Beyond Public Finance: Towards  Constitutional Po…

Pakistan’s debt problem has entered a new phase. The headline figure is alarming: total debt and liabilities reached Rs. 99.59 trillion by the end of fiscal year (FY) 2025-26. The deeper concern, however, lies in the composition of this debt, the burden of servicing it and the channels through which public borrowing now affects every productive sector of the economy. According to the latest State Bank of Pakistan data, total debt stood at Rs. 97.88 trillion. Gross government domestic debt reached Rs. 59.44 trillion, while external debt amounted to Rs. 36.20 trillion. Central government debt increased by 7.39% over the preceding year to Rs. 83.64 trillion. External debt and liabilities stood at US$138.85 billion. These numbers confirm the central argument developed in the a ten-part series published in these columns [‘Bankruptcy of ideas—X: Debt, Taxes & Democracy’, Minute Mirror, June 21, 2026]. Pakistan has not merely borrowed against its future. It has increasingly borrowed to service earlier borrowing, while failing to create sufficient productive capacity from the accumulated debt.   ‏The external debt-servicing profile for FY2026 makes this particularly clear. Pakistan serviced US$21.59 billion of external debt during the year. An extraordinary US$10.14 billion—nearly half of the annual amount—fell in the final quarter alone. Quarterly servicing was 2.63 times the amount paid in the preceding quarter, mainly because principal repayments jumped from US$2.70 billion in the third quarter to US$8.81 billion in the fourth. This concentration of repayments is as important as the overall debt stock. A country may carry a large debt if its economy generates sufficient revenue, exports and foreign exchange to service it. Pakistan’s difficulty is that debt obligations have expanded much faster than the productive and export capacities needed to meet them. The debt accumulated over decades cannot be attributed to one government or one fiscal year. Persistent fiscal deficits, a narrow and inequitable tax base, losses of state-owned enterprises, the energy-sector circular debt, excessive recurrent expenditure, exchange-rate depreciation and repeated balance-of-payments crises have all contributed to it. Borrowing became the preferred substitute for reform.  Governments borrowed because they could not tax influential sectors, restructure loss-making enterprises, reduce wasteful expenditure or build a competitive export economy. External lenders financed temporary stability, while domestic banks financed the fiscal deficit. Each arrangement postponed difficult decisions without removing the causes of the crisis. The Ministry of Finance reported public debt at 70.7% of GDP by June 2025. The ratio may improve when nominal GDP grows faster than debt, especially during periods of inflation, fiscal consolidation and lower interest rates. A declining debt-to-GDP ratio, however, does not necessarily mean that the debt burden has become harmless. Pakistan’s debt stock is still increasing. What has improved is the immediate cost of servicing parts of it. Total debt and liabilities servicing declined from Rs. 13.16 trillion in FY2025 to Rs. 11.97 trillion in FY2026. Interest payments on debt fell by more than 23%, from Rs. 9.47 trillion to Rs. 7.27 trillion, largely because lower policy rates reduced the cost of servicing domestic government debt. Interest payments on gross government domestic debt consequently fell from Rs. 8.08 trillion to Rs5.99 trillion. This is welcome relief. It should not be presented as the end of the debt crisis. Lower interest rates reduce the flow cost of debt; they do not extinguish the stock. Principal repayments on external debt and liabilities increased from Rs. 3.47 trillion to Rs. 4.47 trillion during FY2026. Pakistan therefore obtained relief on domestic interest payments while facing a substantially heavier external repayment burden. The distinction is between debt management and economic transformation. Pakistan may be moving from an acute debt-accumulation crisis towards a more manageable financing position. It has not escaped debtocracy—the system in which fiscal policy, taxation, banking, foreign relations and development priorities become subordinate to the requirements of borrowing and repayment. Debtocracy