Addressing issues in devolution

Sindh’s last Provincial Finance Commission (PFC) award issued in 2002 expired in 2007. Though nearly 17 years have passed since then, funds are still being distributed based on the outdated award. A new PFC award has yet to be announced, depriving local bodies of much-needed finances.

The operative PFC award’s tenure is longer than the 7th National Finance Commission announced in December 2009 and made effective in July 2010 but which has been extended for over 15 years for want of a consensus on a fresh five-year NFC award between the federation and the federating units.

Chairing a review meeting on the District Annual Development Programme in July, Sindh Chief Minister Syed Murad Ali Shah took policy decisions to ensure transparent and effective implementation of district development schemes. In the same month as his directive, the planning and development department had convened two meetings to receive inputs from the finance department on guidelines, fund release strategy, and fund distribution as per the PFC Award 2007.

The total development expenditure outlay budgeted for FY26 of over Rs1 trillion includes a Rs520 billion provincial Annual Development Programme (ADP), Rs55bn for district ADP, Rs366.7bn for foreign project assistance and Rs75.58bn for federal PSDP schemes.

Local government bodies decry lack of financial transfers even as expenditures rise

The chief minister stressed that district ADP funds must be utilised efficiently, with maximum focus on the completion of ongoing projects, while ensuring transparency and accountability in the process. He also outlined specific guidelines for development projects, including a minimum approval limit of Rs5 million and maximum limits of Rs40m for district development committees (DDC) and Rs60m for district development boards (DDB).

The deputy commissioners will act as project directors of the schemes to be prepared by executing agencies mandated to carry out specific works and approved by DDCs/DDBs.

‘Rather than bringing governance closer to the people, the 7th NFC award and the 18th Amendment took away whatever devolution of resources and powers existed earlier’

Facing financial challenges, the Karachi Municipal Corporation (KMC), in its latest budget documents, formally requested the Sindh government to issue a new PFC Award without further delay. KMC noted that it contributed nearly 60 per cent to the octroi tax revenue generated in Sindh but does not receive its share accordingly. Meanwhile, its expenditure continues to rise. For instance, in the 2023-24 fiscal year, KMC required Rs28.93bn for non-salary expenses but received only Rs17.98bn from the provincial government, leaving a deficit of over Rs11.19bn for this category alone.

“The PFC award does not have constitutional protection,” Dr Kaiser Bengali told The Express Tribune. He suggested, “Just as the Constitution clearly mentions the functions and powers of the federation and the provinces, it is also necessary to include the functions and financial matters of the local government separately.”

The unresolved issue of empowering local bodies is widening political differences. After consultations with senior party leadership, the PML-N has withdrawn its support from the PPP-led local government set-up as well as Murtaza Wahab, Karachi’s mayor, citing his ‘poor’ performance, unfulfilled commitments and their exclusion from key administrative processes as the reason for the critical move.

Speaking at a press conference, Feroz Khan, a PML-N leader in the city council, strongly criticised the PPP for what he described as a “complete betrayal of promises” made prior to the mayoral election. He also pointed to mounting piles of garbage across major neighbourhoods, calling them a clear sign of neglect and administrative failure by the city authorities.

In an opinion piece for Brackly News, Mohammad Younus Dagha, Chairman of the Public Research and Advisory Council and a former federal secretary, writes, “Rather than bringing governance closer to the people, the 7th NFC award and the 18th Amendment took away whatever devolution of resources and powers existed with the local governments at that time.”

He suggests that the 11th NFC award should restore the one-sixth general sales tax share as direct transfers to local governments based on the 2006 formula; ensure equitable distribution of development funds across regions; make provincial shares conditional on the operationalisation of the PFC; and provide transparent mechanisms to use the Infrastructure Development Cess collected since 1994 on goods at Karachi port for the development of the port city and its freight corridor for future trade expansion.

In the given policy framework, efforts have been made by Sindh to ‘rationalise allocations’ and ensure speedy project implementation.

To prevent duplication, the Sindh chief minister stressed that agencies and local bodies must certify that proposed projects are not part of completed or ongoing schemes in the past three years. Sectoral ownership at the district level should be ensured, and at least 50pc of the cost of each scheme should be allocated in the current fiscal year. District ADP schemes should ideally be completed within one year, with exceptions allowed only under strong justification.

“Funds for ongoing schemes will be released in two equal instalments and for new schemes in four equal instalments, subject to 60pc utilisation of previously released funds,” he added.

Published in Brackly News, The Business and Finance Weekly, September 15th, 2025