ISLAMABAD: The inaugural meeting of the recently constituted 11th National Finance Commission (NFC) has been postponed once again, with no fresh date communicated to the provinces, amid a downward revision in Pakistan’s GDP growth forecast to 3.5 per cent for the current fiscal year.
Prime Minister Shehbaz Sharif wants to first engage coalition partners on politically sensitive Centre–provincial issues before opening formal discussions at the NFC, a constitutionally mandated forum responsible for determining the distribution of federal divisible resources.
The 11th NFC was formed on Aug 22, but its first session—initially planned for Aug 27 and then for Aug 29—was delayed at the request of the Sindh government following floods. A tentative date of Nov 18 was later shared informally but has now also been deferred. The Prime Minister’s Office has reportedly advised against announcing a new date until political consultations are complete.
The 7th NFC Award, implemented in 2009 for a five-year term, has now been operational for over 15 years. Despite repeated demands from the IMF, the armed forces, and the finance ministry to review the current arrangement—under which provinces collectively receive 57.5pc of the divisible pool—successive governments have failed to reach consensus for a fresh award. The Constitution bars any reduction in provincial shares without unanimous agreement between the Centre and all four provinces.
A proposal to revise NFC parameters was initially part of the shelved 27th Constitutional Amendment, which aimed to return certain devolved subjects, including education and population, to the federal domain. However, the government withdrew the NFC-related provisions after a political compromise with its coalition partner, the PPP, in order to secure consensus on amendments related to the armed forces and judiciary.
Despite stalled NFC reforms, the Centre has expanded revenue collection outside the divisible pool through the petroleum development levy (PDL) and has also secured around Rs1.5 trillion in provincial cash surpluses. Combined, these two channels are expected to yield nearly Rs3 trillion this fiscal year—equivalent to roughly 2pc of GDP. Additionally, high interest rates have enabled the federal government to claim Rs2.5 billion per year from State Bank profits.
However, provincial cash surpluses may come under pressure as the Federal Board of Revenue (FBR) faces a Rs275bn shortfall in the first four months of FY26. Lower-than-expected GDP growth is likely to further hinder revenue performance, although higher inflation could partially compensate by boosting sales tax receipts.
The finance ministry recently told the National Assembly that recent floods have caused estimated economic losses of Rs822bn, reducing the GDP growth outlook for FY2026 by 0.3 to 0.7 percentage points. The agriculture sector—hit hardest with crop losses exceeding Rs420bn—has seen its growth projection cut to 3–3.8pc against a 4.5pc target.
The ministry warned that crop damage will have spillover effects across industry and services, may increase imports of essential commodities, and could widen the trade deficit. Inflationary pressures, particularly on food items, are also expected to rise. However, stronger remittances may help contain the current account deficit.
