Page 65 - CMA Journal (Sep-Oct 2025)

Articles Section

First NFC Award (1974) 1. Violation of Constitutional Mandate:
• Article 160 uses the word “shall”, creating a
The first NFC Award laid the foundation for Pakistan’s mandatory obligation for the NFC to address
modern fiscal framework:
borrowing powers (Ahmed & Ahmad, 2016).
• Introduced the concept of a divisible pool of federal • By ignoring this mandate, successive NFCs have
taxes. failed to implement the Constitution fully.
• 20% retained by the federation, 80% allocated to 2. Fragmented Debt Governance:
provinces, with intra-provincial distribution based • Federal borrowing is managed through the Fiscal
solely on population (Khan, 2017). Responsibility and Debt Limitation (FRDL) Act
2005, which sets targets for debt sustainability
• Focused exclusively on tax sharing, ignoring (Ministry of Finance, 2023).
borrowing entirely.
• Provincial borrowing remains governed by
Fourth NFC Award (1990) Article 167, with the federal government
retaining veto power over provinces that owe
The fourth NFC Award expanded the divisible pool and debts to the center.
included direct transfers, such as net hydropower profits
to provinces. It sought to correct fiscal disparities but 3. Absence of Judicial Oversight:
continued the pattern of neglecting borrowing powers • No judicial challenge has been raised to enforce
(World Bank, 2019). Article 160(2)(c), reflecting the political sensitivity
of debt issues and the reluctance of courts to
Fifth NFC Award (1997) intervene.

The fifth NFC Award raised provincial shares to 50% and In a recent episode of Pakistan’s fiscal governance, it is
introduced incentives for provincial revenue worth pondering that the explicit mention of borrowing
mobilization (Rana, 2019). Despite these progressive in the Terms of Reference (ToRs) of the 10th and 11th
reforms, no mechanism was introduced for managing National Finance Commissions (NFCs) represents a
provincial borrowing. significant acknowledgement of the constitutional

mandate enshrined in Article 160 of the 1973
Seventh NFC Award (2010) and the
Constitution of Pakistan. Article 160 clearly stipulates
18th Amendment that the NFC is responsible for making recommendations
The 7th NFC Award represented a landmark in Pakistan’s not only on the distribution of federal taxes and
fiscal history: grants-in-aid but also on the exercise of borrowing
powers by both federal and provincial governments.
• Increased provincial shares to 56% in 2010-11, rising Historically, earlier NFC Awards particularly the landmark
to 57.5% thereafter. 7th NFC Award of 2010 completely overlooked
• Introduced a multi-factor formula for intra-provincial borrowing, focusing exclusively on revenue-sharing
distribution: mechanisms. The inclusion of borrowing in the ToRs of
subsequent NFCs was, therefore, a positive and
1. Population – 82% much-needed development, reflecting a recognition
2. Poverty/backwardness – 10.3%
3. Revenue effort – 5% that coordinated borrowing is integral to achieving fiscal
federalism and macroeconomic stability.
4. Inverse population density – 2.7%
However, this inclusion has largely remained symbolic
Simultaneously, the 18th Amendment devolved rather than substantive. The 10th NFC failed to produce
1
significant powers to provinces and allowed them to any concrete recommendations, leaving the matter
borrow internationally. However, no framework for unresolved, while the deliberations of the 11th NFC are
borrowing coordination was embedded in the NFC still ongoing. From a legal and constitutional standpoint,
Award, resulting in a disconnect between revenue the explicit reference to borrowing in the ToRs reinforces
allocation and debt responsibilities.
that this matter is not discretionary, but rather a
Legal and Fiscal Implications of constitutional obligation of the NFC. Failure to address
borrowing through a coherent framework represents a
Excluding Borrowing breach of the constitutional intent behind Article 160.
The Constitution envisioned the NFC as a collaborative
Legal Implications
mechanism for federal-provincial financial coordination,
The omission of borrowing from NFC deliberations has ensuring that both tiers of government act within a
profound legal consequences: unified fiscal strategy.

1 The 8 th , 9 th , and 10 th NFCs all remained inconclusive and did not result in a finalized award.
ICMA’s Chartered Management Accountant, Sep-Oct 2025 63