The federal government has deducted Rs34.84 billion from the four provinces as grants in the first two months of the current financial year, the first time such a deduction has been made in Pakistan's history. Senior officials in the Finance Division confirmed the figure to The News, saying the amount was taken from the provinces' National Finance Commission (NFC) shares under Article 164 of the 1973 Constitution and recorded as non-tax revenue.

The deduction covers July and August 2026, the first two months of financial year 2026-27. The Centre and the four provinces had agreed before the budget that the provinces would provide Rs1.035 trillion from their NFC shares during the year to help the federal government meet its obligations under the $7 billion International Monetary Fund (IMF) programme.

Why the Centre is taking the money

Finance Minister Muhammad Aurangzeb has said the arrangement will continue for the medium term, although he has not given an exact timeframe in the absence of a new NFC Award. The provinces agreed to the grants to help the Centre meet its fiscal commitments, including defence requirements and a buffer against the knock-on effects of the conflict in the Gulf region.

The federal government has decided in principle to use the money collected as non-tax revenue on water resources. The first instalment has been approved by the Economic Coordination Committee as a technical supplementary grant for the Bhasha and Dasu hydropower projects and the K-IV water supply project in Karachi.

How much each province will contribute

Budget documents show Punjab will account for more than half of the total provincial contribution, at Rs555.69 billion, or nearly 54 per cent of the projected transfers. Sindh is expected to contribute Rs263.67 billion, Khyber Pakhtunkhwa Rs157.02 billion and Balochistan Rs58.63 billion.

The provincial grants are set to become the largest component of the federal government's extraordinary receipts in FY27, making up more than 97 per cent of the Rs1.067 trillion projected under that heading. Other extraordinary receipts include Rs5 billion in surplus profit from the National Database and Registration Authority (NADRA), Rs800 million from the Pakistan Civil Aviation Authority and Rs25.6 billion in United Nations military reimbursements.

A first under the Constitution

Article 164 of the Constitution allows a province to make grants for any purpose, even one outside its normal law-making powers. Until now, however, the provision had never been used to deduct grants from all four provinces in this way, making the Rs34.84 billion deduction a first.

The arrangement has already drawn a reaction from Khyber Pakhtunkhwa, whose government has objected to a separate proposed deduction of Rs6.4 billion from its federal transfers. Chief Minister Sohail Afridi has said the province did not sign a memorandum of understanding for the additional amount and has argued that Article 164 does not give the federal government the authority to deduct amounts unilaterally.

The deduction comes as the federal government continues consultations with the IMF, with the provincial grants forming a key part of the fiscal plan for the year. Whether the arrangement holds for the full Rs1.035 trillion target will depend on how the provinces respond as further instalments fall due.

Sources: The News; Bloom Pakistan.