Published: July 22, 2026 | Category: Fiscal Federalism

The formula that splits Pakistan’s money weights population at 82 per cent and poverty at a tenth, and it has not changed since 2010. Devolution reached Lahore and stopped.

Pakistan’s money is divided by a formula, and the formula is old. The 7th National Finance Commission Award, agreed in 2010, distributes the federal divisible pool to the provinces mainly on headcount: population carries 82 per cent of the weight, backwardness and poverty just 10.3 per cent. Three later commissions have lapsed without agreeing a new award, so the 2026 distribution still runs on 2010’s arithmetic.

Indicator	Weight (%)
Population	82.0
Poverty / backwardness	10.3
Revenue collection / generation	5.0
Inverse population density (area)	2.7

Money Reaches Lahore on Headcount — and Stops

Because population dominates the formula, Punjab draws a large federal transfer. But the award moves money only as far as the provincial capital. What happens below Lahore is governed by a separate mechanism, and that is where the transfer stalls. The Provincial Finance Commission award, which is meant to push money from the province down to its districts, is weak and discretionary in Punjab. There is no binding sub-provincial formula equivalent to the NFC, so distribution within the province rests on administrative choice rather than a rule a district could enforce.

The contrast between the two tiers is stark. A province can take the centre to the NFC table and bargain; a district has no equivalent forum with its province. The 18th Amendment devolved power to the provinces and then trusted them to pass it onward, and Punjab largely did not. The chain is binding at its first link and discretionary at the second, so money that is compelled as far as Lahore becomes optional the moment it should move further.

The Census That Never Pays Off

The perverse result is that population — the one variable the formula rewards — is the very thing South Punjab has in abundance and cannot convert into money. The 2023 census confirmed the region’s numbers, but a confirmed headcount changes nothing while the award is frozen, and a poverty weight of barely a tenth means that being poor earns a district almost no additional claim. The incentives point the wrong way, paying for people rather than for the deprivation those people live with.

Devolution, in other words, stopped halfway. The federal formula rewards population and barely counts poverty; the provincial one that might correct it does not bind. A region that is both populous and poor has money sent toward it on headcount, then withheld for lack of a rule to complete the journey. South Punjab fell into exactly that gap. Unfreezing the NFC would help, but the decisive fix is a binding PFC award — because that is the joint where the money now goes missing on its way from Lahore to Muzaffargarh.

Sources

• 7th National Finance Commission Award, 2010
• Punjab Finance Commission framework, Local Government Department, Punjab