NFC: what K-P wants

The National Finance Commission (NFC) is the fiscal spine of Pakistan's federation. It is through this constitutional mechanism that resources are distributed among the federating units, ensuring balance, equity and cohesion. Yet, for Khyber-Pakhtunkhwa, the NFC today represents not equilibrium, but a growing imbalance - one that raises fundamental questions about constitutional compliance.

At the centre of this debate lies Article 160 of the Constitution, which mandates that the NFC Award be revisited every five years. This requirement reflects the dynamic nature of federalism. However, the continued operation of the 7th NFC Award - well beyond its constitutional life - has effectively frozen fiscal arrangements in time. As the Foundational Note on K-P's NFC Position observes, such delay undermines the very purpose of periodic adjustment.

The merger of the erstwhile FATA with K-P under the 25th Constitutional Amendment was a historic national decision. It expanded the province's population by over 6.5 million people and added vast underdeveloped regions requiring immediate investment in governance, infrastructure and security.

Yet, the NFC formula was never updated to reflect this transformation. The foundational note clearly states that population, area and other variables of the merged districts should have been incorporated through an Amendment and Modification Order under Article 160(6) and (7), but this was not done. The result is a structural mismatch between needs and resources.

The issue is not merely one of delay but of deviation from the Constitution. The continued reliance on the 2015 Amendment and Modification Order - without fresh consensus - has effectively bypassed the constitutional requirement of a new NFC Award. Instead of constitutionally determined shares, there has been a growing reliance on discretionary federal grants.

This shift raises serious concerns. The document notes that such arrangements render provincial shares "mere calculations without any constitutional basis". In a federation, fiscal transfers must be rule-based, not discretionary.

The province of the Khyber-Pakhtunkhwa is paying heavy price. The financial implications are stark. Data contained in the document shows that approximately Rs964 billion meant for the merged districts flowed to other provinces between 2018-19 and 2025-26.

In addition, the federal commitment - based on the Sartaj Aziz Committee's recommendation - of around Rs90 billion annually has not been fully honoured. Against an estimated requirement of Rs2.2 trillion over several years, only about Rs1 trillion has been released, leaving a shortfall exceeding Rs1.2 trillion.

Combined, these two omissions have resulted in a cumulative loss of over Rs2.17 trillion to K-P. This is not merely a fiscal gap; it is a developmental deficit affecting some of the most vulnerable regions of the country.

Dr Mushraf Rasool Cyan is a voice within the NFC and the author of the Foundational Note on Khyber Pakhtunkhwa's National Finance Commission Position. In an interaction, the Member NFC, representing the Government of Khyber-Pakhtunkhwa, presented the province's position with clarity and constitutional precision.

Drawing on the official foundational note, he observed: "The NFC is a dynamic and essential constitutional mechanism meant for periodic adjustment of fiscal sharing arrangements. Any continuation of an award beyond the constitutionally mandated five-year period, without fresh consensus, defeats the very intent of Article 160."

Emphasising that the post-merger realities of K-P have not been reflected in the existing formula, he said: "The population, area, and other variables of the merged districts ought to have been incorporated in the NFC formula through an Amendment and Modification Order. The omission has effectively deprived Khyber Pakhtunkhwa of its rightful share."

Dr Cyan, while highlighting a more fundamental concern regarding the nature of fiscal transfers, said: "The constitutional provisions relating to NFC do not allow any statistics or long-term exclusion of a federating unit from equitable sharing arrangements."

His remarks underscore a critical point: this is not a political dispute but a constitutional question.

The demands of K-P are neither extraordinary nor unreasonable. They are grounded in constitutional provisions and fiscal logic: 1) Immediate update of the NFC formula to reflect post-merger realities; 2) Inclusion of merged districts' share within the divisible pool; 3) Fulfilment of federal commitments regarding development funding; 4) Strict adherence to the five-year constitutional cycle; 5) Recourse to constitutional forums, if necessary, to enforce compliance.

The NFC is not a contest among provinces; it is a mechanism for strengthening the federation. Equity in fiscal distribution fosters trust, while perceived injustice weakens national cohesion.

K-P has endured decades of conflict and now shoulders the responsibility of integrating newly-merged districts. Denying it its rightful share is neither sustainable nor just.

The Constitution provides a clear roadmap. What remains is the will to follow it.