The information on fiscal operations by the four provincial governments in the first half of 2024-25 has been released by the Federal Ministry of Finance.

An analysis of the fiscal performance of provincial governments is essential because the IMF Programme focuses more on provincial governments than has hitherto been the case. A number of structural benchmarks and indicative targets have been included relating to the combined performance of the four Provincial governments.

There is clearly a general realization that the provincial governments will not only have to increase their share in national revenues but also accept the devolution of more functions from the federal level in line with the 18th Amendment.

The position in 2023-24 was that only 7.5% of the national tax and non-tax revenues were generated by the four Provincial governments combined. This is despite the constitutional allocation of substantial fiscal powers to these governments, including the agricultural income tax, sales tax on services and property-related taxes.

The provincial tax-to-GDP ratio was also only 0.7 percent of the GDP in 2023-24. A comparison with the revenue mobilization by the states in India reveals the low level of fiscal effort. The 31 states of India generate tax revenues of almost 6 percent of the GDP.

Given the low collection, almost 83.4 percent of provincial expenditures were financed by federal transfers in 2023-24. There is clearly a need for greater self-financing of higher levels of expenditure on........

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