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Business Recorder
2 days ago
- Business
- Business Recorder
Beyond the divide: rethinking federal-provincial collaboration for economic transformation—I
As Pakistan stands at a critical economic crossroads—grappling with slow growth, rising debt, and deepening inequality, the need for deeper and more effective federal-provincial collaboration has never been more urgent. Real prosperity will not come from centralization or control, but from empowering provinces to be the architects of their own development. Stabilizing the economy, attracting foreign investment, and unlocking the country's vast untapped potential requires a governance model that empowers provinces to act as true partners in national development. While fiscal federalism is enshrined in Pakistan's constitutional framework, it remains weakened by fragmented planning, uncoordinated policymaking, and an inequitable allocation of resources. The 18th Constitutional Amendment marked a pivotal step toward decentralization, devolving significant powers to the provinces. Yet, the envisioned collaborative framework between federal and provincial tiers has struggled to take shape. This disconnect not only impedes coherent economic strategy but also undermines the ability of provinces to mobilize their unique assets. National prosperity depends on activating subnational growth engines—but a highly centralized system continues to restrict provincial autonomy in areas such as fiscal authority, investment facilitation, and infrastructure control. This article makes the case that unlocking Pakistan's true economic potential demands a bold reimagining of federal-provincial collaboration—one built on trust, accountability, and a commitment to shared national goals. Using Khyber Pakhtunkhwa (KP) as a vivid example, it highlights both the immense opportunities and the systemic institutional hurdles holding back progress. The insights here are inspired by a compelling conversation between KP's Finance Minister Muzzamil Aslam and renowned economist Dr. Nadeemul Haq, whose perspectives shed light on the urgent need for reform. A flawed fiscal compact: rethinking the NFC and the federal-provincial contract The current fiscal framework, established under the 7th National Finance Commission (NFC) Award in 2010, allocates 57.5 percent of federal revenues to the provinces. While this arrangement was intended to strengthen provincial autonomy following the 18th Amendment, its promise is fading fifteen years on. Provinces have become heavily dependent on federal transfers, contributing only about 1 percent to the national tax-to-GDP ratio, while the federal government remains responsible for over 90% of revenue collection and all debt servicing. This imbalance has severely strained the federal budget, limiting its ability to invest in national priorities such as defence, infrastructure, and climate resilience. Meanwhile, provinces now bear the bulk of expenditures in critical sectors like health, education, and local development—but lack the fiscal tools and revenue authority to sustainably finance them. This mismatch is further exacerbated by IMF-imposed provincial primary surplus targets, which compel provinces to cut back on development spending to support federal deficit reduction efforts, even as their own service delivery obligations expand. The absence of integrated planning and data-sharing mechanisms between federal and provincial governments further compounds inefficiencies and leads to duplication of spending, particularly in overlapping service delivery sectors such asocial protection, health and education. A disjointed fiscal federation Despite constitutional devolution under the 18th Amendment, economic policymaking continues to be overly centralized. Key domains—such as excise duties on tobacco, electricity pricing, and mineral royalties—remain firmly within federal control, limiting provinces' ability to capitalize on their unique comparative advantages. For instance, KP produces 78 percent of Pakistan's tobacco—yet cannot set meaningful fiscal policies due to federal dominance over excise taxation. While the federal government earns over PKR 550 billion from tobacco excise, KP receives only 14.62 percent of the divisible pool, and its own provincial excise efforts are mired in legal challenges and regulatory overlaps. Despite its potential in green energy, minerals, tourism, and agriculture, KP remains confined by institutional and regulatory barriers: It cannot issue provincial bonds or access international finance without federal approval. It lacks control over transmission infrastructure and energy regulation. It has no dedicated investment authority for its diaspora, despite contributing nearly one-third of Pakistan's remittances. Visa restrictions and negative media portrayals deter investors, despite an impressive tourism safety record. Unfair electricity pricing: the green energy dilemma If provinces were empowered to lead their own energy policies, Khyber Pakhtunkhwa (KP) could help power half the country. With a hydropower potential exceeding 30,000 MW—of which 5,626 MW is already being generated from major projects like Tarbela, Warsak, and Gomal Zam—KP has a unique comparative advantage in clean, affordable energy. The province produces electricity at an average cost of PKR 7–8 per unit. Yet, paradoxically, it is forced to buy this electricity back from the national grid at exorbitant rates of PKR 65–72 per unit due to centralized pricing, rigid federal regulation by NEPRA, and prohibitive wheeling charges imposed by entities like NTDC and PESCO. This structural inefficiency discourages both public and private investment in local energy solutions. KP's attempts to sell surplus electricity directly to industries through bilateral wheeling arrangements have repeatedly stalled due to wheeling charges as high as PKR 27 per unit—rendering such transactions commercially unviable. More than 20 hydropower projects are currently under development, including Pehur, Ranolia, and DaralKhwar, but without timely federal approvals and grid access, many risk becoming stranded assets. The province has taken proactive steps to unlock its energy potential: hosting investor roadshows, crafting