The inaugural session of the newly constituted 11th National Finance Commission (NFC) has been delayed, yet again, amid a downward revision in the economic growth forecast for the current fiscal year.
Established on August 22 to give a fresh award for the sharing of federal divisible resources among the Centre and provinces. The first meeting of the commission was called for Aug 27, which was first postponed to Aug 29 and then to November 18.
The maiden session was expected to spotlight the debate on Pakistan’s resource-sharing framework, for which the federal government had summoned provincial representatives, even as the 27th Constitutional Amendment raised fresh questions about the future of fiscal federalism.
Both developments have revived a long-delayed conversation: why hasn’t the NFC delivered for a strengthened social contract and improved public service delivery?
It has been over 15 years since the 7th NFC Award — a landmark in its time — reshaped Pakistan’s revenue-sharing model. That award tilted decisively toward a needs-based approach, giving dominant weight to population, poverty, and backwardness. But while it addressed the equity gap, it fell short of recognising provincial efforts in revenue mobilisation or expenditure efficiency. The model served its time; today, however, it needs refinement for betterment in the true spirit of the 18th Amendment.
The 7th Award gets fairness right but efficiency wrong. It treats a rich province collecting more tax as “efficient,” even if it’s barely trying. The formula rewards size, not effort; capacity, not commitment. With little weight given to tax effort, provinces have no real incentive to strengthen their own revenue systems.
It is in this context that Pakistan’s NFC framework must shift — from overwhelming needs-based distribution to efficiency-seeking sharing of resources. The NFC should evolve beyond a tool of political consensus into a mechanism that promotes fiscal discipline and incentivises provinces to collect and spend resources efficiently.
This requires rebalancing the formula through three changes:
adjusting the weights of existing indicators
revising their composition
learning from good examples from abroad to include performance-based indicators
Before turning to specific proposals, it is worth noting that other countries in the region have progressively updated their frameworks to reflect changing macroeconomic, poverty, inequality, and environmental realities. Each new commission redefines priorities, blending needs and performance in a way that keeps the formula dynamic and relevant — a practice Pakistan and its federating units can learn from.
Proposals for 11th NFC Awards
A more judicious resource distribution formula must move away from narrow, static parameters such as population — a measure based on outdated census data that ignores migration and demographic shifts. Instead, Pakistan should start introducing globally recognised efficiency indicators.
The reform trajectory could begin by:
Reducing the weight of population by 15 per cent in the 11th NFC awards, and by another 15pc in the next NFC, bringing it down to 52pc
Replacing absolute tax revenue with tax effort, measured as the difference between actual tax collected and estimated tax potential, and doubling its weight to 10pc.
Transforming the poverty indicator from absolute to relative poverty, using “poverty distance” — the gap between a province’s poverty rate and the province with the lowest incidence.
Introducing new indicators — forest cover and air quality index, with a 10pc weight, to encourage responsible provincial spending and sustainable development.
Not an impossible task
Many a time, negotiations have stalled, leading to interim awards that favoured larger provinces. Over time, this has deepened resentment among smaller federating units and the erstwhile Fata. Citizen feedback highlights key concerns that must be addressed if Pakistan is to move toward a more efficient and equitable formula.
First, there is a trust gap between the federal government and provinces. Participants frequently cited that even existing formulas, such as the AGN Qazi formula — a formula for the calculation of the net hydel profit to the provinces — were not implemented in letter and spirit. Provinces argue that it is futile to debate new formulas when past ones remain only partially executed.
Second, provinces remain wary of the federal narrative surrounding the 18th Amendment. Statements from federal officials suggesting that the current NFC framework “weakens the federation” have caused unease.
Third, everyone’s guilty. The federal government has been struggling to expand the resource pie. Meanwhile, provinces have sat back, collecting their shares instead of deepening their own resource base or spending smarter. And now, they’re doing to districts what Islamabad did to them; centralising power and budget instead of passing it down through efficient local governments.
Finally, the NFC is toothless; incapable of reform, decision-making, or acting on evidence. Pakistan needs to give constitutional cover to an empowered fiscal body that is technical, not tactical. Unlike other economies, where finance commissions have research muscle and legally binding recommendations, here every NFC starts from scratch with no data, continuity, or political will, often resulting in a deadlock.
The moment for fiscal reform is now
Pakistan’s fiscal federalism is overdue for a reboot, and citizen voices must drive the change. The 9th and 10th NFC Awards never happened, leaving the 7th in force far past its expiry. With the 11th NFC and the 27th Amendment on the table, Pakistan has a rare chance to rethink fiscal federalism. Revisiting the formula is more than a technical requirement; it tests the federation’s maturity. A modern, transparent, performance-based system would build trust, make decentralisation meaningful, and shift the focus from entitlement to effort, from needs to results.
Before the 12th NFC, Pakistan must move beyond mere arithmetic and confront deeper structural questions: Are provinces ready for a performance-based, equitable formula? Can the NFC evolve from a consensus forum into a mechanism that ensures timely, evidence-based decisions?
Breaking the status quo will take time, but citizen voices must drive the debate. Engaging media, civil society, academia, and think tanks can make reforms credible and forward-looking. Fiscal federalism must deliver sustainable development.
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