does not remain confined to the accounts of the Ministry of Finance. It is transmitted throughout the economy. The first channel is the banking system. Government securities offer banks sovereign backing, liquidity and attractive risk-adjusted returns. Lending to the government is easier than evaluating businesses, financing innovation or supporting small and medium enterprises. A large domestic borrowing requirement therefore creates continuous competition for available liquidity. The result is crowding out. The State obtains the funds it requires, banks earn relatively secure returns and the private sector bears the adjustment. Productive businesses face limited access to credit, higher risk premiums and shorter financing horizons. Smaller enterprises suffer the most because they cannot compete with the sovereign for bank liquidity. This creates a financial system that can remain profitable while the productive economy remains weak. Deposits are mobilised from citizens and businesses, channelled into government securities, and then used substantially to meet recurrent expenditure and service earlier debt. Banking expands without an equivalent expansion in productive capacity. The second channel operates through foreign exchange. External debt repayment creates demand for dollars. That demand places pressure on reserves and the current account. Any resulting exchange-rate depreciation increases the rupee value of external liabilities and raises the domestic price of imported fuel, machinery, raw materials and intermediate goods.  The chain is direct: External repayment creates foreign-exchange demand; reserve pressure increases exchange-rate sensitivity; depreciation generates imported inflation; and inflation raises working-capital requirements and production costs. Debt consequently becomes a corporate balance-sheet issue. An industrial enterprise may have no external loan, yet still bear the effects of sovereign external debt through a weaker rupee, costlier imports, higher energy prices and restricted access to domestic credit. Consumers ultimately pay through inflation, reduced employment and lower real incomes. The third channel is fiscal. Every rupee allocated to debt servicing is a rupee unavailable for education, health, water, climate resilience and productive infrastructure—unless the State raises additional revenue or borrows again. Pakistan then enters a circular arrangement: borrowing creates servicing obligations, servicing compresses development expenditure, weak development limits growth and revenue, and insufficient revenue necessitates further borrowing. This is why a primary surplus, though necessary, is not sufficient. It can stabilise debt dynamics, but

(When the water rises, who shows up and who is left waiting?) ‎I live in Sabzazar, a neighborhood in Lahore, Pakistan, but part of my heart is always sitting along the banks of the Moxahala Creek back home in Southeast Ohio. When the water rises in Muskingum County or the Punjab plains, who shows up, and who is left waiting? I live in Sabzazar, a neighborhood in Lahore, Pakistan, but part of my heart is always sitting along the banks of the Moxahala Creek back home in Southeast Ohio. ‎ ‎My mother and brother still live right near South Zanesville, just a stone’s throw from Crooksville. When heavy rains hit Perry and Muskingum counties, I don’t need to be there to know what it looks like. I can picture the heavy, chocolate-brown water backing up into the low spots, the damp chill that settles into a basement, the fears of what if the waters reach a house trailer, and that specific, exhausting smell of river mud that takes weeks to scrub out of porch boards and carpet. The worries of if the home has structural damage.. Halfway across the world in Pakistan, the landscape couldn’t look more different. But when monsoon season swells the rivers across the Punjab, the view from the ground is hauntingly identical. ‎ ‎Standing in a flooded doorway feels the same whether you are in Ohio or Lahore. The quiet shock is the same. The ruin of things you worked years to buy is the same. And the very first instinct is to grab your coat, shovel, a chainsaw and a pair of boots and go check on the elderly woman next door.. Start hauling wet furniture, debris to the curb and giving comfort, food and basics to those in need is