NFC at the crossroads

Newspaper articles and nightly talk shows are once again discussing the NFC, but almost no one says what matters most: it is a barely functional institution.

The 7th Award expired in 2015, yet still governs our finances. The 9th and 10th NFCs were called into session only once in their five-year lifetimes, while the economy convulsed, staggered, and bounced back. In the last ten years, the NFC worked by stasis, allowing arrangements to be sustained and preventing any change from coming through. 

Pakistan changed, our regional environment changed, our needs evolved, climate disasters arrived, a province merged and expanded in both geography and population – yet the NFC has been mummified since 2015.

The most glaring example of NFC inertia is that more than one-third of Khyber Pakhtunkhwa still sits outside the NFC formula, even seven years after Fata’s merger into the province. Yet the constitution requires each NFC to update the Award to match the federation’s actual boundaries, populations, and expenditure responsibilities.

As the 11th NFC attempts to restore credible fiscal decision-making, its first task is to fix this seven-year lapse. Continuing to rely on a 7th Award that became ultra vires the moment KP expanded through a nationally endorsed constitutional amendment raises a simple question: how can the 11th NFC fulfil its constitutional mandate if it does not begin by restoring the legality of the system itself?

There is a time in every nation’s history when taking the right decisions and following through with timely actions solidifies its strengths and keeps enemies at bay. In 2018, Fata was merged into KP with the explicit aim of bringing the region into the mainstream of national life, the economy, and politics. 

A constitutional amendment redefined the province's geography and added 5.5 million citizens to the population. It also assigned the poorest service delivery in the country, underdeveloped public infrastructure, and a war-ravaged economy of the tribal districts to KP, with a commitment to collectively finance the integration process as a nation.

The developmental lag of 71 years was assigned to a province already ravaged by militancy and fallouts from across the border with a national commitment that ‘finance shall follow function’. The Merged Districts have 70% of the population living below the poverty line, 33% literacy and only 46% with access to safe drinking water sources. 

An annual federal grant of Rs100 billion above the NFC settlement was promised to fund departmental extensions and essential development to begin addressing these profound challenges.

On June 1, 2018, KP’s population, geography and poverty levels changed as it assumed a new constitutional definition as a province. However, seven years later, the NFC Award has continuously failed to include KP’s merged districts in revenue distribution. 

On the one hand, it has rendered the 7th NFC Award ultra vires of the constitution as the formula was decided when both the geography and the people of the Merged Areas were not within KP; on the other hand, it has deprived the residents of Fata of Rs1,300 billion that has to flow towards their development and economic integration.

The people of the merged districts anticipated the merger and constitutional change with great expectations. A 2020 survey revealed that 69% felt more important as citizens of Pakistan, 64% reported being more connected to Pakistan, and 68% had more say in matters of the state. 

Later, another survey in 2022 showed that 76% were disenchanted due to 4-6 hours of unpredictable electricity, more than half reporting lingering problems in healthcare, and 59% still waiting to be connected to a good road to the cities and public services. 

The promise of dignity met with the reality of neglect because we didn’t fund the merger despite the constitutional obligation to do so. Instead, in disregard of the spirit of NFC, funds continued to flow towards tax-base-rich areas of Pakistan to create a surfeit of urban infrastructure.

The deprivation faced by the merged districts is not new – and it cannot be solved by merely adjusting a formula. Before the merger, Fata’s per capita public spending under the 7th Award averaged only Rs25,571, barely half of Balochistan’s Rs44,236, the next comparable case on the basis of expenditure needs. 

After the merger, the gap has widened, deepening the sense of abandonment in a region where peace and development depend on rapid, visible state engagement. KP’s Accelerated Implementation Plan was meant to bridge this divide but received only Rs168 billion of the Rs600 billion pledged – a 72% shortfall. It is no surprise that early optimism has hardened into resentment as promised support dwindles into token action.

Failing to update the 7th NFC is not a technical oversight; it has reshaped daily life in the merged districts. Militancy has already scarred a generation: from 2001–2018, 73% of all terrorism and militancy deaths occurred in KP and Fata. Even after the merger, KP – including the merged districts – accounted for 59% of such deaths. Over this period, the toll reached 5,500 deaths per million people, tearing apart families, villages, and livelihoods.

In these circumstances, it is difficult to defend a financing process that has taken seven years to acknowledge new provincial boundaries. A frozen and stultified NFC does more than stall reconstruction and service delivery; it risks weakening the political understandings that hold the federation together. The 11th NFC cannot endure another round of drift and backroom manoeuvring – it must deliver urgency, upfront at the outset, not continued inertia.

Constitutional institutions derive legitimacy from fulfilling the obligations they owe to citizens. That legitimacy erodes when performance falters. Once legitimacy erodes, mandates and provisions get amended. The NFC is no exception: it is a test of whether Pakistan’s fiscal federalism still treats all citizens equitably, including those on the farthest periphery.

The 7th Award was once commended for moving beyond a population-only formula by incorporating expenditure needs and fairness indicators, yet its advances were offset by counter-equalisation measures favouring provinces with stronger tax bases. 

These weaknesses now stand out even more sharply because the Award still excludes large parts of KP. Since 2018, seven extensions of this outdated Award – each through Presidential Orders – have reinforced the impression that fiscal federalism is running on autopilot, only symbolically tethered to the constitutional spirit of Article 160.

From here, two paths remain: continue with institutional stasis and let functional credibility erode, or correct the constitutional ultra vires, restore trust in the NFC mechanism and make it work for the federation. Making it work for the people of the Merged Districts is making it work for Pakistan.

The writer is a member of the NFC for Khyber Pakhtunkhwa. He can be reached at: [email protected]

Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy.

Originally published in The News