An Appraisal of Fiscal Decentralization in Pakistan

The issue of effective governance has received much of the attention of researchers interested in the region. Of these, a dominant trend that emerged in many of the studies has been centered on federalism and decentralization (Ali, 2015; Cheema, Khwaja & Qadir, 2006). The central argument here has been that, a balance of power between the center and all federating units has the potential to solve many of the obstacles the country faces; from militancy to state coercion, ethnic conflict and economic progress. Some of the recommendations of the studies however, may be argued to be over-ambitious and impractical. Nonetheless, the 18 th amendment introduced in 2010 by the Pakistan People's Party (PPP) government has been, with some exceptions, widely celebrated as a step in the right direction by many researchers (Ali, 2015). Previously, the 1973 constitution had been amended multiple times by military rulers and its 'democratic' status was therefore rendered questionable. The changes thus introduced by the 7 th National Finance Commission (NFC) award, that was agreed upon in December 2009, and the 18 th Amendment, that was passed in April 2010, not only showed promise for improving the state of federalism in Pakistan but also of democratic atmosphere. The 18 th amendment, vast in its scope, carried strong implications for the provincial as well as the federal government by seeking to provide the provinces with a greater degree of autonomy. According to the constitution now, the four main provinces are Punjab, Sindh, Balochistan and Khyber Paktunkhwa (KPK) (while Gilgit Baltistan, FATA and Kashmir have been given a special status). The 7 th NFC award attempted at providing these four provinces with equitable distribution of resources. For the first time in the history of Pakistan, population had not been made the only factor considered for the allocation of resources; other factors such as poverty and backwardness and inverse population density were included to ensure an improved, more equitable distribution. Adeney (2012) notes, that the historical structure of federation in the region had intensified the conflict among groups and affected the legitimacy of the federation adversely. For this, the author argues, the exploitative and biased nature of the manner in which political and economic resources had been distributed were to blame. Since the amendment, many researchers such as Adeney (2012), have made the division of power and distribution of resources the center of attention to their studies. However, substantial work focusing on the distribution of the allocated budget within the provinces does not exist. Questions such as: How is this budget distributed? Who is responsible for it? To what extent are the Provincial Finance Commissions (PFC) functional? Are there differences between the PFCs, and if so, of what sort? Does the absence of a constitutionally binding framework for their existence have on effect on the functioning of PFCs? It is such questions that this study aims to find answers to.

Global Regional Review, 2019

This study has mainly examined the association "between Fiscal decentralization and Macroeconomic performance in" Pakistan. "The time series data 1980 to 2018 has been used for the above-stated purpose". This empirical study has used the Eviews9 software and estimation technique regression for the empirical analysis. "The study has found the significant association between Macroeconomic performance and fiscal decentralization in the" country. The "chief variables of fiscal decentralization are revenue transfer to the provinces and revenue generated by federating units and results of both variables" suggest the higher extent of fiscal devolution. The horizontal resource distribution mechanism among the provinces and vertical resources sharing method between provinces and federal has remained a very hot and blistering subject of debate since the inception of the country.

The purpose of this paper is to empirically analyze the impact of fiscal decentralization on budget deficit. Applying the Engle Granger two step co-integration approach, it is found that both revenue and expenditure decentralization have significant impacts on budget deficit. To strengthen this finding two extra models were developed for both the measures of FD and each one were taken separately for analyzing its impacts over budget deficit and the final results of both the model support the results of the parental model. The other variables GDP and trade deficit also have significant impacts over budget deficit in the study period.

The Pakistan …, 2006

Shahnawaz Malik, -ul-Hassan, Mahmood and Shahzad Hussain Additional contact information Shahnawaz Malik: Bahauddin Zakariya University, Multan. -ul-Hassan, Mahmood: Bahauddin Zakariya University, Multan. Shahzad Hussain: Bahauddin Zakariya University, Multan.

