Devolution and fiscal decentralisation

Abstract

The NRB Devolution Plan involves substantial fiscal decentralisation to local governments, which is unprecedented in the history of Pakistan. This devolution will see the transformation of provincial governments from the role of direct provision to that of financing, regulation and monitoring and the emergence of local governments as the prime delivery agents of services and a key player in the process of regional development. Given the magnitude of fiscal decentralisation, relatively complex financial arrangements will have to be put in place to finance this process. Enhancement of local fiscal powers is expected to make only a minor contribution. The paper recommends resort to general, unconditional and formula-driven transfers to the extent possible.