Federal Minister for Planning, Development, and Special Initiatives Ahsan Iqbal has proposed significant reforms to the National Finance Commission (NFC) Award, calling for a modern formula that ensures fair and sustainable resource distribution among provinces.
Speaking at the Pakistan Governance Forum 2026 in Islamabad, Iqbal emphasized the need to redesign the NFC formula to promote poverty reduction, population stabilization, human development, and environmental sustainability.
Fiscal Pressures on Federal Government
The minister highlighted growing fiscal challenges faced by the federal government. He stated that federal tax revenue stands at approximately Rs14 trillion, with an additional Rs5 trillion generated from non-tax sources.
Around Rs8.2 trillion is transferred to provinces under the NFC Award. After these allocations, the federal government retains roughly Rs11.07 trillion against total expenditures nearing Rs17.5 trillion.
Iqbal noted that nearly half of federal spending goes toward debt servicing, while approximately 25% is allocated to defense. Additional expenditures include pensions, salaries, development projects, and social protection programs.
“This system is not sustainable,” he said.
Social Welfare Burden
Despite the 18th Amendment assigning social welfare largely to provinces, the federal government continues to fund major programs. The Benazir Income Support Programme (BISP) alone costs around Rs716 billion annually.
The federal government also finances Azad Kashmir, Gilgit-Baltistan, and Islamabad Capital Territory (ICT), adding further financial strain.
Proposed Changes in NFC Formula
Currently, 82% of the NFC allocation is based on population size. According to Iqbal, this discourages provinces from actively pursuing population control measures.
Only 10% of the formula is linked to poverty reduction, which may unintentionally benefit provinces that remain underdeveloped.
He proposed revising the formula to reward provinces for:
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Reducing poverty
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Improving human development indicators
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Promoting climate resilience
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Encouraging population stabilization
Punjab Minister Marriyum Aurangzeb joined the event via video link from Lahore. She stressed that the NFC must function as a genuine partnership between the federal government and provinces, ensuring fairness, transparency, and fiscal cooperation.
