07/08/2026
Gilgit-Baltistan Needs a Financial Compact, Not Annual Grants
_Why Pakistan Must Rethink the Fiscal Relationship with GB_
By Col (Retd) Abrar Ismail, TI(M)
_Ex caretaker minister Finance, Planning & Development, Gilgit-Baltistan._
Gilgit-Baltistan has a population of barely 1.8 million, but that figure tells only a fraction of the story. Spread over nearly 73,000 square kilometres of some of the most difficult terrain on earth, its people live across remote valleys, high altitude settlements and mountain communities connected by a fragile network of roads.
Yet the financial needs of Gilgit-Baltistan continue to be assessed largely through the prism of population.
That is fundamentally unfair.
A territory cannot be governed, connected, powered and developed according to the number of people alone. The cost of governance must also reflect the geography over which the state is required to provide those services.
This is why Pakistan needs to seriously consider a permanent, predictable and rules based financial compact for Gilgit-Baltistan, rather than continuing with an annual system of grants, releases and negotiations.
The Population Fallacy
Population is an important component of any fiscal formula, but it cannot be the dominant criterion for GB.
Consider the difference between maintaining a road in the plains and maintaining one through the mountains of GB.
A road in GB may have to cross unstable slopes, deep ravines, glaciers and avalanche prone areas. It is exposed to floods, landslides, rockfalls and extreme weather. A single natural event can destroy a bridge or several kilometres of road and isolate entire communities.
The state must then spend millions restoring connectivity not because the population has increased, but because geography has imposed a cost.
The same principle applies to electricity transmission, hospitals, schools, telecommunications, water supply and government administration.
The cost of delivering a public service to a scattered population across 73,000 square kilometres is inherently much higher than delivering the same service to a concentrated population in an accessible plain.
Therefore, area, remoteness, terrain, strategic importance and the cost of service delivery must be given substantial weight in any fiscal arrangement for GB.
The Hidden Cost of Poor Trafficability
Perhaps nowhere is the geographical burden more visible than in road connectivity.
Gilgit-Baltistan's roads are routinely affected by landslides, avalanches and floods. Roads that have already consumed significant public money for construction frequently require additional expenditure for rehabilitation and reconstruction.
This creates a permanent burden on the public exchequer.
A major road closure also carries an economic cost that does not appear in government accounts: disruption of tourism, agriculture, trade, transport, education and access to healthcare.
In other words, poor trafficability is not merely a transport problem; it is a fiscal and economic problem.
A rational financial formula must therefore compensate for the additional cost imposed by GB's geography.
A Region Rich in Water and Power, Yet Short of Electricity
The contradiction in GB's power sector is equally striking.
Gilgit-Baltistan possesses enormous hydropower potential, yet its towns and villages continue to suffer from prolonged electricity shortages.
The problem is not solely the absence of generation capacity. Poor management, ageing and outdated powerhouses, inadequate maintenance, inefficient transmission systems and weak institutional performance have compounded the problem.
In many instances, the government is forced into expensive emergency repairs instead of undertaking timely rehabilitation and modernisation.
This is an expensive way of managing a power sector.
The answer lies in professional management, modernisation of existing powerhouses, improved transmission, better maintenance regimes and accelerated development of viable hydropower projects.
But these reforms require predictable funding.
Centralisation Without Effective Accountability
There is another issue that deserves honest discussion: centralisation of decision-making.
Too much authority remains concentrated within the Secretariat, while elected representatives and other stakeholders often have limited influence over the actual implementation of policies and development programmes.
When decision making is centralised without corresponding mechanisms of accountability, public representatives can effectively become little more than rubber stamps.
This creates a dangerous gap between authority and responsibility.
The officer who controls the decision may not bear its political consequences, while the elected representative who faces the public may not possess the authority necessary to correct the problem.
The solution is not simply to transfer authority from one institution to another.
What GB needs is clear responsibility, delegated authority, measurable performance and transparent accountability.
Where Is the Check and Balance?
A serious financial compact must also address governance.
More federal money alone will not solve GB's problems if the system lacks effective checks and balances.
There must be credible mechanisms for auditing expenditure, monitoring development schemes, scrutinising procurement and examining whether public officials can legitimately justify assets held in their names or by their immediate families.
The issue is straightforward: public office should never become a pathway to unexplained personal enrichment.
Asset declarations must be meaningful rather than a procedural formality. Where an official's assets appear disproportionate to known sources of income, there should be an independent mechanism for scrutiny.
This is not about targeting government servants. It is about protecting the integrity of public administration.
Every rupee saved from leakage is effectively an additional rupee available for development.
The Rs 168 Billion Throwforward
The scale of the challenge becomes even clearer when one considers GB's existing development liability.
The region currently has an estimated throwforward of around Rs 168 billion from previous years' development programmes.
This is a massive burden for a region whose annual development resources are already inadequate.
