After the 18th Amendment and the 7th NFC Award, the provincial governments have seen a significant increase in their share of fiscal resources from the federal budget. The provinces now receive 57.5 percent of the federal taxes compared to 47.5 percent prior to the 7th NFC Award in 2010. The huge shift in resources from the federation to the provinces was done with the aim of improving service delivery for citizens and improve social outcomes. However, it seems that these objectives have not been met and Pakistan’s ranking in the UN Human Development Index has slipped to 154th out of 190 countries in 2019, from 152nd in 2010.

They key reason is that provinces have not utilised the additional resources in an equitable manner, with huge differences in spending between districts. In the current budget, the federal government has tried to address these gaps by announcing special development packages for the least developed regions. It is for the first time that a government in a single year has initiated, approved and started implementation of four Regional Integrated Development Plans: (i) Accelerated Development Plan for the poorest districts of Balochistan; (ii) Gilgit-Baltistan Development Package; (iii) Karachi Transformation Plan for the capital of Sindh; (iv) Sindh Development Plan for 14 priority districts. These are historical development packages. A whopping Rs 279 billion out of the total PSDP of Rs 900 billion has been earmarked for these regions with focus on providing basic infrastructure and social services.

A bigger concern regarding the FY2022 budget is the weak financial position of the government. Pakistan is already running high fiscal deficits and the public debt to GDP ratio stands at 84 percent.

The provincial governments, especially in Sindh, are visibly perturbed and feel that this is a political move ahead of the 2023 elections. There are also concerns that the federal government’s special development packages will weaken the federation by-passing the provincial government, as under the 18th Amendment the ultimate responsibility for development of these regions lies with the provincial authorities. The concerns raised by opposition parties also seem political in nature as the 18th Amendment does not bar the federal government from undertaking development projects in different parts of the federation.

A bigger concern regarding the FY2022 budget is the weak financial position of the government, with Pakistan already running high fiscal deficits and public debt to GDP ratio at 84 percent. Given the weak financial position, does it make sense for the federal government to announce these special development packages? Probably not, it appears to be a welcome step. The citizens of these least developed regions stand to benefit the most.

The author is a senior banker and is a visiting faculty member of IBA Karachi