NFC agrees to form technical sub-groups: Centre fails to secure provinces’ expenditure data

ISLAMABAD: The crucial National Finance Commission (NFC) meeting was held on Thursday in a bid to revise the formula for divisible tax revenues between the centre and provinces, where the federal government, reportedly, failed to convince the provinces to share the details of their expenditures.

Sources said the PPP-led Sindh provincial government plainly turned down the demand for sharing the expenditure details with the centre, saying under the constitution, the federal government cannot seek these details.

The 11th NFC, meeting chaired by Finance Minister Muhammad Aurangzeb, however, agreed to initiate the formation of technical sub-groups that will undertake work on specific mandates relevant to the NFC’s functions.

NFC meeting today: New revenue sharing plan on the table

It was also unanimously decided that a Sub-group on the merger of former Fata/Newly Merged Districts and its share in the divisible pool, will be constituted to facilitate early formulation of its recommendations for the NFC by mid-January 2026.

From government of Sindh, Syed Murad Ali Shah, Sindh Chief Minister, and Dr. Asad Sayeed, Member NFC; from Government of Khyber Pakhtunkhwa, Muhammad Sohail Afridi, Chief Minister and Dr. Musharraf Rasool Cyan Member NFC; from Government of Punjab, Mian Mujtaba Shuja ur Rehman, Minister for Finance and Nasir Mahmood Khosa, Member NFC; and from Government of Balochistan Mir Shoaib Nosherwani, Minister for Finance and Mahfooz Ali Khan, Member NFC attended the meeting.

The meeting was also attended by Muzammil Aslam, Advisor to CM for Finance, Government of Khyber Pakhtunkhwa, on special invitation. The provincial Finance Secretaries also attended the meeting.

The meeting also discussed transferring the Higher Education sector and the Benazir Income Support Programme (BISP) to provincial control.

Federal officials argued that even after distributing the divisible pool, the centre shoulders an additional 15% of provincial-related expenditures, urging provinces to raise their revenues to fund their own commitments. KP maintained that the Seventh NFC Award has lost relevance after the 18th Constitutional Amendment.

According to officials, the federal government has not proposed any cuts to provincial funds at this stage. It was decided that a working group would be constituted to review the distribution of financial resources between the federation and provinces, along with separate groups on tax collection, the integration of former Fata into Khyber Pakhtunkhwa, and revenue-related disputes.

Sindh Chief Minister maintained that the NFC’s mandate does not have the right to oversee the expenditure of provinces. The forum also agreed to seek legal advice from the attorney general on constitutional aspects of resource distribution. It was decided to establish six to seven working groups and to hold the next meeting on January 8 or 15.

KP Adviser on Finance Muzzammil Aslam said the meeting was conducted in a positive environment, with all participants agreeing to move forward collectively. He said no proposal was discussed regarding reducing the provincial share in the NFC Award.

Talking to the media after the meeting, the KP Adviser said that the NFC session was held with a good ambience and each side was heard without any pressure. “All sides agreed to move forward,” he said. “Nothing was discussed regarding a decrease in the provincial share,” he added.

Khyber-Pakhtunkhwa Chief Minister told the media that the federal government owes the province Rs1.3 trillion under the NFC and highlighted that the former tribal districts, merged administratively in 2018, have not yet been financially integrated.

Afridi urged the federal government to consider the province’s proposals, warning that decisions taken behind closed doors could affect KP. He added that if the centre adopts the province’s recommendations, the KP government would implement them and ensure law and order.

An official statement issued by the Finance Ministry noted that Aurangzeb highlighted the constitutional importance and collaborative spirit underpinning the NFC process and emphasised that the federal government, as directed by the Prime Minister, was keen to convene the inaugural meeting of the 11th NFC without delay.

While the session had been postponed earlier due to the devastating floods affecting Punjab, Khyber Pakhtunkhwa and Sindh, the Minister noted that this gathering reflected a shared resolve to fulfil a vital constitutional responsibility.

He stressed the government’s commitment to transparent and sincere dialogue, reaffirming that the federal government was present to listen to the provinces and work collectively in the national interest.

Finance minister commended the provinces for their cooperation in signing the National Fiscal Pact and acknowledged their efforts in achieving mandatory fiscal surpluses to support Pakistan’s compliance with IMF requirements.

He noted that despite external threats and natural disasters, the Federal Government and provinces had demonstrated unity, resilience and determination, and expressed hope that the same spirit would guide the 11th NFC deliberations.

