Arshad Mahmood Awan
The introductory session of the 11th National Finance Commission (NFC) on December 4 is expected to set the tone for a complex round of negotiations between the federal government and the provinces. The discussions will focus on drafting a fresh award to govern the vertical and horizontal distribution of tax revenues from the federal divisible pool. Historically, NFC negotiations have rarely been smooth, with the exception of the seventh award finalised in 2009. The difficulties largely stem from the persistent gap between the provinces’ spending needs and the limited revenue available for distribution.
The current NFC award has been in place for 15 years, far exceeding its constitutionally mandated five-year term. Multiple attempts to initiate discussions for a new award since its expiry in 2015 have failed to produce meaningful progress. The upcoming talks are unlikely to be friction-free or swift, particularly because the federal government is keen to reclaim some of the fiscal resources ceded to the provinces under the existing award. The centre’s position has been bolstered by international financial institutions, including the IMF, which have also advocated for a rebalancing of resources in favour of Islamabad.
Political dynamics further complicate the scenario. During its tenure, the PML-N had attempted to roll back the constitutional protection for the provincial share in the divisible pool and sought to regain federal control over devolved subjects such as population and education through the 27th Amendment. However, this proposal was rejected by its main coalition partner, the PPP. While this underscores the limits of federal overreach, it also highlights the potential for negotiation within the existing constitutional framework. A consensus that balances the interests of the centre and the provinces is achievable if the discussions prioritise extending the devolution agenda to local governments.
Provincial performance has been uneven over the past 15 years. While the NFC awards have increased their shares, provinces have largely underutilised opportunities to raise their own-source revenues. Additionally, the transfer of powers and responsibilities to local governments has remained limited. These shortcomings are significant, as enhanced local governance is critical for translating fiscal resources into tangible development outcomes for citizens. Yet, the centre cannot claim to have fulfilled its obligations either. Despite the passage of 15 years, Islamabad has not managed to raise the tax-to-GDP ratio to the targeted 15 percent. Furthermore, the federal government has been reluctant to relinquish devolved ministries or curb wasteful expenditure, leaving provinces wary of any attempt to reverse their financial shares.
A successful 11th NFC award will therefore require mutual accountability. The provinces can be persuaded to take on greater development responsibilities, tap unexplored own-source revenue streams, and meaningfully devolve fiscal, political, and administrative powers to local governments. For this to materialise, however, the centre must honour its part of the bargain by implementing fiscal discipline, optimising its own revenue collection, and refraining from encroaching upon devolved subjects. Only then can a cooperative federalism model function effectively and translate constitutional provisions into practical governance outcomes.
The stakes are high. With rising population pressures, inflationary challenges, and increasing public service demands, the equitable and efficient distribution of fiscal resources is more critical than ever. Provinces argue that any rollback of their current shares would be unacceptable, particularly given the historical context of underfunding and delayed development. On the other hand, the centre faces mounting pressure to streamline expenditure and improve resource mobilisation to meet macroeconomic targets. Negotiators must reconcile these competing priorities through careful fiscal engineering and policy innovation, rather than through political posturing or ad hoc compromises.
An effective NFC award should also address structural inefficiencies in resource utilisation. The provinces hold substantial untapped potential in sectors such as agriculture, manufacturing, and urban development, which could be leveraged to expand own-source revenues. At the same time, the federal government must provide technical and regulatory support to enable provinces to harness these resources. By creating incentives for efficiency and accountability, the NFC award can serve as a tool to strengthen governance at both provincial and local levels, rather than merely redistributing existing revenue streams.
Political alignment and trust between the centre and provinces are crucial to achieving meaningful outcomes. Past NFC negotiations demonstrate that even when constitutional provisions are clear, implementation gaps can persist due to lack of cooperation, delayed decision-making, and competing partisan interests. A forward-looking approach would focus not only on vertical and horizontal revenue shares but also on incentivising reforms that improve fiscal responsibility, governance quality, and service delivery. This includes creating transparent mechanisms for monitoring expenditure and assessing development outcomes.
The NFC award is more than a technical exercise; it is a reflection of Pakistan’s federalism and political maturity. By establishing a framework that balances fiscal equity with accountability, the 11th NFC can provide the provinces with financial autonomy while ensuring that the centre maintains the capacity to manage macroeconomic stability. A transparent, data-driven, and participatory process can help restore public confidence in fiscal federalism and prevent perceptions of arbitrary resource allocation, which have historically fuelled provincial grievances.
In conclusion, the upcoming NFC talks present both challenges and opportunities. The 15-year delay in revising the current award, coupled with structural and political constraints, makes the negotiations inherently complex. Yet, by fostering cooperative federalism, focusing on development outcomes, and leveraging untapped revenue sources, Pakistan can craft an award that strengthens both national cohesion and provincial governance. Success will depend on the willingness of all stakeholders—federal and provincial—to engage in principled negotiations, respect constitutional mandates, and prioritise long-term development over short-term political gains.
The 11th NFC award could set a benchmark for fiscal federalism in Pakistan, demonstrating that equitable resource distribution is achievable when political will aligns with sound policy design. If Islamabad and the provinces rise to this occasion, the award will not only resolve historical grievances but also empower local governments, improve public service delivery, and enhance the country’s overall economic resilience. This is the moment for cooperative federalism to translate into measurable progress for Pakistan’s citizens.
