The 15th National Finance Commission (NFC) Award for the fiscal year 2025-26 marks a significant turning point in Pakistan’s intergovernmental fiscal system. As the country confronts economic challenges, this award not only boosts provincial finances but also opens the door for long-overdue fiscal reforms.
Key Allocations to Provinces (FY 2025-26)
The federal government has allocated a record Rs 8,205 billion to provinces under the 15th NFC Award. Compared to the previous year, this amount reflects an increase of Rs 1,208 billion, supporting provincial needs across the board.
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| Province | Allocation (Rs Billion) | Increase from FY2024-25 |
|---|---|---|
| Punjab | 4,760 | +641 |
| Sindh | 2,430 | +291 |
| Khyber Pakhtunkhwa (KP) | 1,342 | +207 (includes 1% for war on terror) |
| Balochistan | 743 | +70 |
| Total | 8,205 | +1,208 |
In addition, provinces will receive over Rs 217 billion in oil and gas royalties, further enhancing their fiscal capacity.
NFC Distribution Formula Still Follows the 7th Award (2010)
Despite strong calls for reform, the federal and provincial governments continue using the outdated 2010 formula for revenue distribution. This formula, however, does not reflect demographic and structural changes from the past 15 years.
| Factor | Weightage (%) |
|---|---|
| Population | 82 |
| Poverty/Backwardness | 10.3 |
| Revenue Collection Effort | 5 |
| Inverse Population Density | 2.7 |
Based on this formula:
- Punjab receives around 51.7% of the divisible pool.
- Sindh follows with 24.6%.
- KP gets 14.6% plus 1% for security operations.
- Balochistan receives 9.1%.
Provincial Impact and Response
Punjab
Punjab remains the top recipient with Rs 4.76 trillion. The province intends to allocate these funds toward health, education, and infrastructure. Rising inflation and increased demand for public services have made these investments more urgent than ever.
Sindh
Sindh receives Rs 2.43 trillion. Although this amount shows an improvement, provincial authorities continue demanding a broader set of indicators—such as human development, tax effort, and governance quality—for future NFC calculations.
Khyber Pakhtunkhwa (KP)
KP is allocated Rs 1.342 trillion, including the special 1% war-on-terror share. Chief Minister Ali Amin Gandapur has criticized the continued use of pre-merger population data. He argues that KP’s share should be around 19.6% instead of 14.6%, now that the tribal districts have merged.
Balochistan
Balochistan receives Rs 743 billion. While the inverse population density factor slightly improves its share, the province still struggles to meet development needs due to its low resource base and high service delivery costs.
Reforms and Fiscal Adjustments Underway
To modernize fiscal management, several reforms are now in progress. These include:
- Agriculture Income Tax Harmonization: All provinces have agreed to standardize agricultural taxation by January 2025, following IMF recommendations.
- Devolution Expansion: The federal government is pushing to transfer education, healthcare, and welfare programs like BISP and Ehsaas to the provinces.
- Population Policy Incentives: A new formula is being considered to reward provinces for controlling population growth, rather than solely increasing their population base.
- Rebalancing Vertical Imbalance: Currently, provinces receive 57.5% of revenues but handle only 30–35% of expenditures. The federal government seeks to correct this imbalance through equitable restructuring.
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Political Landscape and Provincial Tensions
Khyber Pakhtunkhwa
KP has given an April deadline for formula revision. If unmet, the provincial government has threatened to approach the Supreme Court to claim its rightful share based on updated demographics.
Sindh
Sindh has also raised concerns, emphasizing that population alone cannot define fair distribution. The province urges the inclusion of human development and environmental sustainability in the allocation process.
Federal Perspective
Federal officials caution that current arrangements overburden the central government, which continues to finance defense and debt servicing while sharing over 57% of revenues. Without formula reform, federal deficits will widen further.
Summary Table
| Key Area | Detail |
|---|---|
| Total Allocation | Rs 8,205 billion |
| Formula Base | 7th NFC Award (2010) |
| IMF Reforms | Agricultural tax, service devolution, fiscal reform |
| Future Adjustments | Population control incentives, equity-based metrics |
| Provincial Pressures | KP, Sindh, Balochistan |
| Formula Revision Status | In discussion; official announcement pending |
Conclusion
The 15th NFC Award offers substantial fiscal space to provinces, but its effectiveness remains constrained by outdated allocation formulas. With provinces demanding equitable revisions and international lenders pressing for deeper reforms, Pakistan must redesign its fiscal federalism model. A new, inclusive NFC framework is essential for balanced growth, political harmony, and sustainable development. Keep visiting: Bloom Pakistan
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