As relations between the Pakistan Tehreek-e-Insaf (PTI) government in Khyber Pakhtunkhwa (KP) province and the federal government led by the Pakistan Muslim League-Nawaz (PML-N) and its allies have further deteriorated over political issues, the two federal entities appear to be on a collision course regarding the economic issue of the announcement of a new National Finance Commission (NFC) Award. The existing NFC arrangement has inflicted severe economic hardship on KP, primarily due to the 2018 merger of the former Federally Administered Tribal Areas (FATA) into the province and the federal government’s failure to increase KP’s share in economic resources through a new NFC Award.
Recently, KP Chief Minister Ali Amin Gandapur criticised the federal government for “avoiding its Constitutional responsibility over the delayed National Finance Commission (NFC) Award” and warned that if the federal government fails to announce the new NFC Award by April, a ‘decisive action’ will be taken in May. The FATA merger increased KP’s population by 5.7 million (a three percent rise) and expanded its land area by 22,000 square kilometers (3.8 percent). According to available statistics, KP’s share in the NFC Award should have increased from 14 percent to 19.6 percent; however, the province has not received its due share. Furthermore, at the time of the merger—carried out at the behest of the federation—the then PML-N-led federal government had pledged an annual allocation of Rs100 billion for the accelerated development of the merged districts, amounting to Rs600 billion over six years. However, only Rs132 billion has been disbursed so far. This lack of fulfillment has resulted in a significant humanitarian and developmental crisis in the former tribal areas.
Over the past few years, KP—which has been governed by the PTI since 2013—has received only Rs66 billion annually instead of the committed Rs88 billion for operational expenses in the Merged Tribal Districts (MTDs), formerly known as FATA. The last, and 7th, NFC Award was finalized in 2010. Recognizing KP’s pivotal role in the war on terror, one percent of the net divisible pool was allocated to the province. Under the new formula, Punjab was to receive 51.74 percent from the divisible pool, Sindh 24.55 percent, Khyber Pakhtunkhwa 16.42 percent, and Balochistan 9.09 percent. In the redistribution, Punjab gave up 1.27 percent, Sindh 0.39 percent, and Khyber Pakhtunkhwa 0.26 percent, while Balochistan gained.
The 7th NFC Award was concluded in 2010, prior to the merger of FATA into KP in May 2018. This merger significantly increased both the land area and population of KP. According to the 2017 national census, the total population of FATA was 4,993,044—nearly five million. Regrettably, this change in KP’s demographic and geographic profile has not been reflected in an increased share in the NFC Award. This omission is entirely unconstitutional, as population is the primary—and indeed the most significant—criterion for the distribution of national financial resources among provinces, accounting for 82 percent of the award.
It is the official stance of the KP government that, following the merger of the former FATA with the province in 2018, the province is entitled to a 19.6 percent share in the National Finance Commission (NFC) Award, based solely on its existing population post-merger. However, since 2018, the province has only been receiving 16.42 percent. As previously mentioned, it is important to note that while the merger was underway, the federal government led by the Pakistan Muslim League-Nawaz (PML-N) had pledged an additional 3 percent share in the NFC to KP. However, instead of ensuring this increase, the federal government merely requested the provincial governments of Punjab, Sindh, and Balochistan to reduce their own NFC shares to accommodate KP’s additional allocation. This proposal met with serious objections from all provinces, who opposed any reduction in their own shares.
Almost six years after the merger of FATA with KP, it appears that the PML-N government’s commitment to a 3 percent increase during the passage of the 25th Constitutional Amendment in 2018 was merely a political maneuver to placate the then PTI-led provincial government. The PML-N seemingly had neither the plan nor the means to implement this increase. Subsequently, when the Pakistan Tehreek-e-Insaf (PTI) formed the federal government under Prime Minister Imran Khan, it could only appeal to the other provinces to adjust their shares. However, due to their resistance, the PTI government failed to deliver any relief to its own party’s administration in KP. Nonetheless, the PTI-led federal government should have constituted a new NFC to formally address KP’s claim to an increased share, especially considering its overwhelming mandate in the National Assembly from KP and the strong provincial government it had in the province. The failure to finalize a new NFC Award meant that KP’s share remained unchanged.
In this regard, criticism must also be directed at the previous coalition government of Prime Minister Shahbaz Sharif—comprising PML-N, PPP, BAP, MQM, and Jamiat-e-Ulema-e-Islam (JUI-F)—which remained in office from April 2022 to November 2023, and the current federal government led by the same parties (excluding JUI-F) as of February 2024. Both administrations failed to address KP’s case for an increased NFC share.
Compared to the more developed and mainstreamed provinces of Punjab and Sindh, KP is significantly poorer and lags behind in nearly all respects—including infrastructure, and social indicators such as literacy, healthcare, and education. In this context, inflation has had a disproportionately severe impact on KP, increasing poverty and discouraging business activity. According to Pakistan’s first-ever official report on multidimensional poverty, released in 2016, FATA had the highest poverty rate in the country, with three out of every four people (73.7 percent) living in poverty. This means that of the nearly five million people living in the merged tribal districts, approximately 3.5 million were poor as of 2016. With this large number of impoverished individuals added to KP’s population, the provincial government lacks the necessary resources to support them effectively.
Against this backdrop, it is important to recall that the 7th NFC Award assigned a 10.3 percent weight to the criterion of backwardness and poverty. It is vital to understand that backwardness is not a standalone condition; rather, it is the consequence of several interrelated factors. Among these, poor law and order—particularly physical insecurity—has played a significant role. In KP, economic backwardness has been directly linked to the absence of business opportunities, which in turn is largely attributable to the devastating law and order situation due to unprecedented terrorism that has afflicted the province since 2005.