PRAC proposes new NFC award to address economic instability and empower local governments
- PRAC emphasises that the delay in finalizing the 11th NFC Award has created fiscal uncertainty
The Policy Research and Advisory Council (PRAC) has called for urgent reforms in Pakistan’s National Finance Commission (NFC) Award to tackle growing economic instability and empower local governments.
PRAC, a think tank dedicated to addressing Pakistan’s economic and governance challenges, argues that the 2010 NFC formula has worsened fiscal health, leading to an economic slowdown and a drop in the country’s Human Development Index (HDI) ranking from 155th to 168th.
In its statement, PRAC emphasised that the delay in finalizing the 11th NFC Award has created fiscal uncertainty, with the existing formula failing to effectively distribute resources between the federal and provincial governments. The Council warned that ongoing delays could exacerbate regional disparities and hinder national development.
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PRAC’s chairman Mohammad Younus Dagha highlighted the adverse impact of the 7th NFC (2009) on local governments, which lost crucial revenue when the Octroi and Zila Tax (OZT) grants were absorbed into the federal pool. He noted that the OZT had contributed 86% of local tax revenues prior to its merger, severely diminishing the financial independence of both urban and rural local councils.
To address this, PRAC called for the restoration of one-sixth of the Goods and Services Tax (GST) share to be directly transferred from the federal government to local governments. This step, the Council argues, would compensate for the lost revenue and help restore local governments’ financial autonomy.
PRAC also criticized the 18th Amendment for not fully eliminating functional duplication in governance. Despite devolution, key sectors like Social Welfare, Agriculture, and Industrial Development continue to see parallel federal ministries.
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According to the think tank, these sectors should be fully devolved to provinces, along with the fiscal responsibilities associated with them, including subsidies for agriculture and social welfare programs like the Benazir Income Support Program (BISP).
The Council’s proposal calls for provinces to take on full responsibility for these programs, which would further decentralize fiscal control and improve governance. In the 2026 fiscal year, the government has earmarked Rs. 1.82 trillion in subsidies for energy and agriculture, much of which falls under provincial jurisdiction.
PRAC’s reform proposals aim to ensure a more balanced and efficient fiscal structure, focusing on restoring financial independence at the local level and empowering provincial governments to tackle socio-economic issues more effectively.
As the discussions surrounding the 11th NFC Award continue, PRAC’s recommendations are expected to play a key role in shaping Pakistan’s fiscal policy and fostering long-term economic growth.
About PRAC
The Policy Research and Advisory Council (PRAC) is a think tank dedicated to addressing Pakistan’s economic and governance challenges. Led by Mohammad Younus Dagha, PRAC advocates for fiscal reforms, economic stability, and the empowerment of local governments to ensure sustainable development.