WITH the constitution of the 11th National Finance Commission , the debate around revenue sharing takes centre-stage. For years, the federal government has repeated that 57.5 per cent of federal revenues are allocated to provinces, building the narrative that it is cash-strapped. This argument, while politically convenient, is misleading. When one examines the full composition of federal revenues, it becomes evident that the federal government retains close to 60pc of total revenues. A growing share of this is collected outside the NFC’s divisible pool, particularly through the petroleum levy . While politically expedient, relying on the petroleum levy and other surcharges as non-shareable revenue is deeply problematic. It bypasses the constitutional principles of the NFC, weakens the mechanism designed to ensure fair federal-provincial fiscal relations, and concentrates fiscal discretion in the hands of the federal executive. By creating a parallel pool of revenues untied to the NFC formula, the centre undermines transparency, and erodes trust in federalism. The narrative that provinces are draining the centre’s resources is false and distracts from structural issues in federal finances. Another persistent fallacy is the proposal that provincial transfers should be tied to performance, often implying that the centre should oversee provincial outcomes. At first glance, such arguments may seem reasonable: if resources are allocated, accountability appears justified. However, this line of reasoning misunderstands Pakistan’s fiscal federalism. The NFC was designed solely as a mechanism for revenue sharing, not as a supervisory instrument. Provinces have constitutionally defined responsibilities, strengthened by the 18th Amendment, and conditioning transfers on federal assessment risks violating the spirit of federalism. Moreover, if performance were to determine transfers, the principle must apply equally to the federal government, whose own failures in tax collection, exchange rate management, and debt administration directly shape the fiscal environment in which provinces operate. One-sided accountability, where provinces are scrutinised while the centre is shielded, reflects political expediency more than economic prudence. A permanent technical NFC will ensure debates are grounded in evidence rather than slogans. Equally misleading is the claim that the seventh NFC Award is responsible for the federal government’s growing debt. Pakistan’s debt problem arises primarily from structural weaknesses and policy failures at the federal level. Two critical areas bear particular responsibility. First, the government’s exchange rate management has been erratic and often counterproductive. Persistent overvaluation in some periods, followed by sharp devaluations, has generated uncertainty, inflated the local currency value of foreign-denominated debt, and contributed to high inflation. Second, Pakistan’s tax policies have consistently failed to raise revenue to sustainable levels. The federal tax-to-GDP ratio remains among the lowest in the region, reflecting poor base coverage, excessive exemptions, and weak enforcement. Together, these two policy failures, poor exchange rate management and inadequate taxation, have driven deficits, forced borrowing, and worsened debt sustainability. Misattributing debt accumulation to provincial transfers allows the federal government to avoid the reforms required to stabilise public finances, including rationalising expenditure, improving state-owned enterprises’ efficiency, and reforming pensions. Recognising these fallacies is the first step towards reform. What Pakistan urgently needs is a permanent, technically grounded NFC as a foundational layer of the NFC architecture. Currently, the NFC primarily functions as a political negotiation every five years, producing headline-grabbing percentages without rigorous analysis. A standing body of economists and fiscal experts could provide transparent, evidence-based recommendations, track revenue distribution across tiers, model alternative formulas for divisible and non-divisible pools, and ensure transfers reflect a changing development landscape. Institutionalising technical expertise would transform NFC negotiations from episodic political contests into disciplined, data-driven policymaking, prevent politically motivated distortions, ensure transparency, and build trust between the centre and provinces. Alongside a permanent NFC, Pakistan must also deepen tax devolution to provinces and cities, but both the federal and provincial governments share responsibility for current weaknesses. While the federal government has centralised tax collection, leaving provinces with limited authority, provincial governments have often blocked local government systems and resisted meaningful devolution. This mutual reluctance has created a cycle in which provinces remain dependent on federal transfers, cities are underfunded, and citizens see limited accountability. Strengthening subnational fiscal capacity requires reform at both levels: granting provinces and cities meaningful tax powers, including property taxes, and unified sales taxes, while modernising revenue administrations through digitalisation and analytics. Linking local revenue mobilisation to service delivery would ensure that fiscal authority is matched with citizen expectations and that local governments can become viable instruments of governance. Taken together, these reforms address both the misconceptions surrounding NFC distribution and the structural realities of Pakistan’s fiscal landscape. Clarifying the true share of revenues corrects the false narrative of provincial generosity undermining the centre. Instituting a permanent technical NFC ensures debates are grounded in evidence rather than slogans. Expanding tax authority to provinces and cities strengthens fiscal capacity, enhances accountability, and improves service delivery. Each of these steps contributes to a balanced federal system, where resources are aligned with responsibilities and all tiers of government are incentivised to perform efficiently. Addressing Pakistan’s fiscal challenges requires more than debates over numbers or blame-shifting. Policymakers must commit to long-term reforms that strengthen institutional capacity, enforce fiscal discipline, and create incentives for all tiers of government to raise and manage resources effectively. By embedding technical rigour into revenue-sharing mechanisms and empowering lower tiers of governments to mobilise and utilise resources efficiently, Pakistan can build a more resilient fiscal architecture. Only through consistent, evidence-based policymaking and cooperative governance can the country ensure that public funds translate into tangible services, economic growth, and trust in federalism for the citizens it serves. The writer is an associate professor of economics at the Lahore School of Economics. X: @waqarwadho Published in Dawn, January 14th, 2026