The ink had barely dried on Amendment 27 when they started talking about Amendment 28. If passed, the much-discussed Amendment 28 would supposedly eliminate constitutional protection for provincial actions under the NFC’s seventh award. This fits with a long-standing agenda: the PML-N, the PTI, the establishment and international lenders have argued that Islamabad needs a larger share of the divisible fund. But revising the vertical distribution of resources through opaque negotiations, pressures and political engineering is not a technical adjustment. It strikes at the core of Pakistan’s federal compact and carries serious implications for provincial autonomy, federal cohesion and human development.
Supporters of the proposed amendment present three main arguments. First, they say the NFC’s seventh award transferred an unduly large proportion of the divisible fund to the provinces without an equivalent transfer of spending responsibilities. Second, they argue that easy access to federal transfers has created a “moral hazard,” thereby weakening incentives for provinces to expand their tax base. Third, they accuse provincial governments of wasteful and politically motivated spending on salaries and discretionary development plans, with little improvement in public services.
Some of these concerns are not entirely unfounded. In Balochistan, for example, the development budget is formulated and implemented almost exclusively on the basis of political considerations. Over time, development spending has become deeply inefficient, with members of the provincial assembly exercising extensive control over the public finance management cycle and allegedly using development funds for corruption, clientelism and targeted goods rather than strengthening public services. Similar practices can be observed, to varying degrees, in other provinces as well.
However, Pakistan’s fiscal problems predate the seventh NFC Award. Cutting provincial allocations will not solve them alone. The deeper problem lies in stagnant productivity, a narrow and weakly documented tax base, and a lack of institutional capacity building to capture emerging sources of revenue. It is true that both the federation and the provinces have underperformed in expanding the tax network. Tax-to-GDP ratios at both levels of government have fallen in recent years, reflecting deep-rooted structural weaknesses.
Pakistan also cannot afford to reduce social spending further. The country already lags behind its regional peers in key human development indicators. Cutting provincial participation would directly undermine their ability to invest in education, health and social protection. Experience suggests that when more resources are funneled to the center, they tend to fund advocacy and grants focused on elites rather than classrooms and clinics. Smaller provinces like Balochistan and Khyber Pakhtunkhwa already devote a large portion of their budgets to security, including allocations to federal law enforcement agencies requested in aid of civilian forces. In Balochistan, for example, spending on law and order is now believed to exceed spending on school education and health, and has grown much faster than both in the years since the 18th Amendment. Further cuts to the provincial portion of the divisible fund would push human development even further down the list of national priorities.
Instead of restricting transfers, a more promising approach is to redesign the fiscal framework to reward performance.
Instead of restricting transfers, a more promising approach is to redesign the fiscal framework to reward performance. Introducing outcome-based indicators into horizontal distribution criteria could better incentivize improvements in both provincial revenue mobilization and socioeconomic indicators. By linking a portion of fiscal transfers to improvements in key social indicators and a credible fiscal effort, the proposed amendment would directly address the moral hazard inherent in unconditional transfers while keeping decision-making closer to citizens. Provinces that broaden their tax base and achieve better results in the social sectors may be incentivized to receive a greater proportion of incremental resources.
Meanwhile, inefficiency in provincial spending does not automatically justify a return to centralized control. There is no guarantee that federal spending on social sectors will be more efficient, equitable, or protected from cronyism. Islamabad’s own development portfolio has often been criticized for its weak fiscal discipline and politically motivated projects. The limited impact of development spending reflects a patronage-driven political economy operating at both the federal and provincial levels. The recent IMF report highlights these systemic governance weaknesses and persistent corrupt practices. Recentralization would simply reproduce these distortions at the center while weakening provincial ownership of service delivery.
Furthermore, there is a pressing need for the federal government to withdraw from areas that the Constitution has already delegated. The fiscal squeeze is compounded by Islamabad’s insistence on retaining large ministries and programs in sectors such as health and education whose mandate, after the 18th Amendment, should be largely limited to coordination. Similarly, the federal government also spends significant federal PSDP resources on projects of a “provincial nature.” A 2023-24 review by the Planning Commission revealed that provincially-oriented projects accounted for one-third of the total federal PSDP. The center also funds issues transferred out of the PSDP through vertical programs such as polio, increasing its burden. Islamabad is therefore attempting to undertake tasks beyond its constitutional mandate and then citing fiscal stress as justification for clawing back provincial actions.
As talks over a 28th amendment accelerate, Parliament must weigh the long-term consequences of diluting or eliminating constitutional protections for provincial finances. The NFC’s seventh award and the 18th Amendment were crucial steps toward a viable federal compact. Fiscal engineering, from (oil) taxes kept out of the divisible fund to sales tax adjustments, has already eroded provincial confidence. Undoing that agreement through controversial constitutional arrangements would be a serious mistake. A more sensible path is to reform fiscal policy, impose discipline on federal and provincial spending, and incorporate performance-based criteria into the NFC formula, as well as the allocation of resources between organizations.
The writer is a public policy and development specialist of Balochistan.
X: @rafiullahkakar
Published in Dawn, December 3, 2025
