Public finances in Pakistan have been characterized by unsustainably, high fiscal deficits
poor revenue mobilization
a persistent trend of centralization
massive vertical imbalances between the federal, and provincial governments
problematic expenditure structures
weak financial management
the atrophy of local governments
and, lack of accountability. Recently the Government has announced a bold, and potentially path-breaking devolution initiative to address some of these problems, by establishing strong, accountable local governments. Focussing on the provinces, their financial health, and the delivery of infrastructure, and public services, this report puts forward recommendations for reform in the following areas: 1) adjusting federal-provincial fiscal relations to reduce vertical fiscal imbalances
2) improving the effectiveness of public services through devolution
3) prioritizing provincial expenditures in favor of critical non-wage operations and maintenance, and reducing the dominant share of establishment costs
4) improving expenditure programming, and management
5) restructuring provincial civil services
6) mobilizing provincial revenue, streamlining tax structures, and rationalizing user charges
7) strengthening financial management
and, 8) developing systematic approaches to provincial debt management.