ISLAMABAD: The federal government is now considering various options to propose changes to the resource distribution formula, following the Centre’s continued failure to reconstitute and convene the long-awaited National Finance Commission (NFC) despite provincial demands. Facing severe financial constraints, the Centre is weighing two options: either to reduce the provinces’ share of revenue or contribute to the funding of Benazir Income Support Programme (BISP), Higher Education Commission and other related institutions.
Under the IMF agreement, provinces agreed to the devolution of specific expenditures from the federal to provincial governments in line with the 18th Constitutional Amendment. Provinces also committed to enhancing tax collection, and implementation efforts are under way. In FY26, all new PSDP projects impacting just one province are expected to be financed directly from provincial budgets. The IMF staff also recommended a framework to guide provincial investment of their accumulated cash surpluses in government securities through non-competitive bidding.
Broader proposals are also currently under consideration to revise the resource distribution formula. One key suggestion is to reduce the current 82 percent weightage given to population. Instead, the formula could incorporate smaller population size, poverty levels and provincial tax performance.
The Ministry of Finance has recently held an internal meeting to review the composition of the upcoming NFC Award. They examined the financial flows under the existing 7th NFC, including the provincial share of taxes and BISP allocations. The first formal meeting with the provinces, initially scheduled for August, has already been delayed and is now expected to be held in September or October 2025.
