Though the maiden National Finance Commission (NFC) meeting on Dec 4 was held in a cordial atmosphere and the topic of reducing provincial shares from the divisible pool was not raised, analysts fear that the Centre will not refrain from attempting to slash the provincial share or, alternatively, impose new expenditures on the provinces as talks move forward. It was stipulated that the Federal Board of Revenue will boost its tax collection by 3–3.5 percentage points to increase the tax-to-GDP ratio to 13pc, with the provinces expected to enhance their share from the existing 0.28 per cent to 3pc of GDP through effective taxation on services, property and farm income. PPP chairman Bilawal Bhutto, on Dec 9, urged the federal government to transfer sales tax on goods to the provinces, as the collection of sales on services has significantly increased through devolution to the federating units after the 18th Amendment. He said centralised control was not only inefficient but also draining national revenue. On the spending side, the provinces declined to share their expenditure details on legal and technical grounds. Sindh pointed out that the commission is a forum to discuss, decide and distribute the tax resources vertically between the Centre and the provinces and horizontally among the provinces, and not to dictate how the federating units should spend their money. Analysts and economists dissect the various pros of the divisible pool as deliberations over the newest award carry on Business and economy journalist Khurram Husain aptly explains, “The funds being divided up under the NFC award belong to the federation, which includes the federal government as well as the provinces. The relationship between the Centre and province in a federation is not that of a senior and junior partner. It is a relationship of equals.” The Centre’s own spending continues to rise . Fiscal data released by the Ministry of Finance indicates a 13pc increase in ‘Running of the Civil Government’ expenditure from July to September this fiscal year to Rs161.2 billion compared to Rs142.5bn during the same period last year. The expenses rose despite some staffing and structural reforms. Attributing its fiscal problems to the NFC Award, say analysts at Dawn , is an attempt to obscure the deeper expenditure problems embedded in the federal structure. Islamabad’s fiscal challenges stem less from the NFC formula than from its own inability or unwillingness to reform. Blaming the provinces for its budgetary distress, they argue, will not solve the structural weaknesses driving federal finances into deficits. Pakistan’s weak public finances predate the 7th NFC Award, recalls Sakib Sherani. He argues that the real issue is not how the resources are distributed but how they are raised and where they are spent. “Redistributing the federal divisible pool from mis-spending provinces to a mis-spending Centre will not address Pakistan’s fiscal woes,” Mr Sherani writes in a Dawn opinion piece . The merit of the horizontal sharing 7th NFC formula, Dr Hafiz A Pasha notes, was that it implied a larger per capita transfer to the smaller provinces and lesser-developed Balochistan and Khyber Pakhtunkhwa. ‘Redistributing the federal divisible pool from mis-spending provinces to a mis-spending Centre will not address Pakistan’s fiscal woes’ To further build upon what has been achieved, the Policy Research and Advisory Council (PRAC) meeting chaired by Mohammad Younus Dagha recommends reducing the weight for the population from 82pc to 50pc to shift from a population-centric to an efficiency-orientated horizontal distribution model; increasing the inverse population density ratio from 2.7pc to 5pc; introducing a multi-poverty index with a 5pc weight replacing poverty backwardness to better capture regional disparities in health, education and other areas of deprivation. The provinces should take full responsibility for the Benazir Income Support Programme and subsidies for agriculture and low-income groups, including energy subsidies totalling Rs1.82 trillion in the FY26 budget, reflecting the fact that social welfare, agriculture and industrial development are provincial subjects. Furthermore, PRAC calls for a 15pc weight for revenue generation to reduce provincial dependence on federal transfers and strengthen fiscal autonomy and 5pc weight for carbon credits earned by the provinces for ensuring adequate financing for environmental initiatives. It also links the provincial share of NFC to the operationalisation of the Provincial Finance Commission Awards with 20pc weight to ensure efficient resource allocation to local governments. The proposed framework, PRAC asserts, will help achieve fiscal devolution in its true spirit, ensuring that local governments have the means to lead their own growth effectively. The resource generated from exploiting Balochistan’s mineral resources or electricity from dams built in one province and supplied to another requires a further refining of distribution of resources, says a Business Recorder editorial. While noting that the 7th NFC award is at best a compounding factor but not a proximate cause, Mr Sherani says in federations such as Pakistan, the NFC award anchors the project of federalism itself. “Hence, technocratic proposals to roll back the vertical distribution formula are relics of non-democratic setups and thinking and must be resisted.” n Published in Dawn, The Business and Finance Weekly, December 15th, 2025