Islamabad – In a significant move to address the long-standing challenges of fiscal federalism and financial sustainability, Federal Minister for Planning, Development, and Special Initiatives Ahsan Iqbal has recommended a comprehensive restructuring of the National Finance Commission (NFC) Award, which has remained unchanged for over 15 years. Among his most notable proposals is the suggestion to freeze Pakistan’s population figure at 241.5 million for the purpose of federal-to-provincial fund distribution, alongside the adoption of a multi-dimensional formula that takes development indicators into account rather than relying solely on population.
These recommendations come at a pivotal time, just days after the 10th National Finance Commission expired on July 21, and while the Ministry of Finance is in the process of constituting the 11th NFC Commission. Ahsan Iqbal’s proposals have reignited the national debate around the future of intergovernmental fiscal transfers, resource sharing, and equitable development in Pakistan.
Understanding the National Finance Commission (NFC) Award
The National Finance Commission Award is a constitutional mechanism under Article 160 of the Constitution of Pakistan that governs the distribution of financial resources between the federation and its four provinces: Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan.
The award is expected to be revised every five years through mutual consensus among all federating units and the federal government. However, due to persistent disagreements on the revenue-sharing formula, the existing 7th NFC Award, finalized in 2009, has been extended annually through Presidential orders.
Ahsan Iqbal, while addressing these issues, highlighted the urgent need for restructuring the NFC formula to make it more reflective of the present-day economic and development realities of Pakistan.
Rationale Behind Freezing the Population at 241.5 Million
A key highlight of the Planning Minister’s recommendation is the freezing of population figures at 241.5 million for resource allocation. Iqbal argued that overreliance on population as the dominant factor in fiscal distribution—currently accounting for 82% of the provincial share—has inadvertently encouraged the inflation of population figures and discouraged efforts at population control.
According to the Pakistan Bureau of Statistics (PBS), the country’s population has seen a sharp increase in recent decades. Experts agree that unless population growth is stabilized, the federal development agenda will remain under constant pressure, as more funds are diverted to populous provinces, regardless of performance or developmental outcomes.
By freezing population at a fixed benchmark, Ahsan Iqbal believes the NFC Award can promote fiscal discipline, accurate data collection, and targeted developmental investments.
Proposal for a New Multi-Dimensional Formula
The current NFC formula, heavily skewed towards population, does not adequately consider other key indicators such as tax collection efficiency, poverty rates, education and health outcomes, climate vulnerability, and geographic disparities.
Ahsan Iqbal proposed a new multi-dimensional framework for resource allocation that factors in:
- Development performance
- Tax-GDP ratio
- Digital tax infrastructure
- Human capital development
- Climate adaptation
- Water resource management
- Forestation and environmental protection
This innovative approach is expected to reward provinces that perform better in governance, public service delivery, and sustainable development, and to reduce dependence on centralized fiscal transfers.
Reforming Revenue Collection and Tax Policy at the Provincial Level
Another critical issue raised by the Planning Minister is the provinces’ reluctance to expand their local tax base. Ahsan Iqbal pointed out that since the provinces receive a fixed share from the federal divisible pool, they have shown little initiative in enhancing provincial revenue through taxes.
He emphasized that increasing the tax-to-GDP ratio is essential for the economic future of the country and proposed linking provincial resource allocation to tax efforts and digitalization of tax infrastructure.
Iqbal also warned that unless this issue is addressed, the federal government will remain financially overstretched, struggling to implement high-impact national initiatives like:
- Digital Pakistan
- Special Economic Zones (SEZs)
- Construction of new dams
- Modernization of the National Grid
- Human Resource Development projects
Addressing Fiscal Pressures on the Federal Government
Ahsan Iqbal’s statement draws attention to the financial burden on the federal government, which receives 42.5% of the divisible pool, while 57.5% is allocated to the provinces.
Out of the federal share, more than Rs 150 billion annually is spent on non-provincial areas such as:
- Azad Jammu and Kashmir (AJK)
- Gilgit-Baltistan (GB)
- Merged districts of Khyber Pakhtunkhwa (formerly FATA)
- Islamabad Capital Territory
These regions do not receive direct shares from the NFC pool but are equally entitled to development and welfare spending. The Benazir Income Support Programme (BISP), which is now funded entirely by the federal government at a cost of Rs 716 billion, is another source of strain, especially considering that social welfare is now a provincial responsibility post-18th Amendment.
Without restructuring fiscal priorities, Iqbal warned, the federation’s capacity to fulfill its constitutional and developmental obligations will remain limited.
Composition of the Upcoming 11th National Finance Commission
The 10th NFC lapsed on July 21, and efforts are now underway to form the 11th NFC, which will be tasked with developing a new resource-sharing formula.
So far, the following provincial nominees have been reported:
- Sindh: Dr. Asad Saeed (Retained)
- Balochistan: Mr. Farman
- Khyber Pakhtunkhwa: Musharraf Rasool Cyan (Expected)
- Punjab: Nasir Mahmood Khosa (Expected)
The challenge lies in building unanimous consensus among all five stakeholders—the four provinces and the federal government. As per Article 160(1) of the Constitution, no NFC Award can be passed without unanimous agreement. Even a single government’s dissent can block any changes to the revenue-sharing formula.
Climate Change and Sustainable Development in NFC Reforms
In a novel addition to the fiscal debate, Ahsan Iqbal proposed incorporating climate change adaptation and sustainable infrastructure into the NFC formula.
He advocated for:
- Investments in forest cover and ecosystem restoration
- Mitigation of water-related hazards
- Development of sustainable water infrastructure
- Resource allocation linked to performance in climate resilience
Iqbal argued that Pakistan is among the most climate-vulnerable countries in the world, and unless federal fiscal policy is climate-sensitive, the long-term development goals of the country will be compromised.
Strategic Importance of Creative Industries
Separately, while addressing the opening session of a conference in Karachi, Ahsan Iqbal shed light on the importance of creative industries and the cultural economy.
He stated:
“The creative industries are not just a source of entertainment. They are strategic assets—tools for national identity, economic growth, and soft power.”
Iqbal encouraged the public and private sectors to invest in:
- Film and television
- Music and performing arts
- Fashion and handicrafts
- Digital content creation
He reiterated that a vibrant cultural economy can contribute significantly to job creation, especially among youth and women, while also projecting Pakistan’s rich heritage on the global stage.
Conclusion: Ahsan Iqbal’s Vision for Equitable and Sustainable Fiscal Policy
In conclusion, Federal Minister Ahsan Iqbal’s proposals for restructuring the NFC Award signal a paradigm shift in Pakistan’s fiscal governance model. By recommending a freeze on population figures, a shift toward development-based resource allocation, and performance-linked fiscal incentives, Iqbal aims to create a more equitable and forward-looking financial system.
As the federal government prepares to convene the 11th National Finance Commission, these ideas could spark a broader national dialogue on fiscal decentralization, revenue autonomy, and sustainable development.
Whether consensus can be achieved remains to be seen. But one thing is clear: the future of Pakistan’s intergovernmental finance system hinges on reforms that align with the challenges and opportunities of the 21st century.
