istribution of financial resources between federal and provincial governments is in the spotlight again. At the time of the 2026 budget approval, this debate was at the centre of political talk shows. In the end, the federal government convinced the provinces to contribute Rs 1,200 billion to meet “strategic needs.” The provinces slashed their annual development plans significantly to create cushion for their contributions.

It is worth noting that the provincial share under cash surplus of nearly Rs 2,000 billion as prescribed by the IMF and the revenue extracted through the petroleum levy are entirely separate from this contribution. Now that a precedent has been established, it will become a new benchmark. In practice, the provinces’ share in the NFC Award has been reduced by skirting the constitutional protection for the provincial share.

Two important documents have contributed to the recent debate. A detailed report titled Strengthening Fiscal Federalism in Pakistan, has been jointly released by the World Bank Group and the UK International Development. This document provides a comprehensive, multi-dimensional review of fiscal distribution matters and disoriented public expenditures. Another report titled NFC Award and Population as a Parameter has been authored by economist Dr Ashfaque Hasan Khan and published by the NUST Institute of Policy Studies.

Both these reports lead to the conclusion that relying on the population as the primary basis for resource sharing has not yielded positive results. Dr Khan’s report aligns perfectly with the stance taken by the smaller provinces for the last 50 years—that allocating finances, parliamentary seats and government jobs primarily based on population incentivises provinces to inflate their population rather than control it. This explains the eagerness of the provincial governments to swell their population count in every census. In the 7th NFC Award (2009), the weight assigned to population was curtailed to 82 percent. The award also raised the provincial share in the divisible pool to 57.5 percent.

The World Bank document sheds light on the federal government’s tax collection and spending patterns. Between 2009 and 2024, the federal government’s tax-to-GDP ratio grew sluggishly, from 7.9 percent to 8.8 percent. Meanwhile, it continues to spend 0.5 percent to 0.7 percent of GDP on ministries and departments that should have been devolved to the provinces under the 18th Amendment. These departments still employ around 25,000 personnel, racking up massive bills for salaries, pensions, offices and overheads.

Both these reports lead to the conclusion that relying on the population as the primary basis for financial distribution has not yielded positive results. To fix these structural issues, the World Bank has suggested increasing the weight assigned to factors other than population.

On the provincial side, the report reveals that between 2003 and 2009, some 82 percent of the additional fiscal resources received by the provinces were consumed by administrative and non-developmental expenses—primarily salaries and pensions. These additional funds failed to improve basic services in the provinces. This depicts sheer ineptness on part of provincial governments who failed to spend additional resources to improve living standard of the masses. Pakistan spends a mere 1.8 percent of GDP on education and 0.8pc on health. Other countries with similar income levels spend an average of 4.2 percent on education and 5 percent on health. An important cause behind dismal performance on human development is unriddled population growth. The present structure of NFC award, discourage provinces to control their population.

To fix these structural issues, the World Bank suggests modifying the NFC formula by increasing the weight assigned to factors other than population. The report warns that over-indexing on population and federal tax collection simply funnels resources back to already affluent regions.

Dr Hasan’s report calls for reducing the weight of population in resource allocation. He proposes a multi-indicator formula inspired by India which assignsed only 15pc weight to population in the 15th NFC Award. While India initially prioritised population—allocating it an 80 percent weight for income tax distribution in its first award in 1952—it realised later the negative incentives this created. By the 8th Award (1984-89), India had reduced the population weight to 22.5 percent and latched it to the 1971 census data, explicitly discouraging states from using population growth as a tool to get more federal funding.

In India’s current financial distribution matrix, highest allocation is to income distance (economic disparity relative to the richest state), 45 percent. While population has been given 15 percent weight, demographic performance has been assigned 12.5 percent. This has incentivised the states to protect and improve forests. India is nearly four times larger than Pakistan, with nearly 25 percent of its landmass under forest cover. Pakistan, by contrast, has hardly 5 percent forest cover and unchecked deforestation.

Because India took away financial rewards from population growth, its annual population growth rate has dropped below 1pc. Meanwhile, Pakistan’s population continues to surge at an alarming rate of 2.55 percent.

Population growth has become a daunting challenge, reversing minimal gains in human development sectors. Unless, Pakistan takes the challenge head on, key indicators of human development will continue to falter.

The author is a development professional. He can be reached at [email protected]