Budget delays are not unusual in Pakistan, given the difficulty of reconciling competing demands from various lobbies. Yet the current impasse is of a different magnitude, pointing to a constitutional and political crisis that Islamabad is struggling to manage. At the heart of the dispute lies the federal government’s demand that provinces freeze their share from the divisible pool under the NFC award, returning any receipts above the current year’s level to the centre. This demand comes in addition to the Rs1.95 trillion cash surplus provinces are already required to generate under the National Fiscal Pact.

The provinces have resisted this pressure, and their resistance is rooted in the centre’s inability to expand the tax net and raise revenues. Pakistan’s obligations under the IMF programme, which require maintaining a primary surplus and curbing expenditures, have further narrowed fiscal space. With defence spending and civil service perks untouched, the federal government has turned to the provinces as its only lever.

The narrative that the NFC award is the primary driver of fiscal distress does not withstand scrutiny. The divisible pool excludes surcharges and levies collected outside it, such as the petroleum levy, which replaced GST on petroleum products precisely to avoid sharing revenues with the provinces. Over time, the centre has expanded non‑shareable levies, strengthening its own fiscal base while publicly lamenting its reduced NFC share. Meanwhile, provincial obligations to produce cash surpluses have constrained development spending, leaving local governments unable to address pressing needs.

Pakistan’s debt crisis is not the result of higher provincial transfers. It stems from chronic under‑taxation, reckless devaluation, and repeated borrowing — structural weaknesses that have little to do with how the divisible pool is distributed. The failure to broaden the tax base is not the centre’s burden alone. Large segments of the economy — agriculture, retail, real estate, and professions such as law and medicine — remain outside the tax system, contributing only a fraction of their potential. No revision of the NFC award can resolve this structural imbalance.

What is at stake goes beyond fiscal arithmetic. The seventh NFC award and the 18th Amendment are not merely financial arrangements; they are constitutional guarantees that underpin provincial autonomy and strengthen the federation. Undermining this consensus risks destabilising the delicate balance between centre and provinces, with consequences that will outlast the current government and the IMF programme.

The federal government faces a choice. It can continue to squeeze compliant taxpayers and claw back resources from the provinces, or it can confront the structural issues that have long hindered economic growth. The path of least resistance may offer temporary relief, but it will erode trust in the federation and weaken the foundations of governance. A durable solution lies in expanding the tax net, enforcing compliance across all sectors, and respecting the constitutional framework that binds the federation together.