entirely universal. Watching both worlds at once makes you look at governance differently. It strips away abstract political jargon and leaves you asking one fundamental question: When a community is hit with a crisis, does its system build capable people who can act, or does it leave them sitting on their hands, waiting for permission to survive? ‎ ‎What a Small Ohio Village Taught Me About Governance ‎ ‎Growing up around South Zanesville and Crooksville, you learn pretty early that small-town life relies on a very specific kind of quiet, distributed agency. ‎Crooksville isn’t a rich town. It’s a hard-working Appalachian village of under 1,500 people. But when the creek overflows, nobody sits around waiting for a press conference out of Washington, D.C., or a mandate from the state capital in Columbus. ‎ ‎The response moves in waves because the connections are already wired: ‎On the local levels we see neighbor checks on neighbor. The volunteer fire department turns on the sirens, pulls out the high-water gear, and starts the door to door knocks. At the County level we have the Perry County 911 dispatch and Emergency Management Agency (EMA) start tracking water levels and routing equipment where it’s needed most. At the State level, If the county gets overwhelmed, pre set legal triggers immediately call in the Ohio EMA or the National Guard. ‎ ‎Government here doesn’t replace the community’s instinct to help itself; it validates it, organizes it, and backs it up with real resources. The system trusts the people on the ground to know their own roads. Here in Pakistan, the human spirit is just as generous, if not more so. The impulse toward hospitality, neighborly charity, and mutual support runs incredibly deep. When disaster strikes, ordinary citizens open their wallets and their homes without a second thought. It’s just what they do… ‎ ‎And Pakistan’s has one of the world’s top class military engineering, a massive national disaster agency (the NDMA), and incredible private charities. The raw capacity is immense. Yet, too often, there is a however a very heartbreaking disconnect between that high-level power and the family standing in ankle deep water in a local neighborhood. An ordinary citizen here once described the country to me using a metaphor I’ve never forgotten: a child that was never allowed to stand on its own feet. An infant isn’t helpless because it lacks potential. It’s helpless because it hasn’t been given the space to build muscle, fall over, adjust its balance, and try again. If an authority figure picks the child up every single time it tries to pull itself up, the child never learns to walk—not from a lack of ability, but because the environment denied it the chance to build strength. ‎ ‎That is how systemic learned dependency takes root: Central authorities assume total control, bypassing local municipal councils. Neighborhoods are given no real budget or authority to fix their own drainage or organize local response teams. And when a flood comes, citizens have no choice but to wait for distant, top-down relief. The authorities look at the waiting crowd and say, “See? The people can’t manage without us.” ‎We witness power centralized even further, deepening the exact helplessness it claims to fix. Over generations, people adapt to the system they are given. If a system rewards waiting for a political patron, people learn to wait for patrons. If it rewards local initiative, communities build habits of self-reliance. It is very easy to blame culture or public apathy for civic passivity, but that misses the point entirely. Culture simply reflects the structural incentives people are given to survive and adapt. It is nature vs nurture and we have a break down when these two things fail to promote a cohesiveness and inclusion of what is a community and what that actually means. ‎ ‎Across the globe, the relationship between state control and citizen participation varies wildly, proving that central authority does not have to mean public powerlessness. In China, a deeply centralized state framework actively structures and expects local neighborhood committees and civil volunteer groups to manage community-level crises. Across much of Europe, comprehensive state safety nets exist alongside highly empowered municipal councils and professionalized local volunteer forces.

