As Pakistan stands at a critical economic crossroads—grappling with slow growth, rising debt, and deepening inequality, the need for deeper and more effective federal-provincial collaboration has never been more urgent. Real prosperity will not come from centralization or control, but from empowering provinces to be the architects of their own development.

Stabilizing the economy, attracting foreign investment, and unlocking the country’s vast untapped potential requires a governance model that empowers provinces to act as true partners in national development. While fiscal federalism is enshrined in Pakistan’s constitutional framework, it remains weakened by fragmented planning, uncoordinated policymaking, and an inequitable allocation of resources.

The 18th Constitutional Amendment marked a pivotal step toward decentralization, devolving significant powers to the provinces. Yet, the envisioned collaborative framework between federal and provincial tiers has struggled to take shape. This disconnect not only impedes coherent economic strategy but also undermines the ability of provinces to mobilize their unique assets.

National prosperity depends on activating subnational growth engines—but a highly centralized system continues to restrict provincial autonomy in areas such as fiscal authority, investment facilitation, and infrastructure control.

This article makes the case that unlocking Pakistan’s true economic potential demands a bold reimagining of federal-provincial collaboration—one built on trust, accountability, and a commitment to shared national goals. Using Khyber Pakhtunkhwa (KP) as a vivid example, it highlights both the immense opportunities and the systemic institutional hurdles holding back progress.

The insights here are inspired by a compelling conversation between KP’s Finance Minister Muzzamil Aslam and renowned economist Dr. Nadeemul Haq, whose perspectives shed light on the urgent need for reform.

The current fiscal framework, established under the 7th National Finance Commission (NFC) Award in 2010, allocates 57.5 percent of federal revenues to the provinces. While this arrangement was intended to strengthen provincial autonomy following the 18th Amendment, its promise is fading fifteen years on. Provinces have become heavily dependent on federal transfers, contributing only about 1 percent to the national tax-to-GDP ratio, while the federal government remains responsible for over 90% of revenue collection and all debt servicing.

This imbalance has severely strained the federal budget, limiting its ability to invest in national priorities such as defence, infrastructure, and climate resilience. Meanwhile, provinces now bear the bulk of expenditures in critical sectors........

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