Pakistan moves to launch 11th NFC after federal budget

Pakistan’s National Finance Commission (NFC) will soon become operational, with modalities to be prepared in consultation with the International Monetary Fund (IMF) following the announcement of the federal budget.

Prime Minister Shehbaz Sharif has decided to form the 11th NFC, where new proposals will be tabled, with top priority given to enhancing provincial shares.

Sources revealed that the Finance Ministry has written to all provincial finance ministers, requesting nominations of technocrats to form the commission. The NFC is expected to hold its first meeting after the federal budget is announced.

Key measures to be discussed and proposed—including social security initiatives and increased funding for development, health, and education—will be shared with the IMF.

A working group will be formed to prepare recommendations for the NFC. These measures will be presented to the finance minister and finance secretary, with final work on the NFC expected to begin in August.

So far, Sindh has nominated Asad Saeed, while Balochistan has proposed Dr. Qaiser Bengali. Once Punjab and Khyber Pakhtunkhwa (KP) submit their nominees, the NFC working group will be finalized.

Background on the 7th NFC Award

In 2010, the landmark 7th NFC Award—announced on March 18—resolved the long-standing dispute over resource distribution between the federal government and provinces.

Under the 7th NFC Award, the provinces received a larger share of funds from the federal government, increasing from 49% to 56% in 2010-11 and 57.5% in the following years.

Instead of distributing funds based only on population size, a new formula was introduced, considering several factors: 82% based on population, 10.3% based on poverty and backwardness, 5% based on revenue collection, and 2.7% based on population density.

Additionally, the federal government lowered its collection charges from 5% to 1%, allowing provinces to benefit more financially. Khyber Pakhtunkhwa (KP) was granted an extra 1% of the funds because of its involvement in the war on terror.

Under the 7th NFC Award, Punjab has a share of 51.74%, Sindh: 24.55%, Khyber Pakhtunkhwa (KP): 14.62% and Balochistan: 9.09% .

Despite the 2010 decision to raise the tax-to-GDP ratio to 15% by 2014-15, Pakistan remains far below this target. Provinces were also permitted to collect sales tax on services and encouraged to improve revenue by taxing agriculture and real estate. Additionally, the federal government pledged to assist provinces with special grants during emergencies.