Pakistan’s Crucial Financial Negotiations Hit a Wall

Efforts to determine how Pakistan’s financial resources are shared have stalled. The National Finance Commission, a key constitutional body, is facing significant delays and inactivity. This impasse raises serious concerns about the timely completion of a new financial award that is critical for the country’s economic planning and provincial stability.

A Stalled Process and Inactive Committees

The NFC is responsible for deciding the distribution of tax revenues collected by the federal government among the four provinces and the federal territory. This process, which should happen every five years, results in an “NFC Award.” The current 10th Award has been in place since 2010, making the creation of an 11th Award long overdue.

Recent reports indicate the process for the 11th NFC has effectively ground to a halt. Most of the technical working groups formed to negotiate complex details are inactive. Furthermore, the crucial second meeting of the full commission has been postponed indefinitely. This lack of momentum suggests deep-seated disagreements at the negotiation table.

Core Disputes Over Money and Reform

The central point of conflict lies in the formula for revenue sharing. Provinces and the federal government hold differing views on what percentage of the federal tax pool should be allocated to the regions. The existing 10th Award gives provinces a historically high 57.5% share of the divisible pool. The federal government, facing its own severe budget constraints and debt obligations, is under pressure to retain more resources.

Beyond the simple percentage split, there are disputes over reforms. Some proposals include introducing new criteria for distribution beyond just population, such as poverty, revenue generation, and inverse population density. There is also debate over whether to broaden the tax base that is subject to division. These complex reforms require consensus, which appears to be lacking.

The Risks of Further Delay

Further delays in finalizing the 11th NFC Award carry substantial risks for Pakistan’s economy and federation. Provinces rely on these transfers to fund essential services like health, education, and infrastructure. Uncertainty over future funding hampers their ability to plan and execute long-term development projects.

For investors, a stalled NFC creates policy uncertainty. A clear, agreed-upon fiscal framework is a cornerstone of economic stability. Prolonged disputes can signal political fragmentation and weaken confidence in the government’s ability to manage federal-provincial relations. This can affect everything from sovereign credit ratings to direct investment decisions, as businesses prefer predictable regulatory and fiscal environments.

The inactivity of the National Finance Commission is more than a bureaucratic delay. It is a symptom of the difficult financial choices facing Pakistan. With the federal government in fiscal distress and provinces demanding their share, finding a middle ground is politically challenging but economically essential. The nation will be watching to see if its leaders can break the deadlock and agree on a fair formula that supports both federal obligations and provincial development.