Pakistan’s 11th National Finance Commission Session Faces Further Delays Amid Economic Pressures
The Maiden session of 11th National Finance Commission (NFC), initially constituted three months ago, has again been postponed, with its proposed November 18 date now deferred. This significant delay comes amidst a downward revision of Pakistan’s economic growth forecast for the current fiscal year, now projected at 3.5 percent, a reduction of up to 0.7 percent. This recurring postponement underlines growing fiscal complexities impacting the nation’s financial landscape.
Understanding the National Finance Commission’s Role
The National Finance Commission is a constitutionally mandated body responsible for determining the sharing of federal divisible resources between the Centre and the four provinces. The 11th NFC was established on August 22 to formulate a new award, replacing the 7th NFC award from 2009, which has remained in effect for over 15 years against its stipulated five-year term. SindhNews.com sources indicate that Prime Minister Shehbaz Sharif aims to resolve key Centre-provincial political matters before initiating financial discussions at the NFC forum.
Calls from various stakeholders, including the finance ministry, the armed forces, and the International Monetary Fund (IMF), have repeatedly urged the rebalancing of resource transfers to provinces under a new award. The Constitution guarantees that provincial shares cannot be reduced in any subsequent NFC award, requiring consensus from the Centre and all four provinces for any new arrangement.
Economic Downturn and Resource Allocation Challenges
Under the existing 7th NFC award, provinces collectively receive 57.5 percent of divisible pool taxes, encompassing income tax, general sales tax, customs duties, and federal excise. Horizontal distribution among provinces is determined by factors like population, poverty, revenue collection, and inverse population density. This formula grants Punjab 51.74pc, Sindh 24.55pc, Khyber Pakhtunkhwa 14.62pc, and Balochistan 9.09pc.
The recent downward revision in the economic forecast to 3.5pc for the current fiscal year significantly impacts FBR’s tax collection and, consequently, the provinces’ NFC shares. While the Centre has secured alternative revenue streams like the petroleum development levy (PDL) and approximately Rs1.5 trillion in provincial cash surpluses, accumulating to roughly Rs3 trillion (2pc of GDP) for the current fiscal year, these measures operate outside the constitutional framework of the NFC.
The Impact of Floods and Political Bargaining
The finance ministry recently informed the National Assembly that devastating floods have led to projected economic losses of Rs822 billion (approximately $2.9 billion). This calamity is expected to reduce FY2026 GDP growth by 0.3-0.7pc, lowering the outlook from 4.2pc to a range of 3.5-3.9pc. SindhNews.com reported that agricultural losses alone are estimated at Rs430 billion, alongside significant infrastructure damage totaling Rs307 billion. These factors have exerted considerable upward pressure on inflation, particularly on food prices.
Amidst these economic challenges, political bargaining has also influenced the NFC’s progression. The federal government reportedly backed off from proposed constitutional amendments aimed at reducing provincial financial shares and re-devolving subjects like education and population. This move followed a political agreement with a key coalition partner, the PPP, focusing instead on amendments related to the armed forces and judiciary.
Conclusion
The continued delay of the 11th National Finance Commission session highlights a confluence of economic pressures and political complexities. With the 7th NFC award in effect for over 15 years and urgent calls for resource rebalancing unheeded, Pakistan faces significant challenges in forging a new consensual fiscal framework. The ongoing dialogue, alongside the severe economic repercussions of natural disasters like the recent floods, underscores the critical need for a timely and equitable resolution to ensure financial stability across the federation.