• Invites legal opinion on whether provinces are bound by federal expenditure priorities
• Seven working groups to be formed; second meeting to be held between January 8 and 15

ISLAMABAD: Building the case on overburdening and rising debt servicing costs post-2010, the federal government on Thursday proposed mobilising additional consolidated revenues amounting to more than five per cent of GDP over the next three years (roughly Rs6.5 trillion per annum at the current exchange rate).

The suggestion came during the much-delayed inaugural meeting of the 11th National Finance Commission (NFC), which also sought legal opinion on whether provinces are bound by federal expenditure priorities.

The Centre urged the Federal Board of Revenue (FBR) to increase the tax-to-GDP ratio by 3 to 3.5 percentage points from around 10pc at present in three years and asked the provinces to enhance their share of revenues to 3pc of GDP — through taxes on property, agriculture income and sales tax on services — from the existing 0.28pc.

It argued that the measure was necessary to stabilise the rising fiscal deficit, which had gone up from close to 4pc to over 6.6pc now after the fiscal imbalance created since 2010 under the 7th NFC award, resulting in massive deterioration of the debt-to-GDP ratio.

The meeting, held over an official lunch in a “very good atmosphere”, was chaired by Federal Minister for Finance and Revenue Muhammad Aurangzeb and was attended by the chief ministers of Sindh and Khyber Pakhtunkhwa (both holding the finance minister portfolio), finance ministers of Punjab and Balochistan, four provincial non-statutory NFC members, KP chief minister’s adviser Muzammil Aslam, and federal and provincial finance secretaries.

Participants told journalists outside the Ministry of Finance that there was no demand for reducing the provincial share in the divisible pool from the existing 57.5pc as being speculated, nor any discussion about more or less responsibilities, as they were subjects of the Council of Common Interests (CCI) and the National Economic Council (NEC).

Fiscal requirements of Azad Kashmir and Gilgit-Baltistan would also be deliberated at a working-group level.

The participants decided with consensus to form seven different thematic working groups and call a second meeting of the NFC between Jan 8 and 15, depending on the reports of working groups before Jan 8.

These groups would deliberate on horizontal and vertical distribution of resources, how the provinces should advance taxation policies based on the latest experiences, impacts of debt servicing, poverty and so on.

A special working group was also agreed upon on the request of Khyber Pakhtunkhwa as to the fiscal and social impact of the merger of tribal districts and how to move forward with adequate resources.

Sindh Chief Minister Murad Ali Shah said the meeting was held in a very good environment and all stakeholders — the Centre and the provinces — explained their fiscal positions.

“It was agreed to form six to seven working groups. They will continue their consultations to take the process forward before the next NFC meeting,” he said, adding that a joint statement would be issued by the federal finance ministry.

Mr Aslam, the KP chief minister’s adviser on finance, said the beauty of the inaugural meeting was that the Centre acknowledged the issues facing Khyber Pakhtunkhwa’s merged districts (formerly Fata), and the larger provinces — Sindh and Punjab — supported KP’s cause in this regard.

He said the Sindh chief minister raised the issue of questions and discussions in certain quarters on provincial expenditures.

Mr Shah reminded that under Article 160 of the Constitution, the NFC was a forum of only revenue sharing and the provinces were not bound to follow “federal dictations” on the expenditure side, meaning that provinces were autonomous in setting their spending priorities. Their item-wise expenditure details are publicly available through respective budget documents and official websites.

Federal Finance Secretary Imdadullah Bosal reportedly suggested that a legal opinion might be required from the Attorney General of Pakistan for interpreting the constitutional provision and whether the provincial and federal spending priorities are in national alignment, and if a reduction or an increase in shares means absolute numbers or a percentage of the pie.

Centre’s fiscal challenges

The Centre put on the table its fiscal challenges following the 7th NFC award in 2010 and its continuation for more than 15 years, putting a squeeze on the country’s defence and development expenditure that compromised infrastructure development and social standards, as a major part of the resources went into interest payments. This financially weakened the Centre and, as a result, the provinces as well.

This could only be addressed with the best revenue efforts, both by the Centre and the provinces. All participants agreed that a strong federation could transform strong federating units and vice versa.

Earlier, Finance Minister Aurangzeb recalled the constitutional importance and collaborative spirit of the NFC process and noted the inaugural gathering reflected a shared resolve to fulfil a vital constitutional responsibility. He promised Centre’s commitment to transparent and sincere dialogue, ready to listen to the provinces and work collectively in the national interest, an official statement said.

He also commended the provinces for their cooperation in signing the National Fiscal Pact and in achieving mandatory fiscal surpluses to support Pakistan’s compliance with IMF requirements.

KP CM thanks Centre

KP Chief Minister Sohail Afridi was quoted as expressing gratitude to the federal government for holding the NFC meeting. “A strong federation and strong provinces will guarantee a strong and united Pakistan,” he said.

He highlighted the sacrifices of the people of Khyber Pakhtunkhwa made in the ‘war on terror’, which he said had resurfaced again.

Mr Afridi hoped the NFC would “address the ultra vires of the 7th NFC since June 2018 and include the population and other variables of the newly merged districts in the province of Khyber Pakhtunkhwa and update the share of the province to give them due representation”.

Punjab’s Finance Minister Mujtaba Shujaur Rehman also emphasised the need for consensus but stressed that “consensus-building will take a lot of effort on everyone’s part”, according to the statement.

Balochistan’s Finance Minister Shoaib Nosherwani said the province would continue the path of cooperation and consensus and mentioned his province’s efforts in strengthening the federation through projects like Sui Gas, Saindak and Reko Diq.

After the meeting, KP Chief Minister Afridi told reporters that it was held in a cordial atmosphere and a decision was taken to form sub-committees for different issues, including the merged districts’ share.

“I raised the issue and said that it was unconstitutional to deprive KP of its due share. It was decided that the next meeting will be held in January,” he said.

When asked why the PTI government did not address the issue of provincial share when it was in power, he said it was because his party’s government, which came to power in 2018, was toppled in 2022.

Published in Dawn, December 5th, 2025