Public finances in Pakistan have beencharacterized by unsustainably, high fiscal deficits; poorrevenue mobilization; a persistent trend of centralization;massive vertical imbalances between the federal, andprovincial governments; problematic expenditure structures;weak financial management; the atrophy of local governments;and, lack of accountability. Recently the Government hasannounced a bold, and potentially path-breaking devolutioninitiative to address some of these problems, byestablishing strong, accountable local governments.Focussing on the provinces, their financial health, and thedelivery of infrastructure, and public services, this reportputs forward recommendations for reform in the followingareas: 1) adjusting federal-provincial fiscal relations toreduce vertical fiscal imbalances; 2) improving theeffectiveness of public services through devolution; 3)prioritizing provincial expenditures in favor of criticalnon-wage operations and maintenance, and reducing thedominant share of establishment costs; 4) improvingexpenditure programming, and management; 5) restructuringprovincial civil services; 6) mobilizing provincial revenue,streamlining tax structures, and rationalizing user charges;7) strengthening financial management; and, 8) developingsystematic approaches to provincial debt management.
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