A recent World Bank study comparing income disparities in a large sample of developed and under-developed countries placed Pakistan among three top countries of the world with the lowest income disparities;
the other countries in this bracket were the United States and Canada.
The study also showed that the maximum to minimum ratio of per capita regional domestic product in Pakistan stands at around 1.3 whereas it is above four percent in India, the neighbouring country that is credited with greater welfare orientation in its management of regional economic issues.
Sri Lanka is only a few notches below India while some other countries of our region like Indonesia, Thailand and Philippines have far greater disparity on this count as their per capita regional domestic products statistics are about 12, 8 and 7 respectively.
A constant, fairly painful and considerably controversial, thorn in the national flesh is regional disparities. Over the years, people in the country have come to believe that some regions are not only well endowed in comparison with others, they are also pampered at the cost of others; some experts and many politicians keep driving this thorn deeper in the economic body of the nation.
Factually, Pakistan's efforts to ensure economic equity in its federating units seem to have paid off more rewardingly. But this view is hardly shared by important segments in concerned quarters.
As the fourth year after an NFC Award comes to close and the time for the next award approaches, old files are dusted and new angles are invented. A clash of views, desires and demands hits the national scene.
Provinces adopt hard, non-negotiable positions to back their contentions. A variety of arguments are articulated to convince, persuade and even coerce the federal authorities to devise a new formula to enhance the share of provinces.
This has been so for the past few awards but aspirations and pressures this time are more intense than ever before and the standpoint of provinces seems harder than it has been in the past.
Arguments seem justified from where provinces and their requirements, exaggerated or authentic stand but their assessments need to be juxtaposed against perspective of national goals, constitutional provisions and regions and ground conditions.
The national goals are equitable treatment of all regions by disbursement of resources to enable provinces to achieve minimum service level or bring their fiscal capacity on a par with other regions, that is, equalizing the fiscal capacity of rich and poor regions.
In Pakistan, fiscal resources are allocated to federating units-Sindh, Balochistan, NWFP and Punjab- in accordance with the principles laid down in the Constitution identifying the state's responsibilities towards the people.
World wide, inter-governmental fiscal transfer system is aimed at equalizing per capita resources available to provinces for providing an agreed minimum level of public sector services to the people of a province or at bridging its expenditure-revenue gap and thus equalizing the fiscal capacity of rich-poor regions to enable them to meet expenditure needs. Pakistan follows the later system.
Federations adopt methods for distribution of fiscal resources in the context of their economic structures. That of Pakistan is based on freedoms of movement of goods, services, capital and labour, all enshrined in the Constitution.
These freedoms have established intricate economic linkages and inter-regional dependence and have contributed towards the composition of a dynamic common market that has benefited the populace of all regions or contains the capacity to fulfil needs and aspirations of deprived segments.
These constitutionally guaranteed freedoms have provided the regions of Pakistan opportunities to benefit from each other's resources in terms of marketing produce and building infrastructure facilities at specific points, of course with federal investments drawn from all regions.
The system is complimentary and has so far worked effectively to the advantage of all provinces. These freedoms, sustained by the country's taxation system and principles for allocation of resources, have helped develop Pakistan's economy on generally equitable lines.
The state is responsible for ensuring against the exploitation of the populace, treating all citizens as equal in every respect, providing means, from within available resources, to citizens to earn decent livelihood and reducing disparities between individuals living in different regions of the country.
Removing backwardness, eliminating poverty and providing resources to provinces for social sector services and putting then in a position to meet welfare needs of the populace are the prime aims of the federation. The Constitution places the burden of fulfilling the needs of the people on the federal government.
Has the system of allocation of resources by the federal government to provinces been on target? While there can be different interpretations and evaluations of the results obtained, the answer is more in the affirmative because disparities between provinces are almost negligible.
This is not an assessment reflecting any international opinion but conclusion offered by established facts. But the system could do with streamlining because all ends have not been secured.
According to the UNDP Report on Pakistan (2003) on National Human Development, GDP per capita of Balochistan is the lowest in the country at, and comes to, about 80 percent of the overall level; NWFP lags behind other regions in GDP per capita in rural areas, counting for around 85 percent of the overall level.
The Human Development Index (HDI) places Balochistan at the lowest rung of the ladder with 0.499; statistics for other provinces are:0.557-Punjab,0.540-Sindh and 0.510 for NWFP.
