What happened
Pakistan’s National Economic Council (NEC) met in Islamabad on Wednesday, 10 June 2026, and endorsed a fiscal compact under which the Centre will retain a large share of provincial tax revenue and both tiers of government will cut development spending, clearing the way for the federal budget to be presented later this week.
Prime Minister Shehbaz Sharif chaired the meeting, which was attended by three of the country’s four chief ministers and senior federal ministers, after four successive postponements. “The Centre held consultations with the provinces on all matters with extreme seriousness, and we made decisions in the best interest of Pakistan,” Shehbaz said in remarks carried on television.
Under the arrangement negotiated between the ruling Pakistan Muslim League-Nawaz and the Pakistan Peoples Party, which governs Sindh, provincial shares from the federal divisible pool will stay frozen at the current fiscal year’s level, and any federal tax revenue above that baseline will be kept by the Centre. The additional resources flowing to Islamabad next year were described as dynamic rather than fixed, and officials put the likely figure at between Rs1.3 trillion and Rs1.7 trillion.
A senior member of the negotiating team, PPP’s Saleem Mandviwalla, said the requirement would be “jointly covered by the Centre and the provinces” within existing resources and without new taxes. To avoid amending the National Finance Commission (NFC) award, the Centre is to keep transferring full provincial shares as normal while provinces credit the incremental surplus back to federal accounts.
Why it matters
The compact reshapes public investment across the federation. Federal and provincial development plans worth Rs4.715 trillion for 2026-27 are to be revised sharply downward. Planning Minister Ahsan Iqbal confirmed that the proposed Public Sector Development Programme of Rs1.126 trillion has already been trimmed by Rs126 billion, or about 11 per cent, to roughly Rs1 trillion, and said no new development scheme would be admitted except projects proposed by the ministries of Defence and Interior. The Centre had separately carved out about Rs175 billion in cuts. Punjab, Sindh and Balochistan are understood to have agreed to freeze their annual development plans at this year’s actual spending levels, freeing up an estimated Rs350 billion or more.
Sindh’s agreement came with concessions: the federal government committed to more than tripling funding for the Sukkur-Hyderabad Motorway (M-6) from Rs20 billion to about Rs70 billion, with promises of actual disbursement and faster construction. Khyber Pakhtunkhwa, governed by Imran Khan’s Pakistan Tehreek-e-Insaf, did not join the arrangement; its finance adviser had said the province would not hand over additional NFC revenue without a meeting involving the jailed PTI founder. KP Chief Minister Sohail Afridi said after the meeting that the prime minister had assured participants that formal talks to update the NFC award would be convened within 180 days.
The deal eases pressure on a budget already squeezed by an International Monetary Fund programme, a Federal Board of Revenue shortfall and higher global oil prices. The IMF has pencilled in Rs2.665 trillion for defence in 2026-27, while Islamabad is pushing for closer to Rs3 trillion. Shehbaz said he had spoken with IMF Managing Director Kristalina Georgieva a day earlier. The government is also finalising about Rs50 billion in income-tax relief for salaried earners above Rs183,400 a month. The budget was already delayed to 12 June as the Centre and provinces negotiated.
Sources & reporting notes
This is a summary of published reporting, not independent reporting. Details are as carried by the cited sources, which were reviewed on 2026-06-10. Fiscal figures are official projections and were contested by some provincial governments.
- Dawn — "Centre, provinces 'made decisions in the best interest of Pakistan', PM says in NEC meeting"10 June 2026 · The NEC session, the prime minister's remarks, the KP chief minister's account and the expected 12 June budget.
- Dawn — "BUDGET 2026-27: Centre, Punjab & Sindh agree on spending cuts"10 June 2026 · The frozen provincial shares, the Rs1.3-1.7 trillion range, the development-plan revisions and the M-6 funding increase.
- Independent Pakistan — "Islamabad rewires its budget architecture, freezing provincial shares to plug a trillion-rupee gap"10 June 2026 · The accounting mechanism, the FBR baseline, the PSDP reduction and the IMF conditions.
