A federation is created when states or provinces come together with the intention to create a mutually beneficial structure of governance.
These states/provinces agree to establish a federal government to manage certain specific and important subjects collectively, while leaving most subjects to be governed by the provinces/states themselves.
Under the constitution, the federal government is tasked with the subjects of defence, foreign policy, commerce and trade, tax collection, strategic highways, shipping and maritime affairs, central banking and some other corresponding responsibilities. Part II of the federal legislative list contains the functions of the Council of Common Interests (CCI).
The country's tax revenue is targeted at Rs14,000 billion (or Rs14 trillion) this year. This amount is to be collected from all four provinces and the ICT for meeting the expenses of the provinces; and to share the burden of running the federal government.
Given the minimal and supporting responsibilities assigned by the provinces to the federal government and excluding the vast and important subjects of education, health, law and order, development, local government, agriculture, industry etc, the 7th National Finance Commission Award (given before the 18th Amendment in 2010) fixed the share of provinces collectively at 57.50 per cent and that of the federal government at 42.50 per cent. This proportion unfairly favours the federal government as it did not take into account the Rs5000 billion (or Rs5 trillion) non-tax revenue in its coffers.
In the past, the federal government has not exhibited fiscal responsibility or transparency. It raised loans without the consent of the provinces to meet its (duplicate and superfluous) huge expenditure, mostly on provincial subject ministries. This fiscal year 2025-26, Rs8.2 trillion has been earmarked for debt retirement liability.
Apart from debt servicing, the federal government’s major expenditure relates to defence. As such, the combined expenditure of the federal government for debt servicing and defence is Rs10.7 trillion. Apart from this, the federal government has a debt-servicing and defence expenditure of Rs10.7 trillion, and a civil government expenditure of almost Rs7 trillion, which is too high given its limited responsibilities under the constitution.
The federal government’s huge budget has been and continues to be a burden for the citizens, and it only privileges a tiny elite: the federal bureaucracy.
The federal government can easily and lawfully curtail or limit its civilian expenditure to Rs2.5 trillion. After adding to the amounts needed for debt servicing and defence, the federal government’s total expenditure should not exceed Rs13.5 trillion instead of the present Rs17.5 trillion, thus yielding an immediate saving of Rs4 trillion.
When one considers what savings can be affected in Islamabad, it becomes clear that Pakistan really does not need to be in the IMF programme. Since the IMF offers only Rs2 trillion (and that too over a period of three years), and the federal government, by faithfully implementing the 18th Amendment, can easily save Rs4 trillion or more a year.
Sadly, for Pakistan, its bureaucracy has a lethal grip on state finances and can scuttle any move to reduce this power. Let us not forget that the five Muslim-majority provinces that joined in 1947 to create a federal government would actually be run more efficiently and at a lower cost. It seems we keep forgetting that the provinces created Pakistan as a social welfare federal state.
The president of Pakistan has announced the beginning of the 11th NFC Award proceedings. This is a crucial step. Article 160 stipulates that the shares of the provinces in the award of the National Finance Commission (NFC) shall not be less than the share given to the provinces in the previous Award. This serves as a protective measure for the provinces, so that no one in Islamabad can attempt to reduce the proportionate share given to each province.
At present, the federal government and its centralist advocates are propagating that provinces take up almost 60 per cent of the revenue of the federation and the federal government is left with peanuts. This is a dangerous, false and baseless claim and totally contrary to facts. The federation has a total tax and non-tax revenue of Rs19 trillion (Rs14 trillion tax revenue plus Rs5 trillion non-tax revenue). The distribution under the NFC is carried out solely from tax revenue.
This year, the provinces are expecting Rs8.2 trillion from tax revenue, leaving the federation with Rs5.8 trillion. However, provinces have been asked by the federal government (courtesy of the IMF) to make available a so-called ‘surplus’ of Rs1400 billion. In other words, provinces will get Rs6.8 trillion, out of the total tax and non-tax revenue of Rs19 trillion. Thus, the provinces only get 36 per cent of the total tax and non-tax revenue of the federation. This is way too low an allocation for the provinces, given their huge constitutional responsibilities.
The federal government expenditure of Rs17.5 trillion is non-developmental (except for a meagre Rs1 trillion allocated for the public sector development programme). This amount is already higher than the combined four budgets of the provinces, which stand at Rs12 trillion.
As a result of this financial highhandedness by the centre (which in essence has never behaved as a federal government), there is insurgency in Balochistan, disaffection in various parts of Khyber Pakhtunkhwa, resentment in Sindh and division in Punjab.
In this current deliberation of the National Finance Commission, the members must read the writing on the wall. They must realise the enormous responsibility they bear. The federal government’s civil expenditures on its ministries, departments, divisions, commissions and pensions should not exceed Rs1.4 trillion. Combined with the BISP and added to the current outlay of Rs200 billion to Gilgit-Baltistan and Kashmir, it must not exceed Rs2.5 trillion.
The National Finance Commission should take stock of the finances of the country and develop a viable financing formula for the federation to take the people out of the morass of poverty, hunger and unemployment.
The provinces are struggling to cope with insufficient funds, while the elite federal bureaucracy enjoys a budget that is three times the defence budget of Pakistan. How long can Pakistan survive under this bizarre fiscal arrangement?
The writer has served as advocate general of Sindh. He tweets/posts zamirghumro