President Asif Ali Zardari has notified the formation of the 11th National Finance Commission (NFC) under Article 160 of the Constitution. Chaired by Finance Minister Muhammad Aurangzeb, the commission includes provincial finance ministers and one expert from each province.
Since the landmark 7th NFC Award in 2010, three subsequent commissions—8th, 9th, and 10th—failed to reach a consensus. This failure left the old resource-sharing formula in place. Experts now warn that Pakistan remains caught in an NFC Trap, where population size and poverty determine resource allocation rather than performance or efficiency.
The federal government has repeatedly sought a larger share of funds to meet debt, defense, and subsidy obligations. Provinces, however, resist, emphasizing responsibilities granted after the 18th Amendment, including health, education, and local development. Political polarization, frequent ministerial changes, and Pakistan’s low tax-to-GDP ratio around 11% have further complicated the issue.
The 7th NFC Award had introduced a multi-factor formula, moving beyond population alone. It assigned 82% weight to population, 10.3% to poverty/backwardness, 5% to revenue collection, and 2.7% to inverse population density. Critics argue that this system keeps Pakistan in the NFC Trap, discouraging provinces from controlling population growth or increasing tax collection.
Poverty weighting also creates perverse incentives. Provinces that remain underdeveloped continue receiving higher shares without improving public services. Meanwhile, revenue collection remains minimal, with provinces contributing less than 1% of GDP, while the federal FBR collects over 10%.
Political tensions add to the challenge. PPP, PTI, and other provincial governments are unlikely to reduce their share voluntarily. Experts stress that the 11th NFC must reform the allocation formula to reward performance, poverty reduction, and fiscal responsibility.
Unless reforms are made, Pakistan will continue to struggle in the NFC Trap, where resources are allocated based on numbers rather than results. The success of the 11th NFC will determine whether the country can achieve a fair, effective, and sustainable fiscal system.
In other related news also read Provinces Gain Boost as NFC Allocations Surge in New Fiscal Year
