ISLAMABAD: The federal government opened the 11th NFC meeting in Islamabad on Thursday. Finance Minister Muhammad Aurangzeb chaired the high-level session. Chief ministers of Sindh and Khyber Pakhtunkhwa attended as provincial finance ministers. Punjab and Balochistan were represented by their respective finance ministers.
KP Adviser on Finance Muzzammil Aslam joined the meeting with Chief Minister Amer Afridi. FBR Chairman Rashid Langrial also attended the session. Private members from all provinces participated in the proceedings. Punjab’s private member Nasir Khosa attended the meeting as provincial representative. Shoaib Nosherwani represented Balochistan in the commission.
The meeting marked the first structured attempt to revive the NFC process. Previous commissions failed to produce a consensus award. Planning Minister Ahsan Iqbal urged a review of resource distribution formulas. He sought changes in both vertical and horizontal allocations.
Planning Ministry Proposes New Vertical Distribution Models
The Planning Ministry submitted a working paper to Prime Minister Shehbaz Sharif. The proposal outlined two scenarios for vertical resource sharing. Scenario one proposed upfront deductions for national priorities. These deductions included security, water projects, and CAF requirements. Grants for AJK and GB were also included in deductions. The remaining pool would follow the existing 57.5 and 42.5 split. This mechanism would slightly ease federal fiscal pressure from FY2027 onward.
Scenario two proposed deductions for BISP and HEC expenditures. The remaining revenues would then follow the same distribution ratio. This approach would raise federal resources by FY2030. The increase would remain around 11 to 12 percent.
Ministry Calls for Balanced and Sustainable Fiscal Structure
The paper stressed the need to rationalise vertical distribution. It recommended a formula recognising constitutional and administrative regions. It argued this framework would strengthen national fiscal stability. It warned that high federal expenditures had widened fiscal deficits. These deficits persisted between 5 and 8.4 percent for years. They fueled debt accumulation and limited fiscal space for development. Rising debt servicing consumed large portions of federal revenues.
New Horizontal Options Aim to Reduce Population Dominance
The paper also addressed horizontal distribution among provinces. It noted population currently carries an 82 percent weight. Other indicators hold only marginal influence. Three new options were proposed to diversify weightage.
Option one reduced population weight to 78 percent. Small increases were proposed for density, fertility and forest cover. Option two lowered the weight to 68 percent. It assigned 10 percent to revenue generation. It also added modest weights to fertility and forest cover. Option three assigned 60 percent to population. It added high weights to revenue generation and ecological indicators.
These options reduced Punjab’s share under all scenarios. Sindh’s share remained largely stable across proposals. KP and Balochistan gained shares under multiple scenarios. ICT gained significant weight under the third scenario.
The report warned that current NFC arrangements created structural imbalances. Provincial revenues remained stagnant at one percent of GDP. Weak taxation in key sectors contributed to this stagnation.
