March 12, 2003	Wednesday	Muharram 8, 1424

KARACHI, March 11: The Monday meeting of the federal and provincial finance ministers in Islamabad has failed to pacify the provinces and three provinces — Sindh, Balochistan and NWFP — are all set to demand a financial compensation from federal government for their next fiscal year’s budgets.

The Sindh government has already placed a compensation demand of Rs3.4 billion from Islamabad for the current fiscal year and exercises are being made to work out a demand for next year’s budget.

Aftab Sheikh, Adviser on Finance to Sindh Chief Minister is briefing his cabinet colleagues next Tuesday in Karachi on the resources distribution issue. The cabinet is expected to draw up a strategy to demand a compensation from Islamabad and setting in place a new NFC formula in which provinces should get more than 50 per cent of the total taxation pool and Islamabad should get less than 50 per cent.

“Real nation-building task is done by the provinces while Islamabad is looking after only debt servicing, defence and administrative expenditure,” he told Dawn on Tuesday.

He said all the four provinces including Punjab were unanimous in their demand of getting more than 50 per cent from the federal taxation pool and allowing Islamabad to retain less than 50 per cent.

Aftab Sheikh also wants a fair distribution of over Rs400 billion non-taxation revenue of Islamabad among the four provinces of the federal government.

He is expected to visit Quetta, Peshawar and Lahore in his efforts to strike a consensus among the provinces on ticklish resources distribution arrangement. Aftab Sheikh had invited the finance ministers of the three provinces in Karachi last month who had demanded a new NFC quickly.

In Monday meeting, the federal government has indicated the formation of a new NFC and has asked the provinces to nominate their non-official statutory members on the Commission. Going by the experiences of the previous six NFCs, the next Commission would take more than one year to finalize award if the political leadership manage to reach some consensus.

After taking over in October 1999, the military government constituted NFC in 2000. The NFC remained a painfully slow affair for more than one and a half year. As many as half a dozen meetings were held in 2002 and a last meeting was to finalize the award was scheduled to be held in Lahore on October 25 last year. This meeting was called off after the then Finance Minister Shaukat Aziz left this unfinished task to the new elected political leaders.

The last NFC in its unfinished award has retained population

as the basis of resources distribution among the provinces but has hinted at moving towards multiple denominations including economic backwardness, size of the province and the revenue generation capacity in next NFC then scheduled in the year 2007.

An annual subvention pool of Rs20 billion was proposed to be set up for compensating Sindh, NWFP and Balochistan. In addition Rs32 billion collected from 2.5 per cent additional GST was also to be distributed among the provinces. However, there was no consensus among the provinces on distribution of Rs32 billion. Besides, the Wapda was expected to work out profit distribution with the NWFP.

In the post election development after October 2002, the finance ministers of three provinces have already demanded new resources distribution arrangement in which population should not be the only criterion. On January 31 last, the treasury and opposition benches in Sindh Assembly joined hands to unanimously pass a very strong resolution on resources distribution. It stipulates an altogether new concept of resources distribution which reflects the changing mood of the people of smaller provinces.

The three provinces Sindh, Balochistan and NWFP are all set to demand a financial compensation from Islamabad for their next fiscal year’s budget because the validity of the 1997 National Finance Commission award expired in June 2002 and there is no possibility of a new resource distribution arrangement being worked out in next few months.

Sindh has already placed a compensation demand for Rs3.4 billion for the current fiscal year ending next June and exercise is under way to work out compensation demand for 2003-04.

The year 2003-04 will be second consecutive year when provinces are being forced to draw up their budgets on the basis of 1997 NFC Award, which has lost constitutional validity in June 2002.