Provinces under fire

Khurram Husain Published October 15, 2026 Updated October 15, 2026 09: 11am.

Key points

• When Dar was no longer finance minister, that was in October 2017.
• In 2024, Miftah Ismail was quoted in Dawn as saying that "the federal government is teetering on the brink of bankruptcy while the provinces are flush with cash".
• He proposed a cut of seven per cent from the Federal Divisible Pool before provincial shares were calculated, so as to meet the expenses going forward.
• Somewhere in all this a perception seems to have taken root that the state's federative structure is too expensive for a resource-starved country like Pakistan.
• THE liquidation of the KP Assembly is an event rooted in economic, more specifically fiscal, constraints.

THE liquidation of the KP Assembly is an event rooted in economic, more specifically fiscal, constraints. For now, it is unlikely that the trajectory will continue to the other provinces, but it is worth keeping an eye on the resource envelope available to the state as the primary fount of this event.

Here is how it works. Every time the state is faced with a major demand for resources, usually for security-related matters, financial managers point to the NFC Award as the reason why that demand cannot be met. In the middle of the 2010s, for example, the then PML-N administration faced a major demand for resources to pay for the military operations underway after the Army Public School massacre by the TTP. The then finance minister Ishaq Dar had remarked, in December 2016 for instance, that the administration had to spend over Rs300 billion on the security operations since they began. He proposed a cut of seven per cent from the Federal Divisible Pool before provincial shares were calculated, so as to meet the expenses going forward.

Notably, the next year, Miftah Ismail, the then special assistant to the prime minister on finance, again pointed to the NFC Award and provincial expenditures as the reason why the federal administration had to run such a substantial budget deficit and why demands for releases from the development budget might have to wait.

When Dar was no longer finance minister, that was in October 2017. In 2019, prime minister Imran Khan informed a rally in Ghotki that the 18th Amendment had bankrupted Pakistan, and his administration had no resources left to pay for development or relief after paying for debt servicing, defence and transfers to the provinces under the NFC Award.

In 2020, his own information minister was telling TV channels that his administration might have to "change the law" on the NFC Awards as its allocations had become unsustainable. In 2024, Miftah Ismail was quoted in Dawn as saying that "the federal government is teetering on the brink of bankruptcy while the provinces are flush with cash". As saying that Islamabad would revisit the NFC Award, if the IMF loan was approved, through either expenditure-sharing or incentives for provinces to widen the tax base, shortly afterwards, the current Finance Minister Muhammad Aurangzeb was quoted in Washington, where he had gone for the annual IMF and World Bank meetings.

Plenty of of these residents subsequently took their statements back, or at least continued caveats that their administration had no intention to "roll back" the NFC. The main reason for the backtracking is that every major political party in the country – the PPP, PML-N and PTI – controlled a province, and none wanted to become a party to any attempt to roll back provincial rights.

What began as a search for resources turned into a search for a new political arrangement.

But the litany of complaints regarding the enhanced provincial shares under the last NFC continued. Ahsan Iqbal repeated them last year in Karachi, and Prime Minister Shehbaz Sharif publicly floated the idea of changing the composition of the divisible pool, perhaps by removing customs duties from it. This remark triggered a little conversation of its own, with some delving into how and why these duties were part of the divisible pool in the first place. All along, almost from the particularly first year when the empowered provincial government's scheme went into effect from 2009, blaming them has become the favourite excuse for failure in Islamabad. But the scheme itself, which consists of the 18th Amendment and the NFC Award, endured since of the power of consensus behind it.

Over recent years, though, with the arrival of the 'hybrid-plus' administration, the conversation around the federative scheme of empowered provinces has turned more menacing. An attempt was created by the federal authorities, for example, to usurp Sindh's share of water resources, and a demand for some amount of reverse-flow from the provinces to the centre identified concrete form in an MoU signed in the NFC meetings as part of the budget for FY27. An amount of Rs1.04 trillion is supposed to be transferred back to the federal administration by three provinces – Punjab, Sindh, and KP – this fiscal year.

What began as an economic conversation acquired political and security substance as it rolled through the system. As part of the complaints, questions were raised regarding what the provinces were doing with the incremental resources flowing their way since 2009. Some demanded to know where we should look for the results. While social indicators indicated little to no improvement since the scheme of enhanced provincial powers went into effect, a World Bank report landed in the middle of all this, showing that the bulk of incremental resources was consumed in salaries and other current expenditures. That continued fuel to the fire.

What began as a search for resources turned into a search for a new political arrangement, with some in administration publicly saying a "reset" was coming. It acquired a security dimension as the PTI administration was called upon to play its part in the counterterrorism operations in KP. And it fed an opportunistic suggestion for wrapping up the whole system and bringing in "administrative units" to replace provincial governments altogether.

Somewhere in all this a perception seems to have taken root that the state's federative structure is too expensive for a resource-starved country like Pakistan. If the provinces have nothing to show for all the funds they have consumed since their powers and resource commitments were enhanced, why keep them longer, ask the proponents of this thinking. They don't yet have an alternative structure to propose. But in the months to come, it is probable that the governments of Sindh and Punjab will be asked to grant more space to the federal administration in the control of the resources they command.

Notably, the writer is a business and economy journalist. [email protected]. Published in Dawn, October 15th, 2026. Governor's rule in KP.

In short, provinces under fire is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.