Differences are there but they suggest that regional income disparity is firstly not high in Pakistan and secondly, negative conditions in low income regions of NWFP and Balochistan can be offset because they possess a wealth of natural resources to reach the same level as the other two provinces. Per capita GDP is virtually the same in Punjab and Sindh.
This is an indicator of their contributions to the national GDP being in line with the size of their populations. It would consequently not be wrong to assume that their real contribution to the divisible pool of taxes should be proportionate to their populations.
Provincial expenditure patterns underline a trend of higher current and development expenditures per capita in the smaller provinces. For instance the total current and development per capita expenditure in Punjab in 2003-04 was Rs. 2,171 while it was Rs.3,465 (Sindh), Rs. 3,484 (NWFP) and Rs. 4,972 for Balochistan or 100 percent in Punjab and 161, 160 and 229 percent respectively for the Sindh, NWFP and Balochistan.
Per capita current expenditures produce a similar pattern in which Balochistan is at the top with over Rs.3,500, Sindh about Rs. 3,000, NWFP a little above Rs. 2,500 and Punjab trailing with around Rs. 1,700.
Statistics of per capita development expenditure have Balochistan on top with NWFP as the next highest spendings with Rs 1,400 and Rs800 while Sindh and Punjab are far behind with about Rs400 under this head during the last year. In the earlier period since FY 2000, the picture was no different for bigger provinces.
One of the concerns of the federal government for allocating finances to provinces is poverty. Despite tall claims of the government of reducing poverty, its incidence has been on the rise.
The State Bank of Pakistan and the Federal Finance Ministry do not seem to agree on the extent of poverty in the country. However, the disagreement is restricted to head count only; that poverty is rampant is not denied.
The Asian Development Bank's statistics on poverty in Pakistan for the period 1993-99, released in 2002, present a disturbing score. According to ADB, poverty prospered by 42 per cent in this period in Pakistan.
Punjab led the rest of the country by a distance-51 percent to be exact- while the population of those living below the poverty line in NWFP increased by 43 percent. Sindh was better off with 30 percent and Balochistan had poverty actually reduced by six percent.
This is a dismal state of affairs emphasizing the need for countering poverty with all conceivable means. The main financial resources of provinces for countering poverty come from federal allocations from the divisible pool. Allocations thus need to be continued on the basis of population to augment the resources of provinces for fighting poverty and investing in social sector services.
Pakistan had a total of 31.1 million people living below subsistence level in 1993; Punjab housed 55.3 percent of the wretched of our land. This figure shot up to 44.1 million by end of 1999 and Punjab again led with 58.7 percent of the poor of Pakistan living in the province.
Other provinces have been better off in terms of poverty stricken populace as Sindh houses 19.5 percent of them and 18.2 and 3.6 live in NWFP and Balochistan.
However, although comprising 57.36 percent of the country's total populace and sheltering the highest number of population below the poverty line, Punjab receives 47 percent from the federal pool.
The share of Sindh from the pool is 26 percent for a population of 23. 71 percent while NWFP's 16 percent population is granted 13.82 percent and Balochistan's 5.11 percent residents receive 11 percent of federal allocations.
This means that the principle of allocations on the basis of population is not fully and fairly in play and there is need for adhering to the population formula more strictly instead of tampering with it or taking other factors into account while determining the size of allocations for provinces from the federal pool.
The provinces need more financial support for countering backwardness, poverty and improving social sector facilities and services, not less because that would cause a further deterioration in the living conditions for the deprived.
Some of the arguments from provinces have cited infrastructure facilities and national level services located in provinces and revenues collected by them.
Institutions, like Wapda, the Steel Mills, the PIA, and similar other organizations are actually a boon to the people where they are established as they give the locals advantage in obtaining jobs and offer them downstream opportunities.
Revenues collected at any point comprise spendings from across the country and not reflect revenue generation capacity of any specific city or region. Moreover, most such institutions have been built with federal investment.
Even otherwise, the progress across the country is the outcome of the freedoms granted under the Constitution for the mobility of goods, services, capital and labour and is a collective achievement.
Revenues must not be confused with purely local endeavour and achievement at any point in the country, regardless of what they represents-banking, petroleum products, natural resources, public sector enterprises or business and industrial organizations in the private sector.
They are gifts of Pakistan's common market built by freedoms granted by the Constitution. They need to be preserved and strengthened if the ends identified in the constitution are to be pursued on an institutional and continuous basis.
A deviation from the present pattern for allocations from the divisible pool would be a move in the reverse direction. It may seem profitable for some regions in the short run but it is a recipe for disaster over the long stretch.
