Dr Bilawal Kamran
Finance Minister Muhammad Aurangzeb has reopened an important national debate by questioning the long-standing formula used to distribute federal revenues among Pakistan’s provinces. His observation that assigning 82 percent weight to population in the National Finance Commission (NFC) Award is no longer sustainable reflects a reality that policymakers have ignored for years. Pakistan repeatedly describes rapid population growth as one of its greatest economic and social challenges, yet its principal fiscal arrangement continues to reward provinces almost entirely on the basis of how many people they have rather than how effectively they manage population-related challenges.
The Seventh NFC Award introduced in 2010 was undoubtedly an improvement over the previous system, which relied almost exclusively on population. It broadened the formula by allocating 82 percent weight to population, 10.3 percent to poverty and backwardness, 5 percent to revenue generation, and 2.7 percent to inverse population density. Although these additions made the formula more balanced on paper, population still dominates the calculation so heavily that the remaining indicators have only a limited influence on provincial allocations.
This imbalance has become increasingly difficult to justify since the Eighteenth Constitutional Amendment transferred the Population Welfare Programme and related service delivery responsibilities from the federation to the provinces. Provincial governments are now directly responsible for family planning services, reproductive healthcare, awareness campaigns, and population welfare initiatives. The federal government mainly performs coordinating, policy-making, and international reporting functions. Yet despite this shift in responsibility, the fiscal incentives have remained largely unchanged.
The contradiction is clear. Provinces are expected to reduce population growth, improve reproductive health, and expand family planning services, but the mechanism determining their share of federal resources continues to favour larger populations. While no provincial government intentionally promotes higher birth rates to secure greater financial transfers, the existing formula unintentionally rewards demographic expansion instead of effective population management.
Planning Minister Ahsan Iqbal has already suggested introducing incentives in future NFC Awards for provinces that demonstrate measurable progress in controlling population growth. This proposal deserves serious consideration because it recognises that fiscal systems influence policy priorities. Governments naturally devote greater attention to objectives that produce financial returns. If reducing fertility, expanding reproductive healthcare, and improving women’s education generate no additional fiscal benefit, these programmes inevitably compete with other immediate political priorities.
Managing population growth requires long-term investment. Provinces must strengthen primary healthcare, expand access to contraceptives, improve maternal services, educate adolescent girls, and challenge social misconceptions surrounding family planning. These programmes demand political courage, administrative capacity, and sustained funding. Their benefits emerge gradually through healthier families, lower dependency ratios, reduced pressure on public services, and stronger economic productivity. However, under the present NFC formula, provinces receive no distinct financial reward for making these investments successful.
Consequently, Pakistan finances the consequences of rapid population growth after they have already materialised rather than encouraging policies that prevent excessive demographic pressure in the first place. This disconnect weakens national efforts to address one of the country’s most pressing developmental concerns.
A similar policy inconsistency can be found in Pakistan’s affirmative action and quota system. Supporting disadvantaged communities through reserved opportunities remains an important constitutional objective. Historically deprived regions deserve additional educational and employment opportunities. However, the present quota structure often relies on broad provincial or rural classifications that fail to distinguish between genuinely disadvantaged communities and relatively prosperous districts within the same province.
As a result, candidates from better-developed areas frequently benefit from quota protections originally designed for people facing severe educational, infrastructural, and economic disadvantages. This weakens the effectiveness of affirmative action while raising concerns about fairness.
A more equitable approach would identify backward districts using objective indicators such as education, healthcare, infrastructure, income, and human development. Federal jobs and educational opportunities reserved under affirmative action could then be allocated specifically to candidates from these districts. Selection would continue through competitive examinations conducted among candidates within each protected district or cluster of similarly disadvantaged districts, while maintaining national minimum standards of competence.
Such a system would preserve merit while ensuring that affirmative action reaches those who genuinely require assistance. Equally important, backward status should not become permanent. Districts should periodically graduate from preferential treatment once measurable improvements occur. Otherwise, administrative incentives may unintentionally encourage the continuation of backwardness rather than its elimination.
The same structural weakness therefore exists in both the NFC Award and the quota system. Pakistan has become proficient at compensating existing deprivation and demographic pressure, but far less successful at rewarding measurable progress in reducing them.
Population, however, cannot simply be removed from the NFC formula. Provinces with larger populations genuinely require greater financial resources to provide education, healthcare, policing, transport, water supply, sanitation, and other essential public services. Abruptly reducing the population component without adequate safeguards would disproportionately affect poorer provinces where high fertility often coincides with weaker healthcare systems, lower educational attainment, and widespread poverty.
The solution is therefore not to penalise provinces for their existing populations but to differentiate between financing present needs and encouraging future improvements. Population should remain an important element of the NFC formula because governments must continue providing services to citizens who already exist. Poverty, fiscal capacity, remoteness, backwardness, and revenue generation should likewise continue to influence allocations.
Alongside these traditional criteria, however, future NFC Awards should introduce a separate performance-based component specifically linked to population management. Provinces demonstrating sustained improvements should receive additional financial transfers. This approach would reward progress without reducing funding for existing service obligations.
Importantly, performance should not be judged solely by annual fertility rates. Fertility changes slowly and depends upon many factors beyond immediate government control, including migration patterns, age structure, and economic conditions. Relying exclusively on fertility targets could also create incentives for statistical manipulation or coercive practices that undermine reproductive rights.
Instead, evaluation should focus on indicators that provincial governments can directly influence. These include wider availability of modern contraceptive methods, lower unmet demand for family planning, improved maternal healthcare, reduced adolescent pregnancies, longer birth intervals, increased female secondary school completion, and expanded reproductive health services. These indicators measure whether families, particularly women, have genuine opportunities to make informed reproductive decisions.
Performance assessments should also recognise each province’s starting point. Comparing Balochistan directly with Punjab would reward historical advantages rather than administrative effort. Provinces beginning with weaker indicators should receive recognition for meaningful improvement, even if they remain below national averages.
To minimise political resistance, the new incentive system should initially be financed through future growth in the divisible pool instead of reducing current provincial allocations. No province should lose existing revenue, but an increasing proportion of additional federal resources should reward measurable improvements in population management.
Equally important, financial incentives must be linked to verified implementation at the district level. Population programmes succeed not in provincial secretariats but through functioning hospitals, basic health units, community health workers, schools, pharmacies, and local administrations. Independent monitoring and transparent reporting should therefore become essential features of any performance-based grant system.
Pakistan has announced numerous population policies over the decades, yet implementation has consistently remained weak. Removing taxes on contraceptives or obtaining donor funding may improve resources, but financial assistance alone cannot overcome institutional weaknesses. Sustainable progress requires incentives that encourage governments to deliver measurable results rather than merely launching new programmes or conducting awareness campaigns.
The Finance Minister is therefore right to call for a comprehensive review of the NFC Award. However, simply reducing population weight and redistributing percentages among existing indicators would not address the underlying challenge. The objective should not be to create a mathematically more complicated formula but to establish a system that changes government behaviour.
The state has a constitutional responsibility to finance services for every citizen already born. At the same time, it should encourage provinces to pursue policies that improve women’s health, expand educational opportunities, strengthen reproductive choice, and gradually reduce unsustainable population growth.
Pakistan cannot continue describing rapid population growth as an existential national threat while maintaining a fiscal system that treats demographic performance as largely irrelevant. The next NFC Award should preserve population as an important criterion but integrate meaningful incentives for provinces that successfully improve human development, expand family planning, educate girls, and responsibly manage future demographic pressures. Only then will fiscal federalism become a genuine instrument of national development rather than a passive mechanism for distributing resources.
