President Asif Ali Zardari on Friday constituted the 11th National Finance Commission (NFC), setting the stage for tough negotiations between the Centre and provinces over a new resource distribution formula.
A notification issued by the Ministry of Finance confirmed the formation of the commission under Article 160 of the Constitution. The new body comes after the five-year term of the 10th NFC lapsed last month without a breakthrough, as provinces resisted talks fearing a loss of fiscal space.
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Under the 7th NFC award of 2010, provincial shares in the federal divisible pool rose to 57.5% without additional responsibilities, a move critics say fueled unsustainable federal deficits and rising debt.
The Centre is now seeking to claw back some of that space, proposing to link 10–15% of provincial transfers to improvements in health, education, population management, climate indicators, and provincial tax collection efforts.
Finance Minister Muhammad Aurangzeb will chair the nine-member commission, joined by provincial finance ministers and technical experts including Nasir Mahmood Khosa (Punjab), Dr Asad Sayeed (Sindh), Dr Musharraf Rasool Cyan (Khyber-Pakhtunkhwa), and Farmanullah (Balochistan).
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Officials said the federal government is also exploring whether provinces should contribute funds for large dams, deemed a matter of national security, and make explicit allocations for Islamabad Capital Territory, Gilgit-Baltistan, and Azad Jammu & Kashmir.
The commission’s terms of reference empower it to recommend new revenue-sharing formulas, grants-in-aid, borrowing powers, and financial responsibility for both federal and provincial projects.
Analysts warn that the talks are likely to be contentious, as the Centre argues for efficiency-based sharing while provinces remain protective of the fiscal gains secured in 2010.
