Ayesha Saba

Achieving fiscal decentralisation to promote macroeconomic stability and strengthen institutions in Pakistan requires a well-planned and systematic approach, stresses Mian Rajan Sultan Peerzada, President of Association for Development of Local Governance. Talking to WealthPK, he said: “There are numerous developed economies and a number of emerging economies that have benefited from decentralisation. In Pakistan, the need for fiscal decentralisation emerged as a result of a mismatch between expenditure requirements and revenue generation capability.”

“It not only promotes economic growth and improves the efficiency of government services but can also help Pakistan achieve macroeconomic stability by strengthening institutions through efficient resource distribution and consumption.” He explained that fiscal decentralisation entailed delegating some budgetary and revenue-related obligations to lower levels of the government. “It is a successful technique for promoting economic growth by improving the efficiency of the public sector.”

“It encourages competition among different levels of government. As a result, local or provincial governments are able to create public goods with more efficiency.” Peerzada noted that by redesigning the National Finance Commission (NFC) award under the 18th Constitutional Amendment, Pakistan has undertaken key reforms. “These advancements have resulted in a significant shift in resource distribution between the centre and the provinces.” He further added that the NFC award is a constitutional mechanism that provided for the distribution of financial resources among federal, provincial and local governments.

However, he shared the concern that fiscal decentralisation in Pakistan was causing volatility in the economy because of the inadequate institutional capacity of the lower strata of government, a half-hearted approach by the policymakers, and a lack of transparency. “Therefore, there is a need for the government to strengthen the institutional capability of lower-level administrations, which will help with the efficient allocation and use of the budget.”

“Lack of adequate funding is a common constraint in Pakistan as there have been numerous complaints from the local government officials that the development funds were neither sufficient nor released on time to cater to development needs. So, there is a significant need to increase local government funds and ensure their timely release,” he emphasised.

Peerzada suggested that the federal government first enhance the effectiveness of its institutions before revamping the budgetary system. “In budgetary matters, the provinces and municipal governments should be allowed more autonomy and authority. This will help produce greater resources, increase confidence, and make the federating units more accountable.”

“If adopted with sincerity of purpose, these measures will play a significant role in promoting fiscal decentralisation in Pakistan, strengthening the financial position of the provincial and local governments, increasing their autonomy and decision-making power, and promoting a more equitable distribution of resources. There is still a long way to go to fully achieve fiscal decentralisation in Pakistan, as several challenges remain to be addressed.”

Credit: Independent News Pakistan-WealthPk