Page 66 - CMA Journal (Sep-Oct 2025)

Articles Section

By neglecting this mandate, successive NFCs have be financed separately and excluded from the
inadvertently contributed to structural fiscal imbalances, divisible borrowing pool.
growing public debt, and intergovernmental disputes
Example:
over resource allocation. Thus, moving forward,
borrowing must be treated as a central pillar of NFC If a province has a 20% NFC share, at least 20% of total
deliberations, with a formula-based, equitable approach development-related borrowing must be allocated to
that safeguards the interests of all provinces and projects directly benefiting that province.
strengthens Pakistan’s overall fiscal governance.
Conclusion
Recommended Reforms for Pakistan
By integrating borrowing into the NFC framework
To effectively modernize Pakistan’s fiscal federalism, the through a formula-based, equitable allocation system,
National Finance Commission (NFC) must evolve beyond Pakistan can:
traditional revenue-sharing to include borrowing • Ensure that all provinces benefit proportionately
coordination and allocation mechanisms. This will help from national borrowing.
prevent macroeconomic instability and ensure that
national borrowing contributes equitably to sustainable • Promote fiscal discipline and macroeconomic
development. The following reforms are proposed: stability.
1) Integration of Borrowing Policies into • Enhance transparency through independent
NFC Awards monitoring and performance-linked incentives.

Borrowing should be a regular agenda item of every NFC References
Award, as envisaged under Article 160 of the
• Ahmed, V., & Ahmad, E. (2016). Public financial management and
Constitution. A structured framework must be fiscal decentralization reform in Pakistan: Issues and
established to: challenges. Islamabad Policy Research Institute.

• Set joint debt ceilings for both the federal and • Ahmed, V., Shahbaz, M., & Khan, S. (2020). Fiscal federalism
and NFC awards in Pakistan. Pakistan Institute of
provincial governments, ensuring compliance with a Development Economics.
coordinated macroeconomic strategy.
• Fiscal Responsibility and Debt Limitation Act, 2005. Senate
• Synchronize domestic and external borrowing, Secretariat, Islamabad, Government of Pakistan.
preventing duplication of efforts and reducing risks • Government of Pakistan. (1973). Constitution of the Islamic
of unsustainable debt accumulation. Republic of Pakistan. Islamabad: National Assembly
Secretariat.
• Require that borrowing decisions align with national
• Government of Pakistan. (2010). Eighteenth Constitutional
development priorities while respecting provincial
Amendment. Islamabad: National Assembly Secretariat.
fiscal autonomy.
• International Monetary Fund. (2023). Pakistan Article IV
2) Formula-Based Allocation of Borrowing consultation report. Washington, DC: IMF.
for Development Projects • Khan, M. A. (2017). Fiscal federalism in Pakistan: Theory and
practice. Karachi: Oxford University Press.
A formula-based allocation mechanism, similar to the
• Ministry of Finance. (2023). Fiscal policy statement 2023.
existing NFC revenue-sharing formula, should be Islamabad: Government of Pakistan.
developed for domestic and foreign borrowings.
• Rana, M. A. (2019). Pakistan’s National Finance Commission
• Borrowing proceeds should be specifically awards: A historical perspective. Lahore: Vanguard Books.
earmarked for development projects that generate • Waseem, M. (2010). Federalism in Pakistan. Lahore: Centre for
long-term economic and social benefits for all Public Policy Research.
provinces. • World Bank. (2019). Pakistan public expenditure review: Fiscal
federalism and service delivery. Washington, DC: World Bank.
• The minimum allocation for each province must not
fall below its NFC revenue share percentage, About the Author: Dr. Noor Alam holds a PhD in Public
ensuring fairness and avoiding fiscal imbalances. Finance and is a retired senior civil servant from the
Government of Sindh. He has held key policy-making roles,
• This allocation will be reviewed and reset every including Senior Member and Additional Chief Secretary of
five-year NFC cycle, aligning with development Finance. An active academic, Dr. Alam has published
planning and fiscal sustainability objectives. extensively in international journals. Currently, he is a Senior
Fellow and Associate Professor at the Institute of Business
• Projects of national interest, such as defense,
Management in Karachi.
strategic infrastructure, or climate resilience, should
64 ICMA’s Chartered Management Accountant, Sep-Oct 2025