Pakistan’s Bold Blueprint: Decentralising Power, Driving Prosperity, and Resolving Kashmir

Pakistan must take bold measures and internal reform to address its internal challenges and stabilise the nation if it is to prosper. Caught in the midst of a poly-crisis that includes deep-seated divisions in regions like Balochistan; volatile relations between the civilian government and a military entrenched in maintaining national unity; and persistent economic instability, the country faces formidable obstacles to surmount.

Pakistan’s economic performance between 2010 and 2024 has lagged behind that of Asian peers like Indonesia, Vietnam, and the Philippines. A comparison of GDP growth rates reveals clear disparities.

For instance, Vietnam maintained an average annual growth of 6.5%—expanding 7.55% year-on-year in Q4 2024 and reaching 7.09% for the full year—while Pakistan averaged just 3.7%, with a modest 2.5% growth in 2024 following a minor contraction in 2023.

The gap widens even more when examining GDP per capita. In 2024, Pakistan’s per capita income reached only $1,680—far below Vietnam’s $4,990, Indonesia’s $5,250, and the Philippines’ $4,440. This illustrates how Pakistan’s economic baseline remains significantly lower.

Several factors contribute to Pakistan’s underperformance. Weak export growth has left the country trailing behind peers who have leveraged robust export sectors, notably Vietnam. Additionally, Pakistan’s investment-to-GDP ratio declined to 13.14% in 2024 from 14.13% in 2023 — where it faced a catastrophic default — reflecting a broader trend of reduced investments amid global slowdowns and persistent political instability.

Productivity challenges, stemming from insufficient contributions of both human and physical capital, further impede growth, while fiscal constraints have crowded out private sector investment and dampened overall efficiency. Compounding these challenges is Pakistan’s high climate vulnerability, which exacerbates the country’s structural weaknesses.

In contrast, countries like Vietnam have capitalized on strong export growth — with Q4 exports rising by 11.35% — and are projected to continue robust growth at 6.1% in 2024 and 6.5% in 2025.

This underscores the need for Pakistan to address structural inefficiencies, boost investment, and enhance export performance to catch up with its more successful regional peers. By undertaking transformative reforms, Pakistan can unleash its untapped economic potential.

Comprehensive economic reforms and policy changes — ranging from decentralising power and reforming revenue-sharing mechanisms to ensuring transparent governance — can foster stability and ignite long-term economic growth. Only through decisive, coordinated action can Pakistan overcome its internal divisions and unlock a more prosperous, unified future.

Governance Insights: Belgium, Malaysian & UAE Lessons

Pakistan’s highly centralised federal structure concentrates core authority – defence, foreign affairs, and finance – in Islamabad. This arrangement often overlooks the diverse interests of provinces like Sindh and Balochistan, which have long demanded greater autonomy. To many observers, the country has often barely avoided fragmentation into different states, held together by the military from its node in Rawalpindi.  

Examining the governance models of the UAE, Malaysia, and Belgium offers valuable insights for Pakistan’s development. Effective governance is crucial for a country’s economic and social growth, and Pakistan can learn from the experiences of these countries.

The UAE’s confederal model, Malaysia’s centralised federalism, and Belgium’s asymmetric federalism provide distinct approaches to decentralised governance. The UAE is a federation of emirates with significant local autonomy, while Belgium is an asymmetric federal state with regional and community-based divisions. Malaysia, on the other hand, maintains a balance of power between the federal government and the states.

A hybrid approach drawing from these models could be beneficial for Pakistan. Some potential features of this approach include:

• A powerful federal centre with control over defence, foreign policy, and currency
• Significant local autonomy for each province to regulate education, healthcare, and resource management
• A revenue-sharing mechanism to ensure that provinces have the resources they need to invest in regional priorities
• Constitutionally protected rights for different regions to govern language, culture, and education
• Complex intergovernmental mechanisms to ensure consensus-based power sharing and prevent any single linguistic or regional group from dominating decision-making

By incorporating elements of these governance models, Pakistan can create a more effective and representative system of government. This, in turn, can help to reduce longstanding tensions, improve economic development, and enhance the overall well-being of its citizens.

Proposed Pakistan Model

Under a theoretical hybrid model for Pakistan,

• Islamabad (Federal Capital): Maintains authority over defense, foreign affairs, and nuclear assets, analogous to Abu Dhabi in the UAE.
• Karachi (Economic & Trade Capital): Manages ports, trade, and industrial policies, paralleling Dubai’s economic prominence.
• Lahore (Agricultural & Industrial Hub): Oversees Punjab’s agrarian economy and corridor projects (e.g., CPEC), drawing on Belgium’s region-specific governance model (Flanders as an industrial-agrarian powerhouse).