The real meaning of 14th August and the unfinished journey of Pakistan Every year, on 14th August, Pakistan dresses itself in green and white. Flags appear on buildings, vehicles and streets. National songs fill the air. Speeches remind us of the sacrifices of our forefathers, and we proudly celebrate the creation of Pakistan on 14 August 1947. And rightly so. Pakistan was not created without sacrifice. Millions suffered displacement, countless families were torn apart, and an entire generation endured enormous pain to establish a homeland. But every Independence Day should also make us ask a difficult question. What does independence actually mean? Is independence merely the absence of foreign rule? Or is true independence something much deeper? A country may possess a flag, a national anthem, a constitution, a parliament, an army and a sovereign territory, and yet its people may still remain trapped in poverty, injustice, corruption, ignorance, inequality and institutional weakness. If so, then perhaps political independence has been achieved, but the journey toward real national freedom is still incomplete. Freedom from whom, and freedom for what? The independence of 1947 gave the people of this land the right to govern themselves. But self-government carries a responsibility. The purpose of independence was not simply to replace foreign rulers with local rulers. It was to create a society in which people could live with dignity, justice, security and opportunity. The real question, therefore, is not whether Pakistan is an independent country. Of course it is. The real question is: Have we built the kind of society for which independence was meant to provide the opportunity? A nation is not truly free when an ordinary citizen cannot obtain justice without influence. A nation is not truly free when merit is defeated by connections. A nation is not truly free when public resources are treated as private property. A nation is not truly free when people are forced to pay bribes to obtain services that are already their legal rights. A nation is not truly free when the powerful can escape accountability while the weak struggle to be heard. And a nation is certainly not truly free when its citizens themselves participate in the corruption, dishonesty and lawlessness that they condemn in their rulers. The uncomfortable truth, governments are not the only problem We often blame politicians, bureaucrats, institutions and rulers for everything that is wrong with Pakistan. There is certainly plenty to criticize in our institutions and governance. But there is another uncomfortable question that we must have the courage to ask: What about us? Can a dishonest society produce an honest system? Can people who routinely evade taxes demand an honest government? Can someone who gives a bribe to get his work done then claim that corruption exists only in government offices? Can a person who uses political connections for personal benefit demand meritocracy when someone else gets an opportunity through influence? Can we demand justice from the state while refusing to practice justice in our own homes, businesses, workplaces and communities? This is where the real challenge begins. A nation’s character is ultimately reflected not only in its rulers, but also in the everyday conduct of its citizens. Corruption does not survive because only corrupt officials exist. It survives because there is often an ecosystem in which the giver, receiver, beneficiary and silent observer all contribute to its continuation. Independence without character is incomplete. The greatest weakness of a nation is not necessarily poverty. Nations can recover from poverty. They can recover from economic crises. They can rebuild after wars and natural disasters. But when dishonesty becomes socially acceptable, when corruption becomes a normal shortcut, when merit becomes negotiable and when people stop believing that laws should apply equally to everyone, the foundations of the state itself begin to weaken. This is why national independence must eventually become moral and civic independence. We must become independent from the mentality that says: “If everyone is doing it, why shouldn’t I?” We must become independent from: Corruption, bribery, nepotism, political favoritism, tax evasion, dishonesty in business, misuse of public property, intolerance, lawlessness, the worship of wealth and status, and the belief that rules are only for ordinary people. These are not merely personal weaknesses. When they become widespread, they become national problems. The mirror of 14th August Perhaps this Independence Day we should look into a mirror instead of merely looking at the flag. The flag tells us that we have a country. The mirror asks us. What kind of people are we becoming? We proudly say that Pakistan is a nuclear power. We proudly celebrate our armed forces, who have made enormous sacrifices in defending Pakistan. But a truly strong Pakistan must also possess strong institutions, rule of law, economic stability, justice, education and honest citizenry. We speak proudly about our sovereignty. But do ordinary citizens have economic, social and legal security? We celebrate democracy. But do we practice democratic values in our everyday lives? We demand accountability from rulers. But are we prepared to hold ourselves accountable? These questions may be uncomfortable, but Independence Day is precisely the right occasion to ask them. Real independence begins with the individual. We often imagine that changing Pakistan requires a great leader. Of course, competent and honest leadership matters. Good institutions matter. Strong laws matter. Independent courts matter. Professional administration matters. Transparent elections matter. But no institutional reform can permanently succeed if society itself refuses to change. Real national transformation begins much closer to home. It begins when a citizen decides. I will not give a bribe. It begins when an official decides: I will not misuse my authority. It begins when a businessman decides: I will not deceive my customer. It begins when a taxpayer decide. I will fulfil my responsibility. It begins when a teacher decides. I will teach honestly. It begins when a student decides. I will earn my degree through knowledge, not cheating. It begins when a voter decides. I will not sell my vote for

