Introduction
Under the 18th Constitutional Amendment, provinces were granted greater financial autonomy, but the effectiveness of Provincial Finance Commissions (PFCs) remains questionable. Federal transfers account for 80% of provincial revenues, indicating weak own-source revenue generation.
Challenges in Provincial Finance Management
- Lack of PFC Awards: Punjab and KP have not updated their PFC formulas in over a decade, leading to outdated revenue-sharing mechanisms.
- Unequal Resource Distribution: Provincial governments often allocate funds based on political priorities rather than fiscal needs.
- Weak Fiscal Discipline: Unchecked spending on non-development activities limits service delivery improvements.
Way Forward
- Regular PFC Revisions: Provinces must conduct biennial PFC awards to ensure equitable resource allocation.
- Enhancing Own Revenue: Expanding urban property tax, agriculture tax, and service tax can reduce reliance on federal transfers.
- Capacity Building: Training local governments on budgeting and financial reporting will improve fund utilization.
A well-functioning PFC mechanism is essential to empowering districts, improving service delivery, and achieving fiscal decentralization.
