The first meeting of the 11th National Finance Commission (NFC) to discuss and finalise a new award was postponed last week due to flood emergency in the country, which demanded urgent government attention and resource mobilisation to mitigate potential human and material losses.
Background research, however, revealed that, compared to the federation, the provinces were entering the NFC parleys relatively underprepared. While the federal Ministry of Finance reportedly built its case on systematic studies backed by data, arguing for a significant reduction in the provinces’ unified share, the provincial finance departments had little to offer in return.
They struggled to present credible evidence of outcomes achieved with large shares of national resources post-7th NFC award, or to make a convincing case for further enhancement of their share, beyond citing the constitutional protection of the existing formula. Under the 7th NFC award of 2010, the share of the provinces increased by 10 per cent to 57.5pc of the total federal divisible pool.
The 18th Amendment, passed in 2010, expanded provincial autonomy to promote a more participatory federal democracy by devolving taxing powers and responsibilities for services like health, education and infrastructure. However, provinces have been slow to mobilise revenues or fully take charge of these functions. Despite increased resource transfers over the past 15 years, progress on universal education and health has been limited, and in some cases, human development indicators have worsened.
Despite increased resource transfers over the past 15 years, progress on universal education and health has been limited, and in some cases, human development indicators have worsened
The postponement of the NFC meeting has given provinces a valuable window to strengthen their preparations and engage their technical experts. It would be beneficial for provincial governments to coordinate and exchange notes, enabling a more unified stance in defending the gains made toward equitable resource distribution, progress that one expert from Sindh described as essential for a “balanced and functional federal set up”.
Following the expiry of the 10th NFC’s term in July, President Asif Ali Zardari constituted the 11th NFC in August to finalise a new resource-sharing formula. Since the process began in 1973, 10 commissions have been formed, but only seven awards have been finalised, due to the complex, often contentious negotiations required to build consensus across provinces. The 7th Award, announced in 2009 and well past its intended five-year span, remains in effect even today.
According to the finance ministry notification, the nine-member 11th NFC will include Finance Minister Aurangzeb Khan, the chief ministers of all four provinces and four private members: Nasir Mahmood Khosa (Punjab), Dr Asad Sayeed (Sindh), Dr Musharraf Rasool (Khyber Pakhtunkhwa), and Farman Ullah (Balochistan).
The seven reported terms of reference task the commission with recommending a resource-sharing formula under Article 160(3) of the Constitution. It will also advise on federal grants to the provinces, borrowing powers of both tiers, and cost-sharing for provincial and trans-provincial expenditures.
A key concern is the centre’s funding provincial projects like roads in Punjab, Sindh and Balochistan, straining its budget. The commission may recommend that provinces allocate a part of their divisible pool share toward national projects including large dams and security needs.
The commission will also decide on the Centre’s demand for allocations to regions under its jurisdiction, Islamabad, Azan Jammu and Kashmir, and Gilgit-Baltistan. It also wants future provincial transfers tied to local government disbursements.
In response to former finance minister Miftah Ismail’s social media post advocating a cut in provincial share, Sindh-based expert Asad Ali Shah cautioned that rolling back the 7th NFC Award or undermining the 18th Amendment risks undoing vital progress toward a balanced federation. He noted that key areas of human and economic development, education, health, agriculture, industry and local infrastructure, are constitutionally provincial responsibilities, as the case in most federal democracies.
He stressed the importance of historical context, noting that the 1940 Pakistan Resolution envisioned autonomous provinces within a federal framework. Pakistan’s creation was rooted in the struggle for provincial autonomy. At independence, sales tax on goods was a provincial subject, but the federal government took it over in 1948 as a temporary wartime measure and never returned it.
Mr Shah further argued that any rebalancing of federal-provincial shares must include returning the sales tax on goods to provinces to restore their fiscal space. Wasteful spending, he noted, exists at both levels and not just in provinces. The real fix lies in stronger governance, clear mandates, robust audit systems, and eliminating duplication, such as abolishing federal ministries in devolved sectors. “Fiscal discipline won’t come from starving provinces of funds, but from ensuring every rupee — whether spent in Islamabad or a remote district — delivers measurable public value,” he remarked.
Making the case for a reduced provincial share, Miftah Ismail, co-founder of Awam Pakistan Party, argued that with over 60pc of tax revenues going to provinces, the federal government must raise revenues by 167pc of its deficit just to break even, fuelling high income and sales taxes. Yet, both federal and provincial governments have little to show for it, as Pakistan — now ranking 168 out of 193 on the Human Development Index — continues spiraling downward.
He noted that while federal waste must be reduced, its largest expense, Rs8.4 trillion this year, is provincial transfers. Even a 10pc cut in all other federal spending would still leave a Rs5tr deficit. Without revisiting the NFC, fiscal stability is unachievable. Currently, provinces receive funds without responsibility and must be empowered to raise their own revenues.
The core argument called for downsizing all tiers of government, empowering local bodies, expanding education vouchers and the Benazir Income Support Programme, and ending elite capture. “Pakistan must finally be run for its people,” Mr Ismail asserted.
When approached for comments, government economic team members and experts deferred input until the process began. PPP lawmakers and senators, speaking privately, showed little consensus in their views.
PPP leader Shazia Mari defended the last NFC award citing constitutional safeguards. She pointed to Article 160(3A), inserted via the 18th Amendment, which states that provincial share “shall not be less than” the share in the previous Award. Any attempt to reduce provincial shares, she argues, would be unconstitutional and a breach of the federal compact.
Published in Dawn, The Business and Finance Weekly, September 1st, 2025