The second part of this series explained why public finance and Constitutional Political Economy (CPE) ask different questions. Public finance ordinarily examines what taxes governments should impose and how revenue should be spent. CPE asks who makes those choices, under what rules, for whose benefit and subject to what restraints. That distinction leads to an important conclusion: there is no politically neutral tax system. Tax policy is often presented as a technical exercise. Economists compare direct and indirect taxes, estimate elasticity, calculate effective rates and recommend reforms intended to improve efficiency. Governments describe exemptions as incentives, withholding provisions as enforcement mechanisms and consumption taxes as instruments of broad-based revenue mobilisation. Such terminology creates the impression that taxation operates independently of political power. It does not. Every tax decision identifies those who will pay, those who will collect, those who will receive concessions and those whose activities will remain beyond effective enforcement. A tax may be neutral between two products in an economic model, but the process through which it is enacted and administered can rarely be neutral between organised interests, social classes or political constituencies. The Organisation of Economic Cooperation and Development (OECD) itself recognises that taxes affect taxpayers differently according to their income and other socio-economic characteristics. They alter behaviour and influence the distribution of income both directly and through the public expenditure they finance. Taxation is, thus, not merely a device for transferring money to the treasury. It changes economic opportunities and affects the relationship between citizen and state. The celebrated Mirrlees Review sought to design a coherent tax system in which similar activities were treated consistently, and economic choices were not distorted without good reason. This is a valuable objective. Neutrality can reduce arbitrary discrimination and prevent tax considerations from dominating productive decisions. Nevertheless, even the most carefully designed system must decide which activities are alike, which differences justify special treatment and how equity should be balanced against efficiency. Those choices necessarily embody judgments about society. The idea of neutrality becomes more problematic when it is transferred from theory to a state characterised by unequal political influence. Consider a general sales tax (GST). In theory, a broad-based value added tax (VAT) imposed at a uniform rate minimises distortions and preserves the chain of documentation. In practice, exemptions, reduced rates, special schedules, fixed taxes, withholding taxes (unique in Pakistan even for VAT/GST!) and sector-specific arrangements are introduced during the political process. The final statute may bear little resemblance to the neutral instrument initially proposed. The same is true of income tax. Horizontal equity requires persons with similar ability to pay to bear comparable burdens. Vertical equity requires those possessing greater capacity to contribute more. In Pakistan, however, the legal character assigned to income often determines the burden more decisively than the taxpayer’s actual economic capacity. Salary, business income, capital gains, dividends, property income and agricultural income may all be subjected to different regimes, rates or jurisdictions. These distinctions are not always indefensible. Different types of income may require different collection methods. The constitutional distribution of taxing powers must also be respected. However, a CPE analysis asks why particular differences survive, who benefits from them and whether their stated rationale corresponds to their actual effect. Tax exemptions provide the clearest illustration. Governments describe them as instruments for attracting investment, supporting industries, protecting vulnerable groups or promoting exports. Some concessions may serve legitimate public purposes. Others constitute expenditure conducted through the tax system without the scrutiny ordinarily applied to direct spending. Pakistan’s official Tax Expenditure Report 2026 estimated revenue forgone during fiscal year 2024–25 through income tax, sales tax and customs concessions at approximately Rs. 2.353 trillion (excluding sales tax on POL products to deprive provinces of their constitutional right, replacing it with petroleum levy). Of this amount, sales tax concessions accounted for about Rs. 1.274 trillion, income tax concessions for Rs. 579.70 billion and customs concessions for Rs. 499.14 billion. These are not accounting curiosities. They represent