The government is considering seeking technical assistance from the International Monetary Fund (IMF) to help revise the resource distribution formula under the National Finance Commission (NFC) Award, The News reported, citing sources.
The proposal aims to address the growing fiscal deficit and unsustainable debt levels that have resulted from the current distribution structure.
The Ministry of Finance has prepared a preliminary report highlighting the challenges of the last NFC Award, which was implemented 15 years ago. The report notes that the fiscal deficit has widened over the years, leaving the government with no choice but to increase borrowing to cover the emerging liabilities. As a result, both the absolute debt numbers and the debt-to-GDP ratio have ballooned to unsustainable levels.
Sources suggest that the IMF could offer technical assistance on resource allocation, especially considering the experience of other economies in the region and globally. However, no formal request has yet been made to the IMF, and discussions between the Ministry of Finance and the IMF are still pending on the specifics of the resource distribution and the Federal Divisible Pool (FDP) under the NFC.
One of the key issues under discussion is the proposed 27th Constitutional Amendment, which aims to adjust the resource distribution both vertically between the Centre and provinces and horizontally within the provinces. The federal government seeks to reduce the share of the provinces in the NFC Award, which currently stands at 57.5%. This would increase the Centre’s share, though the 18th Constitutional Amendment protects the provinces’ financial share, requiring an amendment to this clause for any reduction.
Additionally, the distribution criteria within provinces may be modified. Currently, the population-based weightage stands at 82%, with smaller allocations for poverty and backwardness (10.3%), revenue collection (5%), and Inverse Population Density (2.7%). The proposal suggests lowering the weightage of population as a primary criterion.
According to the existing NFC formula, the provinces’ share of the Federal Divisible Pool (FDP) is divided as follows: Punjab receives 51.74%, Sindh 24.55%, Khyber Pakhtunkhwa (KP) 14.62%, and Balochistan 9.09%.
This ongoing discussion about the NFC Award highlights the government’s intent to review the financial framework to address the country’s rising debt and improve fiscal sustainability.
