When federalism freezes

Pakistan is a country where even our constitutional promises acquire a strange immortality: they stop evolving but refuse to die. The NFC Award is a prime example— alive enough to be praised in speeches, dead enough to be ignored in practice, and outdated enough to damage the very federation it was meant to strengthen.

It survives not as a living instrument of justice but as a relic placed on a pedestal, dusted ceremonially every few years, and then quietly pushed back into political storage. The tragedy is that while the economy collapses, inequalities sharpen, and provinces drift further apart, our fiscal framework remains frozen in 2009— as if time stopped but the needs of millions did not.

The National Finance Commission Award was envisioned as the backbone of Pakistan’s fiscal federalism, a periodic handshake between the federation and its constituent units to ensure that resources flow fairly, development proceeds equitably, and trust within the federation remains intact. Yet today, the NFC stands less like a living instrument of governance and more like a ceremonial relic— displayed, praised, and defended rhetorically, but never updated, never implemented with sincerity, and never allowed to evolve with the country’s rapidly shifting realities.

For nearly two decades, Pakistan has operated on the formula framed in the 7th NFC Award (2009-10), a formula that was celebrated for reinventing horizontal distribution but has since been preserved like a fossil. The Constitution demands periodic revision; economic logic demands recalibration; demographic shifts demand correction; provincial disparities demand targeted support. Yet none of this occurs— because complacency has become institutionalized, while political expediency, bureaucratic lethargy, and vested interests have coalesced into a quiet, powerful obstruction.

One cannot ignore the strange irony: everyone— from the ruling government to the opposition, from provincial leaders to federal ministries— publicly acknowledges the necessity of revisiting the NFC, but privately benefits from its stagnation. The federation claims it is suffocating financially but refuses to reform the federal tax regime, restructure expenditures, or rationalize defense and debt obligations transparently. Provinces claim ownership and autonomy but zealously guard transfers while consistently failing to expand their own tax bases, modernize their fiscal capacity, or deliver proportional improvements in public services. Bureaucracies, both federal and provincial, prefer the administrative comfort of operating under an old and predictable formula rather than doing the heavy lifting of reform, data analysis, coordination, and transparent negotiation.

This inertia becomes even more glaring when one examines the deliberate neglect of the third tier: local governments. Even where provinces demand autonomy from the federation, they turn into miniature federations themselves— hoarding fiscal power while starving local bodies that are constitutionally intended to be closest to the citizen. The tragedy is that provincial governments replicate the same centralization they condemn in Islamabad. There is no meaningful, predictable, or statutory finance award for local governments, no transparent formula for municipal development allocations, and no guaranteed share of provincial receipts. As a result, district and municipal administrations operate like beggars before provincial capitals, waiting for discretionary releases that arrive late, shrink mid-year, or are diverted for political patronage. Without real fiscal devolution— one protected by law, formula-based transfers, and own-source revenue authority— no NFC, however revised, can truly deliver equitable development. The chain of governance is only as strong as its most local link.

Beyond this, the existing formula for inter-provincial distribution, dominated overwhelmingly by population weightage, rewards demographic expansion rather than performance, innovation, or human-development progress. It incentivizes nothing and corrects nothing. It does not reward provinces for improving schooling, healthcare, tax collection, or governance. It does not compensate adequately for geographic handicaps, service delivery costs, sparsity, or backwardness. It does not incorporate revenue-effort indicators or development outcomes meaningfully enough to matter. It is a system designed to keep everyone comfortable— not to push anyone forward.

Meanwhile, the federation has collapsed into a fiscal black hole where more than half its revenues are consumed by debt servicing alone, yet it continues to count on the NFC as a scapegoat rather than addressing systemic tax evasion, elite capture, exemptions, and institutional inefficiencies. Provincial governments, on the other hand, routinely blame the centre for all constraints while perpetuating inefficiency, patronage networks, leakages, and minimal revenue mobilization of their own. Opposition leaders, regardless of which party is in power, exploit the NFC debate as a rhetorical tool— defending provincial shares one day, demanding revisions the next— depending solely on whether they sit in Islamabad or in a provincial capital.

The debate surrounding the NFC is not simply about resource distribution; it is about the country’s future. Continuing with an obsolete, rigid mechanism while expecting different results is nothing short of economic self-deception. Pakistan cannot afford a federal compact built on complacency, outdated formulas, and institutional inertia. If we are serious about equitable federalism, serious about national development, and serious about honoring the Constitution’s spirit, then the NFC must be rescued from political hibernation and reborn as a pragmatic, dynamic, and empirically grounded framework. The choice is stark: reform the NFC with courage and clarity— or allow Pakistan’s economic architecture to crumble under the weight of outdated arrangements and unchallenged complacency.

At the heart of this dysfunction lies a deeper malaise: the NFC Award has transformed from a constitutional mechanism of fiscal justice into a political bargaining chip, invoked only when convenient, ignored when inconvenient. The result is a federation in perpetual imbalance— one where the centre is financially incapacitated, provinces are financially dependent yet underperforming, and citizens are perpetually deprived of quality public services. A system designed to promote equity has instead entrenched mediocrity.

What Pakistan needs today is not another ceremonial announcement of an NFC committee, nor another round of inconclusive meetings that always end with “no consensus reached.” What is needed is a fundamental re-imagining of how fiscal federalism must function in the 21st century. A new NFC Award must go beyond population. It must embed performance incentives, reward revenue effort, integrate human development metrics, adjust for real service-delivery costs, and prioritise equity based on actual needs—not outdated formulas.

The federation must strengthen its own fiscal capacity instead of relying on politically convenient narratives. Provinces must accept that autonomy comes with responsibility, not merely entitlement. Bureaucracies must move beyond procedural comfort and embrace modernization, data-driven assessments, and transparent fiscal planning. And most importantly, provinces must devolve financial power downward; without empowered local governments, fiscal federalism remains incomplete, rhetorical, and illusory.

The debate surrounding the NFC is not simply about resource distribution; it is about the country’s future. Continuing with an obsolete, rigid mechanism while expecting different results is nothing short of economic self-deception. Pakistan cannot afford a federal compact built on complacency, outdated formulas, and institutional inertia. If we are serious about equitable federalism, serious about national development, and serious about honoring the Constitution’s spirit, then the NFC must be rescued from political hibernation and reborn as a pragmatic, dynamic, and empirically grounded framework.

The choice is stark: reform the NFC with courage and clarity— or allow Pakistan’s economic architecture to crumble under the weight of outdated arrangements and unchallenged complacency.