• Ahsan calls for shift from population-based formula
• Says fiscal space shrinking, provinces must share burden and invest in human development

ISLAMABAD: The federal government on Thursday proposed shifting the “regressive” population-based formula for distributing divisible pool resources under the National Finance Commission (NFC) award to criteria based on climate adaptation and other performance indicators.

Speaking at a news briefing, Planning Minister Ahsan Iqbal said the current NFC criteria were regressive as population, being the overwhelming consideration, had been made an incentive instead of a disincentive. He said the Centre would seek climate adaptation and other social sector indicators as key determinants for distributing resources with and among the provinces when the NFC meets in August this year. He went on to question the devolution planned under the 18th Amendment and the 7th NFC Award in place since 2009.

He said the devolution was incomplete as the provinces had not devolved responsibilities and resources down to the district level for such a long time despite commitments. He said the size of provincial finances had expanded, which required a district government system to be activated. He said the Centre had devolved powers to the provinces, which would have to empower local governments.

On the occasion, Chief Statistician Naeemuz Zafar defended economic growth estimates for the current year at 2.7 per cent, saying he could elaborate and defend the outcomes of the recent National Accounts Committee (NAC).

He said the objections over NAC datasets were not justified as the Pakistan Bureau of Statistics had published all the data on its website, and statistics about the growth estimates were transparent.

He said he had also noticed some objections over agricultural output, but it should be recognised that major crops only made up 18pc of the agricultural sector. The remaining 80pc comprises livestock, fisheries and forestry.

However, responding to a question, he conceded that the GDP growth rate estimates had taken into account Rs1.1 trillion public sector development investments and data pertaining to livestock was worked out based on the 2010 survey.

This indicated that, along with the industrial sector’s upsurge reported in the fourth quarter, the 2.7pc GDP growth rate would need to be revised by the September-October NAC review, as the Ministry of Finance separately put the PSDP spending at Rs967 billion instead of Rs1.1tr and indicated its further revision.

Fiscal space shrinking

The planning minister said the Centre’s fiscal space was shrinking as the development programme had contracted to 0.8pc from over 1.2pc of GDP in a few years, which was a matter of concern. He said that after transfer of provincial shares, the Centre would be left with about Rs11tr, of which over Rs8.2tr would go for debt servicing and the remaining on defence expenditure.

Therefore, the provinces must share the expenditure and invest in human development, including child stunting, as 40pc children were currently stunted, he said.

Responding to a question, the minister said India was weaponising water, which was a serious challenge for Pakistan, but warned that India would need to avoid that route or face consequences. He stressed that Pakistan was prioritising water sector projects and dams.

Mr Iqbal said the national leadership had resolved collectively to transition from crisis to stability and sustained growth under the vision of Uraan Pakistan and the 13th Five-Year Plan. “This year’s budget is not merely a financial statement. It’s a roadmap towards recovery, resilience and opportunity for all Pakistanis,” he added.

He said the government had been struggling for two years to pay for ongoing development projects. “Today, we are paying our defence expenditures and servicing debt obligations from our own resources, but very soon, we will finance our development independently,” he said.

This would be achieved through 4.5pc growth in agriculture through Rs4.2bn investments in crop productivity and livestock, modernisation and mechanisation, backed by provincial initiatives such as the Punjab Kissan Card.

Published in Dawn, June 13th, 2025