Projects are initiated but cannot be completed in time. Costs increase. Contractors remain unpaid. Benefits to the public are delayed. In some cases, incomplete projects themselves become liabilities.
This is the consequence of spreading limited resources too thinly across a large number of schemes.
The Rs 168 billion throwforward should therefore be treated as a serious fiscal emergency not merely as another figure in the annual development budget.
New projects should not be announced unless adequate resources are available to complete existing priority schemes.
From Dependency to a Financial Compact
For decades, the financial relationship between GB and Islamabad has largely been characterised by grants and discretionary releases.
This is neither sustainable nor conducive to good governance.
The region requires a rules based fiscal arrangement that gives it predictable resources while simultaneously demanding measurable performance.
Such an arrangement should incorporate several factors:
Population
Geographical area
Remoteness and difficult terrain
Cost of road construction and maintenance
Disaster and climate vulnerability
Power generation and transmission requirements
Infrastructure deficit
Strategic importance
Existing development throwforward
Cost of providing health, education and other public services
A formula based on these realities would be considerably more equitable than one driven primarily by population.
GB Should Not Be a Permanent Fiscal Dependent
There is also an important economic argument.
Gilgit-Baltistan has considerable potential in hydropower, tourism, minerals, mining, horticulture and agriculture. If properly developed, these sectors can generate significant employment and revenue.
But investment cannot be attracted into a region where infrastructure remains unreliable, electricity is scarce and road connectivity is frequently disrupted.
This creates a vicious cycle:
Weak infrastructure discourages investment.
Low investment limits employment.
Limited employment increases dependency on government.
Government dependency increases fiscal pressure.
Breaking this cycle requires a different approach.
Federal support should not merely finance consumption. It should finance productive infrastructure that enables GB to generate its own revenue and gradually reduce its dependence on grants.
The Case for an NFC Type Arrangement
This is where the idea of an NFC type financial arrangement for Gilgit-Baltistan becomes important.
The principle should be simple: GB should receive a predictable share of national resources through a transparent formula that recognises both its population and the extraordinary costs associated with its geography and strategic importance.
It should not have to return to Islamabad every year seeking discretionary releases simply to keep essential development programmes moving.
An institutional mechanism whether through an expanded NFC framework or a dedicated Gilgit-Baltistan Financial Commission could determine the region's legitimate fiscal requirements objectively.
Such an arrangement would also impose greater responsibility on GB.
If GB demands greater financial autonomy, it must also accept greater fiscal discipline.
There should be stronger revenue collection, improved financial management, professional management of public sector organisations, strict project prioritisation, digital monitoring and independent auditing.
A Compact Based on Responsibility
The proposed financial compact should therefore be a two way agreement.
The Federation would provide:
predictable and adequate fiscal resources;
compensation for geographical and remoteness costs;
funding for strategic infrastructure;
support for completing the existing development backlog; and
resources for energy and connectivity.
In return, GB must commit itself to:
better revenue collection;
elimination of wasteful expenditure;
professional management of public institutions;
transparent procurement;
strict project prioritisation;
effective asset and income scrutiny;
independent audit and oversight; and
measurable performance by departments and public sector organisations.
This would transform the relationship from dependency to partnership.
Pakistan Cannot Afford to Underinvest in GB
The debate should therefore not be framed as whether Pakistan can afford to spend more money on Gilgit-Baltistan.
The more appropriate question is:
Can Pakistan afford to continue underinvesting in a strategically vital territory of nearly 73,000 square kilometres, while expecting a small and scattered population to bear the extraordinary cost of geography?
GB's strategic location, water resources, hydropower potential, tourism assets, mineral wealth and its role in national connectivity make its development a national interest not merely a regional concern.
The people of GB should not have to choose between electricity and roads, between hospitals and connectivity, or between completing existing projects and starting new ones.
A New Beginning
Gilgit-Baltistan does not need charity.
It needs fairness, predictability and institutional certainty.
A population based approach cannot adequately capture the real cost of governing a territory of nearly 73,000 square kilometres, where every road, power line, hospital and school carries an additional geographical cost.
The Rs 168 billion development throwforward is a warning that the existing approach is not working.
The recurring road disasters, electricity shortages, ageing power infrastructure, centralised decision making and weak accountability are further evidence of a system that needs structural reform.
Pakistan should therefore move towards an NFC type, rules based financial compact for Gilgit-Baltistan, incorporating population but giving appropriate weight to area, remoteness, strategic importance, infrastructure deficit and cost of service delivery.
But GB must meet this opportunity with equal responsibility.
More resources must produce more development.
More authority must produce more accountability.
More autonomy must produce greater fiscal discipline.
The ultimate objective should be clear: to transform Gilgit-Baltistan from a grant dependent region into a financially stronger, economically productive and increasingly self reliant part of Pakistan.
That is not merely a demand for more money.
It is a demand for a fairer system and a commitment to use that system responsibly.
