Arshad Mahmood Awan
The eleventh National Finance Commission (NFC) meeting, chaired by Federal Finance Minister Muhammad Aurangzeb, has emerged as a critical juncture in Pakistan’s fiscal governance. Reports indicate that the proposed revenue-sharing framework intends to provide the federal government with a higher share than what was allocated under the seventh NFC award of 2010. The government’s focus on increasing the Centre’s share is largely driven by an escalating revenue shortfall that has raised concerns about the sustainability of public finances. However, the process is complicated by the constitutional provision of Article 160(3A), which mandates that “the share of the provinces in each award of the NFC shall not be less than the share given to the provinces in the previous award.” This clause essentially limits the federal government’s flexibility and necessitates careful negotiation to avoid legal and political disputes.
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The political context surrounding the NFC deliberations is highly sensitive. Bilawal Bhutto-Zardari, Chairman of the Pakistan People’s Party (PPP), has openly opposed any attempt to amend Article 160(3A), highlighting the tension between federal fiscal priorities and provincial autonomy. Similarly, Asad Qaiser, a senior leader under the Tehrik Tahaffuz-e-Aain-e-Pakistan banner, has expressed concerns over unfulfilled commitments to the newly merged districts in Khyber Pakhtunkhwa. These districts have long awaited federal attention, particularly in areas of infrastructure, social services, and administrative integration. The issue underscores a larger structural challenge: while the federal government seeks additional resources to manage its growing obligations, provincial leaders remain vigilant about safeguarding their own fiscal entitlements.
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Fiscal policy debates during the NFC process also touch upon the methodology for calculating provincial shares. Federal Planning Minister Ahsan Iqbal has argued that population-based allocation, currently accounting for 82 percent of the distributable pool, should not be the sole criterion for determining the NFC award. According to Iqbal, this approach risks incentivizing population growth, which international evidence identifies as a major obstacle to sustainable economic development. Finance Minister Aurangzeb reinforced this perspective during his address on World Population Day, advocating for an approach that balances equity and economic pragmatism. Critics, however, caution that adjusting population weights could exacerbate political friction, especially among provinces that rely on demographic figures to justify larger shares of federal resources.
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Balochistan’s status in these discussions illustrates the broader developmental asymmetries within Pakistan. Despite being rich in mineral resources, the province remains underdeveloped, struggling with inadequate infrastructure, low human development indicators, and limited industrial activity. Balancing federal and provincial interests in such contexts is a complex task. The NFC Chairperson faces the dual challenge of reconciling the federal government’s financial imperatives with the provinces’ demands for equitable and sustained investment in development. This task is particularly daunting given the political dynamics, as the federal finance ministry does not enjoy uniform support across provinces, even when historically it has benefited from party dominance at the Centre.
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Historical patterns demonstrate that achieving consensus in NFC meetings is exceptionally difficult. The last fully agreed NFC award was in 2010, despite the constitutional mandate requiring a five-year interval between awards. Meetings held over the past fifteen years repeatedly failed to reach an agreement, reflecting the entrenched political and economic differences among the federation’s units. The 2010 award itself required extraordinary political maneuvering, including an offer from then-President Asif Ali Zardari to allow the Punjab-led PML-N government a constitutional amendment for a third-time prime minister, ultimately incorporated into the eighteenth constitutional amendment. This precedent underscores the political sensitivity and potential need for negotiation beyond standard fiscal calculations.
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Given the high stakes, it is critical that the federal government adopts a comprehensive and pragmatic approach to the upcoming NFC award. This includes exploring avenues to reduce the fiscal deficit while maintaining political acceptability. One proposed strategy involves a 600 billion-rupee reduction in current expenditure, including approximately 100 billion rupees from government operational costs without increasing wages for a set period, and another 100 billion rupees from subsidies, thereby reducing dependency on domestic and foreign borrowing by an estimated 300 billion rupees. These measures could demonstrate fiscal discipline, easing some of the pressures that drive the Centre’s push for a larger share of the divisible pool.
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Additionally, increasing the tax-to-GDP ratio by one percent—equivalent to roughly 100 billion rupees—can improve revenue collection without disproportionately burdening provinces. Reforms in taxation, especially targeting efficiency and compliance, could generate sustainable revenue growth. The federal government is also advised to consider the devolution of certain subjects to the provinces, in line with the eighteenth constitutional amendment, which may yield savings of around 100 billion rupees while reinforcing provincial empowerment. Such measures not only support fiscal consolidation but also demonstrate respect for the spirit of federalism, fostering a cooperative environment for revenue-sharing negotiations.
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The implications of the upcoming NFC award are far-reaching. Unlike its predecessors, it arrives at a time of heightened fiscal stress, growing public expectations, and persistent regional disparities. Its successful negotiation will require balancing vertical equity—between the Centre and provinces—and horizontal equity—across provinces with differing populations, development levels, and revenue-generating capacities. Achieving this balance is essential not only for fiscal stability but also for political cohesion, development planning, and public trust in the federation’s governance structures.
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Ultimately, the eleventh NFC meeting presents both challenges and opportunities. On one hand, the Centre must secure additional resources to meet national obligations, including infrastructure, social welfare, and debt servicing. On the other hand, the provinces must be assured of their rightful shares to avoid long-term political friction. Striking this balance will require transparent negotiations, adherence to constitutional principles, and willingness from all stakeholders to compromise for the greater fiscal and political good of the country. The NFC award, therefore, is not merely a fiscal exercise; it is a critical test of Pakistan’s federal cohesion, political maturity, and commitment to equitable development.
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