Resource information
Following the transition to democracy in
2008, two very important political developments took place.
These were the announcement of the 7th National Finance
Commission Award, which was agreed upon in December 2009 in
Lahore, Pakistan, and the unanimous ratification by
Parliament of the 18th Amendment to the Constitution in
April 2010. Both developments have the potential of
fundamentally restructuring the way Pakistan is governed in
the future. This paper is divided into four sections. The
first provides a quick overview of the 18th Amendment and
Its Major Fiscal Implications on Provincial Governments,
including new functional responsibilities and institutions
and financing of new responsibilities. The 18th Amendment
brought important institutional changes and the fiscal
powers of the provinces have been enhanced. As a result,
the 18th Amendment will lead to a more balanced and
decentralized structure of government of Pakistan and to an
enhanced empowerment by the provinces. The second section
provides an outlook for provincial finances and trends in
fiscal variables and discusses borrowing and debt levels and
ways to raise provincial resources. Under the 18th
Amendment, the provinces now have greater access to domestic
or foreign borrowing, but this has to be carefully
monitored. The third section focuses on the potential for a
new revenue sharing system and fiscal rules, including
revenue sharing arrangements and exploring fiscal rules for
provincial governments. The final section identifies a
potentially large set of pending emerging issues. These are
related to: devolution of particular functions; the
distribution of assets/liabilities and flow of income;
implications of the joint and equal ownership of natural
resources by federal and provincial governments; impact of
the 18th Amendment on the planning process; the future role
of local governments; and the overall implications of
decentralization on growth.
