Why Federal Sector Figures Understate Spending: The 18th Amendment Explained
How devolution moved schools, hospitals and local development to the provinces
By the ISN Media desk • June 2026 • Approx. 8-min read
To read Pakistan's federal budget correctly, especially the small figures for education and health, one fact is essential: the eighteenth amendment moved much of the responsibility for these functions to the provinces. This explainer sets out what the amendment did, how it shapes the budget, and why federal sector figures understate national spending. It accompanies the pillar education, health and the smallest shares of Pakistan's budget.
How does the 18th amendment affect the budget?
The eighteenth amendment, passed in 2010, devolved most responsibility for health, education and local development to Pakistan's four provinces, which fund these services from the share of national revenue the centre transfers to them, about Rs 8,848 billion in 2026-27. As a result, the federal budget's small figures for education and health understate what the country spends in total, because the bulk of that spending now appears in the provincial budgets rather than the federal one.
That is the core effect. The detail follows.
What the amendment did
The eighteenth amendment was a major constitutional change passed in 2010. Among its many provisions, it abolished the Concurrent Legislative List, the set of subjects on which both the centre and the provinces could legislate, and devolved most of those subjects to the provinces. Several federal ministries that had run devolved functions as national concerns were wound up or transferred, and responsibility for areas including health, education, social welfare and local government passed to the provincial governments.
The amendment was, in part, a response to long-standing demands for greater provincial autonomy in a federation where power had been concentrated at the centre. Its budgetary consequences flow directly from this transfer of responsibility.
How the money follows the responsibility
Devolving responsibility required devolving the money to pay for it. This happens through the National Finance Commission award, the formula that divides national revenue between the centre and the provinces. Under the award in force, a large share of federal tax revenue is transferred to the provinces each year, about Rs 8,848 billion in 2026-27, out of gross receipts of roughly Rs 20,600 billion.
The provinces then fund their devolved responsibilities, including schools and hospitals, from this transfer plus their own provincial revenues. So the money for most of the country's education and health spending leaves the federal budget as a transfer and reappears as spending in the four provincial budgets.
Why federal sector figures understate spending
This is why the federal figures for education (about Rs 118 billion) and health (about Rs 37 billion) are small, and why they understate national spending. The federal lines fund higher education, regulation, federal institutions and the territories the centre administers directly, while the bulk of school and hospital spending is provincial.
A reader who looks only at the federal budget will therefore conclude the country spends far less on schools and clinics than it actually does. The accurate national figure requires adding the provincial spending funded by the transfer. The full implications for the social sectors are set out in Pakistan's education budget 2026-27 and Pakistan's health budget 2026-27.
The duplication debate
The amendment did not end federal involvement in the devolved areas entirely, and this is contested. The federation continues to run some ministries, programmes and development schemes in fields formally devolved to the provinces. Critics describe this as a duplicated machinery, two layers of government funding overlapping work, and point to it as a source of waste and of the rise in the cost of running the federal government, examined in the cost of governing.
Supporters of continued federal involvement argue that some functions are genuinely national, federal universities, national disease and nutrition programmes, regulation, and emergency coordination, and must sit at the centre even in a devolved system. The honest position is that both genuine national functions and apparent duplication exist, and the balance between them is a live political and fiscal question.
The fiscal tensions devolution created
Devolution changed not only who is responsible for services but the balance of money and power within the federation, and this has produced lasting fiscal tensions. Because a large share of national revenue is transferred to the provinces under the National Finance Commission award, the centre is left financing its own obligations, above all debt interest and defence, from a smaller pool, which sharpens the pressure on the federal budget. Critics of the current arrangement argue the centre carries obligations out of proportion to the revenue it retains; defenders argue the transfer is the price of a genuine federation and that the provinces, being closer to citizens, are better placed to run services.
A second tension concerns provincial capacity. Devolution assumed the provinces could plan, deliver and account for services on a large scale. In practice their administrative capacity varies, and outcomes in health and education have, in several provinces, lagged the amounts spent. This has led to a recurring debate about whether the problem is the level of spending, the quality of provincial delivery, or both, a debate that bears directly on how to read the small federal social-sector figures.
A caveat about the caveat
It is important not to over-correct. The eighteenth amendment explains why the federal figures are small; it does not, by itself, mean national spending is adequate. Even when provincial spending is added, Pakistan's combined commitment to education and health remains low as a share of the economy, below international benchmarks and several comparable countries. Devolution accounts for the small federal line; it does not account for the low national total. A serious reading holds both facts at once.
Frequently asked questions
How does the 18th amendment affect the budget? It devolved health, education and local development to the provinces, which fund them from the roughly Rs 8,848 billion the centre transfers. As a result the federal figures for these sectors are small and understate national spending, because most of it appears in provincial budgets.
What did the 18th amendment do? Passed in 2010, it abolished the Concurrent Legislative List and devolved most of those subjects, including health, education, social welfare and local government, to the four provinces, in response to demands for greater provincial autonomy.
What is the NFC award? The National Finance Commission award is the formula that divides national revenue between the centre and the provinces. It is the mechanism through which the money for devolved responsibilities is transferred, about Rs 8,848 billion in 2026-27.
Why are the federal education and health figures so small? Because most school and hospital funding is provincial under devolution. The federal lines fund higher education, regulation, federal institutions and directly administered territories, not the bulk of the system.
What is the duplication debate? Critics argue the federation still runs ministries and schemes in areas formally devolved, duplicating provincial work and raising the cost of government. Supporters argue some functions are genuinely national. Both genuine national functions and apparent duplication exist.
Does devolution mean Pakistan spends enough on health and education? No. Devolution explains why the federal figures are small, but even with provincial spending added, the national totals remain low by international standards. The two facts are separate.
When was the 18th amendment passed? In 2010. It was a major constitutional change that abolished the Concurrent Legislative List and devolved most of those subjects, including health and education, to the four provinces.
Why does the centre face fiscal pressure after devolution? Because a large share of national revenue is transferred to the provinces under the NFC award, while the centre still carries the largest obligations, debt interest and defence, from a smaller retained pool. This sharpens pressure on the federal budget.
Has devolution improved services? The evidence is mixed. Provincial administrative capacity varies, and outcomes in health and education have in several provinces lagged the amounts spent, which has fed a continuing debate over whether the issue is the level of spending, the quality of delivery, or both.
Is the 18th amendment likely to be reversed? It is politically entrenched and supported by the provinces as a guarantee of autonomy, so wholesale reversal is unlikely. The live debate is over adjustments at the margin, such as the division of revenue and which functions genuinely belong at the centre, rather than over undoing devolution itself.
Sources and notes
- The eighteenth amendment to the Constitution of Pakistan (2010) and the National Finance Commission award framework are matters of public record.
- Government of Pakistan, Federal Budget 2026-27: the provincial transfer and sector figures are Budget Estimates in billions of rupees, rounded for readability.
ISN MEDIA