Federal Minister for Planning, Development and Special Initiatives, Ahsan Iqbal, called for a comprehensive and forward-looking reform of the National Finance Commission (NFC) Award while addressing the concluding session of the Pakistan Governance Forum 2026.
The landmark Forum, organised by the Ministry of Planning, Development and Special Initiatives, brought together the Prime Minister, Chief Ministers, federal and provincial ministers, parliamentarians, international development partners, academics, and policy experts in an unprecedented national dialogue on fiscal federalism. “We opened the debate, we listened to the provinces, and we brought every stakeholder to the table,” the Minister stated, describing the Forum as a turning point in strengthening cooperative federalism.
Minister Iqbal clarified that the constitutional vertical distribution of resources between the federation and provinces remains fully protected and is not under review. “The vertical distribution is constitutionally safeguarded because it protects provincial autonomy,” he stated. “Our discussion concerns the horizontal distribution — how resources are allocated across federal government in a fair manner.”
Highlighting structural fiscal challenges, the Minister noted that from approximately Rs. 14 trillion in federal tax revenue and Rs. 5 trillion in non-tax revenue, around Rs. 8.2 trillion is transferred to provinces under the NFC Award. After these transfers, the federal government retains fiscal space of approximately Rs. 11.07 trillion against total expenditures nearing Rs. 17.5 trillion.
“Nearly 50 percent of federal expenditure goes toward debt servicing and approximately 25 percent toward defence,” he explained. “After meeting these obligations, the federation must finance pensions, salaries, running expenses, development, grants, and social protection largely through borrowing. This equation is not sustainable.”
He further noted that despite social welfare being a provincial subject following the 18th Constitutional Amendment, the federal government continues to fund major national social protection initiatives such as the Benazir Income Support Programme (BISP), currently costing approximately Rs. 716 billion annually. Additionally, the federation bears financial responsibility for Azad Jammu & Kashmir (AJK), Gilgit-Baltistan (GB), and Islamabad Capital Territory (ICT), which are entitled to their share from the divisible pool.
“There must be better alignment between responsibilities and resources,” he emphasised. Minister Iqbal underscored the widening imbalance in development financing. While provincial development allocations now approximate Rs. 3 trillion annually, the federal Public Sector Development Programme (PSDP) has been compressed to nearly Rs. 1 trillion since 2018.
“Our throw-forward liabilities have reached nearly Rs. 11 trillion,” he warned. “When we allocate Rs. 20 billion in a year for a strategic project like Diamer-Bhasha Dam against an annual requirement of nearly Rs. 190 billion, it reflects the structural mismatch between national commitments and fiscal capacity.”
Turning to the NFC formula, the Minister raised concerns about unintended incentive distortions. “With 82 percent weightage assigned to population, there is little fiscal incentive for provinces to aggressively pursue population stabilisation,” he observed, noting the rise in population growth from 2.4 percent in 2017 to 2.55 percent in 2023. “Similarly, with 10 percent weightage linked to poverty, provinces may inadvertently benefit from remaining poor rather than being rewarded for reducing poverty.”
He proposed recalibrating the formula to incentivise:
- Poverty reduction
- Human development improvements
- Climate resilience and environmental sustainability
- Population stabilisation
“Climate change is no longer a peripheral issue — it is a structural reality for Pakistan and must be reflected in the NFC formula,” he stated.
Minister Iqbal emphasised the need for a structured conversation on equitable fiscal recognition for AJK, GB, and Islamabad. “AJK and GB are not provinces due to the constitutional dispute, but that does not mean their citizens should be denied equitable rights,” he said. “The next NFC must examine lawful and constitutional mechanisms to provide due recognition to these regions.”
The Minister stressed the need to revitalise the National Economic Council (NEC) as the apex forum for aligning fiscal allocations with national development priorities. “Without effective coordination between federation and provinces, fiscal stress will continue to undermine development outcomes,” he noted. “We must institutionalise cooperative federalism — not episodic negotiations.”
Concluding his address, Minister Iqbal reiterated that Pakistan’s fiscal challenges, though serious, are not insurmountable.
“The challenges we face are not extraordinary. Many nations have overcome similar constraints. But success requires determination, policy continuity, political stability, and sustained reform,” he stated. “There is so much more to do — building schools, strengthening healthcare, investing in skills, IT, and climate resilience. Every successful country has built an ecosystem for development grounded in peace, stability, and reform. The NFC must now evolve to reflect these principles.”
Expressing optimism, he added: “We have initiated a national conversation. The next step is institutional reform. I look forward to concrete outcomes and government is committed to accelerating reforms in order to achieve one trillion dollar economy target by 2035. I look forward to reconvening next year at an even stronger Pakistan Governance Forum to review measurable progress.” He concluded.
