EDITORIAL: The twenty-seventh amendment’s proposal to revise Article 160 (3A) of the eighteenth constitutional amendment that was approved by the parliament in 2010 stipulating 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” was deferred after opposition by Pakistan People’s Party, a key government ally without whose support the other clauses of the amendment could not pass. This prompted Prime Minister Shehbaz Sharif to emphasise the need for tweaking the NFC formula — a view that must be fully supported.
It is important to note that the current NFC formula gives 82 percent weight to population, a weightage challenged by the Minister for Planning, Development and Special Initiatives Ahsan Iqbal this Tuesday past while addressing the inaugural session of DataFest 2025 organised by the Pakistan Bureau of Statistics (PBS). His impeccable argument: the NFC incentive that encourages population growth, which currently serves as a major basis for distributing financial resources among provinces, must be removed.
While the reduction in the weightage given to population was marked in the seventh NFC award (2010) and required Punjab’s concurrence, the major beneficiary of the earlier formula, yet reports at the time revealed that discussions on the need to further tweak the award were held between all major political parties as well as provincial governments, given that the NFC award requires concurrence of the federal and provincial governments to be conclusive.
Poverty and backwardness was allocated 10.3 percent in the NFC award and this too needs to be further upgraded based on the sharp rise in poverty levels not only between provinces but also within a province. India has inserted a criterion of the inverse factor with respect to Gross Domestic Product (GDP) or, in other words, states with lower GDP would have a higher share.
In Pakistan’s case, however, this may be slightly complicated as actual GDP may emanate from one province, for example the resources generated from exploiting Balochistan’s minerals, or the electricity from dams built in one province supplied to another, which requires a further refining of the distribution of resources. Be that as it may, given the rise in poverty to 42 percent as per the World Bank, there is a need to revisit this weightage factor as well.
Five percent of the NFC award is earmarked for revenue collection, which benefited Sindh as long as it was the sole port in the country. That situation has changed with Gwadar though traffic remains low in that port. And finally, 2.7 percent is allocated to inverse population density defined as area divided by population. The rationale is that a less dense area would require more development effort and in Pakistan’s case Balochistan would benefit from this addition.
There is therefore a significant need to make major changes in the NFC formula — an acknowledgment by the framers of the 1973 constitution makes it mandatory for the award to be approved in intervals not exceeding five years. Business Recorder proposes that the weightage not be higher than 40 percent for any one criterion as that would allow for easier five-year adjustments — easier because the adjustments would not generate resistance from any one province — as the country’s economy as well as that of each federating unit evolves.
Copyright Business Recorder, 2025
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