ISLAMABAD: Pakistan’s planning ministry will propose changes to the National Finance Commission (NFC) Award — a constitutional formula that governs how tax revenues are shared between the federal government and provinces — in an effort to reward regions that manage to control population growth, Planning Minister Ahsan Iqbal said on Thursday. 

The proposed reform would shift financial incentives away from population size alone and toward demographic efficiency. Pakistan, a country of over 240 million people, has its population growing at around 2 percent annually. This rate is significantly above the global average, placing Pakistan among the world’s faster-growing nations.

Under the existing NFC Award, 57.5 percent of the divisible tax pool is allocated to Pakistan’s four provinces of Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan. Of this, 82 percent is distributed based on population size, effectively rewarding provinces like Punjab and Sindh that have higher population growth.

“In the next NFC Award, the Planning Ministry will propose a revision of the resource distribution formula,” Iqbal told reporters during a briefing on Pakistan’s development budget for the upcoming fiscal year.

“This creates a negative incentive. If a province manages to control its population, it is effectively penalized with a reduced share of resources.”

The NFC Award remains a politically sensitive subject in Pakistan, with provinces often reluctant to surrender financial shares. However, Iqbal said reform was essential for sustainable development.

The current NFC Award was agreed in 2010 under Article 160 of the Constitution, which requires periodic review and consensus among the federal and provincial governments. The 2010 award introduced a more balanced distribution formula than previous iterations, which were based solely on population. It included additional criteria such as poverty and backwardness (10.3 percent), revenue collection and generation (5 percent), and inverse population density (2.7 percent).

Despite these adjustments, Iqbal argued that population remained an overwhelming factor in determining provincial allocations and discouraged provinces from investing in family planning or demographic control measures.

“We must shift toward incentivizing demographic efficiency, rewarding provinces that control population growth effectively,” he said. 

“This change is only possible through a revised NFC formula, as in my view, the current formula is regressive and needs to be restructured on a progressive basis, linking resource allocation not just to population but also to factors like industrial performance, educational outcomes, and governance efficiency.”

Iqbal described Pakistan’s current 2.5 percent annual population growth rate as “the biggest challenge” facing the country and said that without effective population control, economic development efforts would be undermined.

To address the issue at the national level, Iqbal said the government would establish a Pakistan Population Council chaired by Prime Minister Shehbaz Sharif, with participation from provincial and regional governments.

“WATER SECURITY”

Iqbal also highlighted the growing threat of water scarcity, particularly after neighboring India’s unilateral suspension of the Indus Waters Treaty (IWT), a 1960 World Bank-brokered agreement that allocated the use of the Indus River system’s waters between India and Pakistan.

India announced it was holding the treaty in abeyance after a conflict with Pakistan last month over the disputed Kashmir region, which both countries rule in part but claim in full. 

“Our focus in the development budget is Pakistan’s water sector, as we must treat water as a fundamental element of our national strength, especially as neighboring countries have begun to weaponize water, a deeply concerning development,” the planning minister said. 

He added that while India could not legally block Pakistan’s share of water under the treaty, it could still affect the flow of rivers that irrigate nearly 80 percent of the country’s agricultural land.

In response, Pakistan has prioritized the completion of two major dam projects, Diamer Bhasha Dam and Mohmand Dam, aiming to finish both by 2030. Originally, Diamer Bhasha Dam was scheduled for completion in 2032.

“We have resolved to complete the Diamer Bhasha Dam and Mohmand Dam on an emergency basis and our goal is to complete the Diamer Bhasha Dam by 2030,” Iqbal said, adding that the two dams would together add 7 million acre-feet of water storage capacity, 6 million from Diamer Bhasha and 1 million from Mohmand.

A federal task force led by the Deputy Prime Minister and comprising all four provincial chief ministers had been formed to oversee the implementation of water infrastructure projects, the planning minister said.