Pakistan’s fiscal crisis is structural: more than 90 per cent of federal revenues are pre-committed (debt servicing, defence, pensions) while the centre must surrender 57.5 per cent of the divisible pool to provinces under the existing NFC.
Red alert: The federation cannot run a state when its constitutional obligations exceed its fiscal space. Pakistan needs a contract that protects the whole, not just the parts. Pakistan needs a federal system that can breathe. Pakistan needs a formula that rewards effort. Any new NFC must satisfy three tests: economic rationality, constitutionally anchored and compatible with the post-27th amendment framework.
The next NFC Award must do one thing above all: keep Pakistan solvent. This can be done by creating a ‘National Obligations Window’ (NOW) — a joint federal—provincial fund dedicated to debt servicing and defence. NOW to have three components:
One: Half of the provincial contribution comes from a population-weighted base, keeping the formula familiar and politically acceptable. Population remains the anchor variable — but no longer the only variable — allowing the system to retain continuity while opening space for performance-based incentives. Punjab: ~55 per cent; Sindh: ~23 per cent; Khyber Pakhtunkhwa (KP): ~16 per cent and Balochistan: ~6.0 per cent.
Two: The second component is an ‘Effort Contribution’ built around a ‘Tax Effort Index’, accounting for 30 per cent of the share. This part of the formula rewards provincial fiscal effort, not entitlement — shifting the system from passive receipt to active revenue generation.
Three: The third component is a ‘solidarity adjustment’ for KP and Balochistan, which carry the highest security and development burden. Their contributions to the National Obligations Window are reduced — 10 per cent for KP and 15 per cent for Balochistan — while
Punjab and Sindh absorb the difference. Those who guard the frontier should not be penalised for it. Pakistan has no choice but to shift from ‘dividing money’ to ‘producing money.’ The NFC has no choice but to move from a passive transfer mechanism to a productivity engine. The old NFC rewarded claims. NOW rewards performance.
Pakistan’s provinces must become co-owners of Pakistan’s fiscal stability. Yes, the provinces need predictable flows. At the same time, the federation needs fiscal oxygen. This does not amount to a cut — it is a reclassification of constitutional obligations. NOW achieves three aims: predictability, less confrontation, more cooperation.
The federation has been bleeding for the past 15 years. For the past 15 years, the federation’s fiscal arteries have been draining faster than they could replenish. For the past 15 years, the provinces have been collecting little, demanding more and delivering modestly.
The federation is now out of fiscal road. The Federation can no longer fund debt and defend the frontier without a new contract of shared responsibility. If provinces want a strong Pakistan, they must help carry the weight of Pakistan. If provinces want a stable federation, they must help shoulder the burdens of the federation. If provinces want a solvent state, they must help fund the obligations of the state.
Red alert: A state cannot survive when its core is anaemic, and its limbs demand full nourishment.
The writer is an Islamabad-based columnist.
