Pakistan’s Economic Challenges: Critique of Financial Commissions and Policy Gaps

Former federal finance minister Dr. Miftah Ismail criticized the National Finance Commission (NFC) award during a June 2026 seminar, arguing that provincial failure to devolve resources to local governments undermines fiscal efficiency. The discussion highlighted systemic issues in Pakistan’s economic planning, including regressive taxation, educational decline, and energy costs stifling exports.

Critique of the NFC Award and Fiscal Centralization

Dr. Ismail, speaking at the Karachi University-hosted “Budget Insight 2026–27” seminar, stated that the NFC award’s effectiveness is compromised by provinces not transferring financial resources to local governments. “Centralization at one level may prove more effective than monopolies at four different levels,” he said, referencing the lack of devolution under Provincial Finance Commissions (PFCs).

KU Vice Chancellor Dr. Khalid Mahmood Iraqi noted that the NFC Award’s distribution of resources largely based on population indirectly incentivized population growth, contrasting it with developed nations that control demographics to drive economic progress.

Educational and Health Crises

Dr. Ismail highlighted a “serious educational crisis,” citing that nearly 60 per cent of fifth-grade students in Sindh cannot read second-grade textbooks. This aligns with broader declines in literacy rates, which had improved before 2010 but have since deteriorated. Meanwhile, Dr. Ishrat Husain, former State Bank of Pakistan governor, emphasized the lack of alignment between education policy and science, research and IT, contributing to graduate unemployment.

Health indicators also raised concerns. Pakistan has the highest number of hepatitis patients in the world, with malnutrition among children remaining “alarming.” Dr. Husain linked these issues to poor governance, stressing the need for institutional reforms to address systemic inefficiencies.

Taxation and Energy Costs

Dr. Ismail criticized Pakistan’s petroleum tax structure, noting that 50 per cent to 60pc of fuel consumption is by motorcyclists paying nearly Rs100 per liter in taxes. This regressive system disproportionately affects low-income groups, exacerbating economic inequality.

Expensive electricity tariffs were identified as the biggest obstacle to exports. Comparing Pakistan’s $30 billion in exports to Vietnam’s $400bn, Dr. Ismail argued that reducing electricity costs to levels comparable with those in India, Bangladesh, and other regional countries is critical for growth. Dr. Husain highlighted the lack of a “medium-term framework” linking budgets to national policies, resulting in poor outcomes across sectors.

Call for Institutional Reforms

Dr. Husain urged the activation of the National Economic Council (NEC), a constitutional body chaired by the Prime Minister and comprising provincial chief ministers and the federal economic team. He also called for digitizing the entire government system to replace colonial-era bureaucratic practices, which he said cause delays in development projects.

The seminar concluded with a push for quarterly financial reviews, digital tracking of development goals, and prioritizing education in budgets. Dr. Husain emphasized that “education is the true foundation of sustainable development,” despite resistance from groups whose privileges may be affected.

Comparative Insights

Pakistan’s tax-to-GDP ratio, at around 11pc, remains behind the 2010–11 target of 15pc. This gap underscores the challenges of setting goals without “practical measures and continuous monitoring,” as Dr. Husain noted. In contrast, India and Bangladesh have surpassed Pakistan in several economic and social indicators.

The country’s $30 billion in exports pales against Vietnam’s $400bn, despite similar 1990 export levels. This disparity highlights the urgency of addressing energy costs and industrial competitiveness to reverse economic decline.