ISLAMABAD: Pakistan’s Finance Minister Muhammad Aurangzeb said on Saturday the country’s revenue-sharing formula between the federal and provincial governments “has to change,” arguing that allocating the bulk of funds on the basis of population was holding back long-term development.

The revenue-sharing is done under the National Finance Commission (NFC) Award that determines how federally collected taxes are divided between the center and the provinces. Under the current formula, much of the distribution weight is based on population, with smaller weightages assigned to factors such as poverty, revenue generation and inverse population density.

“Under the NFC award, 82 percent allocation is done on the basis of population,” Aurangzeb said while addressing the Federation of Pakistan Chambers of Commerce & Industry’s regional office in Lahore. “This has to change. This is one area which is going to hold us back from realizing the full potential of this country.”

Economists and policy analysts have long suggested broadening the NFC criteria to give greater weight to tax effort, human development indicators and environmental risk, though any change would require political consensus among provinces, making reform politically sensitive.

Aurangzeb also highlighted the economic achievements of the country in recent years, saying Pakistan’s import cover had improved from roughly two weeks just a few years ago to about 2.5 months currently, adding that the government had repaid a $500 million Eurobond last year.

“The next repayment is of $1.3 billion in April,” he continued, adding that “we will pay these obligations, which are the obligations of Pakistan, as we go forward.”

The minister also noted that unlike in 2022, when devastating floods forced Pakistan to seek international pledges at a Geneva conference, the government did not issue an international appeal during more recent flooding, arguing that fiscal buffers had strengthened.

“This time, the prime minister and the cabinet decided that we do not need to go for international appeal because we have the means,” he said.

He reiterated the government was pursuing export-led growth to avoid repeating past boom-and-bust cycles driven by import-led expansion that quickly depleted foreign exchange reserves and pushed Pakistan back into International Monetary Fund programs.