TALK of amending the National Finance Commission (NFC) award is gathering pace once again.
For several years, policymakers associated with the finance ministry, as well as political actors across different parties at the centre, have spoken about revising revenue transfers to the provinces to improve the federal government’s financial position.
Such a revision would have most certainly happened earlier had it not been for the compulsions of centre-province politics (especially the PPP’s strength and position on the matter) and the constitutional protection accorded to the provincial share under the 18th Amendment.
Article 160-3A currently states that “the share of the Provinces in each Award of National Finance Commission shall not be less than the share given to the Provinces in the previous Award”. The current share is 57.5 per cent.
There are no clear workarounds available at the moment. The centre managed to take out the lucrative petroleum levy from the divisible pool by calling it a developmental levy rather than a tax (which it is in all but name). However, any further change would require amending the Constitution — either by doing away with Article 160-3A that places a floor on the downward transfer, or by amending Article 160-3 to take out transferrable revenue sources. The former is more likely than the latter.
What are the political prospects of this change?
The recent reconfiguration of the ruling coalition’s National Assembly strength, through the bizarre reserved seats judgement, hands over a virtual two-thirds majority to the ruling coalition and its allies. The provincial assembly numbers have also been skewed the same way, paving the way for more favourable Senate numbers. Recent outcomes of the Senate polls from KP already show this strategy bearing fruit.
The NFC award is not some great heist that the provinces performed on an unsuspecting centre.
In any case, as demonstrated by the past year, constitutional norms hardly pose much of a challenge for the governing regime. Numbers can be conjured up and subsequently validated by the courts. A bigger unknown variable here is the PPP’s position on the matter.
The reserved seat reallocation may have slightly diluted the PPP’s importance and strengthened the PML-N, but a constitutional amendment will require everyone on the treasury benches to play along. Given its foundational role in the current NFC and the 18th Amendment, the PPP’s position has remained consistent in favour of large transfers to the provinces. It’s unclear what would compel the needle to move on this front. If the establishment decides it wants to push ahead with it, inducements and coercion will both be applied.
At a broader level, most talk around the NFC focuses on its technical and developmental dimensions. Centrists in favour of cutting the provinces’ share usually provide some or all of the following arguments:
- The centre bears large expenses, such as social protection, power subsidies, pensions, defence and debt-servicing while getting a minority sum from the divisible pool.
- The centre puts in the effort to raise revenue but the majority gets transferred downwards.
- The provinces are profligate, choosing to spend money inefficiently, with no notable improvements in core areas of health and education.
- The provinces have no incentive to raise their own revenue.
- The federal government’s own incentive to raise revenues is diminishing given how little is left for it to spend.
People can agree or disagree with these arguments, but the fact remains that the current system is constitutional in nature. What revenues are to be shared has a history going back nearly a century.
What is the percentage of that share was agreed upon by all legitimate political forces through deliberations 15 years ago. Contrary to how some present it, the NFC award is not some great heist that the provinces performed on an unsuspecting centre. It was, and remains, a consensual agreement.
But there is another perspective worth considering.
The NFC is also what provides space for any semblance of civilian politics under a hybrid regime. For much of the last decade, politics at the centre has remained hostage to the compulsions of civil-military intrigue and the demands of IMF programmes. There is little space for civilian political action on the development and policy front. Consequently, there is little that they can do politics on. Survival and success at the centre is correlated with compliance rather than performance.
It is instead in the provinces where there is far more space available, thanks to the flow of finances from the centre. Parties looking to cement or recover their electoral position use provincial finances to hand out patronage or demonstrate their developmental ambitions; whether that is through expanding public sector employment, initiating social protection programmes, or building large infrastructure projects.
This should not be mistaken as a justification for profligate and inefficient spending. Provincial political elites have not delivered on many fronts and for that they should be held accountable. But the political consequences of slashing the provincial share should be considered. A hard budget constraint on provincial finances, which many envision under a revised NFC, would place limits on the space for party politics in its current form. If that is the desired end goal (and for some, it seems that it is), then the demand for a revised NFC makes sense.
However, there is another proposal that can achieve greater province-level efficiency sought by the centrists, but doesn’t close off space for party politics. Instead of limiting transfers to the provinces, an amendment should guarantee further downward transfers to local governments, provided there are elected ones in place. In the absence of elected ones, the centre can hold back a designated share from the divisible pool. This helps solve the spending efficiency issue, allows space for developmental programmes that parties can use to claim political credit, and provides an incentive to have a functional third tier.
The writer teaches sociology at Lums.
X: @umairjav
Published in Dawn, August 4th, 2025
