The difficult but necessary process of building consensus on the vertical and horizontal distribution of resources under the new National Finance Commission (NFC) framework is set to begin this week. Given the contentious nature of the subject, along with technical and legal complexities involved, the exercise is not expected to conclude anytime soon.
The launch of the 11th National Finance Commission (NFC) was delayed multiple times after its constitution in August. The inaugural meeting, to be presided over by Finance Minister Muhammad Aurangzeb, will be attended by the finance ministers of Punjab and Balochistan, as well as the chief ministers of Sindh and Khyber Pakhtunkhwa (KP), who also hold the finance portfolios, along with technical members. The meeting will deliberate on the future strategy after participants share their respective fiscal positions.
No one expects the process to be smooth or swift, given the clash of interests, entrenched positions, and deep sensitivities surrounding the technical, financial and legal dimensions of both vertical and horizontal resource distribution.
The federal government aims to reduce the provinces’ share in the federal divisible pool from the current 57.5 per cent in the next award, either by cutting the percentage outright, or by shifting additional expenditure responsibilities to the provinces, or even a combination of both. The provinces, however, are expected to strongly resist any such move on legal grounds. Under the 18th Amendment of the Constitution, any downward revision of provincial share is explicitly barred in the subsequent NFC awards.
‘Under Article 160, the NFC strictly deals with revenue sharing, not expenditure decisions or efficiency’
The last agreed formula for the horizontal distribution among the provinces will also need to be revisited in light of the 2023 Population Census. While the smaller provinces are likely to push for an enhanced share, Punjab may resist any further adjustment after having accepted a downward revision in its share in the previous two awards, citing its expanding fiscal and development needs.
The longstanding dispute between Sindh and Punjab over the taxation rights of service firms registered in one province but operating in the other may also be addressed to arrive at a mutually acceptable resolution.
The 7th NFC Award took four years to finalise and another year to implement. It was constituted in 2005, announced in 2009 and enforced in 2010. While the current fiscal and macroeconomic pressures may be more compelling, most experts believe that even with the best of intentions and sustained effort, reaching a fresh consensus will remain an arduous and long drawn process.
“Even with sustained effort and collaboration, the 11th NFC Award is unlikely to materialise in less than a year,” observed an expert involved in earlier negotiations. “The process will test the resolve, trust and patience of all stakeholders. Any attempt to rush, pressure or manipulate weaker partners risks undermining the hard-won gains of the 7th NFC Award, which marked a milestone in advancing fiscal federalism, crucial for inclusivity, efficiency and improved inter-provincial harmony in Pakistan.”
Key achievements of the 7th NFC Award include breaking the decade-long deadlock on resource distribution, significantly increasing the provinces’ share of the federal divisible pool, and introducing a multiple-criteria formula for horizontal distribution that favoured less-populated and poorer provinces. It also reduced the federal government’s tax collection charges from 5pc to 1pc and allocated an additional 1pc of the divisible pool to KP to address heightened security challenges.
Some have proposed linking provincial shares to the quality of fund utilisation since the 7th NFC Award in 2010. However, economists from Sindh with experience in the process strongly oppose this idea, calling it illegal and unfair.
Two senior commentators, founders of leading service firms, called for accountability before initiating fresh talks on resource sharing. “Governance remains dismally poor across all tiers. Our limited resources are largely squandered,” said one. Citing the International Monetary Fund’s Governance and Corruption Diagnostic Report that exposed federal inefficiencies, he added, “A similar diagnostic is urgently needed at the provincial level.”
The other commentator focused on Sindh, arguing that provinces now have ample funds under the current NFC framework, supported by a rise in revenue collection. “The real issue in Sindh is not lack of money, but the intent of its rulers. They know what needs to be done, especially in Karachi, but choose not to, or skew development to serve vested interests,” he said.
Karachi, he argued, is being systematically shortchanged. “The KMC [Karachi Metropolitan Corporation] is powerless, and whatever it receives disappears into bottomless pit.” He called for a comparative study of per capita revenues and public spending in Sindh and Punjab, and how effectively they translate into development outcomes.
Dr Asad Saeed and Dr Kaiser Bengali pushed back against the misconception that the NFC forum governs expenditure decisions. “Under Article 160, the NFC strictly deals with revenue sharing, not expenditure decisions or efficiency,” Dr Saeed clarified.
While acknowledging provinces have varied performance across sectors, Dr Saeed noted that Sindh has done well in primary and tertiary healthcare, leads in public-private partnerships, and is implementing the largest public rural housing project. However, education remains an area of concern. He stressed that expenditure scrutiny is needed nationwide, including at the federal level. But it remains distinct from provincial revenue rights.
Responding to a query on Sindh’s stance, Dr Bengali remarked, “How the provincial government handles federal pressure on NFC remains to be seen. If it refuses to concede, a deadlock is likely.” He added that local government and social indicators have “absolutely no connection” to the NFC, emphasising that such issues must be addressed within each province’s internal political framework.
Published in Dawn, The Business and Finance Weekly, December 1st, 2025