Considerable variation exists among Provinces of Pakistan with respect to their abilities to raise revenues. This is due to underlying varied provincial characteristics like area, resources, population, nature of economic activities and provincial GDPs. The main focus of this paper is to make inter-provincial comparison of their fiscal efforts after allowing for difference in taxable capacity. Therefore, objective of such inter-provincial comparisons of fiscal effort is to identify whether provincial revenue collection is limited by capacity (revenue base) or if a province is unwilling to exploit the available capacity to generate revenues.1 This will enable development of the appropriate resource mobilisation strategy for each province and help in enhancing the overall provincial tax revenue to GDP ratio which is currently below 1 percent of the GDP. This analysis will also help policy-makers in designing fiscal equalisation formulae for assisting those provinces which have demonstrated lesser capacity to raise revenues from their own source

2015

This study examines the effects of Fiscal Decentralization on Economic Growth in the context of Pakistan. The current structure of fiscal arrangements i n Pakistan consists of three tiers, federal, provincial and local. Resources are distributed among these tiers through National Finance Commission (NFC) and Provincial Finance Commission (PFC) awards. Besides, local governments also receive random transfers including special/development grants, discretionary funds of parliamentarians and executives, etc. Empirical theorists postulate that Fiscal Decentralization may have positive effects on economic growth due to its efficiency advantages. However, it may have negative effects on economic growth and brings macroeconomic instability when it is not accompanied by enhancing the skill of local government apparatus and by better political accountability. Following Barro (1990) and Davoodi & Zou (1998) theoretical models of fiscal decentralization, the study in hand has developed a model ...

Based on qualitative empirical evidence from four diverse districts of Khyber Pakhtunkhwa province, this case study examines the limitations in fiscal policy of local governance reforms in Pakistan. Keeping in view the constrained redistributive system that is rooted in the governance setup at provincial and local level, fiscal architecture is analysed. The impact of abolishment of rural urban administrative divide on tax redistribution, complications in revenue generation, matters related with jurisdictional transgression in revenue collection and development expenditure, and inadequate amount of public funds for development are analysed as key factors that are presumably responsible for the defective fiscal management.

2011

Pakistan is a federal country. Distribution of resources has a profound impact on income, development, backwardness, and poverty. The paper briefly discusses the f ederation, its needs and importance in general. The National Finance Commission (NFC) award is considered as a step towards federalism. In the historical perspective of the NFC awards, the salient features of the recent 7th NFC award, the weightings, and the criteria adopted in the national as well as provincial Finance Commission award s are described. Major issues faced by the P rovincial as well as Federal governments regarding the award and its implementation are discussed in detail. Good practice lessons to be derived from it are also pointed out. The conclusion includes recommendations for a strong federation and effective use of the NFC award.

Pakistan is an underdeveloped economy having not remarkable growth rate. There may be many sources of economic growth but present study focuses on the fiscal decentralization as the major source of economic growth. Fiscal decentralization improves the efficiency of the Public sector and its leads to economic growth. The analysis is based on the time series annual data covering the period 1972 – 2009. Autoregressive model is used for ordinary least square estimation. The findings show that the both fiscal decentralization variables like spending authority and revenue autonomy have positive and significant impact on economic growth. The study concludes that the federal government should delegate the fiscal power to provincial and local governments for raising the growth and welfare of the people of Pakistan.

Federalism has two broad categories i.e. political and economic. This study is an attempt to figure out fiscal federalism in Pakistan. The essence of federalism is to provide maximum autonomy in the political and economic spheres that is "the general and regional governments are each within a sphere, coordinate and independent". Historically, the denial of provincial autonomy, devolution of resources and financial powers to the small provinces created marginalization and later violent conflict in the federation of Pakistan. The country's fiscal history and distribution of vertical and horizontal distribution of resources starts from the Niemeyer award which was issued under the 1935 Act. In the post-independence era, Pakistan issued its first financial award in 1952 called Raisman Award followed by finance awards under the 1956, 1962 and 1973 constitution respectively. Constitution of 1973 under article 160 provided National Finance Commission (NFC) for distribution of resources. Before the 7 th NFC award which was issued in 2009, resources from the divisible pool were distributed on population basis however, this award comprehensively altered the resource distribution formula. It is a constitutional duty of the federal government in Pakistan to constitute and announce NFC Award after five years, however, since 7 th NFC Award, the forum failed to build consensus for the 8 th and 9 th NFC Awards. Hence the 7 th NFC Award was extended. Currently, 10 th NFC has been constituted and Terms of References (ToRs) have been issued which has generated a heated debate in the provinces. This research article is an effort to investigate the NFC awards in a fiscal federal sittings, issues and challenges in the pre and post 18 th constitutional amendment.

