• The move comes amid a downward revision of the growth forecast to 3.5 per cent for the current fiscal year.
• Calls from the IMF, the armed forces and others to rebalance the transfer of resources to the provinces are not heeded
• Center ‘walks away’ from award changes after PPP deal
ISLAMABAD: The inaugural session of the three-month-old National Finance Commission (NFC) is not in sight as the proposed date of November 18 has also been postponed amid a downward revision in the economic growth forecast from up to 0.7 per cent to 3.5 per cent for the current fiscal year.
Informed sources said they said Sunrise that Prime Minister Shehbaz Sharif wanted to launch key issues between the center and the provinces at the political level before opening the debate on financial rearrangements in the technically constitutional forum of the NFC.
The eleventh NFC was established on August 22 to award a new award for the distribution of divisible federal resources between the Center and the provinces.
The first meeting was originally scheduled for August 27 and was later delayed until August 29 for unannounced reasons. The meeting was postponed again at the request of the Sindh government due to floods.
The NFC’s seventh award, issued in 2009, thus remains in force for more than 15 years, compared to its constitutional mandate of five years.
As a result, repeated calls from various quarters, including the Ministry of Finance, the armed forces and the International Monetary Fund (IMF), to rebalance the transfer of a larger share of the common fund’s divisible resources to the provinces under the seventh NFC award have not been heeded.
The Constitution promises that provincial participation in each NFC award cannot be reduced. The NFC award must be achieved with the consensus of five parties: the Center and the four provinces.
According to the NFC’s seventh award, the four provinces are collectively entitled to receive 57.5 percent of the divisible common taxes, in addition to revenues from income tax, wealth tax, capital value tax, general sales tax, customs duties and federal excise taxes.
Provincial governments receive their horizontal shares on the basis of population, poverty, revenue collection and inverse population density.
This allows Punjab to get a share of 51.74 percent, Sindh 24.55 percent, Khyber Pakhtunkhwa 14.62 percent and Balochistan 9.09 percent.
Political negotiation
Sources said the November 18 date for the inaugural meeting had been communicated to provinces earlier this month, although without issuing a formal notification.
They added that the Prime Minister’s Office asked to postpone the meeting and not communicate a new date to the provinces before the Prime Minister could take up the matter with coalition partners.
The prime minister officially has no role in NFC commitments after the president constitutes the commission.
The revision of NFC parameters was originally part of the proposed 27th Constitutional Amendment as the Center wanted to reduce the financial shares of the provinces and bring back some of the transferred subjects like education, population, etc.
However, the federal government backtracked on a political agreement with its main coalition partner, the PPP, to introduce amendments related to the armed forces and the judiciary.
However, the Prime Minister has hinted that dialogue with the PPP for the NFC will continue.
While the Center had already created a major source of revenue (petroleum development levy (PDL) on various products in lieu of NFC), it also got a refund of around Rs 1.5 trillion from provinces outside the award.
Revenue streams outside of NFC
The combined impact of the two (the LDP and the provincial cash surplus) amounts to around Rs 3 trillion for the current fiscal year, almost 2 percent of GDP.
In addition to this, the Center has secured Rs 2,500 crore each for the current and last fiscal year on account of the State Bank of Pakistan’s profits in the wake of record-high interest rates.
The provincial cash surplus could be affected by the Federal Board of Revenue’s (FBR) tax collection shortfall, which has already amounted to Rs 275 billion in the first four months and is likely to grow as the year progresses amid a lower-than-budgeted economic growth rate.
The GDP growth rate has a direct relationship with the tax collection of the FBR and consequently with the NFC actions of the provinces and then with their commitments to provide surplus cash to the Center under the National Financial Pact orchestrated outside the Constitution under the dictates of the IMF to ensure healthy finances to the federation.
However, lower GDP growth could be partly offset by higher inflation leading to higher sales tax revenues.
Flood Devastation
Recently, the Ministry of Finance told the National Assembly that a report compiled by the Ministry of Planning based on data available as of September 30 showed that the floods “devastation has led to a projected reduction in GDP growth for fiscal year 2026 between 0.3 and 0.7 percent, reducing growth prospects from 4.2 percent to a range of 3.5 to 3.9 percent.”
The Planning Ministry had estimated an economic loss of 822 billion rupees, equivalent to about $2.9 billion, it said.
The Finance Ministry said the floods had put upward pressure on inflation.
In the first two months of fiscal year 2026 (July and August), inflation remained at 4.1 percent and 3 percent, respectively; However, in September it increased to 5.6%, driven mainly by rising food prices, he added.
The agriculture sector, with damages of Rs 430 billion (crop losses of Rs 422.7 billion), along with major infrastructure losses of Rs 307 billion (road infrastructure losses of Rs 187.8 billion), have been the main driver of this slowdown, the Finance Ministry said, adding that “due to damage to crops, the growth of the agricultural sector is projected between 3% and 3.8% compared to the target of 4.5%.
The Finance Ministry further said that the annual targets for key macroeconomic variables were approved by the National Economic Council.
“These objectives remain intact; however, internal assessments are carried out to assess the impacts of changing internal and external conditions,” he added.
“Amid the recent floods, considering the estimated economic loss of Rs 822 billion, overall GDP growth is projected to decline for fiscal years 2025-26 due to lower growth in agriculture due to extensive damage to crops, while growth in industry and services may also be affected due to linkages with agriculture.”
In addition, he warned that rice exports could also be affected, while imports of raw cotton, wheat, pulses and construction materials could increase, thus widening the trade deficit and depleting foreign exchange reserves.
However, the expected higher remittances from workers could offset the adverse impact of the floods and keep the current account deficit under control. There is also a risk of inflationary pressures, especially in food and essential items, due to crop failures, supply chain disruptions and higher input costs.
Published in Dawn, November 17, 2025
