Shoring up local finances

The World Bank launched an important report titled ‘Realising the Potential of Pakistan’s Secondary Cities’ that discusses the challenges faced by urban centres in the country. On a similar theme, the Asian Development Bank unveiled ‘Pakistan National Urban Assessment’. Both documents focus on a multitude of issues, including local finances.
The reports found that Pakistan is urbanising at a fast pace. The present urban population is 93.8 million or 36 per cent of the national total. However, it will reach 99.4m in 2030 or 40.7pc of the total figure. To realise the full potential of this vast population, urban basic services need to be extended in an operationally and financially sustainable manner.
Cities require commensurate financial resources on a continuous basis to extend the benefit of a healthy life to their residents. At present, all the cities are starving of resources. Given the fact that urbanisation is irreversible, it will be apposite to examine the core factors that can help our cities become financially viable and autonomous entities.
After the passage of the 18th Constitutional Amendment in 2010, the financial control of the provincial governments in urban affairs has significantly increased. With a greater share in the National Finance Commission (NFC) awards, provinces now enjoy greater financial allocations when compared with the pre-18th Amendment times. As per budget documents of FY25, Punjab will receive 51.74pc (Rs2.676 trillion), Sindh 24.55pc (Rs1.856tr), Khyber Pakhtunkhwa 14.62pc (Rs1.221tr) and Balochistan 9.09pc (Rs 894 billion).
The spirit of the 18th amendment was to devolve financial and administrative powers to the districts through provincial financial commissions. While the provinces constantly engage and negotiate with the centre for an enhanced and smooth flow of funds from centre to province, the same does not happen from province to district.
Cities and smaller urban locations, which share jurisdictions with districts, tehsils/talukas/towns, suffer due to limited availability of financial resources for carrying out essential functions. In an interesting policy move, provinces extend their operational boundary into essential municipal functions due to enhanced financial leverage.
Thus, provinces form provincially controlled authorities and entities for waste management, water and sewerage, urban regeneration (such as Ravi Urban Development Authority), urban area conservation (such as Walled City Authority), mass transit authorities and more. These entities are driven by subsidies extended by the provincial government and eventually become a drag on the provincial budgets.
Political expediency and pressure from international development partners also lead to the creation or alteration of the institutional structure of provincial and local entities. Since the province maintains administrative authority in most of such situations, the performance accountability of these entities at the hands of service users at the local level becomes a difficult possibility.
The existing local authorities suffer from crippling financial crises. Overstaffing under political influences, high operational costs, weak sources of revenue generation, and poor performance with respect to recoveries are some common ailments. Urban Immovable Property Tax (UIPT) and motor vehicle tax (MVT) are two important mentions for cities. Both taxes are collected by provincial governments and then distributed to local municipal councils as per the rules that are laid down.
The rates and efficiency of the collection are highly questionable. Karachi, which has locations possessing very high real estate value, ended up collecting Rs2bn in UIPT. A World Bank study informed that this can be enhanced to Rs40bn without enhancing the tariff. Similarly, the rising number of motor vehicles in our cities is a huge cause of concern due to climate change and environmental costs. The MVT can become a deterrent for regulating the number of vehicles to a manageable tally.
Many other types of levies and taxes can be imposed in urban areas for the cumulative betterment of the city areas. In addition, utility charges for water and sewerage need to be diligently collected. Most of our cities lag behind on this count.
Social and physical infrastructure in medium and small cities is falling apart. It may be mentioned that the number of such urban locations is over 500 in Pakistan. In the usual outlay of budgets, more than 70pc of allocation is barely enough to meet the establishment cost. Smaller municipalities are left with no funds to look after and maintain the crippling infrastructure. They are left with no choice except to keep applying to federal and provincial governments.
In rare cases, funds from the members of the national assembly, members of the provincial assembly, or the Senator come to the rescue but in an irregular manner. The operational situation of social facilities is adversely affected due to poor governance and the acute shortage of human and monetary resources.
Sights of abandoned public buildings, ghost schools and deserted clinics/hospitals are commonplace. The scenario merits some innovative financial and governance initiatives to address the grave issues.
We need urban development support organisations that can guide the planning and development functions of our cities as well as the financial restructuring that is essential to keep them financially sustainable.
Some interesting examples from the region include the Jawaharlal Nehru Urban Renewal Mission, which functioned from 2005 to 2014. It was a massive initiative of the Government of India for city modernisation with a financial outlay of over $20bn. It helped various small, medium and even larger cities through capacity building, financial strengthening and dealing with specific issues such as urban poverty.
The mission also provided a catalytical role of a federal initiative in other provincial and local government domains in different locations. It was succeeded by the Atal Mission for Rejuvenation and Urban Transformation in 2015. Perhaps the Planning Commission of Pakistan may consider launching initiatives for the comprehensive upliftment of our cities and towns with finances drawn from NFC outlays.
The writer is an academic and researcher based in Karachi
Published in Dawn, The Business and Finance Weekly, November 4th, 2024