Aurangzeb underscored the critical role of the NFC in ensuring equitable distribution of financial resources, promoting fiscal sustainability and supporting long-term economic growth. He voiced confidence that the Commission would engage in meaningful and inclusive dialogue aimed at delivering a fair and forward-looking NFC Award.

The Sindh Chief Minister expressed his gratitude to the Federal Government for holding the first meeting of the 11th NFC, which was initially postponed due to the devastating floods. He appreciated the prompt notification of the 11th NFC in August 2025 after the expiry of the 10th NFC Award in July 2025.

Murad Ali Shah agreed with the Federal Finance Minister that moving forward with the 11th NFC Award with consensus was very important. He further highlighted that Sindh has an unwavering commitment to the prosperity, unity and progress of Pakistan. He further underscored that consensus can only be developed by deliberating within the forum of the National Finance Commission and that this Commission should adhere to its mandate for the sake of moving forward.

The KP Chief Minister also thanked the Federal Government for holding this meeting and expressed that a strong Federation and strong Provinces will guarantee a strong and united Pakistan. He underscored the sacrifices of the people of Khyber Pakhtunkhwa province made in the War on Terror, which unfortunately has resurfaced again.

He further expressed the hope that the 11th National Finance Commission will address the ultra vires of the 7th NFC since June 2018 and include the population and other variables of the Newly Merged Districts in the province of Khyber Pakhtunkhwa and update the share of the province to give them due representation.

Mian Mujtaba Shuja ur Rehman also thanked the federal government for holding this meeting and agreed to build a consensus between stakeholders to move forward. He, however, said that building consensus will take a lot of effort on everyone’s part. He hoped that the Commission would succeed with mutual agreement.

Mir Shoaib Nosherwani also echoed the same sentiments forthe Federal Finance Minister and CM Sindh and stated that CM Balochistan has instructed that there should be consensus and that cooperation of Balochistan with the Federation and the provinces has always been there, and going forward, Balochistan will continue this path of cooperation and consensus. He underscored the support of Balochistan in strengthening the Federation through quoting examples of Sui Gas, Saindak and RekoDiq projects.

During the meeting, the participants held a general discussion on the strategy for the 11th NFC Award deliberations. This was followed by detailed presentations from all provinces as well as the federal government, outlining their respective fiscal positions and priorities.

These exchanges contributed to developing a shared understanding of the economic landscape and the challenges that lie ahead. The Commission also discussed the proposed schedule and timeline for future meetings and agreed to initiate the formation of technical sub-groups that will undertake work on specific mandates relevant to the NFC’s functions.

The meeting concluded with a reaffirmation of the collective commitment to steering the 11th NFC process with transparency, professionalism, mutual respect & collaboration. The Commission resolved to continue its work through a structured series of meetings and technical consultations in the coming months, with the shared objective of achieving an equitable and sustainable NFC Award for the people of Pakistan.

Official sources revealed that KP took the stance that implementation of the 7th NFC Award — without adjustments for the historic 2018 FATA-KP merger — has become unconstitutional and unfair. Even after this historic merger, 6.1 million citizens (2023 census) of the Newly Merged Districts (NMDs) remain financially excluded. The 7th NFC award has been in operation since 2010, without any revision to reflect this merger.

The award was made for 5 years, but the 8th, 9th, and 10th NFC Awards have failed to revise it. The Federal Government failed to hold any other meeting of the NFC, and now this body meets after 4 years.

As a result, Khyber Pakhtunkhwa share remains stagnant at 14.62% instead of the rightful share of 18.96%, depriving the province of its constitutional rights and preventing the fiscal implementation of the 25th Constitutional Amendments for the 6.1 million citizens of NMDs.

On account of the newly merged districts, the provincial government should have received an additional Rs 1.376 trillion for the period from 2019-20 till 2025-26 using the 1998 census. This amount will rise to Rs 1.808 trillion if the 2023 census and new poverty numbers are used in the calculations of NFC shares, the province added.

The development in the Merged Areas has been short-financed by the Federal Government, as the total federal releases for AIP-I & II from 2018-19 to 2025-26 stood only at Rs 168.1 billion against the promise of Rs 800 billion, leading to a shortfall of Rs 631.9 billion.

The province demanded that a 10-year special grant be created from the Federal Divisible pool to address the special financial requirements and developmental lags of historical proportions to bring the merged districts at par with other parts of the province and Pakistan.

Owing to the recent uptake in terrorist incidents and high poverty levels in the province of Khyber Pakhtunkhwa viz-a-viz other provinces, the existing 1% NFC transfers to KP on account of the war on terror should be increased to at least 3% of NFC shares, the provincial government added.

Copyright Business Recorder, 2025