Key Takeaways
- The World Bank’s latest report on fiscal federalism is criticized for treating technical solutions as political problems.
- Critics argue that the report fails to address underlying political incentives shaping Pakistan's fiscal architecture.
- Decades of World Bank support for decentralization is now seen through a lens of potential fragmentation and instability.
The World Bank has released a new report on fiscal federalism in Pakistan, which has been met with criticism from experts who argue that the document fails to address the political economy underlying the country’s intergovernmental system. The report, launched with much fanfare, presents itself as a fresh diagnosis of Pakistan's malfunctioning intergovernmental system but is described by critics as an overwhelmingly technocratic exercise.
According to Dawn, the World Bank’s report catalogues institutional weaknesses and recommends clearer expenditure assignments, stronger provincial revenue mobilisation, NFC Award reforms, more transparent fiscal transfers, effective intergovernmental coordination, and empowered local governments (LG). While these recommendations may seem logical on paper, critics argue that they are presented as technical solutions to what are essentially political problems.
The report’s framework assumes that improved technical arrangements can create the necessary political conditions for success. However, this assumption is flawed because it ignores the fact that political incentives shape institutions, not vice-versa. The World Bank criticises Islamabad's lavish spending on devolved subjects, which results in wasteful duplication and blurred accountability. Yet, it fails to examine the incentives that drive this encroachment into provincial domains.
Critics point out that the answer lies not in administrative confusion but in the political economy: preserving patronage networks, protecting bureaucratic empires, federal accommodation of donor-funded projects, and maintaining influence over sectors assigned to other tiers of government. The provinces are also criticized for showing little enthusiasm for empowering LGs and unwillingness to undertake politically costly taxation because their annual fiscal surpluses must be transferred to finance federal deficits.
The World Bank’s own intellectual journey is revealing. For decades, it championed decentralisation as the pathway to greater accountability, stronger provincial ownership, and better public services. It welcomed the 18th Amendment and made resources available to assist provinces in managing their expanded mandate. Now that Pakistan faces acute fiscal stress, the narrative has changed; decentralisation is being portrayed as a source of fragmentation, duplication, and macroeconomic instability.
Both propositions contain some elements of truth, but what the report never explains is how an arrangement once celebrated as a democratic and developmental breakthrough has become a principal source of fiscal dysfunction. Nor does it ask the uncomfortable question: whether the bank’s own advice had underestimated the institutional and political prerequisites necessary for successful decentralisation.
For decades, the World Bank has been among the most active actors in Pakistan's development landscape. It has poured billions of dollars through structural adjustment programmes, the Social Action Programme, governance reforms, public expenditure reviews, tax administration projects, and institutional strengthening initiatives. However, this latest report suggests a shift in its approach towards decentralisation.
In conclusion, while the World Bank’s recommendations on fiscal federalism are well-intentioned, they fail to address the complex political economy that shapes Pakistan's intergovernmental system. Critics argue that a more nuanced understanding of the incentives and dynamics at play is necessary for effective reform.