Each province should have the autonomy to legislate on education, healthcare, and local cultural issues, reflecting Belgium’s community-based approach to linguistic and cultural governance. This is crucial for the Sindhi, Balochi, Pashtun, and Punjabi identities that exist within the context of Pakistan’s national matrix.

Coupled with a revenue-sharing mechanism that can allocate set percentages from provinces into a federal pool, with local governments retaining the bulk and complex inter-governmental mechanisms to ensure consensus-based power sharing, this can prevent any single linguistic or regional group from dominating decision-making. This hybrid approach could devolve governance, distribute roles to major cities, and reduce tensions hindering development.

This hybrid approach could devolve governance, distribute roles to major cities, and reduce tensions hindering development, ultimately fostering a more balanced and inclusive system of governance for Pakistan.

Key insights the UAE, Belgian and Malaysia federal systems offer for Pakistan policymakers:

• Balance centralisation and decentralisation by granting provinces more autonomy while maintaining a strong central government, as seen in the UAE’s model.
• Address linguistic and cultural diversity by dividing power between communities, similar to Belgium’s system.
• Improve economic management by adopting a centralised approach to planning and development, as in Malaysia.
• Strengthen constitutional safeguards by establishing clear divisions of power between national and subnational governments, as in Switzerland.
• Adapt federal arrangements to suit specific needs and challenges, recognising that there is no one-size-fits-all approach.
• Promote national unity by identifying symbols or institutions that can bring people together, such as monarchies or royal houses in Belgium and Malaysia.
• Implement effective fiscal federalism by learning from Belgium’s experiences with decentralisation and fiscal sustainability.

These lessons can help Pakistan create a more effective and representative system of government, addressing its unique challenges and promoting national unity and economic development.

By studying and adapting elements from these diverse federal systems, Pakistan could potentially improve its governance structure, address regional disparities, and enhance the overall effectiveness of its federal system.

The Kashmir Factor

Pakistan has fought three major wars with India over Kashmir—in 1947-1948 (First Kashmir War), 1965 (Second Kashmir War), and 1999 (Kargil War)—with Kashmir also serving as a secondary battleground during the 1971 Bangladesh Liberation War.

The conflict’s roots trace back to the 1947 partition, when the UK desired an expedited exit from the subcontinent. The legacy of British colonial policies in India had also served to reinforce religious divisions, categorising communities and inadvertently paving the way for separate Muslim and Hindu political identities. This legacy fuelled Muslim concerns about Hindu domination after independence, intensifying the demand for a separate Muslim homeland.

Additionally, the urgent need for a swift resolution became apparent when Lord Mountbatten, the last viceroy, stressed that speed was essential to prevent potential mutinies among Indian troops or the outbreak of civil war.

The princely states were given a choice to join either India or Pakistan. Although the Maharaja of Jammu and Kashmir initially opted for independence, a Pakistani tribal invasion compelled him to accede to India, igniting the first war over the region.

Today, the dispute remains unresolved, with both India and Pakistan claiming the former princely state in its entirety. India controls about 55% of the territory—including Jammu, the Kashmir Valley, and most of Ladakh—while Pakistan administers roughly 30%, covering Azad Kashmir and Gilgit-Baltistan.

China holds the remaining 15%, including Aksai Chin. Internationally, the United Nations regards Kashmir as a disputed territory, not recognising India’s claim as legally valid. Pakistan calls for a plebiscite to determine Kashmir’s future, while India contends that the participation of Kashmiris in its elections negates the need for one. This complex history leaves Kashmir among the world’s oldest unresolved international conflicts.

Renouncing the Kashmir Claim

Although Pakistani leaders often label the Kashmir dispute as the “core issue” with India, Pakistan’s policies are driven more by a deep-seated fear of Indian—in particular Hindu—domination and concerns about its own national identity.

Rather than pursuing a coherent strategy or a planned endgame for Kashmir — Islamabad doesn’t have one — Pakistan has relied on a series of tactical moves that treat the region as a symptom of broader insecurities. The troubled Indo-Pak relationship stems less from Kashmir itself and more from the ongoing need to balance against a perceived dominant neighbour.

Addressing these underlying insecurities through a sustained peace process is essential. Only by tackling the multiple factors that fuel mutual suspicions can Pakistan gradually forge a realistic, non-violent endgame for the conflict.

Recognising that the Kashmir issue is intertwined with deeper national anxieties, Pakistan may find that a long-term strategic reconciliation could ultimately pave the way for stability and a more balanced regional order.

Renouncing Pakistan’s claim over Kashmir could unlock significant economic and security benefits. Redirecting a significant portion of Pakistan’s defence spending toward economic development, healthcare, and education would have a substantial impact on national priorities.

It would also stabilise its border with India and lead to normalisation of relations, including trade and other foreign investment. Enhanced trade with India—potentially expanding bilateral commerce that’s been suspended since 2019 — can potentially yield USD 25 billion in exports for Pakistan. 

