A province can be administratively justified and still be fiscally unsustainable. That distinction is largely missing from Pakistan’s debate over new provinces. The issue is not only whether smaller administrative units can improve governance and representation, but whether the country’s revenue base, expenditure structure and fiscal system can sustainably support a larger number of provincial governments. With the 11th National Finance Commission now reviewing Pakistan’s federal-provincial fiscal framework, this is the right time to examine the economic implications.

The Fiscal Starting Point

Pakistan’s provinces already operate within a system heavily dependent on federal transfers. During July–March FY2025-26, provincial revenue stood at Rs. 7.22 trillion, including Rs. 5.63 trillion in federal transfers, while provincial own-source revenue was Rs. 1.14 trillion. Federal transfers therefore accounted for roughly 78% of provincial revenue during the period. (Source: Pakistan Economic Survey 2025-26, Chapter 4: Fiscal Development, Finance Division), Provincial own revenue nevertheless increased by 28.3%, while provincial tax revenue rose by 25.8% during the same period. The improvement is encouraging, but the relative scale remains important: provinces continue to finance most of their resources through federal transfers. (Source: Pakistan Economic Survey 2025-26, Chapter 4: Fiscal Development, Finance Division). This is the fiscal context in which proposals for additional provinces should be examined. Creating an administrative unit does not automatically create a corresponding tax base. A sustainable province needs sufficient economic activity from which revenue can be mobilized, alongside clearly defined expenditure responsibilities.

 The central fiscal issue is how additional provinces would fit into Pakistan’s system of fiscal federalism. The 11th NFC was constituted in August 2025 under Article 160 of the Constitution. Its mandate covers the distribution of federal revenues between the federation and provinces, grants, borrowing powers and other aspects of intergovernmental fiscal relations. The Commission has also established technical groups to examine specific aspects of the fiscal framework. (Source: Ministry of Finance, Government of Pakistan — National Finance Commission) If the number of provinces were to increase, how would the existing fiscal-sharing architecture accommodate the change? Would the provincial pool be distributed among a larger........

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