Nadeem Tanoli
ISLAMABAD: Greater responsibility for public spending at the provincial and local levels can improve Pakistan’s ability to benefit from its natural resource wealth in the long run, according to a study that also flags weak governance, revenue leakage and institutional shortcomings as continuing hurdles in the oil, gas, minerals, coal and forest sectors.
The study examines the link between fiscal decentralisation, globalisation and natural resource rents in Pakistan from 1983 to 2023. Its key finding, based on the available study text, is that expenditure decentralisation has a significant positive long-term relationship with natural resource rents. The researchers say this suggests that provincial and local governments can support better management of resources, particularly through stronger investment in infrastructure.
The research addresses an important policy question in the post-18th Constitutional Amendment setting: whether greater financial powers for provinces can turn natural resources into a driver of sustainable development, or whether weak governance may shift the resource curse from the federal level to the provincial level.
Fiscal decentralisation refers to the transfer of some financial responsibilities and decision-making powers from the federal government to provincial and local governments. The study says such a shift can improve public services and local development if governments are able to handle funds and resources effectively. In the natural resource sector, it may involve local management of royalties, taxes, duties and other charges linked to resources.
The researchers also examine globalisation, described as the increasing connection among countries through trade, investment, capital, information and technology. The study looks at whether economic openness, foreign investment and international linkages can help Pakistan secure greater value from its natural resources.
Pakistan has a sizeable natural resource sector, but the study says the country has not fully converted this wealth into economic gains because of administrative and governance problems. It notes that the mineral sector contributes around 3.0 to 3.2 per cent of GDP, while total natural resource rents from oil, gas, coal, minerals and forests are estimated at 1.44 per cent of GDP.
According to the researchers, the resource sector continues to suffer from governance failures, rent-seeking and leakage of revenues. As a result, part of the potential income from valuable natural assets is not translated into wider development or public welfare.
The study also points to sharp provincial differences. Sindh, Pakistan’s main gas-producing province, generates substantial resource revenues. Balochistan, despite its large mineral resources, has faced difficulty in turning natural wealth into local development due to institutional weaknesses.
The researchers argue that the mere presence of natural resources is not enough. The quality of resource management, the performance of public institutions and the way revenues are spent determine whether natural wealth becomes an economic advantage or leads to what economists call the resource curse.
The resource curse refers to a situation in which countries or regions rich in natural resources fail to achieve the level of economic progress expected from that wealth. The study links poor handling of resource income with weak economic performance, institutional conflict, uncertainty and governance failure.
The research compares Pakistan’s experience with countries that have used resource abundance more successfully. It notes that Canada, Norway, China and the United States have benefited from natural resources, while several resource-rich regions in Africa, the Middle East and Latin America have not achieved similar economic gains. The researchers say the difference underlines the importance of strong institutions and appropriate public policies.
The study separates fiscal decentralisation into revenue decentralisation and expenditure decentralisation. This distinction is important because handing provinces authority over spending may produce different outcomes from giving them greater control over revenue collection and management.
The researchers ask whether provincial governments perform better when they are given more responsibility for development spending, or whether stronger control over revenue collection brings better results. They also examine how globalisation and foreign direct investment interact with domestic fiscal arrangements.
For its empirical analysis, the study uses the ARDL method and examines several factors linked to natural resource rents. These include revenue decentralisation, expenditure decentralisation, the KOF globalisation index, human capital, GDP and foreign direct investment.
The researchers use natural resource rents as the main outcome rather than overall economic growth. The framework is based on ecological economics and natural capital theory, which view natural resources as a limited form of capital supporting economic activity and long-term development.
The descriptive findings show that revenue decentralisation, globalisation and expenditure decentralisation have relatively high average values in the data, though their levels are volatile. Natural resource rents show moderate variation during the period under review.
The central finding highlighted in the available material is the difference between the two types of fiscal decentralisation. Expenditure decentralisation has a significant and positive long-term association with natural resource rents. The researchers say this points to the role of provincial and local governments in improving resource management through infrastructure investment.
Infrastructure can influence the exploration, transportation, processing and formal economic use of natural resources. The study therefore suggests that decentralisation focused on effective public spending may be more beneficial for the resource sector than the transfer of financial authority without improvements in how resources are used.
The study says the federal government and provinces face a major policy choice over who should control resource revenues and how those funds should be spent. It argues that statistical evidence should be linked with institutional reforms, regulatory changes, investment in human capital and stronger international engagement.
The researchers also seek to answer whether Pakistan’s natural resources are a blessing or a curse. Their broader objective is to identify policies that can raise the benefits of natural resources while addressing the challenges created by decentralisation and globalisation.
The study is especially relevant after the 18th Constitutional Amendment because provincial governments have greater authority over resource royalties and taxes. It says outcomes vary across provinces, showing that the design of decentralisation matters.
The research also highlights the role of foreign direct investment by examining how international investment and globalisation can support Pakistan’s resource sector while ensuring that a larger share of the value generated by natural resources benefits the country.
However, the provided study text does not contain complete detailed results for all variables or the full final policy conclusions. On the basis of the available material, the clear supported finding is the positive long-term relationship between expenditure decentralisation and natural resource rents. Specific effects of revenue decentralisation, human capital, GDP or foreign direct investment cannot be claimed without the remaining statistical results.
Overall, the study presents Pakistan’s natural resource challenge as more than a question of how much oil, gas or minerals the country possesses. It says the real issue is how institutions collect revenues, how provinces spend them, how infrastructure is built and how effectively natural resources are connected with the wider economy.
Source: https://www.sciencedirect.com/science/article/abs/pii/S0161893826000876
