World Bank urges Pakistan to revamp NFC Award

World Bank Recommendation

The World Bank has asked Pakistan to revise the NFC Award formula.

The goal is to boost fiscal federalism and improve resource distribution among provinces.

Key Proposals

However, the report titled Strengthening Fiscal Federalism in Pakistan was launched in Islamabad.

It was presented by lead economist Tobias Haque and Country Director Bolormaa Amgaabazar.

Furthermore, the report proposes revising both vertical and horizontal resource‑sharing formulas and adopting a fiscal equalisation model.

This model bases funding on provinces’ expenditure needs and revenue‑generating capacity, not just population.

Tax and Resource Allocation

In addition, the report suggests giving more weight to poverty, backwardness and inverse population density when allocating resources.

Furthermore, it identifies the fragmented General Sales Tax (GST) system as a major challenge.

It recommends a unified tax collection mechanism.

Later, revenues would be distributed among provinces under an agreed formula.

Consequently, the proposal would require legislative and constitutional changes.

Benazir Income Support Programme

Meanwhile, the report recommends that provinces share the cost of the Benazir Income Support Programme.

The report argues that social protection is primarily a provincial responsibility while the national registry should stay under federal control.

Fiscal Impact and Provincial Revenue

As a result, Pakistan’s fiscal federalism has created a structural federal fiscal deficit.

It has done so by reducing federal revenues without cutting spending responsibilities.

Moreover, provincial tax collection remains below its potential, especially in agricultural income and property taxation.

Further Recommendations

Therefore, the World Bank calls for clearer expenditure responsibilities among federal, provincial and local governments.

In addition, it urges improved incentives for provincial revenue collection.

It also calls for conditional transfers linked to measurable performance in education, health and climate resilience.

Consequently, the report offers policy options based on international experience.

It aims to support reforms that improve public service delivery, fiscal sustainability and economic governance.