Pakistan’s federal structure relies on the National Finance Commission (NFC) to distribute financial resources between the central government and provinces, a process critical for economic stability and national cohesion. However, the failure to announce a new NFC Award since the 7th Award expired in 2015 has exacerbated tensions, particularly in Balochistan, where multidimensional poverty and underdevelopment fuel unrest.

With 38.3% of Pakistan’s population (88.7 million people in 2021) classified as multidimensionally poor and Balochistan facing a poverty incidence of 71%, equitable resource allocation is urgently needed. This discussion examines the NFC’s role in addressing Pakistan’s fiscal challenges and argues for a larger financial share for Balochistan to mitigate deprivation and strengthen national unity.

Since the 7th National Finance Commission (NFC) Award was finalized in 2010 by the Pakistan People’s Party (PPP) government, no new financial award has been announced after its expiry in 2015. This failure violates the Constitution of Pakistan and has created significant economic and financial challenges, particularly in relations between the central and provincial governments.

Distributing financial resources in a federal state is inherently complex. Western nations, such as Germany and the United Kingdom, developed sustainable mechanisms centuries ago to allocate resources between central and regional governments. In culturally homogenous countries like Japan, this process has been relatively smooth. However, in culturally diverse states like Pakistan and India, equitable distribution remains a formidable challenge.

In Pakistan, the vertical distribution of financial resources between the central government and provinces has been particularly contentious, largely due to the country’s highly centralized state structure. The 1973 Constitution introduced the National Finance Commission (NFC) to manage the Federal Divisible Pool (FDP), distributing resources vertically between the federal government and provinces and horizontally among the provinces. However, no fixed criteria were established for this distribution. Instead, the federal and provincial governments must negotiate through the Council of Common Interests (CCI) to agree on resource allocation periodically. The NFC Award is a critical mechanism for determining these distributions, and regular agreements are essential for political stability, efficient governance, and addressing the population’s needs.

The 18th Constitutional Amendment (2010) and the 7th NFC Award, enacted in the same year, granted provinces, including Balochistan, greater fiscal autonomy. The amendment abolished the Concurrent Legislative List, devolving subjects and departments to the provinces as originally envisioned in the 1973 Constitution. While this was a positive step, the 7th NFC Award fell short of delivering justice. Although the provincial share of financial resources increased to 57.5%, this was insufficient given the scope of devolved responsibilities. Provinces should have received at least 75% of the divisible pool, with the federal government retaining the remainder.

The most recent publicly available survey data for Pakistan’s Multidimensional Poverty Index (MPI) estimation, from 2017/2018, indicates that 38.3% of Pakistan’s population (88.7 million people in 2021) is multidimensionally poor, with an additional 12.9% (29.9 million people) classified as vulnerable to multidimensional poverty. The intensity of deprivation, measured as the average deprivation score among the multidimensionally poor, is 51.7%. Pakistan’s MPI value, which adjusts the share of the multidimensionally poor population by the intensity of deprivations, is 0.198—higher than Bangladesh (0.104) and India (0.069).

The case of Balochistan is critical in discussions of financial resource allocation and poverty. The province faces a strong separatist insurgency, with the state’s authority weakening in many areas. A key driver of this unrest is the perception that Balochistan has been denied its political and economic rights, particularly in the distribution of financial resources through the National Finance Commission (NFC). Historically, Balochistan has been Pakistan’s least developed province compared to Punjab and Sindh. According to the 2016 MPI survey, Balochistan had a staggering poverty incidence of 71%, with a deprivation intensity of 55%. Given these conditions, Balochistan deserves a significantly larger share of financial resources.

Several compelling reasons support allocating a larger NFC share to Balochistan. First, the province has not been a priority for central government development policies, despite claims to the contrary, fostering widespread deprivation and fueling separatist sentiments. In the 7th NFC Award, a “war on terror” criterion was introduced, granting Khyber Pakhtunkhwa (KP) a 1.8% share for its role as a frontline province in Pakistan’s fight against terrorism. However, this allocation was minimal, and in recent years, Balochistan has faced comparable levels of terrorism. Thus, Balochistan should also receive dedicated “war on terror” funds in the next NFC Award.

The crisis in Balochistan is multidimensional, but increasing its NFC share could help address the pervasive sense of deprivation. This is in Pakistan’s broader national interest, as persistent grievances and separatist tendencies undermine state cohesion and nation-building. Moreover, Balochistan’s underdevelopment hampers Pakistan’s overall progress. Widespread unemployment, poverty, and misery in the province stem from this neglect, making a larger NFC allocation urgent. Consensus on a new NFC Award is critical to address these issues and promote equitable development.

Pakistan’s progress hinges on addressing the systemic inequities in its resource distribution, particularly for Balochistan, where poverty and unrest underscore the need for reform. The NFC remains a vital mechanism to achieve this, but its effectiveness depends on timely consensus and fair criteria that prioritize underdeveloped regions. By allocating a significantly larger share to Balochistan, including dedicated funds for terrorism-affected areas, the government can alleviate deprivation, curb separatist sentiments, and foster inclusive development. A new NFC Award, grounded in justice and national interest, is imperative to strengthen the federation and ensure a cohesive, prosperous future.