There is a renewed debate in the country about the devolution of power from provinces to lower tiers to improve governance due to the dilapidated state of education, healthcare, municipal services delivery, and infrastructure. Various solutions are being debated, including creating new provinces, smaller administrative units, and empowering local government systems at district and city levels. While each of these approaches has its pros and cons, they all encounter different levels of resistance from political parties and provincial administrations. Furthermore, there is limited recognition that devolution alone does not address governance challenges unless accompanied by robust accountability mechanisms. The contribution of local government to economic growth has also received comparatively little emphasis in the ongoing debate.
While local governments, when provided with adequate funding, are essential for enhancing education, healthcare, service delivery, and infrastructure at the community level, they also contribute significantly to a nation's economic and social development. Countries such as Singapore and China have experienced remarkable economic growth and substantial improvements in living conditions over the past sixty years, largely attributable to effective governance and economic decentralisation.
Singapore, a small city-state with fewer than 2 million people in the 1960s—a district-level government from Pakistan’s perspective—focused on governance and economic growth by implementing effective bureaucratic reforms, controlling corruption, promoting meritocracy, investing in human capital through education, and attracting foreign investment.
China learned from this in the late 1970s and early 1980s under Deng Xiaoping but also understood that the Singapore model could not be implemented as-is for a large country like China. Instead, Deng Xiaoping took the next best approach of economic decentralisation by establishing 12 Special Economic Zones under local governments while providing them with greater autonomy in economic and governance policy development. This subsequently led to the “Mayor’s Economy” under Xi Jinping, where mayors and local officials throughout most of China have considerable flexibility in attracting investments from Chinese and foreign companies by offering incentives, streamlining regulations, and providing one-window operations to businesses. This fosters a competitive environment where mayors and officials are incentivised to move up in political and administrative hierarchy based on their economic performance.
Many countries also constitute economic advisory councils at the city or local government level in consultation with local businesses and chambers of commerce. These advisory councils help cities and districts define economic policies and incentives, reduce regulations and bureaucratic hurdles, and attract investors. One bright example of such economic councils is the Greater Phoenix Economic Council in the state of Arizona in the US, which is playing a crucial role in bringing semiconductor manufacturing to the Phoenix metropolitan area with the support of federal policies. This mini Special Investment Facilitation Centre approach at the city or district level can be instrumental in attracting local and foreign investors for targeted sectors of the economy, including export-based manufacturing and services.
Pakistan has seen that provinces with financial and administrative autonomy after the 18th Amendment are in a much worse condition now than before
Local governments can also help counter extremism and intolerance that deters foreign investment in a country. Singapore's leadership recognised at an early stage the necessity of addressing the risks posed by communism to create an environment conducive to foreign investment. To address this, they enacted targeted policies and strengthened law enforcement measures to realise these objectives. Similarly, many much smaller Muslim countries have effective measures in handling religious extremism. There are lessons to be learned from these approaches that can be effectively applied at local levels.
It can be argued that both Singapore and China are politically centralised with single-party rule, making it easier to implement policies without opposition, and their models cannot be applied to Pakistan due to its fragmented political landscape. However, it is important to understand that they were largely successful because they applied their approaches on a much smaller scale.
While smaller provinces or administrative units are one approach, there will be strong resistance from political parties to such a move. With the establishment controlling power at the centre, political parties have already ceded that turf to the military and have shrunk from national to provincial parties. Dividing current provinces into smaller ones will result in further loss of their turf at the provincial level. This will also create a situation where five or six parties govern different regions of the country with reduced representation at the federal level, making the establishment stronger and diminishing any chance of civilians returning to power at the centre. Pakistan needs to learn from its previous mistakes and must adopt an approach that makes political parties stronger through performance and good governance, instead of further fragmenting their influence. The current local government system can effectively serve this purpose.
Rather than opposing local government elections or withholding their fair share due to concerns over potential electoral losses or reduced power to control finances, ruling political parties at the provincial level should view these local governments as an opportunity to broaden their influence. By fostering new leadership, enhancing competencies, and building greater governing capacity, parties can strengthen their position at both the provincial and federal levels.
It is important to recognise, however, that while empowered local governments are necessary, this alone does not constitute a sufficient condition for improved governance and accelerated economic growth. Pakistan has seen that provinces with financial and administrative autonomy after the 18th Amendment are in a much worse condition now than before. To find the solution, the focus should be on solving the real issue—the lack of accountability. When governments lack accountability, corruption and inefficiency thrive, allowing the powerful to gain more wealth and influence. This is abundantly evident in Pakistan.
The primary factor behind the shifts in trajectory observed in Singapore and China was not merely political centralisation or one-party governance; rather, it was their leadership’s desire and commitment to improving the condition of their populations. To achieve that, they designed an accountable system based on incentives and penalties. For example, Singapore increased its ministers’ and officials’ salaries significantly but, at the same time, enforced strict laws to control corruption. Similarly, China has a system where high-performing mayors and officials move up in the political hierarchy or are demoted for underperforming and punished for corruption and mismanagement.
There are 169 districts in Pakistan, and each of them is a potential opportunity zone for social and economic development
Pakistan has an effective and more inclusive tool to achieve the same without altering the current provincial boundaries. With a centralised revenue collection system, NFC awards to provinces enable equitable resource distribution. However, its application has not effectively promoted responsibilities and accountability at the provincial level. It is essential to update the award formula to ensure that significant consideration is given to provincial responsibilities and the effectiveness of governance.
Provinces must be held accountable for holding local government elections at fixed intervals without any discontinuity. Failure to do so should result in a hefty reduction in annual NFC awards. Constitutionally, provinces should be prohibited from delaying elections or dissolving local governments. Provinces should also be required to collect agricultural income tax, and NFC awards should be adjusted based on their performance against revenue generation targets.
The allocation of NFC awards to provinces should be modified according to measured outcomes on key indicators, including poverty reduction, literacy rates, birth rates, efforts to control corruption, and administrative efficiency. Each factor may be assigned an appropriate weighting and performance ranking to influence the total NFC award.
Finally, and most importantly, provinces should be required to distribute 40–50% of their NFC award to local governments through their Provincial Finance Commissions.
Since provinces may lose a significant share from the divisible pool due to non-performance, this will create an incentive structure for provinces to devolve authority and establish performance targets for local governments. These performance indicators may include job growth, school enrolment, healthcare, service delivery, business-friendly environment, public safety, including violence against religious minorities and foreign nationals. These are mostly local issues, and local governments should be empowered and held accountable for meeting these performance targets.
Local governments should also be required to generate their own revenue from property taxes on residential, commercial, retail, and agricultural properties. Each local district should have a revenue officer appointed by the council on the mayor’s recommendation, with responsibilities to assess and collect property taxes. The revenue officer can also help provinces collect agricultural income tax for their districts.
By distributing only half of their NFC award to local governments, ruling parties in provinces will still have the flexibility to spend additional funds on inter-provincial infrastructure and special projects in districts where they have a majority or where they wish to increase their vote bank for the next general and local elections.
There are 169 districts in Pakistan, and each of them is a potential opportunity zone for social and economic development. While varying levels of performance are to be expected among these districts, enhancing governance in even ten districts could catalyse significant economic growth within a relatively short period.
As has been seen in China, which started with twelve economic zones, such progress would initiate a positive cycle: attracting population influx, driving up property values, stimulating demand for housing and commercial infrastructure, and generating increased district revenue to support further growth. This dynamic could foster a competitive environment, encouraging other districts to adopt effective models from high-performing peers, strengthen their own governance practices, improve local economies, and lift millions out of poverty.