NFC: resource distribution dilemma

Afshan Subohi

For political considerations Punjab may not actively object to Finance Minister Ishaq Dar’s proposal of resource distribution under the 9th NFC award, but Sindh and KP have decided to collectively oppose the move that they feel violates the law and infringes on their rights.

The opposition to Dar’s resource sharing formula is primarily based on simple logic: it was unfair to penalise provinces for (a) the FBR’s failure to mobilise resources and (b) the federal government’s tendency to spend beyond its means.

In the meeting last week the federal finance minister proposed shrinking the gross divisible pool by 8pc — 7pc for the proposed National Security Fund and the development of special areas, and 1pc for the allocated amount in the last NFC to compensate KP for its losses on account of the war on terror. This would reduce the size of the Federal Divisible Pool (FDP) to 92pc from the current 99pc.

If accepted it would indirectly increase the federation’s share to 50pc from the current 42.5pc of FDP, fixed under the 7th NFC award 2009, which will roughly translate into the transfer of an additional Rs250bn to the Centre at the cost of the provincial share.

The federal government cited security challenges and urgent development spending required in AJK, Gilgit-Baltistan and FATA to bring them at par with the rest of the country, and in the economic mainstream, as reasons for the proposed 7pc deduction from FDP.

The representatives of the four provinces reportedly did not react in the last NFC meeting and agreed to deliberate at the provincial level to articulate their formal position before the next meeting expected in the first half of January 2017.

Elaborating on his proposal Dar said peculiar circumstances demanded a befitting response. He stated that 3pc of the gross federal divisible pool was required for the National Security Fund and 4pc for fast pace development of neglected tribal regions.

He informed that the Centre has already created a Northern Security Division of 9,900 personnel: 28 battalions of the army have been assigned for the CPEC security and 29 additional battalions are in the process of being relegated, while 44 more battalions will be developed after the first 57 battalions become functional. He said the federal government had already spent Rs300bn for the purpose.

Senator Salim Mandviwala, who led the Sindh team in the NFC meeting, told Dawn over phone from Islamabad that his province will oppose, tooth and nail, any move that compromised its constitutionally protected share from the federal divisible pool.

“We are not ready to sacrifice our share on any pretext. Yes, we intend to oppose Dar’s proposal. We believe that the security cost of providing protection to the gigantic investment plan should be internalised in the CPEC and that the business model should be self sustaining”, he said.

He thought that the PMLN Punjab government, despite its reservations, may keep mum about the issue as their party rules the centre while Balochistan’s share is fixed.

But the KP and Sindh governments are in touch and expect to meet soon to finalise a joint strategy to force the federal government not to tinker in the resource sharing formula in a way that could hurt provincial interests.

He reported some progress on the provincial NFC in Sindh and Punjab and hoped for visible progress over the next five years. He said Sindh would also demand devolution of the responsibility of collection of sales tax on goods after successfully collecting sales tax on services.

Several attempts to reach KP Finance Minister Muzaffar Saeed and technical member Prof Ibrahim, for their input on the subject proved futile.

Earlier, keeping in view the performance of the FBR and the spending pattern of the federal government, particularly post IMF programme, experts do not expect radical changes in the next NFC.

They do not see any movement towards greater fiscal devolution in the new NFC award despite the 18th Constitutional Amendment that followed the 7th NFC in 2009 and placed additional responsibilities on the provinces.

At a consultative gathering on the ‘economy of tomorrow’ co-organised by German institute FES and the Sustainable Development Policy Institute, economists projected the opinion that the tight fiscal position of the federal government, and any lack of evidence for better utilisation of additional resources post 7th NFC by the provinces, would lead to a status quo on the resource sharing agreement.

Besides the lack of any move by the provinces to take the provincial NFC’s devolution process to its logical conclusion has also weakened their case and brought into question their commitment towards the decentralisation of responsibilities and resources (for more effective governance and efficient service delivery of public goods and services for the people).

Citing anecdotal evidence in absence of provincial economic surveys the participants at the huddle — that included former ministers and leading economists — said social indicators, particularly in Sindh, seem to have deteriorated in the past seven years.

To a question on security related spending and if it should be charged from the divisible pool or made part of the horizontal formula, Dr Hafiz Pasha said the provinces’ constitutionally guaranteed 57.5pc shares should not be compromised by any arrangement. Under the law the share of provinces can’t be scaled down.

In his view the Centre was violating the Constitution, as it has not fully implemented the 18th Amendment. He cited several examples including family planning, Workers Welfare Fund, Workers Profit Participation Fund and HEC in support of his argument. He favoured the transfer of vertical projects, along with allocated resources, from the centre to the provinces. He said the GICD and the petroleum levy had cut into the transfer of resources to the provinces.

Commenting on the ‘below the mark’ performance of the provinces in additional resource utilisation, transferred post 7th NFC, he mentioned the unit cost of education in Sindh has escalated by 80pc while the social indicators depicting wellbeing of people have worsened.

Dr Kaiser Bengali who represents Balochistan in the NFC as a technical member said barring some tinkering there will not be anything significant in the next NFC.

Published in Dawn, Business & Finance weekly, December 26th, 2016

Leave a Reply

Your email address will not be published. Required fields are marked *