choices about which persons, sectors and transactions receive preferential treatment, and which taxpayers must bear the resulting revenue burden. A concession granted through the tax law is economically similar to public expenditure. If the state collects Rs. 100 from a citizen and transfers it to an industry, the transaction appears in the budget. If the state allows that industry to retain Rs. 100 that would otherwise have been payable, the distributive effect may be comparable, but the benefit is less visible. This opacity is politically useful. Direct subsidies attract public attention and legislative scrutiny. Tax concessions are buried in schedules, exemptions and statutory notifications. Their beneficiaries are often concentrated and organised, while the cost is dispersed across millions of taxpayers and consumers. Constitutional Political Economy explains why such arrangements persist. A concentrated group has a strong incentive to lobby for a benefit worth billions of rupees. Each member of the general public, bearing only a fraction of the cost, has little incentive or capacity to oppose it. What appears to be an anomaly in tax design may be the predictable result of unequal political organisation. Withholding taxation presents another example. It is defended as an efficient method of collecting revenue from an economy with weak compliance. In limited circumstances, deduction/collection at source is entirely justified. Salary taxation (pay roll taxes) and payments to non-residents commonly require withholding systems in many jurisdictions. Pakistan, however, has transformed withholding from a collection technique into a parallel tax regime. According to the Revenue Division Year Book 2024–25, withholding taxes contributed 60 percent of total income tax collection in that year. Collection through withholding reached approximately Rs. 3.382 trillion. This reliance changes the institutional character of income taxation. The tax administration increasingly obtains revenue from transactions rather than determining taxpayers’ actual net income and ability to pay. Banks, employers, utilities, property registrars, businesses and other intermediaries become unpaid tax collectors. Persons already operating within the documented economy bear recurring deductions/collections in advance, compliance costs and the burden of seeking adjustments or refunds (hardly allowed automatically in

The government’s claims of containing power-sector circular debt have not survived the test of its own year-end figures. During the fiscal year (FY) 2025–26, another Rs. 364 billion was added to the flow of circular debt. This happened despite the provision of Rs. 302 billion in subsidies and repeated assurances that operational improvements, tariff adjustments, negotiations with independent power producers and financial restructuring had brought the problem under control. According to the latest report, the gross addition of Rs. 364 billion was Rs. 319 billion, or 709 percent, higher than in the preceding year. After using Rs. 302 billion of public money to reduce the accumulated liability, the reported stock still increased by about Rs. 61 billion from its June 2025 level of Rs.1.614 trillion. These numbers expose the difference between managing the recorded stock and stopping the recurring flow. A subsidy can reduce the amount appearing in the circular-debt account on a particular date. It cannot remove the inefficiencies, payment defaults, regulatory delays and governance failures that create new liabilities every month. The Power Division had taken a very different position earlier. Responding to reports that circular debt had risen during July–November 2025, it described the increase as seasonal and maintained that such variations normally reversed during the second half of the financial year. Its official rebuttal predicted that the circular-debt position would be fully contained by June 2026, with no net addition to the overall stock. The financial year has ended with a gross flow of Rs. 364 billion and a net increase even after a large fiscal injection. The promised reversal did not take place. The language of containment concealed continued deterioration in the financial operations of the power sector. The reported composition of the increase is equally disturbing. Inefficiencies of power distribution companies caused losses of Rs. 262 billion, only Rs. 3 billion less than in the preceding year. Lower recovery of electricity bills added Rs. 64 billion. Interest charges contributed another Rs. 14 billion, while delays in tariff adjustments added Rs. 75 billion. A further Rs. 194 billion arose from non-payment by K-Electric, reportedly connected with the delay in determining its multi-year tariff. This cannot be classified as an unavoidable commercial loss. It represents a failure of regulation, contract administration and timely governmental decision-making. When tariff determinations, subsidy decisions or payment settlements are delayed, the resulting liability does not disappear. It moves through the electricity chain until it is recorded as circular debt and passed to taxpayers or consumers. The reported components and adjustments must be examined carefully when the complete official statement is released. The latest report available on ministry’s website is of April 2026. The Power Division has not placed even its one-page circular-debt reports from May to July 2026 on its website. Public discussion is consequently being conducted based on figures reported in the press. The government