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The federal government on Friday formally constituted the 11th National Finance Commission (NFC) under Article 160 of the Constitution, replacing the previous commission that had been in place since July 2020. The announcement was made through a notification issued by the Finance Division, marking a significant development in Pakistan’s fiscal federalism framework.
The NFC plays a pivotal role in defining how revenues are shared between the federal and provincial governments, directly influencing the financial autonomy of provinces and the overall stability of the national economy.
Composition of the 11th NFC
According to the notification, the Federal Minister for Finance will serve as the Chairman of the NFC. The Finance Ministers of Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan will serve as ex-officio members, ensuring representation from all four provinces.
In addition to provincial finance ministers, the President of Pakistan has nominated the following members from the provinces:
- Nasir Mahmood Khosa (Punjab)
- Asad Sayeed (Sindh)
- Musharraf Rasool Cyan (Khyber Pakhtunkhwa)
- Farman Ullah (Balochistan)
This balanced composition brings together experienced bureaucrats, economists, and policymakers with the mandate of reaching consensus on highly complex fiscal matters.
Terms of Reference (ToRs) of the 11th NFC
The Terms of Reference (ToRs) notified for the 11th NFC underline its critical responsibilities. These include:
Distribution of Revenues
The NFC will recommend the distribution of the net proceeds of federally collected taxes between the federation and the provinces, as required under clause (3) of Article 160 of the Constitution. This revenue-sharing mechanism lies at the heart of Pakistan’s financial federalism.
Grants-in-Aid to Provinces
The Commission will deliberate on the grants-in-aid by the federal government to provinces. Such grants are essential for addressing provincial disparities and providing additional resources where revenue capacity is weaker.
Borrowing Powers
Another key mandate is to examine the exercise of borrowing powers by both federal and provincial governments. In the context of Pakistan’s rising debt burden, this provision has taken on greater importance, requiring careful balancing of fiscal responsibilities.
Sharing of Expenditures
The NFC will also address the sharing of financial expenses incurred or to be incurred by the Federation in respect of matters falling within provincial jurisdiction. Similarly, it will assess trans-provincial financial responsibilities and expenditures for national projects to be shared jointly by the federation and provinces.
Any Other Financial Matters
The ToRs also allow the President to refer any other financial matter to the Commission, providing flexibility to address evolving economic challenges.
Secretariat and Administrative Support
The notification confirmed that the Finance Division will provide secretariat support to the Commission under the Rules of Business, 1973. This support will include coordination, documentation, and administrative arrangements necessary for the Commission’s functioning.
Dissolution of the 10th NFC
The formation of the new commission also means the 10th NFC, constituted in July 2020, stands dissolved with immediate effect. While the 10th NFC was set up to address revenue distribution issues, it was unable to produce a conclusive award due to political, economic, and constitutional hurdles.
The dissolution paves the way for the 11th NFC to take charge, raising expectations for concrete outcomes in fiscal federalism.
Importance of the NFC for Pakistan’s Economy
The National Finance Commission Award is one of the most significant fiscal arrangements in Pakistan, as it directly affects provincial budgets, development planning, and service delivery. The 7th NFC Award (2010) remains the most transformative in Pakistan’s history, having increased the provincial share of revenues from 47.5% to 57.5%.
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Since then, subsequent NFCs have struggled to finalize new awards, leaving the distribution formula unchanged for years. Economists argue that the delay in updating the NFC award has led to fiscal imbalances, with provinces demanding greater resources to meet rising expenditure needs, while the federal government faces mounting debt obligations.
The 11th NFC Award is therefore expected to address some of these long-standing issues, especially in the context of Pakistan’s fragile economy, increasing demands for provincial autonomy, and the need for equitable development across all regions.
Challenges Ahead
While the formation of the 11th NFC is a positive step, the commission faces several challenges:
- Fiscal Deficit: Pakistan’s widening fiscal deficit leaves limited space for revenue distribution.
- Debt Burden: The growing debt servicing obligations of the federal government may limit fiscal transfers to provinces.
- Provincial Demands: Provinces are likely to demand larger shares and greater autonomy, creating potential conflict with federal priorities.
- Development Needs: Balancing provincial disparities while funding national projects will be a major test.
Achieving consensus among all stakeholders will require political will, economic expertise, and cooperative federalism.
Conclusion
The constitution of the 11th National Finance Commission is a landmark development for Pakistan’s fiscal system. With a strong and diverse membership, clear Terms of Reference, and administrative backing, the commission now shoulders the critical task of revising revenue distribution and strengthening federal-provincial relations.
The coming months will reveal how effectively the NFC navigates economic constraints and political challenges to deliver an outcome acceptable to both the federation and provinces. For Pakistan’s struggling economy, the stakes could not be higher.
