12 May 2004	Wednesday	21 Rabi-ul-Awwal 1425

LAHORE, May 11: Among all the four federating units, Punjab is least fiscally endowed province with a per capita own resource of Rs335 followed by the NWFP with Rs544, Sindh with Rs935, and Balochistan with Rs1,699 , according to final accounts for the fiscal 2001-02.

"This implies that the country's most populated province requires an additional federal transfers of Rs600 per capita or Rs44 billion to bridge its fiscal capacity compared to the fiscal capacity of Sindh," official sources told Dawn on Tuesday.

The provincial share in the total net divisible pool in the next fiscal 2004-05 is projected by the federal government to be Rs255.41 billion based on the assumption that the provinces will sign the 6th NFC award and be content with 47 per cent share from the pool.

If things move according to the centre's script, Punjab's per capita own resources would also increase to Rs459 followed by the NWFP's Rs729, Sindh's Rs1,207 and Balochistan's Rs1,882.

It would imply that Punjab would require an additional fiscal transfer of Rs55 billion or 21.53 per cent of the total provincial share in the net divisible pool.

The fiscal imbalance is attributed by the officials to the highly centralised tax system practised in Pakistan where the federal government is responsible for collecting over 90 per cent of taxes, including the value added, provincial tax of GST.

"Punjab has surrendered its large tax base and is now totally dependent on fiscal transfers from the divisible tax pool for meeting its current and development needs.

Though other provinces have also surrendered their tax base to the federal government, they are compensated for their losses through straight transfers and subventions outside the divisible pool. This reduces their dependence on the transfers under the NFC," the officials say.

"This is one of the major factors that have forced Punjab to demand resource distribution between the provinces on the basis of provincial populations," say independent economists who are privy to the NFC proceedings.

They say the own resource rich provinces (Balochistan and Sindh) ignore this fiscal imbalance between the federating units and are insisting on developing a resource distribution formula based on multiple indicators that would benefit at the cost of Punjab and, to some extent, the NWFP.

Based on the current inter-governmental transfer system, Punjab is getting only 47 per cent from the resources available to provinces in ratio to its population which is 57.36 per cent of the country's total population, they say.

If the demand for resource distribution formula based on multiple indicators is accepted, the officials say, it would further reduce Punjab's share and worsen the quantum and quality of services provided by the provincial government to its people and add to the huge population of around 26 million poor in theprovince.

In view of these reservations, Punjab has rejected out of hand all the seven options proposed by federal finance minister Shaukat Aziz for resource distribution between the provinces. All these options propose formulae for resource distribution based on multiple indicators - population, backwardness, area and resource generation. Each option gives different weightage to each indicator.

The weightage of population in these options varies from 80 per cent to 90 per cent, backwardness from two per cent 10 per cent, area from one per cent to six per cent and revenue generation from two per cent to five per cent.

Depending upon which option is adopted, Punjab stands to lose between Rs5.92 billion and Rs14.62 billion in the next fiscal year compared to Rs140.83 billion that it would get if the resources are shared on the basis of the existing population based formula.

The Punjab government's analysis of these options is based on the assumption that provincial share in the net divisible pool (if the 6th award is finalized in Wednesday's meeting) would be 47 per cent or Rs255.41 billion in the fiscal year 2004-05. "None of the options take into account the issue of fiscal capacity which is of critical importance for Punjab," says a senior official.