Biting the Bullet: Normalising Relations, Resuming Trade

Resuming trade with India could be a game-changer for Pakistan, unlocking a wave of economic benefits. It would boost exports, ease the foreign exchange crisis, and fuel GDP growth while curbing the inflation that has soared since direct trade halted in 2019.

Currently, Pakistan wastes resources re-routing goods through third countries like the UAE—a costly process that hits small and medium enterprises (SMEs) hardest. For instance, Khairpur’s date farmers, forced to sell through middlemen who ship via Dubai, see their profits shrink.

Direct trade with India, a regional powerhouse offering raw materials and a vast consumer market, could revive struggling sectors and position Pakistan as a hub for industries relocating from China amid global supply chain shifts.

The benefits extend beyond trade. Pakistan could redirect military resources from India-focused posturing to counterinsurgency efforts in volatile regions like Balochistan, Khyber Pakhtunkhwa, and the tensions along the restive Afghan and Iranian borders.

Decentralising key responsibilities—such as education and healthcare—could reduce federal inefficiencies, empower provinces to address local issues, and ease ethnic tensions. Imagine metropolitan centres transforming into thriving trade hubs, fuelled by local revenues and foreign investment, ensuring even smaller provinces like Balochistan benefit.

However, the path forward is fraught with challenges. Abandoning the Kashmir narrative—a core element of Pakistan’s national identity and military doctrine—could spark fierce domestic backlash, from protests to political turmoil. But there are hard realities Islamanad has to confront.

Pakistan vs India: Different Economic Realities

By 2035, India’s economic and military prowess is expected to surpass Pakistan’s, driven by divergent growth trajectories. India, with a projected GDP of $3.9 trillion in 2025, is on track to reach $8-10 trillion by 2035, becoming the world’s third-largest economy as early as 2026-27. It can re.potentially add US$1.5 trillion to its GDP every 18 months. 

Morgan Stanley predicts India will achieve the No.3 milestone by 2028, fuelled by its status as the most sought-after consumer market and increasing global output share. Starting from a USD 3.5 trillion economy in 2023, India is set to reach USD 4.7 trillion by 2026, surpassing Germany, and USD 5.7 trillion by 2028. This remarkable ascent, from the 12th largest economy in 1990 to the 5th by 2023, is underpinned by macroeconomic stability, policy improvements, and enhanced infrastructure.

India’s global GDP share is anticipated to rise from 3.5% to 4.5% by 2029. By 2035, three scenarios emerge: USD 6.6 trillion (Bear), USD 8.8 trillion (Base), and USD 10.3 trillion (Bull), supported by robust population growth, a functioning democracy, improved infrastructure, and better social outcomes.

Bold reforms could shift the tide, yet reliance on agriculture, textiles, and remittances leaves it vulnerable, especially amid instability and rivalry with India. Militarily, Pakistan’s $10 billion budget (possibly $15-20 billion by 2035) supports 650,000 personnel, Chinese-made jets, and a nuclear deterrent, but it pales next to India’s conventional might. Rapid population growth strains resources, risking a wasted demographic dividend without drastic change.

The disparity is striking: India’s economic edge could hit 15-20:1 and military spending 8-10:1 by 2035. India leverages global ties and a broad base, while Pakistan’s revival hinges on sweeping reforms.

Resolving the Kashmir issue through a brokered solution — the UAE and Saudi Arabia are well-positioned to broker a deal — and transitioning to a confederal or asymmetrical federal system would require sweeping constitutional changes and unprecedented political unity. Without fair revenue-sharing, wealthier regions like Punjab could dominate, and Pakistan’s leverage over the Indus Waters Treaty might weaken.

In short, this strategy offers economic revival, better governance, and a stronger global presence—but only if Pakistan can navigate its deep-rooted national sentiments, rebalance military-civilian power, and commit to relentless reform.

A Step Towards Indo-Pakistan Confederation?

Internal reforms in Pakistan could even lay the grounds for a potential Indo-Pakistani Confederation — one that would include Bangladesh — to be revived. Such a confederation could bring Pakistan substantial economic and strategic benefits.

Increased trade with India’s large, growing market could boost Pakistan’s economy. It could  potentially expand bilateral trade 20-fold to $50 billion from $2.5 billion in 2013. This could generate around 170,000 new jobs, particularly in the agricultural sector.

Egypt’s 1979 peace deal with Israel is a notable example of how diplomatic efforts can drive development, stabilizing the political environment, diversifying the economy, and boosting trade, with lasting benefits that have endured for over four decades.

Access to India’s advanced technology and machinery would improve productivity across various industries. Pakistani businesses, especially small and medium (SMEs), would gain entry to India’s vast consumer base and export markets, lowering prices and expanding product variety for Pakistani consumers. Collaboration in agriculture could also enhance food security for both countries.

