Former finance minister Dr Miftah Ismail questioned the National Finance Commission’s effectiveness in Pakistan on June 30, 2026, citing provincial failures to devolve resources and calling for centralized control if local governments remain underpowered.
The remarks, made at Karachi University’s ‘Budget Insight 2026–27’ seminar, highlight growing concerns about fiscal decentralization in a country where provincial finance commissions have struggled to implement resource transfers. Ismail’s critique comes as Pakistan’s tax-to-GDP ratio remains at 11%—well below the 15% target set in the 2010-11 NFC award—while electricity tariffs, a key export barrier, are significantly higher than in Bangladesh.
How Provincial Fiscal Inaction Undermines National Strategy
Ismail emphasized that without functional Provincial Finance Commissions (PFCs), centralization at the federal level may be “more effective than monopolies at four different levels.”
Dr. Ishrat Husain, former State Bank governor, reinforced this view, stating that “setting targets without practical measures and continuous monitoring” has led to persistent gaps between policy and implementation. His analysis of the 2010-11 NFC award revealed that the 15% tax-to-GDP goal remained unmet 15 years later, with revenue collection stagnating.
The Bottom Line
- Pakistan’s tax-to-GDP ratio at 11% lags behind Bangladesh’s and India’s.
- Electricity tariffs in Pakistan are significantly higher than in Bangladesh, hindering export competitiveness.
- Provincial finance commissions have struggled to implement fiscal devolution targets since 2010.
Market-Bridging: Fiscal Uncertainty and Sectoral Impacts
Ismail’s comments underscore broader challenges facing Pakistan’s economy, including a decline in real disposable income since 2022 and high youth unemployment. The manufacturing sector, which contributes significantly to GDP, faces particular pressure: high electricity costs have driven some textile firms to relocate to other countries.
The agricultural sector, accounting for a substantial portion of GDP, also suffers from underinvestment. Despite budget allocations for agriculture, disbursement has been inconsistent.
Expert Analysis: The Case for Institutional Overhaul
Dr. Husain, former State Bank governor, noted that “Pakistan’s fiscal framework lacks the institutional mechanisms to track outcomes. The NEC, while constitutional, has not met since 2021, undermining coordination.”
Investor sentiment reflects these concerns. The KSE 100 index, which fell in 2025, remains below its 2021 peak. “The uncertainty around fiscal decentralization is a key drag on foreign direct investment,” said a June 2026 interview.
Comparative Context: Lessons from Regional Neighbors
India’s fiscal federalism model, which allocates a significant portion of central taxes to states, contrasts with Pakistan’s approach. This disparity has contributed to differences in economic growth between the two countries. Bangladesh’s higher tax-to-GDP ratio—achieved through targeted reforms—also highlights the stakes for Pakistan’s fiscal strategy.
A report found that provinces with functional PFCs saw revenue growth, compared to those where institutional capacity remains weak. This divergence underscores