cannot demand acceptance of its success narrative while withholding the underlying data required testing it. The Rs. 302 billion subsidy used to contain the closing stock was nearly half of the approximately Rs. 630 billion collected in income tax from salaried persons during the same year. This comparison shows the real social cost of power-sector failure. Citizens who have no role in managing distribution companies, finalising tariffs or settling inter-company disputes are required to finance the consequences through taxation. They also pay through electricity tariffs, surcharges, fuel-price adjustments and declining service quality. Honest consumers are charged for theft, poor recoveries, technical losses and delayed official decisions. As tariffs rise, more households and businesses with adequate resources shift to rooftop solar systems. The grid is left with a shrinking base of paying consumers and a large stock of fixed capacity costs. Tariffs must then be raised further to recover those costs from fewer units sold. The policy response itself deepens the financial problem. For more than a decade, governments and the International Monetary Fund (IMF) have relied heavily on tariff increases, periodic adjustments, withdrawal of subsidies and additional surcharges. These measures may narrow the accounting gap temporarily, but they do not establish commercial discipline within distribution companies or personal accountability for persistent losses. The IMF reportedly allowed up to Rs. 400 billion to be added to the circular-debt flow during FY 2025–26, while requiring the government to neutralise the addition through budgetary subsidies. This approach turns circular debt into an exercise in fiscal presentation. A liability generated inside the electricity system is paid from the federal budget and then described as contained. The loss has not been eliminated. Its location has changed. The same problem arises with the Rs. 1.225 trillion circular-debt settlement plan. Refinancing expensive liabilities at more favourable rates can reduce financing costs and provide immediate liquidity. It does not constitute retirement of debt in any economic sense when the replacement financing has to be repaid over six years through charges imposed on electricity consumers. Pakistan will be servicing yesterday’s circular debt while the unreformed system continues creating fresh liabilities. Financial engineering is being presented as reform because it postpones recognition of the full fiscal burden. Liquidity becomes a substitute for correcting the institutions responsible for the crisis. The proposed privatisation of the distribution companies also requires closer scrutiny. The government has started with Faisalabad, Gujranwala and Islamabad electricity supply companies, which are among the relatively better-performing entities. Selling profitable or manageable companies while retaining those responsible for the largest losses will not remove the structural deficit. It may deprive the public sector of its stronger revenue-generating assets while leaving taxpayers responsible for the weakest companies. Privatisation can improve performance where there is transparent valuation, effective regulation and genuine transfer of commercial risk. It cannot succeed if private investors acquire the sound operations while the state remains responsible for accumulated liabilities, political interference, theft-prone areas and unrecoverable receivables. That would amount to privatisation of gains and socialisation of losses. A credible reform programme must begin with full disclosure. Monthly circular-debt reports should identify, company by company, transmission and distribution losses, recovery ratios, unpaid

By Augustine Nasim Gill The debate over new provinces or smaller administrative units in Pakistan should not be reduced to maps, language, identity, or political representation. The central question should be whether new administrative units will improve governance, bring public services closer to citizens, strengthen revenue collection, reinforce the rule of law, and restore public confidence in the state. Many countries have improved administrative performance by transferring authority from the center to states, regions, districts, and local governments. Yet these experiences have not all been equally successful. Where political authority was matched by adequate financing, competent administration, credible elections, the rule of law, and strong oversight, results generally improved. Where governments merely created new boundaries, assemblies, and ministries while corruption, patronage, and weak institutions remained unchanged, costs increased without transforming citizens’ lives. A Basic Distinction Must Come First Creating new provinces and genuinely devolving power are not the same thing. Successful decentralization has at least four dimensions: Four Essential Pillars Political authority: Local and regional governments must be created through regular, free, and fair elections. Administrative authority: They must have genuine authority to manage departments, appoint qualified personnel, and hold officials accountable for performance. Fiscal authority: Their responsibilities must be matched by revenue powers, a predictable share of national taxes, grants, and budgets. Legal and institutional authority: Their powers must be protected by the Constitution or strong legislation so that federal or provincial governments cannot abolish them at will. Why Smaller Administrative Units Can Succeed