The first session of the 11th National Finance Commission, slated for Dec 4, is expected to shape the direction of upcoming negotiations between the federal government and the provinces as they work toward a new formula for dividing revenue from the federal divisible pool. Traditionally, NFC discussions have been tense and protracted — the only real exception being the talks that produced the current seventh Award in 2009. The main reason is simple: every stakeholder demands more resources than the system can provide. Consequently, NFC awards tend to stay in effect well beyond their five-year constitutional lifespan. The existing award has been operating for 15 years, despite repeated but unsuccessful attempts to start fresh discussions since its expiry in 2015. Given this backdrop, the upcoming conversations are unlikely to be easy or quick, especially as the federal government is seeking to claw back some of the fiscal space it previously conceded to the provinces.
Pressure for a shift in favour of the centre has not come from Islamabad alone. The IMF and various policy circles have also pushed for revising the distribution formula to strengthen federal finances. The PML-N government recently attempted, through the 27th Amendment, to strip constitutional protection from the provinces’ share of the divisible pool and reassert federal authority over devolved areas like education and population welfare. However, it was forced to back down after strong resistance from its coalition partner, the PPP. This setback does not mean that agreement is impossible. A workable settlement can still be achieved within the existing constitutional limits — provided the goal is genuinely to advance devolution rather than dilute it.
The provinces certainly have their weaknesses: they have failed to significantly broaden their own revenue streams and have been reluctant to transfer meaningful authority to local governments. But the federal government bears responsibility too. Despite 15 years under the current NFC arrangement, it has not been able to raise the tax-to-GDP ratio to the targeted 15pc. It also continues to hold onto ministries and functions that were supposed to be devolved, while doing little to curb unnecessary spending. Under these circumstances, any attempt to reduce the provincial share is bound to face strong opposition.
What might work instead is a two-way commitment. Provinces can be encouraged to take on greater development responsibilities, explore untapped revenue options, and enact genuine devolution to local governments. But for them to do so, the centre must also honour its obligations — fiscally, politically and administratively. Only then can a sustainable and cooperative financial arrangement be achieved.
