EDITORIAL: Finance Minister Muhammad Aurangzeb’s description of the NFC Award’s 82 percent population weightage as “not sustainable” is an overdue recognition of a glaring policy contradiction.
The government regards rapid population growth as an existential threat, but its principal mechanism for distributing federal revenues among the provinces remains overwhelmingly driven by provincial headcount.
The 7th NFC Award was an improvement over the earlier population-only formula. It assigned 82 percent weight to population, 10.3 percent to poverty or backwardness, 5 percent to revenue collection or generation and 2.7 percent to inverse population density. Yet population still dominates the calculation to such an extent that the other criteria amount largely to adjustments at the margin.
This matters because the Eighteenth Amendment dissolved the federal Ministry of Population Welfare and devolved the Population Welfare Programme and its service-delivery responsibilities to the provinces.
Provincial governments therefore bear primary responsibility for implementing family-planning and population-welfare programmes, while the federation retains national coordination, policy alignment and international-commitment functions.
The contradiction is obvious. The provinces are expected to manage population growth, but the principal fiscal arrangement governing relations between the federation and provinces rewards demographic size far more heavily than demographic performance.
Planning Minister Ahsan Iqbal has already proposed additional NFC incentives for provinces demonstrating measurable improvement in population management.
No provincial government needs to consciously encourage population growth for the distortion to matter.
The problem lies in the formula itself: it rewards demographic size after the fact while attaching no comparable fiscal premium to policies that reduce future population pressure. That is sufficient to skew priorities, even without an explicit political calculation.
Provincial governments bear the immediate financial and political cost of expanding contraceptive access, strengthening primary healthcare, keeping girls in secondary school and confronting social resistance to family planning.
The benefits of lower fertility emerge gradually through smaller dependency burdens, healthier mothers and children, improved household savings and reduced pressure on public services. Under the existing NFC formula, however, none of these gains earns a province a distinct fiscal return.
The formula funds demographic pressure after it has materialised. It does not reward governments for preventing that pressure from becoming unmanageable.
This is policy incoherence, plain and simple. Governments cannot repeatedly declare population growth a national emergency while maintaining a transfer formula that is largely indifferent to provincial performance in addressing it.
A related distortion is visible in Pakistan’s affirmative-action regime. Backward regions unquestionably require preferential access to federal employment and educational opportunity. But affirmative action need not mean abandoning merit, nor should broad provincial and rural classifications become permanent administrative entitlements.
The present quota structure is too blunt. It treats large territorial categories as though disadvantage were evenly distributed within them. Relatively privileged candidates from better-served districts can consequently benefit from protections ostensibly intended for communities facing severe educational, infrastructural and developmental constraints.
A more credible arrangement would identify backward districts through transparent and periodically reviewed development indicators. A defined share of federal positions could then be reserved for candidates belonging to those districts, with selection determined through merit-based competition within each district or among clusters of similarly disadvantaged districts.
Candidates would remain subject to a national minimum competence threshold. Quota would determine entry into the protected field of competition; examination performance would determine the outcome within it. Affirmative action would therefore correct the starting line without abolishing the race.
Such a system would also reduce the capture of quota benefits by provincial elites and better target the communities for whom affirmative action was originally intended. Domicile eligibility would need to be based on meaningful residence and schooling, rather than the convenient acquisition of a certificate shortly before recruitment.
Most importantly, backward status should not be permanent. District eligibility should be reviewed periodically, with districts graduating from protected status as education, health, infrastructure and income indicators improve. Otherwise, backwardness risks becoming a fiscal and administrative asset that governments and local elites have an interest in preserving rather than eliminating.
The same weakness therefore runs through both the quota system and the NFC: Pakistan compensates population and deprivation, but does not adequately reward progress in reducing either.
Population cannot, however, simply be removed from the NFC formula. Transfers finance services for actual citizens, not abstract administrative units. A province with more people requires more schools, hospitals, water systems, roads and policing. Reducing the population component without compensating safeguards would also hit poorer provinces hardest, particularly where high fertility is itself associated with weak education, inadequate healthcare and limited access to contraception.
The answer is therefore not to punish provinces for their existing populations. It is to distinguish between the population already requiring public services and provincial performance in reducing future demographic pressure.
A basic population-based allocation should remain. It should finance existing service obligations and continue to be supplemented by equalisation criteria for poverty, backwardness, remoteness and weak fiscal capacity.
Alongside that base, the next NFC Award should establish a separate population-performance component. Provinces demonstrating sustained improvement should receive additional transfers. The operative principle must be a bonus for progress, not a penalty for existing need.
Such performance cannot be judged merely by whether the fertility rate falls in a particular year. Fertility is a lagging indicator and is influenced by migration, age structure and economic conditions beyond the immediate control of provincial administrations. Crude numerical targets could also encourage data manipulation or, worse, coercive practices aimed at women and poorer households.
The performance criteria should instead measure what governments can directly deliver: reduced unmet need for contraception, wider availability of modern family-planning methods, longer birth intervals, lower adolescent pregnancy, improved maternal healthcare and higher secondary-school completion among girls. These are not merely demographic indicators. They measure whether women and families possess the practical ability to make informed reproductive choices.
Performance must also be assessed against each province’s own baseline. Comparing Balochistan directly with Punjab would reward inherited advantage rather than administrative effort. A province beginning with weak indicators should receive credit for improving them, even where its absolute position remains below the national average.
The new incentive should initially be applied to growth in the divisible pool rather than financed through abrupt cuts in existing provincial allocations. This would protect poorer provinces from immediate losses and reduce the inevitable resistance generated by any zero-sum reallocation.
No province need receive less in nominal terms, but an increasing share of additional revenues should be tied to measurable population-management outcomes.
Disbursement must follow delivery. Population programmes are not implemented in provincial secretariats. They operate through basic health units, hospitals, community health workers, schools, pharmacies and district administrations.
Performance grants should therefore be linked to verifiable district-level access and outcomes, with transparent reporting and independent validation.
Removing sales tax from contraceptives and securing external financing may help, but money without institutional incentives will produce the familiar mixture of workshops, procurement and impressive presentations. Population policy has suffered from no shortage of declarations. Its persistent weakness has been implementation.
The finance minister is therefore correct that the NFC formula must be reviewed. But simply reducing the population weight drastically and reallocating it among other static indicators would miss the opportunity.
The purpose of reform should not be to make the arithmetic appear more sophisticated. It should be to alter provincial priorities.
The state has an obligation to finance citizens already born. It should not make headcount the near-exclusive route to a larger claim on federal resources.
The next NFC Award must therefore be based on multiple criteria with population as one of the many and not overwhelming as it is at present to ensure funding for existing need while rewarding provinces that expand reproductive choice, educate girls and reduce the rate at which future need accumulates.
Pakistan cannot credibly describe population growth as an existential threat while its fiscal federation continues to treat demographic performance as someone else’s problem.
Copyright Business Recorder, 2026