Smaller, empowered units bring government closer to citizens. Residents of remote districts are less likely to travel hundreds of kilometers to a provincial capital for matters involving land, education, health, policing, courts, or development projects. Regional governments also understand local conditions more clearly. The coastal areas of Balochistan, the agricultural districts of southern Punjab, a major metropolis such as Karachi, and the mountainous or tribal areas of Khyber Pakhtunkhwa do not face identical challenges. A single policy designed in one provincial capital is often unable to respond effectively to such diversity. Smaller units can also increase political accountability. Citizens can more clearly observe the performance of their chief minister, ministers, mayors, district leaders, and civil administration. This benefit, however, appears only where elections are credible, information is open, and oversight institutions are independent. 1. Germany: Shared Powers, Shared Taxes, and Fiscal Equalization Germany is a federal country composed of sixteen states, known as Länder. Each state has its own constitution, parliament, and government, and enjoys substantial autonomy over its internal organization. The federal government is responsible for national defense, foreign policy, currency, and broad national legislation. The states play central roles in education, policing, culture, public administration, and the implementation of many laws. Municipal governments provide water, sanitation, local transport, urban planning, and many daily services. Major taxes are not retained exclusively by the federal government. Personal income tax, corporate income tax, and value-added tax are shared among the federal government, the states, and, in some cases, municipalities according to established rules. A fiscal equalization system then narrows the gap between wealthier states and those with weaker revenue capacity. Germany’s success is not simply the result of having sixteen states. It rests on clearly defined responsibilities, a strong tax administration, judicial oversight, a professional civil service, and a predictable equalization system. Lesson for Pakistan: Before new provinces are created, the country must decide how income tax, sales tax, customs duties, natural-resource revenue, property taxes, and other revenues will be divided. A permanent, transparent, and publicly understood formula is essential. 2. Spain: Regional Autonomy, Public Services, and Different Fiscal Models Spain is composed of seventeen autonomous communities. These regional governments exercise wide authority over health, education, social services, and regional development. Most regions receive a share of national taxes, limited authority over certain taxes, and equalization grants. The Basque Country and Navarre have broader tax-collection powers: they collect most taxes within their territories and then transfer an agreed contribution to the central government for national services. Regional government strengthened education, health services, and local identity, but Spain has also faced regional debt, fiscal imbalances, and separatist political movements. The lesson is that autonomy is not only a financial issue; national identity, constitutional boundaries, and commitment to the shared state also matter. Lesson for Pakistan: New units should not be designed solely around language. Administrative efficiency, population, economic viability, public consent, and national cohesion must all be considered. 3. Poland: Phased Reform, a Three-Tier System, and Local Development Poland did not devolve authority in a single step after the end of communist rule. Municipal self-government was restored in 1990, and a three-tier system was established in 1998-99: the municipality (Gmina), the county or district (Powiat), and the region (Voivodeship). Municipalities became responsible for water, sanitation, local roads, primary education, and local development. Districts managed services that were too large for one municipality but too limited for an entire region. Regional governments took responsibility for economic development, regional planning, and the management of European development funds. The reform succeeded because it was phased, local institutions were prepared, elected representatives were trained, professional administrations were developed, budgets were transferred, and responsibilities were defined. The continuing challenge is that not every municipality or district has equal administrative capacity. Some smaller units remain weak in planning, data, financial management, and specialist staffing. Lesson for Pakistan: Rather than creating many provinces overnight, Pakistan should begin with administrative pilots, stronger districts, digital systems, training, and independent audit in selected areas. 4. France: Gradual Decentralization from a Centralized State France was historically a highly centralized state, but beginning in the 1980s it gradually transferred authority from the central government to regions, departments, and communes. Regional governments manage economic development, transport, and some education and training functions. Departments play major roles in social welfare, certain roads, and local services, while communes provide day-to-day municipal services. Small municipalities often cooperate through joint institutions to manage water, waste, transport, and territorial planning. France’s challenge has been that responsibilities across different layers sometimes overlap or remain unclear,