EDITORIAL: With the president constituting the 11th National Finance Commission (NFC) on August 22, a vital function of the state has been set in motion to decide the distribution of resources between the Centre and the provinces, and among the provinces themselves, forming the bedrock of fiscal federalism in Pakistan.
The inaugural session of the NFC on August 29 will now test whether the Commission can move beyond an outdated formula for resource distribution to confront the pressing fiscal and developmental challenges facing the federation today.
For several months now, senior members of the federal government have been advocating the reduction in the dominant weightage assigned to population in the NFC formula, where it currently commands an overwhelming 82 percent share. This has left other crucial considerations — poverty and backwardness (10.3 percent), revenue generation (five percent) and inverse population density (2.7 percent) — with only marginal influence on the allocation of billions in national resources, while several other important criteria remain excluded altogether.
Such lopsided weightage has long failed to capture the country’s evolving economic and social realities, particularly when provinces with vast underdeveloped areas or environmental burdens continue to struggle despite their needs being far greater than what the formula acknowledges.
Now, Khyber-Pakhtunkhwa Finance Minister Muzammil Aslam has echoed these concerns, urging that indicators like poverty and forest cover be given far greater prominence in the new NFC Award, especially at a time when climate change has destroyed livelihoods, displaced entire communities and exposed the structural inequities in resource-sharing.
Over the years, not only have critical considerations related to poverty levels, revenue generation, ecological vulnerability and development needs been sidelined, perhaps the most pernicious impact of according population such an outsized weight in the NFC formula has been the creation of a perverse incentive: provinces have little reason to pursue population control when a larger headcount guarantees a greater share of resources. This has fuelled unchecked population growth, placing crushing pressure on the economy, accelerating environmental degradation and overwhelming fragile social services and infrastructure.
In fact, the influence of population extends beyond the NFC Award formula. It also shapes the allocation of seats in parliament, determines job quotas in federal and provincial governments, and even dictates access to coveted seats in government-run professional colleges, thereby entrenching its dominance across the entire framework of governance.
It is evident, then, that a system which rewards demographic expansion in such a regressive manner must be dismantled and replaced with one that prioritises equity and responsible governance.
It is also important to note that recent population censuses in Pakistan have been marred by much controversy, particularly in Sindh, where the province’s and especially Karachi’s population is often alleged to be deliberately undercounted, while Punjab’s figures are viewed as inflated.
When the official headcount itself becomes a politically charged and mistrusted exercise, relying on it as the primary basis for resource distribution is highly irresponsible as this has only served to entrench provincial grievances, undermined the credibility of the federation and done little to tackle the deep structural challenges confronting the state.
In fact, research by respected economist Dr Ashfaque Hasan Khan suggests that recent census figures have likely been inflated to exploit the incentives attached to larger population counts, with virtually every district of the country having an interest in overstating its numbers. An alternative NFC framework that sharply reduces the weightage accorded to population and accords greater significance to factors like poverty levels, human development indicators, forest cover, and efforts to enhance tax revenue as well as those for population control has become imperative. Such a recalibration would ensure that resource distribution better reflects genuine needs and performance, rewarding provinces that invest in human development, environmental stewardship and fiscal responsibility rather than sheer demographic growth.
Copyright Business Recorder, 2025
Comments
Comments are closed for this article.