By Muhammad Asif Iqbal
As Pakistan edges towards its Budget for 2026–27, a familiar tension resurfaces in the machinery of the state: the uneasy balance between the center and the provinces. Fiscal federalism, once heralded as a cornerstone of democratic devolution, now appears caught in a quiet but consequential paralysis. The 11th National Finance Commission (NFC), formed in August 2025 with cautious optimism, has yet to deliver what it was convened for — a new consensus award. Meetings have been held, working groups assembled, and technical papers circulated, yet the outcome remains elusive. With time running short, it is increasingly clear that a formal agreement will not materialize before the next budget is unveiled.
This impasse, however, should not be mistaken for a systemic collapse. Rather, it presents a test of institutional maturity. Pakistan’s fiscal framework cannot afford to stall simply because political consensus is slow to emerge. What is required now is not grandstanding, but a measured, evidence-based response that preserves both equity and continuity while negotiations continue in the background. The starting point of this debate remains the 7th NFC Award of 2010, widely regarded as a watershed in the country’s fiscal history. By expanding the criteria for resource distribution beyond population alone, it acknowledged the complex realities of deprivation, revenue generation and geographic disparities. Yet, more than a decade on, the formula’s underlying data has grown outdated. Pakistan is no longer the country it was in 2010, and its fiscal arrangements cannot remain frozen in that moment.
Demographic shifts alone underscore the urgency of recalibration. The merger of the former Federally Administered Tribal Areas into Khyber Pakhtunkhwa has fundamentally altered the province’s population profile and developmental needs. At the same time, new poverty estimates, drawn from the Household Integrated Economic Survey 2024–25, provide a far more nuanced picture of deprivation across regions. These are not marginal updates; they reshape the very indicators on which fiscal transfers are based. To ignore such changes would be to perpetuate a system that is increasingly detached from reality. Yet, rushing into a new award without consensus risks deepening mistrust between stakeholders. It is within this narrow space — between inertia and overreach — that a pragmatic solution must be found.
A compelling case has been made by the Social Policy and Development Centre (SPDC), which proposes an interim adjustment that is both technically sound and constitutionally defensible. Rather than redesigning the formula itself, the proposal suggests updating the data that feeds into it. In effect, the structure of the 7th NFC Award would remain intact, but its outputs would be recalibrated to reflect current realities. This is not without precedent. In the early 2000s, following the 1998 census, provincial shares were revised using updated demographic data even as the 1997 NFC Award remained formally in place. That adjustment allowed the system to retain its legal continuity while quietly correcting its empirical foundations. It is a reminder that flexibility, when exercised carefully, need not undermine institutional integrity.
The implications of such an update are significant, though not disruptive. The federal government’s share would rise marginally, by just under half a percentage point, while provincial allocations would shift in line with new data. Balochistan and Khyber Pakhtunkhwa stand to gain the most, reflecting both demographic changes and long-standing developmental gaps. Punjab and Sindh, by contrast, would see modest reductions — not as a penalty, but as a consequence of relative progress and changing population dynamics. These adjustments, while technical in nature, carry a broader political message. They signal a move towards a system that is grounded in evidence rather than inertia, one that responds to measurable change rather than historical precedent. In doing so, they also reaffirm a basic principle of federalism: that fairness is not static, but must be continually reassessed.
For Pakistan, adopting such an approach will require careful design and political will. Performance metrics must be credible, transparent and resistant to manipulation. More importantly, they must be introduced gradually, so as not to destabilize provinces that are already struggling. But the direction of travel is clear. A system that rewards both need and effort is more likely to foster accountability and, ultimately, better governance. In the immediate term, however, the priority is stability. The absence of a new NFC award should not translate into fiscal drift. By updating the data within the existing framework, policymakers have an opportunity to bridge the gap between continuity and change. It is a modest step, but a necessary one — and perhaps the only realistic option in a moment defined more by delay than by decision.
(The writer is the Managing Director of the Social Policy and Development Center (SPDC), eyeing social and policy matters’ impact on people’s daily life. He can be reached at editorial@metro-morning.com)
