Planning Minister Ahsan Iqbal has urged major NFC reforms to fix Pakistan’s fiscal imbalance and support the goal of a $1 trillion economy by 2035.
A New Debate on Fiscal Federalism
Federal Minister for Planning, Development and Special Initiatives Ahsan Iqbal has called for a major, forward-looking reform of the National Finance Commission (NFC) Award as part of a wider strategy to make Pakistan a $1 trillion economy. Speaking at the Pakistan Governance Forum, he said the country can only unlock its full growth potential if fiscal federalism is redesigned to match today’s economic realities and development needs.
The Forum, organised by the Ministry of Planning, brought together the Prime Minister, all four Chief Ministers, federal and provincial ministers, parliamentarians, development partners, academics, and policy experts in a rare national dialogue on fiscal federalism. Iqbal said the purpose was to open the debate, listen to provinces, and bring every key stakeholder to the table rather than impose decisions from the centre.
He described the event as a turning point in building cooperative federalism, where the federation and provinces share responsibility for growth, social protection, and climate resilience. The goal, he stressed, is not to roll back provincial autonomy but to align responsibilities, resources, and accountability across all tiers of government.
Vertical vs Horizontal Distribution of Resources
Iqbal clarified that the constitutional vertical distribution of resources between the federation and provinces is fully protected and not under review. The share that goes to provinces under the NFC Award will remain intact because it safeguards provincial autonomy after the 18th Constitutional Amendment.
Instead, the current discussion focuses on horizontal distribution — how financial responsibilities and resources are shared within the federal system and across different regions in a fair and sustainable way. The minister argued that the present structure leaves the federation with too little fiscal space to meet its growing obligations, even as expectations from the federal government keep rising.
Sharing key figures, Iqbal noted that Pakistan currently collects around Rs 14 trillion in federal tax revenue and about Rs 5 trillion in non-tax revenue. Out of this, nearly Rs 8.2 trillion is transferred to provinces each year under the NFC Award. After these transfers, the federal government is left with fiscal space of roughly Rs 11.07 trillion to meet expenditures that are approaching Rs 17.5 trillion.
Pakistan’s Fiscal Imbalance by the Numbers
Almost half of federal spending goes toward debt servicing, while about one-fourth is absorbed by defence. The remaining space must cover pensions, salaries, running expenses, development spending, grants, and social protection programmes. Iqbal described this equation as structurally unsustainable because it forces the federal government to borrow heavily just to meet recurring obligations.
He also pointed out that social protection is largely a provincial subject after the 18th Amendment, yet the federation continues to fund large national schemes such as the Benazir Income Support Programme (BISP). In addition, the federal government bears responsibility for Azad Jammu and Kashmir, Gilgit-Baltistan, and Islamabad, all of which claim a fair share from the divisible pool despite not being provinces.
The Planning Minister also highlighted what he called unintended incentive distortions in the existing NFC formula. Currently, population carries 82 percent weightage, while poverty has a 10 percent weight. According to Iqbal, this structure offers little fiscal incentive for provinces to actively pursue population stabilisation or rapid poverty reduction.
Fixing Incentives Inside the NFC Formula
He noted that population growth has edged up from 2.4 percent in 2017 to 2.55 percent in 2023, despite mounting pressure on resources, cities, and public services. At the same time, a formula that rewards higher poverty levels can unintentionally benefit provinces that do not improve human development outcomes.
To correct this, Iqbal proposed recalibrating the NFC formula to reward provinces for measurable progress in poverty reduction, human development, climate resilience, and population stabilisation. He argued that climate change is now a structural reality for Pakistan and must be recognised in how national resources are shared.
The minister called for better fiscal recognition of AJK, Gilgit-Baltistan, and Islamabad so that citizens in these regions are not left behind in access to public services and development funding. He said the next NFC should explore lawful and constitutional ways to give them fair treatment without disturbing the core federal structure.
Aligning Regions and Reforms with the $1 Trillion Vision
Iqbal stressed that the National Economic Council (NEC) must be revitalised as the apex forum to align fiscal allocations with national development priorities. Without strong coordination between federation and provinces, he warned, fiscal stress will continue to undermine growth, jobs, and service delivery.
Concluding his address, he said Pakistan’s fiscal challenges are serious but not unique. Other countries have overcome similar constraints through determination, policy continuity, and political stability. For Pakistan to become a $1 trillion economy by 2035, he argued, the NFC must evolve to support investments in education, healthcare, skills, IT, infrastructure, and climate resilience within a stable and reform-driven environment.
