The introductory meeting of the 11th National Finance Commission on Dec 4 is expected to set the tone for discussions between the centre and the provinces on a fresh award to govern the vertical and horizontal distribution of tax revenue from the federal divisible pool. Historically, NFC negotiations have rarely been smooth, except for those that finalised the existing seventh Award in 2009, largely because of the massive gap between the spending needs of the stakeholders and the limited revenue available for distribution. So, it is no surprise that each award has remained in place well beyond its constitutionally mandated five-year term. The current award has been in force for 15 years, despite multiple attempts to initiate negotiations for a new one since its expiry in 2015. In this context, the upcoming talks are unlikely to be friction-free or swift, especially because the centre wants to reclaim the fiscal resources it had ceded to the provinces under the existing award.

Apart from the federal government, the IMF and certain quarters have also wanted resource distribution to be rebalanced in favour of the centre. The PML-N had sought to roll back the constitutional protection for the provincial share in the divisible pool and reclaim federal control over the devolved subjects of population and education through the 27th Amendment. However, it had to retreat after its main coalition partner, the PPP, rejected the proposal. That said, this does not mean a win-win consensus is impossible within the existing constitutional framework for revenue distribution, provided the aim is to extend the devolution agenda to the grassroots. Indeed, the provinces have fallen short both in significantly increasing their own-source revenues and in transferring powers to the local governments. But they are not the only ones at fault. The centre, too, has failed to raise the tax-to-GDP ratio to 15pc despite the passage of 15 years since the implementation of the current award. Moreover, Islamabad has been unwilling to let go of devolved ministries and subjects or to curb its own wasteful expenditure. A reversal of their share would therefore be unacceptable to the provinces. They can, however, be persuaded to assume greater development responsibilities, tap their unexplored own-source revenues, and meaningfully devolve fiscal, political and administrative powers to local governments. But for that to happen, the centre has to fulfil its part of the bargain.

Published in Dawn, November 23rd, 2025