investment-friendly policies, and reaching out to the private sector. However, without federal alignment on transmission access, pricing, and regulatory autonomy, these efforts have limited impact. The consequences are serious. KP—despite its resource abundance—remains energy-poor. Industries face high electricity costs, household bills continue to rise, and potential job creation and economic growth are stifled. Households consume 56% of electricity in KP, followed by industries (24%) and commercial/government use, yet all segments bear the brunt of inflated tariffs driven by inefficiencies in the national system. Further compounding the issue is the prolonged delay in Net Hydel Profit (NHP) payments owed to KP by the federal government. These funds could have been reinvested to expand the province's renewable energy base and reduce dependency on expensive imports. The paradox is stark: a province rich in green energy is shackled by a centralized framework that neither rewards efficiency nor promotes equity. Unleashing KP's energy potential—by decentralizing authority, rationalizing wheeling charges, and ensuring timely NHP payments—could lower national energy costs, enhance industrial competitiveness, and drive sustainable economic growth both within the province and across Pakistan. Natural resources and neglected rights Khyber Pakhtunkhwa is not just an energy province — it's a national resource powerhouse. It contributes 52 percent of Pakistan's crude oil, 13 percent of natural gas, and 46 percent of LPG production. Its mining and quarrying sector grew by over 14 percent last year, driven by coal, oil, gas, and mineral extraction. Yet, despite this output, KP has little control over how these resources are priced, taxed, or managed. Federal constraints prevent KP from monetizing its share of oil and gas. Direct sales are restricted, provincial transmission capacity is limited, and key decisions—such as issuing exploration licenses—remain under federal control. This leaves KP dependent on federal disbursements, which are frequently delayed or contested, undermining fiscal stability and planning. The province's rich mineral and forest wealth also remains underutilized. KP holds 45% of Pakistan's forest cover and contributes more than half of the country's carbon sink, yet it receives no economic benefit—no carbon credits, no fiscal incentives, and no meaningful recognition for its environmental stewardship. Similarly, while the 18th Amendment devolved several sectors, others like tobacco remain under federal control. KP produces 78% of Pakistan's tobacco, but has no regulatory authority or revenue autonomy over it. In a functional federation, such contributions would be rewarded and leveraged. In Pakistan, they are often overlooked—leaving KP with vast resources but limited returns. Trade: a strategic gateway left closed Khyber Pakhtunkhwa's geography makes it a natural trade gateway to Afghanistan, Central Asia, and western China. Yet its strategic position remains underutilized. Ten out of twelve border terminals with Afghanistan remain non-operational, while KP is excluded from federal trade negotiations and infrastructure planning that directly affect its economic future. Local producers struggle to scale exports due to outdated logistics, non-tariff barriers, and inconsistent security protocols. The lack of provincial authority over trade and transport policy has choked KP's export potential and stifled regional trade integration. Despite its potential to become Pakistan's northern trade hub, KP is sidelined from economic diplomacy and denied the autonomy to pursue cross-border commerce. Until trade facilitation is devolved and provincial voices are included in national planning, the province's gateway advantage will remain blocked. Tourism: a powerhouse constrained Tourism is one of KP's most dynamic and fastest-growing sectors. The province attracted over 20 million domestic and 5,400 international visitors in 2024, contributing significantly to job creation and the services economy. With 45% of Pakistan's forests, dramatic mountain ranges, and rich cultural heritage, KP has all the ingredients of a global tourism destination. Yet this potential is held back by federal bottlenecks. Restrictive visa policies, mandatory NOCs for foreign tourists and investors, and the absence of national-level support for destination branding continue to constrain growth. Despite KP's strong safety record and improved infrastructure, outdated narratives in international and national media further dampen its appeal. There is also no institutional framework to channel remittances into tourism development. KP's diaspora contributes nearly one-third of the country's remittances, but the lack of a dedicated provincial investment authority means that capital remains untapped. To unlock KP's tourism economy, the province needs federal cooperation on visa liberalization, international promotion, and the establishment of a diaspora investment window. (To be continued) Copyright Business Recorder, 2025
Express Tribune
18-05-2025
- Business
- Express Tribune
K-P's solar dream fades in the light of reality
As the world moves away from using fossil fuels for the generation of electricity, the Khyber-Pakhtunkhwa (K-P) government too has announced its decision to provide free or subsidized solar energy systems to over 130,000 families across the province. However, critics argue that the existing infrastructure is unequipped to handle the sudden shift to solar power. According to government figures, 32,500 households have been selected in the first phase of the project costing Rs20 billion. Over 2.5 million citizens reportedly applied online; an overwhelming response that reflects both the acute energy crisis in K-P and the desperation of residents living under chronic load shedding and erratic power supply. Despite the scale and cost, details around beneficiary selection, contract awarding, and post-installation support remain frustratingly opaque. An official from the Pakhtunkhwa Energy Development Organization (PEDO), speaking on the condition of anonymity, admitted that many logistical and technical elements were still being "worked out," raising doubts about the readiness of the project. "We're still