Centralisation based on democracy helps resolve issues. But the concentration of power at the cost of actual democracy denies citizens the choice and opportunity to improve their livelihoods, making existing problems more difficult to resolve.

Repeated calls from powerful quarters, including the International Monetary Fund, the armed forces, and the finance ministry, to rebalance the transfer of a larger chunk of divisible pool resources for the provinces under the 7th National Finance Commission (NFC) Award to the centre have gone unheeded, according to an analyst.

In multi-ethnic states, participatory democratic federalism works best to reduce disparities in economic development across provinces and regions, which is vital for ensuring economic and political stability and national security.

After the 26th and 27th amendments, if further changes were required, Minister of State for Interior Tallal Chaudhry says, “The government, along with its coalition partners, would proceed responsibly, ensuring the dignity of parliament is preserved.”

Political stability primarily depends on shared values and principles among the people’s representatives elected in free and fair elections. And the three tiers of the federation need to be empowered with rights and responsibilities according to their capabilities at each level.

Informed sources reportedly said that Prime Minister Shehbaz Sharif wanted to set the ball rolling at the political level on key centre-provincial matters before opening the debate on financial arrangements at the technically constituted NFC forum.

The centre must implement the provisions of the 18th Constitutional Amendment while upgrading the NFC resource distribution formula according to the changing economic environment

In principle, the prime minister has adopted the right approach. Critics, however, argue that he has no official role in the NFC engagements after the president constitutes it. Nevertheless, the prime minister has been hinting at continuing the dialogue with the PPP on the issue.

The 11th NFC was constituted on August 22, and its first meeting was called on August 27. After further delays, it was expected to meet in late November; it has been delayed once again to December 4.

Planning Minister Ahsan Iqbal recently said the population-based share should be gradually reduced so that resource allocation is linked to population decline

The five-year 7th NFC Award (2010) was a major step towards financial federalism as part of the evolving participatory federal democracy envisioned by the 18th Amendment and grant of administrative, political and legislative autonomy to the federating units. Now it is time to build upon what has been achieved so far.

The Sindh budget documents claim that the 7th NFC Award was historical because it broke the status quo of the revenue-sharing formula among the provinces that was based solely on population. All four provinces agreed on a multi-criteria-based formula involving population (82 per cent), poverty (10.3pc) inverse population density (2.7pc) and revenue generation collection (5pc), with an additional 1pc share for Khyber Pakhtunkhwa (KP) for the war against terrorism.

Furthermore, the sales tax on services was devolved to the provinces. Federal tax collection charges were reduced from 5pc to 1pc.

In view of the sharp rise in poverty levels both between provinces and within each province, it becomes imperative to raise the allocation for poverty proportionately. The proposals being discussed at the official level include increasing the weightage of revenue collection from the present 5pc, which could provide more fiscal space to address uneven regional economic development.

The fiscal space provided by the reduction in population weightage could also create room, for instance, to raise the allocation to inverse population density, now at 2.7pc. That is how underdeveloped Balochistan can be helped to catch up with relatively more developed Sindh and Punjab.

The weightage should not be higher than 40pc for any one criterion to make five-year adjustments easier, says a Business Recorder editorial, adding: the adjustments would not generate resistance from any one province, as the country’s economy as well as that of each federating unit evolves.

Only the population alone is allocated 82pc of the total NFC pool resources. Planning Minister Ahsan Iqbal recently said the population-based share should be gradually reduced so that resource allocation is linked to population decline. The federal government, in collaboration with provincial governments, he stated, is formulating a comprehensive action plan in this regard.

Then the issue of earmarking NFC funds sought by PTI for Federally Administered Tribal Areas merged with KP has to be settled amicably.

Harmonious relationships among the provinces would, in turn, strengthen the federation. The centre also needs to faithfully implement all provisions and stipulations of the 18th Constitutional Amendment while upgrading the NFC pool resource distribution formula to reflect the changing economic environment.

The 18th Amendment provided constitutional protection to the share of the federating units, stipulating that a sub-federation’s share in any future award must not be less than its share in the previous award.

In the current political situation, particularly the sharp divergence of views between the two major coalition partners, the PPP and PML-N, any constitutional amendment to reduce provincial shares seems impossible.

Published in Dawn, The Business and Finance Weekly, November 24th, 2025