The five stakeholders agree to establish a committee to finalize modalities to increase participation of provinces
Flanked by Sindh Chief Minister Murad Ali Shah and KP Chief Minister Sohail Afridi and others, Finance Minister Muhammad Aurangzeb speaks during a meeting of the National Finance Commission. Photo: Express
ISLAMABAD:
Sindh on Thursday linked consensus on any new resource distribution formula with deliberations only on the platform of the National Finance Commission and sought to limit discussions to revenue sharing instead of including expenditure amid the Centre’s desire to transfer some of its fiscal obligations.
The inaugural NFC meeting began on a positive note with the five players pledging to reach a consensus with an open mind. However, according to meeting participants, there were also differences of opinion about what should be discussed at the NFC.
The inaugural meeting of the 11th NFC was chaired by Finance Minister Muhammad Aurangzeb and Khyber-Pakhtunkhwa recorded the first victory.
The five stakeholders agreed to set up a committee to finalize modalities to increase the war-ravaged province’s share of resources due to the merger of 6.1 million people from the former FATA into the province.
Contrary to the Centre’s earlier desire to resolve the resource distribution issue through a new constitutional amendment by reducing the minimum share of the province from 57.5%, Sindh and Khyber-Pakhtunkhwa emphasized on discussing this issue only on the NFC platform.
“Syed Murad Ali Shah stressed that consensus can only be developed by deliberating within the forum of the National Finance Commission and that this Commission must fulfill its mandate in order to move forward,” according to a consensus statement released by the Finance Ministry after the meeting.
KP has already stated that NFC issues should be handled by the NFC.
Sindh opposed the federal government’s proposal to discuss expenditure on the NFC platform and said the discussions should focus only on the scope of revenue, Muzzammil Aslam, KP’s financial advisor, said after the meeting.
However, the Finance Ministry proposed the way forward of delegating expenditure to the provinces and also increasing revenue generation. Sindh province did not want to discuss the issue of expenses and urged to keep discussions focused on revenue.
The federal government said both the Center and provinces should cumulatively increase their revenue collections by about 6% of GDP. FBR chairman Rashid Langrial also suggested that provinces should increase their meager collection from 0.8% of GDP to 3%. He further said that federal taxes should also increase by 3.5% to 14% of GDP by 2028.
The additional 5.5% GDP fiscal space translates to about Rs 7 trillion at the current size of the economy and can solve the Centre’s fiscal problems.
The federal government demonstrated that its fiscal position has deteriorated significantly, with the overall budget deficit widening from the pre-2010 level of 4% to 7% of GDP between 2011 and 2025.
The official pamphlet said Aurangzeb highlighted the constitutional importance and spirit of collaboration underpinning the NFC process.
The federal finance minister highlighted the government’s commitment to transparent and sincere dialogue. Senator Aurangzeb underlined the critical role of NFC in ensuring equitable distribution of financial resources, promoting fiscal sustainability and supporting long-term economic growth. He expressed confidence that the Commission would engage in a meaningful and inclusive dialogue aimed at awarding a fair and forward-looking NFC Award.
Chief Minister Khyber Pakhtunkhwa Sohail Afridi expressed that a strong federation and strong provinces will ensure a strong and united Pakistan. He underlined the sacrifices made by the people of Khyber Pakhtunkhwa province in the War on Terrorism, which has unfortunately resurfaced again.
Afridi further expressed the hope that the 11th NFC will address the ultra vires of the 7th NFC since June 2018 and include the population and other variables of the newly merged districts in Khyber Pakhtunkhwa province and update the proportion of the province to give them due representation and requested the other provinces for their positive response in this matter.
The Finance Ministry announced that “it was also unanimously decided that a sub-group on merger of the old/newly merged FATA districts and their participation in the divisible fund will be constituted, which will facilitate early formulation of its recommendations for the NFC by mid-January 2026.”
The NFC also constituted half a dozen other working groups that would deliberate on the vertical distribution of resources, the horizontal distribution of resources and the variables to decide the shares of the provinces.
Punjab Finance Minister Mian Mujtaba Shuja ur Rehman said achieving a consensus will require a lot of effort from everyone. He highlighted the importance of equitable distribution of resources and policy coherence between the federal and provincial governments.
Mir Shoaib Nosherwani, Finance Minister of Balochistan, expressed that consensus must be achieved and Balochistan’s cooperation with the federation and provinces has always been there and in future, Balochistan will continue this path of cooperation and consensus.
The Commission also discussed the proposed schedule and schedule for future meetings and agreed to initiate the formation of technical subgroups that will undertake work on specific mandates relevant to the functions of the NFC.
The Commission resolved to continue its work through a structured series of meetings and technical consultations in the coming months, with the shared goal of achieving an equitable and sustainable NFC Award for the people of Pakistan.
In its presentation, the KP government said that the 11th NFC award should upgrade the 7th NFC from June 2018 to make it constitutionally compliant. It should not only upwardly revise KP’s NFC ratio including population, poverty and other dynamics of the merged districts in Khyber Pakhtunkhwa, but also take into account the difference during the period 2019-20 to 2025-26 that was not handed over to the province, according to the proposal.
The KP government also demanded that its share in the war on terrorism be tripled to 3% due to the recent proliferation of terrorist incidents and high levels of poverty in the province.
Khyber-Pakhtunkhwa Chief Minister Sohail Afridi said the federal government owes the province Rs 1.3 trillion under the NFC and highlighted that the former tribal districts, administratively merged in 2018, are yet to be financially integrated.
The KP government said the province’s share in the total registered foreign workers is more than 30% of the total registered Pakistani workers abroad. Since KP’s share in Pakistan’s total population is only around 17%, the significantly higher proportion of KP workers seeking employment abroad points to lower employment opportunities in the province compared to the rest of Pakistan, but earning foreign exchange for Pakistan.
He also added that 18.8% of total household income in Khyber Pakhtunkhwa comes from domestic and foreign remittances, compared to the national average of 8.6%.
