In the corridors of Pakistan’s democracy, a silence has settled – one heavy with the weight of a republic slowly unravelling under the illusion of constitutional symmetry.
We claim to be a federation. We speak of sovereignty, equity, and shared destiny. But behind the grand facade lies a reality no statesman can ignore: our fiscal union is broken, our federal compact hollow and the very survival of the federation of Pakistan now hinges on one fragile pillar: the National Finance Commission (NFC) Award.
The NFC Award, once a proud testament to cooperative federalism, has become the slow poison coursing through the veins of the state. What was designed to create unity through financial justice has mutated into a structure of imbalance so deep that it now threatens the foundation of national governance. The time for polite bureaucratic discussions is over. This is a moment for reckoning.
Pakistan’s federal budget for 2025–26 is Rs17.573 trillion. Out of this, a staggering Rs8.206 trillion – or 46.7 per cent – is consumed by debt servicing. Domestic debt alone swallows Rs7.197 trillion; foreign debt repayments another Rs1.009 trillion. These are not abstract numbers. They are the price of survival in a state where borrowing has replaced planning and servicing past sins has eclipsed future dreams. The federal government begins its fiscal year already deep in deficit. It owes more than it earns. Every rupee raised is mortgaged before it is minted.
Add to this the Rs2.55 trillion allocated to defence – a 20 per cent jump over the previous year – and the picture becomes clearer: this is a state spending more on war and debt than on schools, hospitals or hope. The defence budget, including Rs742 billion in military pensions and Rs663 billion in arms procurement, now exceeds the entire national development programme. A starving civilian state lies beneath a growing security apparatus. Certainly, national security warrants serious investment. Regional tensions, particularly with India, demand operational readiness, strategic deterrence and modernised warfare capabilities.
Yet amid this federal emergency, provinces appear flushed. Punjab’s 2025–26 budget is lauded as a model of fiscal discipline, projecting a surplus of Rs740 billion. But strip away the praise and one finds an uncomfortable truth: 83 per cent of Punjab’s total Rs4.89 trillion revenue is not earned but transferred – Rs4.06 trillion comes from the federation via the NFC. Punjab’s so-called ‘own-source’ revenue is just Rs828 billion, of which Rs340 billion is from the PRA, Rs135.5 billion from the Board of Revenue and Rs70 billion from excise. This is not financial strength. It is institutional dependency, dressed up in developmental language.
This pattern is repeated across all provinces. Pakistan’s NFC allocates 57.5 per cent of net federal revenue to provinces, around Rs8.206 trillion in this fiscal year alone, yet the federation itself is left with just Rs6.3 trillion to meet Rs8.5 trillion in debt repayments. From the very first day of the fiscal year, Islamabad is Rs2.2 trillion in the red – before it pays a single soldier, runs a single ministry or delivers a single subsidy. Layer on Rs3 trillion for defence, Rs2 trillion for civilian operations, Rs1 trillion in pensions, Rs800 billion for BISP and another Rs1 trillion for bleeding state-owned enterprises and the real deficit balloons to over Rs10 trillion.
The federal government is bankrupt, but the provinces are running surpluses. This is not fiscal federalism. This is fiscal schizophrenia.
Every time Islamabad tries to raise Rs100, it is left with only Rs42.50 after transferring 57.5 per cent to the provinces. If the federation needs to spend Rs1,000 billion, it must tax nearly Rs2,400 billion. The result is a taxation regime that suffocates what little economy remains, driving investment away, stoking inflation and killing competitiveness.
A telling example lies in the failed tobacco tax policy. Hoping to raise Rs160 billion in new revenue, the federal government imposed aggressive taxation on the tobacco sector only to recover less than Rs50 billion. The rest of the market collapsed into smuggling, under-invoicing and grey market transactions. The real failure wasn’t enforcement but arithmetic. Because for every additional rupee the centre sought to spend, it had to over-tax by more than double. Of the Rs160 billion target, over Rs90 billion would have gone directly to the provinces through NFC-mandated sharing. The federal government would retain a mere Rs70 billion if all went well. That distortionary incentive shattered the industry, hurt farmers, eroded jobs and yielded neither health nor revenue benefits. It was not just a tax misstep – it was a structural tragedy.
Meanwhile, the salaried class, already crushed under the weight of survival, pays Rs600 billion annually in income tax, while provincial governments park surpluses or raise ministerial salaries to Rs1 million per month. This is not merely bad economics. Pakistan’s debt-to-GDP ratio has breached 66.27 per cent, violating the Fiscal Responsibility and Debt Limitation Act. Our total public debt now exceeds Rs76 trillion. In just ten years, our debt has more than quadrupled. Yet there is no national conversation. No televised debates. No political reckoning. Only inertia.
What is even more damning is the political economy of silence. The Ministry of Finance, once a tool of democratic vision, has been reduced to a revolving door for technocrats, bankers and IMF alumni. These unelected men of spreadsheets but not of streets craft budgets without constituencies and impose austerity without accountability. These architects of abstraction have never faced the people whose lives they upend. It is time we legislated a simple truth: no one should hold the finance portfolio unless they are an elected member of parliament, answerable to their people.
We must call this crisis what it is: a failure of federalism. The NFC Award has fossilised. No new award has been finalised since the 7th in 2010. That is a constitutional violation and a national disgrace. While provinces demand equity, they evade responsibility. While the centre shoulders liabilities, it is starved of liquidity. We need a new fiscal covenant. A compact based not on frozen percentages, but on dynamic needs and reciprocal obligations. Transfers must be indexed to performance, digitisation, tax effort and service delivery. Provincial governments must reform land revenue, tax urban wealth and rationalise subsidies. The federation must regain the fiscal space to govern as a sovereign planner of the national future.
The NFC must be reconstituted with courage. Let parliament debate. Let each party present its formula. Let there be televised sessions where policymakers defend their choices. The NFC is not scripture; it is statute. And like all statutes, it must evolve or expire.
Pakistan does not lack examples. India reformed its Finance Commission through political consensus. Bangladesh aligned transfers to anti-poverty programmes. Even Sri Lanka, amid its collapse, invested in literacy, health and gender equity. Meanwhile, Pakistan stands still, wrapped in the rhetoric of rights while the federation suffocates.
We cannot build a welfare state on a fiscal fault line. We cannot promise development while entering every year into a financial black hole. And we cannot call ourselves a federation when the centre is hollowed out and the provinces are unaccountable. This is not just about arithmetic. This is about the soul of the republic.
Let it be said that in the summer of 2025, Pakistan stood on the brink – and chose reform over rhetoric, federalism over fragmentation and nationhood over nostalgia. The NFC Award is not just a revenue-sharing mechanism. It is a national mirror. And the image it reflects today is unrecognisable. Let us act before that mirror shatters. Let us write the next NFC Award not as bureaucrats balancing books, but as statesmen rebuilding the republic.
For if we fail now, we will not be remembered as the generation that mismanaged a budget but as one that broke a nation.
The writer is a political economist, public policy commentator and advocate for principled leadership and regional cooperation across the Muslim world.
