EDITORIAL: It is not for the first time that Finance Minister Muhammad Aurangzeb has warned of the two existential threats confronting Pakistan: a runaway population growth rate and climate change. Addressing the Pakistan Business Summit on October 2, he underscored how child stunting, poverty and climate stress are eroding the nation’s long-term productivity and global standing.

His warning is well-founded: unchecked population growth is devouring resources faster than they can be replenished, leaving little to fight entrenched health and nutrition crises, as well as poverty. Climate change, meanwhile, is a calamity in its own right, but also one made deadlier by unrestrained demographic pressures.

Both challenges strike at the very foundations of the economy, depleting human capital, imperiling food and water security, and deepening vulnerabilities that no short-term fiscal or monetary fix can offset. Unless these pressures are confronted head-on in a serious and concerted way, the government’s reform agenda that the minister spoke of — from restructuring the economy in a more equitable manner to creating a healthy investment and business climate — will collapse or fail to take off under their weight.

When it comes to demographic challenges, it inevitably leads back to a fundamental reform this paper has long advocated, i.e., overhauling the horizontal formula of the National Finance Commission (NFC) Award by considerably reducing the overwhelming 82 percent weight accorded to population as the main basis for resource distribution among the provinces.

This skewed formula has inflicted deep damage on our development trajectory, and left Pakistan ill-equipped to respond to fast shifting socio-economic realities: a poverty rate of 45 percent, according to World Bank figures; rising unemployment, particularly among the youth, where a yawning skills gap collides with millions entering the job market every year; poor health outcomes related to malnutrition, stunting and anaemia; a housing shortage running into millions of units; 25 million out-of-school children; and agriculture and industry pulverised annually by climate shocks. It is a travesty, then, that we are still clinging to an outdated formula for resource distribution rather than adopting one that rewards human development, fiscal responsibility, climate resilience and genuine efforts to uplift living standards across the provinces.

While criteria such as poverty and backwardness (10.3 percent), revenue generation (five percent) and inverse population density (2.7 percent) have little sway over how national resources are distributed — with several other vital factors sidelined altogether — the excessive weight assigned to population has entrenched a pernicious, structural defect. Tying allocations to headcount rewards provinces for adding more people, discouraging investments in meaningful population control and human development. The result has been explosive population growth that has crippled the economy, ravaged environmental resources, and crushed underfunded schools, hospitals and basic infrastructure. Population’s dominance, in fact, has extended well beyond fiscal formulae as it also determines the distribution of parliamentary representation and how government job quotas are apportioned, ensuring that sheer numbers override merit across the system. Furthermore, this dynamic has even undermined the credibility of national censuses, where the incentive to exaggerate population figures has repeatedly stoked provincial discord and mistrust.

With climate change standing alongside population growth as the other critical challenge confronting Pakistan, any new NFC Award formula must incorporate criteria such as forest cover and the ecological vulnerabilities of provinces, along with the development needs these create. Equally imperative is according greater weight to poverty levels, revenue generation and tangible efforts at population control. In recent months, these proposals have been echoed across the political spectrum and endorsed by leading economists and development experts. It is now essential that the federating units heed these calls and replace an obsolete fiscal compact with one that reflects not just today’s urgent realities, but the demands of tomorrow as well.

Copyright Business Recorder, 2025