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WHILE presenting the current Sindh budget — the province’s 16th since the seventh NFC Award went into effect — Chief Minister Murad Ali Shah attributed the sharp reduction in development spending to the grant of Rs260 billion for the federation that Sindh agreed to at the National Economic Council meeting of June 10, 2026. The figures, however, suggest a very different story.
Sindh’s revenues come from federal transfers, provincial indirect taxes largely collected from urban areas, mainly Karachi, and agricultural income tax. In 2026-27, federal transfers are budgeted at Rs2,263bn, up by Rs337bn, while provincial indirect taxes are expected to rise by another Rs65bn. Together, these two sources will provide over Rs402bn in additional resources. In contrast, agricultural income tax remains negligible at only Rs6bn, less than 0.2 per cent of the budget resources.
As the overall increase on the revenue side amounts to Rs402bn, it should have comfortably accommodated the grant of Rs260bn to the federal government, without any excessive cuts in development.
However, all additional resources of Rs402bn have been diverted towards non-productive current expenditures, which have been increased by 20pc over the last budget (an increase of Rs418bn — climbing from Rs2,142bn to Rs2,560bn). In contrast, the entire amount of Rs260bn grant to the federal government has been effectively charged to the development budget, reducing it by 29pc (Rs298bn) from Rs1,018bn to Rs720bn. The sharpest cut is a 73pc reduction from district Annual Development Plan (ADP), reducing it from Rs55bn to just Rs15bn.
Sadly, Sindh made hardly any gains in the period following the seventh NFC Award.
After the unprecedented increase in its financial resources after the seventh NFC Award, it was expected that Sindh would make progress towards human resource development and invest in modern infrastructure. On the contrary, Sindh steadily reduced the share of ADP in its budget from about 25pc in 2011-12 to only 10.8pc today, with local governments (LG) suffering the largest cuts.
In the 16 years (including this budget), the quantum in federal taxes under the NFC and other transfers stand at Rs14,473bn and an estimated contribution of Rs4,856bn of provincial taxes. Out of these Rs19,328bn, only 17pc on average, was allocated to the ADP and the rest went towards non-development expenses. Transfers to the LG were reduced from 16pc of the provincial budget in 2011-12 to a bare 5.6pc in this budget.
While generating approximately 95pc of the federal and provincial taxes collected in Sindh, Karachi received only Rs680bn for infrastructure over 16 years — barely 3pc of its contribution to taxes that end up in the budget. Unsurprisingly, Karachi remains among the world’s least livable cities, with the World Bank estimating an infrastructure deficit of around $10bn. Had the city received even its population-based share of development spending, it would have obtained nearly Rs2 trillion in the last 16 budgets.
Not only has Karachi been deprived of development funds for new infrastructure, it continues to suffer from chronic underfunding for municipal services and the maintenance of roads, parks and other civic facilities. Until 2010, Karachi received compensation for the abolition of octroi and zila tax through a dedicated share of GST revenues. Following the seventh Award, however, this arrangement was absorbed into the enlarged provincial fiscal pool from where it was never passed on to the LGs as per their due share.
Had the earlier mechanism continued, Karachi could reasonably have expected to receive around Rs170-230bn this year alone. Instead, the allocation provided for the Karachi Municipal Corporation in the current budget is about Rs27bn only. Even after adding minor grants and KMC’s own-source revenues, the total budget amounts to barely Rs60bn.
How can a megacity of over 25m people generating thousands of billions of rupees in federal and provincial revenues be expected to provide municipal services, maintain its infrastructure and remain economically competitive with such meagre resources?
Perhaps the most telling indicator of Sindh’s fiscal priorities is agricultural income tax. Despite constituting a major source of wealth, it is budgeted to contribute only Rs6bn — less than 0.2pc of total revenues. The World Bank estimates that agricultural income tax could yield roughly 1pc of GDP nationally, implying a potential of around Rs300bn for Sindh. The current target suggests that there is no intention to tax agricultural incomes.
The consequences of this misgovernance of resources are visible in Sindh’s social indicators. In the 1990s, Sindh was broadly comparable with Punjab in health and education outcomes. Today, it trails behind Punjab and KP on most indicators and has even fallen behind Balochistan in the net enrolment rate. Sindh’s NER rose from about 41pc to 54pc during devolution to the LGs in the Musharraf era but subsequently declined to around 45pc after education administration was recentralised to the province. Currently, 44pc of Sindh’s children are out of school compared with 27pc in Punjab and 38pc in KP, while 27pc remain unimmunised, vulnerable to diseases, compared with 12pc in Punjab and 22pc in KP.
The figures show that Sindh’s problem is not a shortage of resources but the manner in which those resources have been allocated. The reduction in development spending cannot be explained by Article 164 grant when revenue growth exceeded the amount transferred to the federation. Over the past 16 years, unprecedented fiscal transfers sharply contrast with declining social indicators, shrinking development allocations, weakened LGs and chronic underinvestment in Karachi. Unless this pattern changes, Sindh will continue to underperform despite abundant resources, while Karachi — the country’s economic engine — will remain unable to realise its full potential towards the country’s economic growth.
The writer is a former federal secretary and caretaker provincial minister. He is currently chairman, Policy Research and Advisory Council.
Published in Dawn, July 4th, 2026
