THE liquidation of the KP Assembly is an event rooted in economic, more specifically fiscal, constraints. For the time being, it is unlikely that the trajectory will continue to the other provinces, but it is worth keeping an eye on the resource envelope available to the state as the primary fount of this event.
Here is how it works. Every time the state is faced with a major demand for resources, usually for security-related matters, financial managers point to the NFC Award as the reason why that demand cannot be met. In the middle of the 2010s, for example, the then PML-N government faced a major demand for resources to pay for the military operations underway in the wake of the Army Public School massacre by the TTP. The then finance minister Ishaq Dar had said, in December 2016 for instance, that the government had to spend over Rs300 billion on the security operations since they began. He proposed a cut of seven per cent from the Federal Divisible Pool before provincial shares were calculated, in order to meet the expenses going forward.
The next year, Miftah Ismail, the then special assistant to the prime minister on finance, again pointed to the NFC Award and provincial expenditures as the reason why the federal government had to run such a large budget deficit and why demands for releases from the development budget might have to wait.
That was in October 2017, when Dar was no longer finance minister. In 2019, prime minister Imran Khan told a rally in Ghotki that the 18th Amendment had bankrupted Pakistan, and his government had no resources left to pay for development or relief after paying for debt servicing, defence and transfers to the provinces under the NFC Award.
In 2020, his own information minister was telling TV channels that his government might have to “change the law” on the NFC Awards because its allocations had become unsustainable. In 2024, Miftah Ismail was quoted in Dawn as saying that “the federal government is teetering on the brink of bankruptcy while the provinces are flush with cash”. Shortly afterwards, the current Finance Minister Muhammad Aurangzeb was quoted in Washington, where he had gone for the annual IMF and World Bank meetings, as saying that Islamabad would revisit the NFC Award, if the IMF loan was approved, through either expenditure-sharing or incentives for provinces to widen the tax base.
Many of these people subsequently took their statements back, or at least added caveats that their government had no intention to “roll back” the NFC. The main reason for the backtracking is that every major political party in the country — the PPP, PML-N and PTI — controlled a province, and none wanted to become a party to any attempt to roll back provincial rights.
What began as a search for resources turned into a search for a new political arrangement.
But the litany of complaints about the enhanced provincial shares under the last NFC continued. Ahsan Iqbal repeated them last year in Karachi, and Prime Minister Shehbaz Sharif publicly floated the idea of changing the composition of the divisible pool, perhaps by removing customs duties from it. This remark triggered a little conversation of its own, with some delving into how and why these duties were part of the divisible pool in the first place. All along, almost from the very first year when the empowered provincial government’s scheme went into effect from 2009, blaming them has become the favourite excuse for failure in Islamabad. But the scheme itself, which consists of the 18th Amendment and the NFC Award, endured because of the power of consensus behind it.
In recent years, though, with the arrival of the ‘hybrid-plus’ government, the conversation around the federative scheme of empowered provinces has turned more menacing. An attempt was made by the federal authorities, for example, to usurp Sindh’s share of water resources, and a demand for some amount of reverse-flow from the provinces to the centre found concrete form in an MoU signed in the NFC meetings as part of the budget for FY27. An amount of Rs1.04 trillion is supposed to be transferred back to the federal government by three provinces — Punjab, Sindh, and KP — this fiscal year.
What began as an economic conversation acquired political and security substance as it rolled through the system. As part of the complaints, questions were raised about what the provinces were doing with the incremental resources flowing their way since 2009. Some demanded to know where we should look for the results. A World Bank report landed in the middle of all this, showing that the bulk of incremental resources was consumed in salaries and other current expenditures, while social indicators showed little to no improvement since the scheme of enhanced provincial powers went into effect. That added fuel to the fire.
What began as a search for resources turned into a search for a new political arrangement, with some in government publicly saying a “reset” was coming. It acquired a security dimension as the PTI government was called upon to play its part in the counterterrorism operations in KP. And it fed an opportunistic suggestion for wrapping up the whole system and bringing in “administrative units” to replace provincial governments altogether.
Somewhere in all this a perception seems to have taken root that the state’s federative structure is too expensive for a resource-starved country like Pakistan. If the provinces have nothing to show for all the funds they have consumed since their powers and resource commitments were enhanced, why keep them longer, ask the proponents of this thinking. They don’t yet have an alternative structure to propose. But in the months to come, it is likely that the governments of Sindh and Punjab will be asked to grant more space to the federal government in the control of the resources they command.
The writer is a business and economy journalist.
Published in Dawn, October 15th, 2026