Creating new provinces in Pakistan could place a significant additional burden on public finances, with annual administrative expenses potentially reaching Rs730.3 billion if all existing administrative divisions are upgraded to provincial status, according to a new analysis by the Policy Research Institute of Market Economy (PRIME).
The private think tank has examined the financial implications of two possible provincial restructuring plans, estimating that even a limited expansion involving two additional provinces in Punjab could cost between Rs46.9 billion and Rs56.2 billion annually.
The findings highlight the potential financial requirements of establishing additional provincial governments, including offices for governors, chief ministers, provincial assemblies, secretariats and high courts.
In its latest market analysis, PRIME recommended strengthening local governments as an alternative priority if the main objective of creating smaller administrative units is to improve public service delivery.
The report focuses specifically on the fiscal implications of provincial restructuring and does not establish whether creating additional provinces would necessarily improve governance or administrative efficiency.
PRIME Examines Two Provincial Restructuring Models
The analysis examines two possible scenarios for changing Pakistan’s existing provincial structure.
Under the first model, Punjab would be divided into three separate provinces: Bahawalpur, South Punjab and the remaining Punjab. This would increase Pakistan’s total number of provinces from four to six.
According to PRIME’s estimates, this arrangement could create an additional annual financial burden of Rs46.9 billion to Rs56.2 billion.
The second model considers a much larger restructuring in which all 30 existing administrative divisions across Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan would become separate provinces.
Under this scenario, Pakistan would have 30 provinces instead of the existing four, resulting in 26 additional provincial governments.
PRIME estimates that this arrangement could increase recurring annual expenditure by between Rs609.2 billion and Rs730.3 billion.
The think tank clarified that the 30-province model is not being presented as a recommended territorial arrangement. Instead, it serves as a fiscal stress test to demonstrate how a substantially larger number of provincial governments could affect public finances.
How Much Would Each New Provincial Government Cost?
One of the central findings of the analysis concerns the recurring expenses required to operate a provincial government.
According to PRIME, the estimated annual cost of running the core institutional structure of a new province ranges from Rs22.4 billion under a low-cost scenario to Rs25.9 billion under a high-cost scenario.
These expenses include the administrative arrangements required for a governor, chief minister, provincial assembly, secretariat, high court and other essential government institutions.
Unlike one-time establishment expenses, these costs would recur annually and require regular financial allocations.
Under the six-province scenario, creating two additional provincial governments would therefore generate an estimated annual cost of Rs46.9 billion to Rs56.2 billion.
However, the financial implications would become considerably larger under the 30-province model, where the establishment and operation of numerous additional government structures would require substantially more public funding.
The report argues that any proposal to create new provinces should include a formal fiscal assessment before constitutional or legislative changes are pursued.
New Provinces Would Receive Shares Under the Existing NFC Framework
PRIME’s analysis also examines how the existing provincial share of the divisible pool under the 7th National Finance Commission (NFC) Award could be distributed among the proposed administrative units.
Under the six-province model, South Punjab would receive an illustrative annual allocation of approximately Rs1 trillion, while Bahawalpur would receive around Rs537 billion.
The proposed 30-province arrangement would produce considerably different allocations depending on the population, area and other relevant factors used in the analysis.
The estimated annual allocations would range from approximately Rs7,201 billion for Lahore and Rs691 billion for Karachi to Rs46 billion for Loralai and Rs50 billion for Zhob.
The report estimates that 11 of the 30 proposed provinces would receive less than Rs150 billion annually under the illustrative distribution.
These figures are scenario-based estimates rather than existing NFC allocations to administrative divisions. Pakistan currently operates under its four-province structure, and the proposed divisions would require an appropriate legal and financial framework before any such distribution could be implemented.
The 7th NFC Award determines how the provincial share of federal tax revenues is distributed among the existing provinces through an agreed formula.
Smaller Provinces Could Face Higher Financial Pressure
A major concern highlighted in the PRIME analysis is that smaller proposed provinces could struggle to finance their own administrative structures.
The report uses a 10% fiscal sustainability benchmark based on the lower estimated recurring cost of Rs22.4 billion per provincial government.
Under this assessment, 16 of the 30 proposed provinces would remain at or below the benchmark, while 14 would exceed it.
The financial pressure would be particularly significant for smaller administrative units with limited NFC allocations.
For example, the core government structure could consume approximately 49% of Loralai’s estimated allocation, 45% of Zhob’s and 37% of Rakhshan’s, even under the lower-cost scenario.
The analysis further estimates that every proposed province with a population below 1.2 million would need to spend more than one-third of its NFC allocation on financing the core provincial government structure.
This could leave smaller units with less money available for other important expenditure, including healthcare, education, infrastructure and development projects.
According to PRIME, the financial burden would depend heavily on the number and size of provinces created. Larger administrative units would generally have a different financial capacity from smaller divisions with limited revenue-generation potential.
Local Governments Suggested as an Alternative Priority
Alongside its fiscal estimates, PRIME has recommended prioritising stronger local government institutions if the objective of administrative restructuring is to improve public services.
Local governments are responsible for community-level municipal functions and can play an important role in addressing residents’ everyday needs.
Strengthening these institutions could involve giving elected local representatives greater administrative authority, improving their financial resources and establishing clearer accountability mechanisms.
The think tank’s recommendation reflects its concern that creating additional provincial governments could increase recurring expenditure without necessarily guaranteeing better service delivery.
However, the fiscal analysis does not directly compare the performance of stronger local governments with that of newly created provinces. Its main focus remains the estimated financial requirements of the two restructuring scenarios.
PRIME has emphasised that provincial restructuring should be assessed through a clear fiscal framework alongside political and administrative considerations.
What the Report Means for Pakistan’s Economy
The findings bring attention to the financial questions that would accompany any proposal to increase the number of provinces in Pakistan.
While administrative restructuring could involve changes to government responsibilities and resource distribution, every additional province would also require a functioning institutional structure and a sustainable source of funding.
The estimated costs could place particular pressure on smaller units if a significant portion of their available resources were consumed by salaries, administrative operations and institutional expenses.
A formal assessment of recurring expenditure, NFC allocations, revenue-generation capacity and development requirements would therefore be necessary before implementing any major restructuring plan.
According to PRIME, the potential annual cost of creating two additional provinces in Punjab is estimated at Rs46.9 billion to Rs56.2 billion, while converting all 30 administrative divisions into provinces could raise the additional recurring burden to Rs609.2 billion to Rs730.3 billion.
The report does not settle the broader debate over whether Pakistan needs more provinces. Instead, it highlights the financial implications that policymakers would need to examine before taking any constitutional or legislative steps.