Formalised trade would increase tax revenue for Pakistan, while a confederation could potentially lower defence costs, allowing more investment in development. It could also position Pakistan as a strategic link between South Asia, Central Asia, and China, and help resolve long-standing conflicts, promoting regional stability.

In this case, the template of Malaysia’s asymmetric federalism, with Sabah and Sarawak enjoying greater autonomy than peninsular states and their integration into the federation, offers insights for a potential Indo-Pakistani Confederation. Key features include:

1. Asymmetric Powers: Sabah/Sarawak have more autonomy, which could inform greater provincial autonomy in Pakistan, e.g., for Balochistan.
   1. Kashmir within a confederation could join with a special status, under 25-point agreement for outlining unique rights.
   1. Sabah/Sarawak with their “20-point agreement” and “18-point agreement” defining their rights within the Malaysian federation.
2. Resource Control: Oil royalties are shared between federal and state governments in Malaysia, suggesting potential for Pakistani provinces to control natural resources.
   1. A formula for sharing Indus waters and Himalayan resources, inspired by Malaysia’s oil royalty model
3. Cultural Protection: Indigenous rights are enshrined, pointing to safeguards for minority languages and customs in Pakistan.
   1. Kashmiri, Punjabi, and other regional languages could receive official status in respective areas.
   1. Sabah/Sarawak have protection for indigenous customs, languages, and religions
   1. Guarantee language rights and religious freedoms across the confederation.
4. Federal Representation: Quota systems guarantee East Malaysian seats, which could be replicated to ensure smaller Pakistani provinces have a voice.
   1. Create a confederation parliament with guaranteed seats for smaller states/provinces, rotating leadership between India, Pakistan, and Bangladesh
5. Gradual Integration: Malaysia’s phased approach to Sabah/Sarawak could inform strategies for disputed regions like Kashmir.
   1. Adopt Malaysia’s gradual approach for sensitive Indo-Pak regions, e.g., economic integration → political alignment → security cooperation.

In terms of applying Malaysia’s Model to an Indo-Pakistan Confederation, there are considerable practical challenge. The different between Malaysia and a merged Indo-Pak entity complicates direct application.

Unlike the relatively peaceful integration of Sabah and Sarawak into Malaysia — and the peaceful exit of Singapore from the federal union — Kashmir has been a source of active conflict, requiring additional reconciliation measures.

Additionally, there are greater wealth gaps between Indian and Pakistani regions than within Malaysia, exacerbating economic disparities. Finally, Malaysia’s model does not account for the nuclear deterrence dynamic in South Asia.

Despite these differences, Malaysia’s federal structure offers instructive lessons for managing diversity and integrating distinct regions within a larger federation. This suggests pathways for granting autonomy to restive provinces while maintaining national unity.

In the context of an Indo-Pakistan Confederation, the Malaysian model provides insights into managing asymmetric relationships, protecting cultural rights, and implementing phased integration.

The key lesson is the possibility of unity with diversity, achieved through negotiated agreements, constitutional safeguards, and respect for regional autonomy. Careful adaptation would be required to fit the unique challenges of the Indo-Pak context, including nuclear politics, historical conflicts, and vast population differences.

While the potential benefits for Pakistan are substantial and far-reaching, this theoretical proposal faces immense practical challenges due to the complex cultural, geopolitical, and historical factors at play in the India-Pakistan dynamic.

Conclusion

A blend of the UAE’s confederal model, Malaysia’s centralised federation and Belgium’s asymmetric federalism could provide Pakistan with a viable internal reform strategy for devolving power, establishing multiple administrative centres, and addressing the longstanding Kashmir conflict.

The rewards could be substantial—boosting economic growth, lowering security tensions, and enhancing Pakistan’s global reputation. However, these reforms challenge entrenched national narratives, especially on Kashmir.

Key success factors include:

• Constitutional Clarity: Amend the constitution to clearly delineate powers. 
• Broad-Based Consultation: Secure commitment from the military, political parties, and civil society. 
• Fair Revenue Distribution: Shield against dominance by wealthier regions like Punjab and Sindh. 
• International Support: Craft secure water agreements and diplomatic frameworks to sustain stability post-Kashmir settlement.

However, the Pakistan military is a critical and powerful actor, with an enduring hegemonic role and its own power centre in Rawalpindi. This is due to the historical fact that the military has seized power after every 10 to 12 years of civilian rule in the country. The military’s position as a distinct “pole of power” means it is a force that can “make or break” political developments in Pakistan.

In summary, while the UAE, Malaysian and Belgian models offer promising theoretical insights that offer practical adaptions, implementing a similar framework in Pakistan will demand exceptional consensus, meticulous institutional design and the enfranchisement of the Pakistan military.