President Zardari Forms 11th NFC to Finalize New Revenue-Sharing Award

The federal government on Friday formally constituted the 11th National Finance Commission (NFC) under Article 160 of the Constitution, officially dissolving the previous commission established in July 2020. The move is seen as a renewed effort to address long-standing fiscal imbalances between the Federation and the Provinces.

Composition of the Commission

According to a notification issued by the Finance Division, the Federal Minister for Finance will serve as the Chairman of the Commission, while the Finance Ministers of Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan have been appointed as members.

Additionally, the President has nominated the following members from the provinces:

• Nasir Mahmood Khosa – Punjab
• Asad Sayeed – Sindh
• Musharraf Rasool Cyan – Khyber Pakhtunkhwa
• Farman Ullah – Balochistan

The inclusion of both political representatives and technocrats is expected to bring a balanced approach to the Commission’s deliberations.

Terms of Reference (ToRs)

The newly formed NFC has been tasked with making recommendations on the following:

• Distribution of the net proceeds of federal taxes between the Federation and the Provinces as per Article 160(3) of the Constitution.
• Determination of grants-in-aid by the federal government to provincial governments.
• The borrowing powers of both the federal and provincial governments.
• Cost-sharing arrangements for expenditures incurred by the Federation on matters within provincial domains.
• Allocation of expenses related to trans-provincial issues requiring joint responsibility.
• Mechanisms for financing national-level projects to be jointly supported by the Federation and the Provinces.
• Any other financial matters referred to the Commission by the President.

The Finance Division will act as the Secretariat of the Commission under the Rules of Business, 1973.

Background and Significance

The NFC Award serves as the cornerstone of Pakistan’s fiscal federalism, determining how revenues collected by the Federation are shared with the Provinces. Its recommendations directly influence provincial budgets, service delivery, and development priorities.

The last fully implemented award was the 7th NFC Award in 2009, which significantly increased the provincial share in the federal divisible pool from 47.5% to 57.5%. Since then, subsequent commissions have struggled to reach consensus due to sharp differences between federal and provincial governments over revenue distribution, expenditure obligations, and fiscal sustainability.

The 10th NFC, constituted in July 2020, failed to make significant progress and has now been dissolved.

Challenges Ahead

The 11th NFC faces several pressing challenges:

• Managing the country’s fiscal deficit while ensuring equitable resource distribution.
• Meeting provincial demands for greater autonomy without undermining the Federation’s financial position.
• Establishing fair cost-sharing mechanisms for national projects and addressing climate-related disasters.
• Balancing the need for debt servicing with increased social and development spending.

Economists argue that a well-structured NFC Award is essential for ensuring fiscal stability, reducing provincial disparities, and strengthening the federation as a whole.

Conclusion

The formation of the 11th National Finance Commission marks a critical step in reshaping Pakistan’s intergovernmental fiscal framework. Its recommendations will not only determine the financial autonomy of the provinces but also play a defining role in shaping the country’s overall economic stability in the years ahead.