Centre Deducts Rs34.84 Billion from Provinces’ Grant Receipts for the First Time in History

By Bilal Ahmed | November 11, 2026

The federal government has deducted Rs34.84 billion from the grant receipts of all four provinces for the first time in the country’s history, Finance Division officials confirmed on Tuesday. The Centre deducted Rs34.839 billion as grant receipts from the provinces under Article 164 of the Constitution as Non-Tax Revenue during the first two months of the current financial year 2026-27, out of the total projected amount of Rs1.035 trillion earmarked for the year. The money will be spent on water resources, starting with the Bhasha and Dasu hydropower projects and the K-IV water project in Karachi.

This is not a new tax and it is not a cut to the National Finance Commission award itself. Ahead of the 2026-27 budget, the Centre and the four provinces agreed that the provinces would provide Rs1,035 billion as grants to the federal government from their NFC share, to help meet the country’s obligations under the $7 billion IMF programme for FY27. What happened in July and August is the first actual deduction under that agreement — and the first time any government in Pakistan has collected provincial grants in this way.

Centre Deducts Rs34.84bn from Provinces at a Glance

What Article 164 Is and Why It Matters

Article 164 of the Constitution allows the federation or a province to make grants for any purpose, even if that purpose falls outside its own legislative jurisdiction. That is the clause the federal government is using. The provinces are not being taxed and their NFC shares are not being rewritten — the grants are a separate, agreed transfer recorded as the Centre’s Non-Tax Revenue.

The scale is what makes this historic. The Rs1.035 trillion the provinces agreed to provide is the single largest item in the federal government’s extraordinary receipts for FY27, accounting for more than 97% of that category. Punjab alone is booked for Rs555.7 billion — nearly 54% of the total — followed by Sindh at Rs263.7 billion, Khyber Pakhtunkhwa at Rs157 billion and Balochistan at Rs58.6 billion. The federal budget documents record these figures, and they were confirmed in budget analysis published in June.

Finance Minister Muhammad Aurangzeb has said the arrangement will continue for the medium term, though he has not specified an exact timeframe in the absence of a new NFC Award. The deduction will continue in phases, tied to how much revenue the Federal Board of Revenue collects, under the formula the Centre agreed with the provinces.

Where the Rs34.84 Billion Will Be Spent

The government has decided in principle to use these resources for water resources. The first instalment has already been approved by the Economic Coordination Committee as a Technical Supplementary Grant for utilisation on the Bhasha and Dasu hydropower projects and K-IV in Karachi. The resources will be diverted towards water projects in phases as the deductions continue.

That choice matters because water is where the money is most visibly needed. The Diamer-Bhasha Dam and the Dasu Hydropower Project are the two largest water and power projects under construction in the country, and K-IV is Karachi’s long-delayed bulk water supply scheme. Channelling provincial grants into these projects ties the deduction to something concrete that readers in every province can see — dams and drinking water — rather than to general federal spending.

It is worth remembering that the federal government is also cutting fuel prices at the same time: petrol fell by Rs8 to Rs338 a litre from November 11, as we reported in our petrol price update for November 11. The two moves sit on opposite sides of the same fiscal picture — relief on fuel for consumers, and a new revenue line from the provinces for the federal government.

Development Spending Is Moving Slowly

The same Finance Division data that revealed the deduction also shows how slowly development money is being spent. Federal ministries, divisions and attached departments have utilised Rs74.655 billion on development projects so far, out of a total Public Sector Development Programme allocation of Rs682.485 billion for FY27.

Water resource development itself tells the story. Out of Rs103.086 billion allocated for water resources, the government authorised Rs90 billion, but utilisation stood at Rs18.726 billion in the first four months of the financial year (July to October). The largest head of utilisation was the provinces and special areas, at Rs23.8 billion. The Cabinet Division authorised Rs64 billion for the Parliamentarians’ Sustainable Development Goals Achievement Programme, but utilisation was only Rs59.99 million in the same period. The Federal Education and Professional Training Division utilised Rs6 billion, the Higher Education Commission Rs4 billion, the National Health Services Division Rs6.6 billion, the Planning Division Rs2.15 billion, the Railways Division Rs4 billion and the Special Investment Facilitation Council Division Rs72.8 million.

Dawn reported separately on Tuesday that overall development spending stood at just 10.4% of the annual allocation in the first four months of FY27, despite a budget surplus — a reminder that the problem is not only raising money, but spending it. That context matters for the Rs34.84 billion as well: the deduction is only useful if the water projects it is meant for actually absorb the funds.

What Happens Next

Two things will decide whether this becomes a lasting feature of Pakistan’s fiscal system or a one-year arrangement. The first is the NFC Award: with no new award in place, the grant arrangement fills the gap, and the finance minister has already signalled it will run for the medium term. The second is the provinces’ own budgets. Punjab has already cut its Annual Development Programme from Rs1.24 trillion to Rs752 billion and raised its provincial tax target to make room for its Rs555.7 billion contribution, while Sindh has set aside about Rs260 billion and cut development spending by roughly Rs298 billion. Those are real trade-offs, and they will shape provincial politics for the rest of the year.

For now, the fact is simple and historic: Rs34.839 billion has moved from the provinces to the Centre in the first two months of FY27, the first deduction of its kind ever made. The next instalments will follow the FBR’s collections, and the money is earmarked for water — Bhasha, Dasu and K-IV first. We will update this page as the Finance Division releases the next deduction figures. For the other side of the government’s borrowing picture, see our report on the Rs250 billion hybrid Sukuk auction held on November 11, and for the wider economy, our gold price update for November 10.

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