue, which limits their ability to generate adequate finances to finance their operations. Many municipal governments in Pakistan are plagued by poor management methods, which result in inefficiency and corruption. This weakens the local government’s ability to provide effective public services as a result of a lack of confidence in the system.
In Pakistan’s system of local administration, there are few tools for guaranteeing accountability. This lack of openness and public scrutiny makes it challenging for citizens to hold their elected officials responsible. Moreover, some experts believe that Pakistan’s fiscal structure is overly centralized. One study indicated that Pakistan’s public income system is still centralized. The federal government collects most of the taxes, with the provinces contributing only a minor amount.
While the political system appears to be largely decentralized, the fiscal structure appears to be very centralized, particularly in terms of expenditure, revenue, tax autonomy, and transfer of payments. The central government accounts for 63% of total government expenditures. It also has most of the taxing power and collects 91.3% of all government money, which it gives to the province as part of the NFC award.
Several measures need to be taken to address the problems in Pakistan’s fiscal decentralization system. First, the government should provide local governments with the necessary resources to carry out their functions effectively. This can be achieved by increasing their tax-raising capacities and providing them with more resources from the central government. Second, the government should implement measures to improve the management practices of local governments. This can be done through training programs and the establishment of effective monitoring and evaluation systems. Third, the government should implement mechanisms to increase accountability in the local government system. This can be done through the establishment of public oversight mechanisms and by ensuring that elected representatives are held accountable for their actions.
In recent years, many countries around the world have turned to decentralization as a way to improve governance and empower communities. This approach, which involves transferring power and resources from central authorities to local governments, has been shown to have numerous benefits, including increased accountability and improved delivery of public services. Pakistan, too, can learn from the decentralization experiences of other countries and benefit from this approach. By transferring power and resources to local governments, the country can improve its governance and better serve its citizens.
One key lesson from the decentralization experiences of other countries is the importance of strong local governments. In countries where decentralization has been successful, local governments have been given sufficient authority and resources to effectively manage their own affairs and deliver public services. In Pakistan, this could involve transferring powers and resources from the central government to the provinces, as well as to local councils and communities.
Another key lesson is the importance of community involvement in the decentralization process. By engaging communities in the decision-making process and ensuring that they have a voice in the development of their own communities, local governments can better understand the needs and priorities of their citizens, leading to more effective and equitable service delivery. Finally, it is important to note that decentralization is a gradual process that requires a long-term commitment. In countries where decentralization has been successful, this commitment has been driven by strong political will and sustained investment in capacity-building and institutional development.
The author is an independent economist and can be reached at: zenabfaizullah@gmail.com.
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