NATHIA GALI – In a rare show of agreement, the PML-N-led federal government and PTI’s administration in Khyber Pakhtunkhwa (KP) appear united on revisiting how funds are distributed among provinces through the National Finance Commission (NFC). Both sides are advocating a reduced weight for population in the resource-sharing formula, a stance that could significantly reshape inter-provincial fiscal dynamics.
The NFC’s 11th iteration will hold its inaugural session on Friday, August 29, setting the stage for what could be the most consequential financial negotiations in over a decade.
KP Pushes for Prosperity and Forestation in Allocation Criteria
KP’s Finance Minister Muzammil Aslam announced that his province will seek a fundamental shift in the formula used to distribute funds among provinces. Currently, 82% of horizontal allocations—the share given to each province—are based on population. KP aims to scale that back, proposing that prosperity levels, forest cover, and development needs play a larger role.
“We want population and backwardness to be disincentivised,” Aslam said at the Prosper Pakistan conference, organised in Peshawar by the FPCCI and KP Board of Investment.
If adopted, the proposed changes would also favour Balochistan, Pakistan’s largest province by land but sparsely populated, further altering the balance of fiscal power away from Punjab and Sindh.
Political Rivals Finding Common Ground
This emerging consensus between arch-rivals PML-N and PTI suggests that Punjab and Sindh could face mounting pressure to concede on population’s dominant role in the NFC formula. President Asif Ali Zardari and Prime Minister Shehbaz Sharif are backing the review, which could make it politically difficult for their parties’ provincial leaderships to resist.
The NFC award—last revised in 2009—dramatically increased the provinces’ share of federal revenue from 47% to 57.5%. Special allocations for Balochistan, KP, and Sindh later pushed that figure even higher, leaving the Centre with less than 43%.
Smaller Provinces Feel Left Out of Development Spending
While pushing for fiscal reform, Aslam accused Islamabad of neglecting KP and Balochistan in infrastructure development. He criticised the National Highway Authority (NHA) for focusing its projects primarily on Punjab and Sindh.
“This imbalance has deepened resentment in smaller provinces,” he said, noting that the federal government has been complaining of financial strain even as Punjab and Sindh enjoy larger development budgets than the Centre.
Cheap Energy Blocked, Water Projects Delayed
Aslam highlighted KP’s untapped hydropower potential, revealing that 12 under-construction projects could generate 1,000MW at a cost of just 8 cents per unit. However, he warned that high wheeling charges—now at Rs27 per unit—are stifling the province’s ability to deliver cheap electricity.
He also lamented the decades-long delay in building the Left Bank Canal, despite its inclusion in the 1991 Water Apportionment Accord.
The Federal Argument: Burden-Sharing Over Population
The Centre has increasingly argued for spreading financial responsibility for dams, disaster management, climate change, and national security across all provinces. Officials have also been pushing to break the link between higher population counts and larger provincial budgets—a move some see as a way to encourage better population planning and fairer distribution of resources.
Complicating matters further, Islamabad has effectively clawed back some fiscal power since the last NFC award through petroleum levies and by holding around Rs1.5 trillion annually in provincial cash surpluses.