finalizing several implementation phases and vendor alignments," he said, without elaborating further. This lack of preparedness is concerning given the ambitious scope and the financial burden on an already cash-strapped provincial government. In public announcements, K-P's finance adviser Muzzamil Aslam hailed the project as a "first-of-its-kind" effort to deliver free electricity to households. He further claimed that solarizing homes, schools, and religious institutions will help relieve the national grid and generate significant savings. However, critics argue that the numbers being touted do not align with the realities on the ground. The solarization of 1,100 schools in the merged tribal districts includes those that already had solar panels but are now being upgraded. A PEDO report confirms that only 342 schools have completed installations to date, despite funding approvals exceeding Rs1.1 billion. Annual revenue projections of Rs170 million remain theoretical, not backed by independent audits or third-party validation. Similarly, the solarization of 2,000 mosques under another high-profile scheme is presented as a game-changer, with a claimed cost-saving of Rs75 million annually. Yet, critics argue that targeting religious institutions may be politically motivated, especially with local elections looming. Priority lists for eligible mosques and madrassas are being generated by "competent authorities," but the lack of transparency over how these lists are formed raises questions about favoritism and political patronage. According to Dr Kaleem Ullah, Associate Professor at the US-Pakistan Center for Advanced Studies in Energy (USPCAS-E) at the University of Engineering and Technology (UET), solar energy not only eases the burden on consumers but also reduces dependency on conventional power sources like coal, which currently accounts for 64 per cent of our power generation hence this shift could lead to significant savings for the national exchequer. "However, there is a critical gap in the current infrastructure. Despite the growing momentum in solar adoption across departments and institutions, we lack adequate power storage facilities at grid stations. There is an urgent need to establish storage systems to harness and manage solar power effectively," he stressed. In Torghar, a relatively underdeveloped district, the government has promised to solarize 154 religious and community sites and over 3,200 houses. Yet, locals say there's been little outreach or clarity on who qualifies and what the timelines are. The government claims it will also solarize 23,000 public buildings across K-P. However, rather than investing in energy audits or comprehensive feasibility studies, officials appear to be taking a blanket approach, relying on private companies to handle procurement and installation. This opens the door for cost inflation, substandard equipment, and even corruptionissues that have plagued past energy projects in Pakistan. With Rs20 billion in play, civil society organizations are calling for stronger oversight. "There needs to be an independent monitoring body to ensure funds are being used efficiently," said a representative from the K-P Civil Society Network. "We've seen time and again how large-scale projects become political tools rather than genuine public services."
Express Tribune
07-02-2025
- Business
- Express Tribune
K-P tax collection soars by 46%
PESHAWAR: Advisor to the Khyber Pakhtunkhwa Chief Minister on Finance and Interprovincial Coordination, Muzzamil Aslam, announced that the Khyber Pakhtunkhwa Revenue Authority (KPRA) has increased tax collection by 46%. He stated that tax collection from July to January reached an impressive Rs28.92 billion, reflecting a significant 46% rise compared to the previous year. This substantial growth highlights the province's strengthening economy and the government's commitment to fiscal responsibility. The advisor further noted that non-tax revenue in Khyber Pakhtunkhwa exceeds 55%, which will push the overall revenue growth beyond 50%. This achievement is attributed to the government's diversified revenue streams and effective financial management. Aslam expressed his gratitude to Chief Minister Ali Amin Gandapur for his continuous support and congratulated the KPRA Director General Fozia Iqbal and other staff on collecting additional taxes. Their hard work and dedication have been instrumental in achieving this milestone. it may be recalled that in January this year KPRA announced that it collected Rs24.2 billion in the first six months of the financial year 2024-25, marking an impressive 45 per cent growth compared to the same period last year. Last year it collected only Rs16.7 billion in the first six months which shows Rs7.5 billion increase in revenue. As per details shared by the KPRA's media wing, the Authority has collected Rs18.15 billion from the sales tax on services, and Rs6.07 billion from the Infrastructure Development Cess (IDC). Last year, collections from sales tax on services amounted to Rs14.6billion, while Rs2.1billion was collected from the IDC, reflecting a 24 per cent growth in sales tax on services and an astonishing 189 per cent growth in IDC. Director General KPRA, Fouzia Iqbal, praised the dedication and hard work of the KPRA team, which has resulted in an impressive performance over the past six months. She expressed her confidence that with sustained efforts, not only will the annual revenue target be achieved, but it will also be exceeded significantly. "With the same level of commitment and our strategic approach, I am confident that we will surpass this year's target. And by the end June, KPRA will once again stand out as a beacon of excellence in performance," she remarked. The Director General also extended her gratitude to taxpayers for their trust, confidence, and cooperation, which have been instrumental in KPRA's achievements so far. Additionally, she acknowledged the support and guidance of Chief Minister and Advisor to the CM on Finance. Their leadership, she noted, has been pivotal in enabling KPRA to implement effective strategies and move closer to its objectives. She said that tax collection increased despite the fact that country has been faced with an economic recession.
