KARACHI: Although federal Finance Minister Shaukat Tarin was optimistic about progress on the National Finance Commission (NFC) award, the final outcome was still a far cry as the parties were unable to conclusively decide on vertical distribution of resources and to engage on bridging the gap on horizontal distribution.

In a briefing after the first day of the NFC meeting here on Wednesday, Mr Tarin only reported ‘progress’ in discussion on ‘vertical’ distribution of resources, which was subject to approval by the chief ministers of the four provinces before Thursday’s sitting.

At the meeting chaired by Mr Tarin, Sindh Chief Minister Syed Qaim Ali Shah led a four-member team of the province and finance ministers of Punjab, Balochistan and the NWFP represented their sides.

The three other chief ministers have arrived in the city to attend Thursday’s proceedings.

Apparently there was no time for discussion on ‘horizontal’ distribution of resources which had been the major priority of Sindh. Even the basic parameters of horizontal distribution have not been finalised.

In earlier meetings of a sub-committee of the NFC, Sindh had insisted that the formula of horizontal distribution should be addressed first. But Punjab, the NWFP and Balochistan wanted settlement of vertical resource distribution first.

Mr Tarin talked about a ‘complete shift’ in government strategy in which provinces would have control over resources and would be financially empowered to spend on their people.

He promised that provinces would get more both in absolute and percentage terms. He said decisions taken at the meeting would be valid for five years.

The meeting would also discuss options, including multiple criteria, for reaching an agreement.

Mr Tarin refused to elaborate on the subjects which yielded an understanding. However, sources privy to the proceedings said Wednesday’s meeting was technical in nature and the parties evaluated the likely impact of various proposals in fiscal and other terms.

‘Today we had the real bite of the meat in the burger,’ said one of the participants of the meeting in which impact of each proposal on federal and provincial budgets and fiscal space available to the federation and the provinces were agitated, keeping in view the respective points of views.
 
Prior to the Peshawar meeting of the NFC on Oct 29, it was suggested that the federating units might agree to evolving a multiple-factor criteria in place of population-based distribution of national resources.

Currently, provinces get 49 per cent from the divisible pool and the federation retains 51 per cent.

The government had offered three alternatives to the provinces about their share in the divisible pool in the next NFC award —50, 55 or 60 per cent.

An official of the finance ministry had said after a preparatory meeting of the secretaries’ committee in Peshawar that it was not possible for the federation to give anything beyond 60 per cent in view of the financial stringency.
 
But on Wednesday Mr Tarin was evasive on the formula to which the provinces had agreed.

While Sindh does not want a higher allocation from the federation, it stresses resolution of the issue of division of resources among the provinces.

It contends that resource generation should be one of the benchmarks for the award, besides poverty, backwardness and illiteracy.

But the issue is how poverty and backwardness will be evaluated?

There was no use of provincial autonomy without financial autonomy, a source privy to the proceedings said while explaining Sindh’s contention, adding that general sales tax (GST) on services should be collected by the provinces. Sindh also had reservations on value added tax (VAT).

A highly-placed source said that after a settlement on vertical resource distribution, provinces would agitate the horizontal aspect. If there is be a need after that, the parties will revisit the vertical segment of the award.

‘If you think that the award will be finalised and announced tomorrow then it is a big mistake,’ said the source.