Islamabad — As Pakistan prepares for the next National Finance Commission (NFC) award, the federal government is moving towards a major overhaul of the resource-sharing formula. Senior officials confirmed that Islamabad wants to reduce provincial shares and link 10–15% of transfers to performance in tax collection, education, healthcare, population management, and environmental protection.
At a high-level meeting in Q Block this week, ministers of finance, planning, law, and economic affairs discussed ways to relieve federal fiscal stress. The proposals include carving out a separate portion of the divisible pool for mega dam projects — which officials termed a national security issue — and higher education funding.
The Centre also wants dedicated allocations for Islamabad Capital Territory, Gilgit-Baltistan, and Azad Jammu & Kashmir, while considering conditions requiring provinces to pass a share of funds to local governments.
Currently, provinces receive 57.5% of the divisible pool under the 7th NFC award, with population accounting for 82% of the distribution formula. Planning Minister Ahsan Iqbal has urged Prime Minister Shehbaz Sharif to revise this formula, arguing that it encourages unsustainable population growth while squeezing the federal development budget — which has fallen from 2.6% of GDP in 2018 to just 0.8% in 2025.
The government is also exploring the transfer of the Benazir Income Support Programme, worth Rs722 billion this year, to provincial authorities since welfare falls under their constitutional domain. Sindh has already raised objections, while similar resistance is expected from Punjab.
Officials say the finance ministry is drafting a five-year projection to highlight how debt servicing and fiscal pressures leave the Centre with limited space for development spending unless the NFC award is restructured. Another internal review meeting is scheduled for early next week to finalise the federal position before talks with provinces formally begin.