The 7th NFC Award brought political rewards, but missed the development goals of devolution by a big margin.

The failure in the development sphere is clearly more pronounced in Sindh and Balochistan, where social indicators have actually worsened or improved lesser than the national average since 2010.

The last landmark award did improve the relationship between provinces and dissipate the tension between the centre and the federating units, which had marred the country’s polity for decades.

“We actually gave incentives to provinces to pay the same interest rate that the SBP gives on T-bills if they deposit resources in the consolidated account for three months,” said a federal government official.

It rendered the 18th constitutional amendment — which devolved administrative and legislative powers — more meaningful by equipping the provinces with improved financial capacity to match their new responsibilities.

The arrangement should have led to a visible improvement in the quality of governance in the country. The people struggled for provincial autonomy because they expected the provincial governments to be more caring.

Except for Punjab, which was already relatively ahead of others, there is little evidence to suggest a concerted effort to ensure improved access to social and physical infrastructural facilities for the people by the rest of the provincial governments.

Even Punjab failed to carry forward devolution by constituting a provincial finance commission and financially strengthening districts for better choices and implementation of development projects.

Pakistan in the past four years was not able to improve the general well-being of citizens, as indicated by the progress on the Millennium Development Goals. The quality of fiscal discipline and efficiency at the provincial governments did not improve significantly.

Pakistan is set to miss targets for key social indicators: reduction in poverty, universal education, health coverage, gender discrimination and environmental degradation.

Provincial government representatives hinted at their inability to fully meet the challenges of the additional responsibility after the 7th NFC Award and the 18th Amendment, but also blamed the fiddling of the federal government in their financial affairs for the unsatisfactory outcomes.

“They give money with one hand and try to snatch it with the other,” a senior official from KP told Dawn.

“If you look deeper, you can identify many examples of the federal government’s intent. For example, it transferred the cash-starved JPMC to Sindh, but kept rich outfits like the Employees Old-Age Benefits (EOBI) for itself,” a former member of the NFC remarked.

Beside real outcomes in terms of living conditions of people, a cursory glance of the provincial accounts clearly shows that fiscal discipline was not enforced. For example, in Balochistan, the size of grants for MPAs grew with no system of monitoring their actual use. In Sindh, the social cover of health and education has shrunk.

“Before hammering on the bad performance of the provinces, you must understand the pressures they work under. Have you ever wondered why provinces have started throwing up surpluses at the close of every fiscal?” another official asked.

A federal government representative explained the official position. “All said and done, the bottom line is that perhaps we agreed on an unrealistic resource-sharing formula that enjoys constitutional endorsement. If the deficit has to be contained at a certain level to qualify for IMF support, how is it just the responsibility of the federal government?” he asked.

“When financial inflows benefit everyone, all the five units [four provinces and the federal government] have to share the responsibility of keeping the deficit in check,” he maintained.

“We actually gave incentives to provinces to pay the same interest rate that the SBP gives on T-bills if they deposit resources in the consolidated account for three months,” the official disclosed.

“The demand of the federal government for provinces to not use the allocated resources to contain its budget deficit is unfair. The failure to match income and expenditure to contain the deficit within the limit set by the IMF punishes the provinces, and in effect, the people of the country,” a Sindh revenue department official reacted.

On the prospects of the next NFC award, the official in Islamabad held provinces responsible for the delay. Apart from Balochistan, others have not nominated NFC members. “We have sent a reminder and hope to convene the first meeting of the 8th NFC in January,” he told this writer over telephone.

As the exercise for the constitution of the 8th NFC starts, it would help if the provinces report their performances on basic indicators of public well-being during the post-NFC period (2011-14).

“Punjab has built on its gains. KP seems to be making efforts that have yet to bear fruits. Balochistan lacks institutional capacity to capitalise on fiscal empowerment. Sindh, which has an institutional framework but lacks political will to improve governance and the delivery of services, has been the most disappointing,” said an expert in the know of things.

“The answer to the failure of governance is further devolution, and can’t be found in the reversal of the trend,” said Shabbar Zaidi, while making a point about advocating the initiation of provincial finance commissions.

“The sales tax falls in the provinces’ domain under the constitution. The provinces should be allowed to collect it on goods, beside services. The taxation mechanism is upside down and needs a correction. The provinces should be made responsible for the collection of taxes and they should be obligated to determine and pass on the centre’s share to the federal government,” Zaidi stressed.

“It would be lame to defend the provinces, as there is no justification for the way the additional revenue was allowed to be flittered away in corruption. There is a need to rid the P&D departments of incompetent staff and create a provincial planning department manned by credible technocrats for optimal utilisation of resources to best serve the people,” suggested another expert.

Many experts criticised the federal government for not containing its expenditure. “The federal bureaucracy is not ready to loosen its grip on power. They changed names of ministries like agriculture, labour and education to ministries of food security, overseas Pakistanis and labour welfare etc.,” an expert noted.

The landmark 7th NFC Award, signed in December 2010 under the last PPP government, remedied some major anomalies in the revenue-sharing arrangement. It increased provinces’ share in federal taxes from 50pc of the divisible pool to 57.5pc.

It adopted multiple criteria that gave weightage to factors like poverty, revenue collection and inverse population density, in addition to population. Under the new formula, the share of each province was worked out afresh for the next five years.

Punjab gave up 1.27pc to get 51.7pc, Sindh 0.3pc to get 24.5pc, KP 0.2pc to get 14.6pc, while Balochistan gained to receive 9.09pc.

Published in Dawn, Economic & Business, December 29th, 2014