The Provincial Finance Commission, set up by Khyber Pakhtun­khwa to allocate money for the local government, has been working on an ad-hoc basis.

In fact, the government assured, under the Local Government Act 2013, that 30pc of the province’s development budget will be set aside to be distributed among its 25 districts. After the formation of the PFC, the commission has been tasked to come up with a new formula so that development resources reach the less developed districts equitably.

Since 2002, the provincial government has given five PFC Awards. The first three were of an interim nature — for a one year period, while the fourth and the fifth, covering the years 2005 to 2011, were for three-year periods. As the 6th award has yet to be announced, the PTI-led coalition government has opted for an interim arrangement over the last three years; one that suits the powerful ‘elite’ districts at the cost of others.

The KP PFC comprises of 12 members and has equal representation from both the government and opposition: one member each from the provincial assembly and four members of the local government — two each from both the government and the opposition are elected to the PFC through voting.

After the formation of the PFC, the commission has been tasked to come up with a new formula so that development resources reach the less developed districts equitably

“Never in the history of the province was the opposition given an equal representation in the PFC”, an official of the finance department said, adding earlier that members were selected for the PFC thereby making the KP commission more representative than other provinces.

The PFC Award allocates provincial resources to districts based on an agreed formula, and provides a framework for financial responsibility and authority, including predictability, in the local government revenue system.

On a vertical basis, allocation of the development fund has no apparent issues. In 2016-17, the provincial government allocated a sum of Rs33.9bn or 30pc for the district ADP. Of the total funds, Rs10.4bn, or 30pc, is earmarked for districts, Rs10.4bn, or 30pc, for Tehsil Municipal Administrations and Rs13.1bn, or 40pc, for village/neighbourhood councils, respectively.

The new award is being delayed due to finalisation of an agreed formula for development fund distribution among the districts.

In the first three awards, the horizontal distribution formula was: 50pc for population, 25pc for backwardness and 25pc for lag in infrastructure.

In the next two awards — 4th and 5th, the weightage of population was raised to 60pc, while that of backwardness and lag in infrastructure was reduced to 20pc each. This award has been operating since 2011.

The major beneficiary districts of this interim criterion are: Peshawar followed by Mardan, Charsada and Swat, respectively. The next major recipients are Mansehra, D.I Khan, Nowshera and Abbottabad; while the lowest shares go to the districts of Tor Ghar, Tank, Hangu, Chitral, Malakand, and Battagram.

To remove this disparity a new Local Government Act was introduced in November 2013.

Since July 2014, the finance department has been busy in evolving a Sub-National Governance (SNG) programme to design options for the PFC Award. Many options, heavily based on the population criteria, have been evolved.

The focus of the proposed working was to change the horizontal distribution formula to a multiple-criteria one for the first time.

The five new options have already been submitted to the finance ministry. For example, the inclusion of a new parameter — area — will raise the share of Kohistan, Chistral and Upper Dir in the development fund pie. There are other multiple factors that could be considered such as inverse population density, compensation for terrorism or conflicts, etc.

The leaders of the four influential districts, led by Chief Minister Pervez Khattak, proposed the inclusion of the district’s revenue base by giving it a weightage of 5pc in the new formula, in October 2016. Under it, the weightage of population was reduced to 50pc, while that of backwardness enhanced to 25pc. The weightage of lag in infrastructure remained at 20pc.

Analysts say the inclusion of revenue in the formula will mostly benefit Peshawar, Mardan, Swat, Charsada, Swabi, Mansehra and D.I Khan.

The new award has been held up since October due to a lack of complete data availability for district revenue.

Published in Dawn, Business & Finance weekly, February 13th, 2017