International Business Research, 2012

Study emphasis that a successful fiscal decentralization process is a way to increase the participation of citizens in local level development and economic activities. Study explores that the fiscal decentralization has positive effect on employment generation while the negative relation with inflation and indirectly supports the positive relation with economic growth. Improvement in educational activities and economic integration promote employment activities in the state and fiscally decentralized economy has greater ability to promote these activities then the unitary governments. So, fiscal decentralization is a successful tool to promote employment activities, meanwhile it discourages the rise in nominal wages which contributes to higher inflation rate.

2020

ARTICLE DETAILS ABSTRACT History: Accepted 29 April 2020 Available Online 15 June 2020 Theoretically the decentralization in any form may put very promising impact on the economy and the welfare of community. The current study examines the impact of fiscal decentralization on poverty in Pakistan. The fiscal decentralization is captured by two indicators, i.e. revenue decentralization and expenditure decentralization and political economy by government stability. The findings reveal that expenditure decentralization has positive while revenue decentralization has negative impact on poverty. The government stability as a proxy of political economy has shown negative impact on poverty. The study provides the evidence that fiscal decentralization has neutral effect on poverty in Pakistan. The policy framework of fiscal decentralization needs specific modifications to attain the desired impact. However, the political economy may be further strengthened.

The purpose of this study is to review the status of revenue mobilization by sub-national Governments in Pakistan, and to identify reform options that might lead to a higher level of revenues and a better functioning fiscal decentralization. This analysis is based on case studies of Punjab and NWFP provinces, and on data gathered in the course of field work in the two provinces.

This paper explores the development in financial federalism of Pakistan through execution of NFC Awards. Improvement and mutual consensus in fiscal matters are not only vital for the overall economic wellbeing of a federation but also for its integration. An overview of federal governments in the world provided economically stronger center with comparatively less resourceful units.Pakistan like other federations of the world has gone through many ups and downs but still matters are to be settled. Wide economic differences in provinces have made collection and sharing of revenue complicated. Efforts in the NFC Awards are not revolutionary butA slow change to remove vertical and horizontal imbalances has been observed. Eighteenth amendment has helped provinces to obtain the revenue from local sources as well for devisable pool.Delay in next NFC Award points out that Fiscal federalism still needs interprovince coordination and more efforts for exploration of local resources. A national political debate along with economic realities are needed to regulate the process of NFC Awards. Pakistan can consider Canadian fiscal federalism to improve some issues highlighted in NFC debates. Execution of a just and acceptable Award will improve fiscal federalism as well as political federalism of Pakistan.

Sustainable Business and Society in Emerging Economies, 2021

Purpose: This study has been initiated to measure the impact of fiscal decentralization in case of Balochistan province by using both revenue decentralization and expenditure decentralization to measure the impact of fiscal decentralization on provision of health, education, employment and poverty reduction. Design/Methodology/Approach: In measure, we have applied ARDL approach on the data spanning from 1975 to 2016. Findings: Our results point out that fiscal decentralization improves the social services delivery in case of Balochistan province. Moreover, it improves the provision of health and education facilities in Balochistan. Further, our findings indicate that fiscal decentralization leads to reduction in the poverty and unemployment. In addition, we found that expenditure decentralization is relatively effective in the provision of social services as compared to the revenue decentralization in case of Balochistan. Implications/Originality/Value: Our study findings suggest th...