NOW that the budgets have been presented, the usual debates surrounding them are largely over, and the heated television talk shows have moved on to the next controversy, it is perhaps time to revisit some fundamental questions: What exactly is the role of government in economic growth? Which level of government is better placed to promote growth in Pakistan — the federal government or the provincial governments?
Sustained economic growth is a multi-year, multifaceted process. It does not emerge from an annual budget, which is a short-term statement of revenues and expenditures, nor is it the sole responsibility of the finance ministry. Perhaps the most absurd aspect of our economic management is the practice of setting a real GDP growth target every year and then comparing actual growth against it. If, in a lucky year, actual growth exceeds the target, the federal finance minister claims credit; if it falls short, they bear the blame. We ignore the fact that Pakistan is no longer a closed, planned economy wherein the state directly controls a large share of productive activity. Like other economies, it is globally connected, and its economic performance is shaped increasingly by technological changes, private investment, business confidence and international conditions. While government still matters for growth, its role is no longer traditional.
Modern growth theories suggest that sustained economic growth depends on a broad set of drivers. First and foremost is high-quality human capital — education, skills and health that enable people to participate productively in the economy. This is complemented by technology and innovation, supported by linkages between academia and industry. Sustaining this ecosystem requires robust institutions that safeguard property rights, enforce contracts, promote fair competition, ensure regulatory efficiency and maintain political stability. Finally, macroeconomic stability, marked by low inflation, a predictable exchange rate, and prudent fiscal policy, underpins all these drivers. The primary role of government, therefore, is to create an enabling environment in which these drivers can flourish.
The next question is which level of government is better placed to promote economic growth. Under the current constitutional structure, almost all the key elements required to run the engine of economic growth (education, skill development, law and order, contract enforcement, a conducive business environment, etc.) rest with the provinces. While the federal government’s primary responsibility is to ensure macroeconomic stability, the growth mandate now lies substantially with the provinces.
Pakistan needs a new growth paradigm.
The provinces receive substantial resources through the NFC Award, yet much of their spending goes to low-yielding projects that contribute little to the economy’s productive capacity. For example, using public money for distributing free scooters may generate quick headlines and create captive markets for selected suppliers, but scooters are no substitute for well-designed mass transit systems that reduce commuting times, lower the cost of mobility, and generate lasting productivity gains. Such suboptimal allocation of resources persists partly because provincial spending faces relatively little public scrutiny. While the federal budget is extensively debated for its growth orientation, provincial fiscal plans largely escape similar scrutiny. Even the IMF, despite urging provinces to generate budget surpluses, gives limited attention to the productivity impact of their resource allocations. As a result, provincial spending choices often remain misaligned with long-term growth objectives.
While fiscal federalism and the constitutionally mandated distribution of resources should be preserved, provinces need to redesign their spending priorities. There should be growth competition among provinces, where citizens can compare their performance in terms of economic growth, productivity, infrastructure, investment and the ease of doing business. Such comparison requires credible provincial income accounts and GDP estimates.
Ironically, Pakistan still has no official estimates of provincial GDP. While we expect the federal government to explain every decimal point of national GDP growth, provincial governments are rarely held accountable for growth due to the absence of provincial GDP measurement. What is not measured is not questioned. And what is not questioned is unlikely to improve.
Pakistan then needs a new growth paradigm. The centre must ensure macroeconomic stability, while the provinces must take responsibility for the growth functions that now fall within their jurisdiction. Every provincial finance minister should be asked how their province is contributing to economic growth and productivity.
The writer is an economist.
Published in Dawn, July 11th, 2026
