The National Finance Commission (NFC) award, which sets the constitutional framework for distributing federal tax revenue to provinces, has been at the center of debates surrounding Pakistan’s growing fiscal pressures. Allocations are made from a divisible pool of taxes and duties collected by the federal government, yet critics often blame the federal share of 42.5% for the nation’s rising debt levels, calling for its increase. This perspective, however, overlooks the deeper structural issues driving fiscal shortfalls. Despite provincial allocations, poverty levels remain high, with approximately 45% of the population living on less than $4.2 per day, and spending on provincial subjects such as health and education has declined to under 1% of GDP in both sectors, far below South Asia’s average of 3.25% for health and 4% for education.
Pakistan’s debt currently stands around Rs76 trillion, leaving limited fiscal maneuverability and significant reliance on debt rollovers from China, Saudi Arabia, UAE, and remittances from overseas Pakistanis. The disparity between the size of the revenue pie and actual expenditure requirements is driven primarily by gaps in professional capacity and an avoidance of taxing the wealthy. Public sector enterprises alone account for Rs6 trillion in losses, and large-scale production of indigenous gas remains curtailed due to costly RLNG injections, highlighting inefficiencies that could be mitigated through better techno-commercial management. While the NFC formula has evolved over time, incorporating factors like poverty and backwardness since 2010, the allocation still heavily favors the largest province, leaving smaller provinces like Balochistan and Khyber-Pakhtunkhwa struggling to finance infrastructure and administrative costs independent of population.
Provincial revenue generation remains minimal, with only about Rs1 trillion collected in FY2025, of which 63% was GST recoveries and little contribution from agricultural income tax, despite agriculture contributing around 24% of GDP. Non-tax revenue accounted for only Rs313 billion, and opportunities in mining and natural resources remain underutilized. Projects such as Reko Diq demonstrate the consequences of prolonged delays and mismanagement, with an 11-year stalemate leading to a looming $12 billion penalty. Provincial exploration and production companies established in previous years have also failed to generate meaningful returns. These challenges underline that the revenue and debt crisis stems more from administrative inefficiencies and unexploited economic potential than from NFC allocation percentages.
Experts suggest that reform efforts should focus on rationalizing the horizontal distribution of funds, aligning agricultural income taxation with actual GDP contribution, and integrating key performance objectives for provinces tied to population control and women’s financial independence. Strengthening professional capacity across federal and provincial levels is critical, including appointing professional boards to oversee public sector enterprises and creating independent monitoring institutions for ministries. Achieving sustained GDP growth above 10% over a decade requires systematic investment in human capital, including short courses in project economics, operations management, and contract negotiations for young professionals. The 11th NFC Commission, recently constituted by the president, faces the task of incorporating these insights to ensure more effective fiscal management and enhanced provincial resource utilization.
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