All five stakeholders agree to set up a committee to finalize the rules to increase the provinces’ share
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 allocation formula to deliberations on the National Finance Commission platform, trying to limit discussions to revenue sharing rather than bringing spending into the fold amid the Centre’s desire to transfer some of its fiscal liabilities.
The maiden meeting of the NFC kick started on a positive note with all five players pledging to reach consensus with an open mind. However, there was also disagreement about what should be discussed in the NFC, according to the meeting participants.
The inaugural meeting of the 11th NFC was chaired by Finance Minister Muhammad Aurangzeb and Khyber-Pakhtunkhwa registered the first victory.
All the five stakeholders agreed to establish a committee to finalize modalities to increase the share of the war-torn province in the resources due to the amalgamation of 6.1 million inhabitants of erstwhile FATA in the province.
Contrary to the Centre’s earlier desire to resolve the resource allocation issue through a new constitutional amendment by scaling down 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 emphasized that consensus can only be developed by discussing within the National Finance Commission forum and that this commission should adhere to its mandate to move forward,” according to a consensus statement released by the finance ministry after the meeting.
KP has already stated that the NFC issues should be addressed by the NFC.
Sindh objected to the federal government’s proposal to discuss the expenditure on the NFC platform and said the discussions should only focus on the extent of revenue, Muzzammil Aslam, financial adviser to KP, said after the meeting.
However, the Ministry of Finance suggested the way forward to decentralize spending to the provinces and also increase revenue generation. Sindh province did not want to discuss the issue of expenditure and urged to keep the discussions focused on revenue.
The federal government said both the center and the provinces should cumulatively increase their revenues by about 6% of GDP. Chairman FBR Rashid Langrial also suggested that the 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% of fiscal space on GDP equates to about Rs 7 trillion. at today’s size of the economy and can solve the center’s fiscal problems.
The federal government showed that its fiscal position has deteriorated significantly, with the overall budget deficit growing from the pre-2010 level of 4% to 7% of GDP from 2011 to 2025.
The official handout stated that Aurangzeb highlighted the constitutional importance and spirit of cooperation underlying the NFC process.
The federal finance minister emphasized the government’s commitment to transparent and honest dialogue. Senator Aurangzeb emphasized 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 with the aim of delivering a fair and forward-looking NFC award.
Chief Minister Khyber Pakhtunkhwa Sohail Afridi expressed that a strong federation and strong provinces will guarantee a strong and united Pakistan. He emphasized the sacrifices made by the people of Khyber Pakhtunkhwa province in the war against terror which has unfortunately resurfaced.
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 of the province of Khyber Pakhtunkhwa and update the share of the province to give them due representation and requested the other provinces for their positive response in this matter.
The Ministry of Finance announced that “it was also unanimously decided that a sub-group on merger of erstwhile FATA/newly merged districts and its share in the divisible pool will be established, which will facilitate early formulation of its recommendations for NFC by mid-January 2026”.
The NFC also constituted half a dozen other working groups to discuss vertical distribution of resources, horizontal distribution of resources, and the variables for determining provincial shares.
Punjab Finance Minister Mian Mujtaba Shuja ur Rehman said that consensus building will require a lot of effort from everyone. He emphasized the importance of a fair distribution of resources and consistency of policies between the federal and provincial governments.
Mir Shoaib Nosherwani, Finance Minister of Balochistan expressed to achieve consensus and that Balochistan’s cooperation with the federation and provinces has always been there and going forward Balochistan will continue this path of cooperation and consensus.
The Commission also discussed the proposed schedule and timetable for future meetings and agreed to initiate the formation of technical sub-groups that will undertake work on specific mandates relevant to the NFC’s functions.
The commission decided to continue its work through a structured series of meetings and technical consultations in the coming months with the common goal of achieving a fair and sustainable NFC price for the people of Pakistan.
In its presentation, the KP government said the 11th NFC award should update the 7th NFC from June 2018 to bring it in line with the constitution. It should not only revise KP’s NFC share upwards by including population, poverty and other dynamics of the merged districts of Khyber Pakhtunkhwa, but also take into account the difference during the period 2019-20 to 2025-26, which was not given to the province as per the proposal.
The KP government also demanded that its share of the war on terror be tripled to 3% due to the recent uptick in terrorist incidents and high poverty levels in the province.
Khyber-Pakhtunkhwa Chief Minister Sohail Afridi said the federal government owes the province Rs 1.3 trillion under the NFC, highlighting that the former tribal districts that were administratively merged in 2018 have yet to be economically integrated.
The KP government said that the province’s share of the total overseas workers registered is more than 30% of the total Pakistani workers registered abroad. Given that KP’s share of the total population of Pakistan is only about 17%, the significantly larger proportion of KP workers seeking work abroad points to lower employment opportunities in the province compared to the rest of Pakistan, but earns foreign exchange for Pakistan.
It also added that the 18.8% of total household income in Khyber Pakhtunkhwa comes from foreign and domestic remittances compared to the national average of 8.6%.
