In an effort to lower Pakistan's fiscal deficit and satisfy requirements set by the International Monetary Fund (IMF), the federal government is considering a plan to lower the provinces' current 57.5% share of the divisible tax pool under the National Finance Commission (NFC) Award.

According to officials, this move might provide much-needed financial flexibility to address the growing costs of debt servicing, which are predicted to reach Rs 8.2 trillion this year amid a projected Rs 6.5 trillion budget deficit.

The discussion includes linking provincial funding to environmental, health, and education performance indicators.

Additional proposals being put forth include taking money from the NFC share to support strategic mega-projects like the Diamer-Bhasha Dam and setting aside separate funds for Islamabad, Gilgit-Baltistan, and Azad Jammu & Kashmir.

In an effort to rebalance the distribution, the NFC formula's weight of "population," which is currently 82%, may also be reduced.

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Provinces have reacted strongly, as expected. For example, Sindh has already categorically rejected the proposal. Provinces have previously opposed changes to NFC allocations; in 2018, KP and Sindh opposed similar IMF-inspired proposals, citing 18th Amendment constitutional protections.

Additionally, according to recent reports, constitutional protections prohibit the federal government from decreasing the provincial share, permitting only potential increases.

The Planning Ministry has previously proposed linking NFC allocations to broader indicators like demographic efficiency, industrial performance, and governance outcomes rather than relying chiefly on population figures.

If implemented, revising the NFC framework could reshape the fiscal balance between the federal government and the provinces. But with strong provincial pushback and constitutional barriers, the proposal may prove politically and legally challenging