September 19, 2006	Tuesday	Sha'aban 25, 1427

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LAHORE, Sept 18: The Punjab attaches more weight to population than other indicators like area, backwardness, fiscal capacity, infrastructure, etc for the allocation of funds for development as well as other purposes by the province to local governments through the Provincial Finance Commission as compared to other three provinces.

A policy paper prepared by the Finance Division’s Decentralisation Support Programme (DSP) says that Punjab attached 75 per cent weight to population under the provisional PFC for financial year 2004-05 for the transfer of financial resources to the local governments. This compares to 50 per cent weight given to population by the three smaller federating units for the transfer of funds for the purpose.

“The weight attached to population for transfer of fiscal resources from the Punjab government to local governments has been further increased to more than 80 per cent in the formal PFC finalised for the next three financial years, that is, 2006-09,” provincial finance department officials told Dawn on Monday. However, they did not tell the exact weight given to the single factor of population for the determination of the share of each local government through PFC.

“I cannot give you the exact weight of population in the sharing formula off the cuff, but it definitely is more than 80 per cent” each of the three officials of the provincial finance department reached by this reporter said. Provincial finance minister Hasnain Dareshek could not be reached for his comments.

“The PFC sharing formula is devised in line with the Punjab government’s stance in the National Finance Commission (NFC) negotiations with the federal government and other provinces,” the provincial officials insisted, explaining the rationale behind giving more weight to population in the resource sharing formula devised under the formal PFC than other factors.

Though the DSP policy paper does not mention the factors that the formal PFC evolved by the Punjab government takes into account while allocating local governments’ share in the resources transferred to them from the province, it says that the interim PFC gave 75 per cent weight to population, five per cent to expenditure reduction, 10 per cent to under development, five per cent to fiscal incentive and five per cent to development incentive in FY04.

A senior Punjab finance department official said the provisional and formal PFC evolved by Punjab took into account the development priorities of the provincial government while focusing on the development of the economically backward areas at the same time. He said development in the economically and socially backward areas was given sufficient boost through allocation of funds from the provincial annual development programme during the last three years.

The DSP policy paper shows that Balochistan attaches 50 per cent weight to population and as much to area of the beneficiary local governments. The NWFP distributes financial resources among the local governments on the basis of their population (50 per cent), backwardness based on multi indicators cluster survey (25 per cent) and lag in infrastructure (25 per cent). Sindh, however, has adopted four indicators for sharing resources transferred by the provincial government to the local governments. It distributes resources among the local governments on the basis of population (50 per cent), backwardness (25 per cent), tax collection (seven per cent) and backwardness (SPDC) (18 per cent).

It may be pointed out that the PFCs of the three smaller provinces allocated resources among the local governments quite in line with their positions in the NFC negotiations, just like Punjab.

The DSP paper notes that resource-sharing formulae adopted by the provinces under their respective PFCs gave population and area much more weight than the other factors. “It is true that both population and area are very important factors, but these may not be given the weight which is currently attached to these because the areas which lag behind historically need much more resources for an equitable development to correct the imbalance. It means that the formulae are not equitable being more dependent on population indicator and less cognizant of the other relevant factors, especially local poverty, which is due to historically inequitable distribution of resources,” says the paper.

The policy paper also points out that until the end of the last fiscal year, all the four provinces continued to transfer revenues to the local governments under the provisional or interim PFCs in contravention of the Local Government Ordinance, 2001, which allowed such an arrangement for only 2002-03. “This sometimes is viewed as of not very friendly attitude of provincial governments towards the new local government dispensation,” it says.

The paper commends the finalisation of a formal PFC Award by the Punjab government for the next three financial years, but points out that population still remains the most important factor in resource allocation. It further states that Punjab’s formal PFC Award “suffers from many infirmities. It does not specify the criterion as to how the resources will be divided between the province and the local tiers. Secondly, it includes GST receipts in it, which means that the previous octroi and zila tax now collected in the form of the 2.5 per cent GST will not be distributed separately to those local tiers that used to collect them. Thus, the TMAs may lose from these arrangements.”