• Move comes amid downward revision in growth forecast to 3.5pc for current fiscal
• Calls from IMF, armed forces, others to re-balance transfer of resources to provinces go unheeded
• Centre ‘backs off’ from changes to award after deal with PPP
ISLAMABAD: The inaugural session of the National Finance Commission (NFC), constituted three months ago, is not in sight, as the proposed date of Nov 18 has also been postponed amid a downward revision in the economic growth forecast by up to 0.7 per cent to 3.5pc for the current fiscal year.
Informed sources said told Dawn that Prime Minister Shehbaz Sharif wanted to set the ball rolling at the political level on key Centre-provincial matters before opening the debate for financial rearrangements at the technically-constitutional forum of NFC.
The 11th NFC was constituted on Aug 22 to give a fresh award for the sharing of federal divisible resources among the Centre and the provinces.
The first meeting was originally called for Aug 27 and then delayed to Aug 29 for unannounced reasons. The meeting was postponed again on the request of Sindh government due to floods.
The 7th NFC award delivered in 2009 thus remains in place for over 15 years against its five-year constitutional term.
As a result, repeated calls from various quarters, including the finance ministry, the armed forces, and the International Monetary Fund (IMF), to re-balance the transfer of a larger chunk of divisible pool resources to the provinces under the 7th NFC award have gone unaddressed.
The Constitution promises that provincial shares in each NFC award cannot be reduced. The NFC award has to be achieved with consensus of five parties — the Centre and the four provinces.
Under the 7th NFC award, the four provinces are collectively entitled to 57.5pc of divisible pool taxes, besides the revenue from income tax, wealth tax, capital value tax, general sales tax, customs duties and federal excise.
The provincial governments receive their horizontal shares on the basis of population, poverty, revenue collection, and inverse population density.
This allows Punjab to obtain a share of 51.74pc, Sindh 24.55pc, Khyber Pakhtunkhwa 14.62pc, and Balochistan 9.09pc.
Political bargain
The sources said the provinces had been conveyed the date of Nov 18 for the inaugural meeting early this month, although without issuing a formal notification.
They added that the Prime Minister’s Office called for postponing the meeting and for not communicating a new date to the provinces before the premier could take up the matter with the coalition partners.
The prime minister has officially no role in the NFC engagements after the commission is constituted by the president.
The revision in the NFC parameters was originally part of the proposed 27th Constitutional Amendment as the Centre wanted to reduce the financial shares of the provinces and take back some of the devolved subjects like education, population, etc.
However, the federal government stepped back in a political bargain with its main coalition partner, the PPP, for amendments relating to the armed forces and the judiciary.
Nevertheless, the prime minister has been hinting at continuing dialogue with the PPP for the NFC.
While the Centre had already crafted a major revenue source — petroleum development levy (PDL) on various products instead of the NFC –it has also secured about Rs1.5tr cashback from the provinces outside the award.
Revenue sources outside NFC
The combined impact of the two — PDL and provincial cash surplus — work out to be around Rs3 trillion for the current fiscal year — almost 2pc of the GDP.
On top of this, the Centre has secured Rs2.5 billion each for the current and last fiscal years on account of State Bank of Pakistan’s profits as a consequence of record-high interest rates.
The provincial cash surplus could be impacted by the shortfall in Federal Board of Revenue’s (FBR) tax collection, which has already amounted to Rs275bn in the first four months and is likely to grow as the year progresses amid lower than the budgeted economic growth rate.
The GDP growth rate has a direct bearing on the FBR’s tax collection and as a consequence on the NFC shares of the provinces and then their commitments to provide cash surplus to the Centre under the National Financial Pact orchestrated outside the Constitution under the dictats of the IMF to ensure healthy finances to the federation.
The lower GDP growth could, however, be partly compensated by higher inflation that generate greater sales tax receipts.
Flood devastation
Recently, the finance ministry told the National Assembly that a report compiled by the planning ministry based on data available as of Sept 30 showed that flood “devastation has led to a projected reduction in FY2026 GDP growth by 0.3-0.7pc, lowering the growth outlook from 4.2pc to a range of 3.5-3.9pc”.
The planning ministry had estimated economic loss of Rs822bn, equivalent to approximately $2.9bn, it said.
The finance ministry said the floods had exerted upward pressure on inflation.
In the first two months of FY2026 — July and August — inflation remained at 4.1pc and 3pc, respectively; however, in September, it surged to 5.6pc, mainly driven by higher food prices, it added.
The agriculture sector, with damages of Rs430bn (crops losses at Rs422.7bn), alongside significant infrastructure losses of Rs307bn (road infrastructure losses at Rs187.8bn), have been a primary driver of this downturn, the finance ministry said, adding that “due to the crops damages, the growth of agriculture sector is projected at 3pc-3.8pc against the target of 4.5pc.
The finance ministry further said the annual targets for key macroeconomic variables were approved by the National Economic Council.
“These targets remain intact; however, internal assessments are carried out to evaluate the impacts of changing domestic and external conditions,” it added.
“Amid the recent floods, considering the estimated economic loss of Rs822bn, the overall GDP growth is projected to decline for FY2025- 26 based on lower growth in agriculture due to extensive crop damages while growth in industry and services may also suffer due to linkages with agriculture.”
Moreover, it warned that the rice exports could also suffer while imports of raw cotton, wheat, pulses, and construction materials could increase, thereby widening the trade deficit and straining foreign exchange reserves.
However, higher expected workers’ remittances might offset the adverse impact of floods and keeping the current account deficit in check. Likewise, there is a risk of inflationary pressures, particularly on food and essential items, due to crop losses, supply chain disruptions, and higher input costs.
Published in Dawn, November 17th, 2025
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