NFC in reverse gear

Published December 26, 2016

Even though formal discussions on the 9th National Finance Commission Award are yet to begin, the federal government has built its case for additional resources of at least Rs250bn from the federal divisible pool.

Based on its six year (since 2011-12) claim of Rs1.2tr additional security related expenditure, other than the traditional defence budget, the ministry of finance has called upon the provinces to set aside at least 7pc of the gross divisible pool outside the NFC.

Of this, 3pc would be spent on additional security requirement for the China-Pakistan Economic Corridor (CPEC) and other development projects, 3pc for equitable socio-economic development of tribal areas and 1pc for Azad Kashmir and Gilgit-Baltistan.


In recent meetings related to the NFC, the finance ministry took the provinces into confidence on why they all needed to sacrifice for a common goal


This will mean the provinces would get 57.5 pc share of the divisible pool out of 92pc, instead of the existing 99pc — 1pc already being allocated for Khyber Pakhtunkhwa as compensation for damages arising out of the war on terror.

In recent meetings related to the NFC, the finance ministry took the provinces into confidence on why they all needed to sacrifice for the common goal of national security, which remains a federal subject.

It said the 7th NFC Award implemented through Presidential Order No. 5 of 2010 (dated May 10, 2010) was a landmark achievement that increased the provincial share from 46.25pc to 57.5pc; the federal share, on the other hand, declined to 42.5pc from 57.7pc of the divisible pool. In addition, the collection charges of the Federal Board of Revenue (FBR) were brought down from 5pc to 1pc.

Furthermore, the federal governmental also undertook the annual share of Balochistan on the basis of budget estimates, instead of FBR collection. Overall, the provincial share was increased by 15.25pc, according to the finance ministry.

Notwithstanding fiscal devolution, the federal government was continuously providing funds for the implementation of vertical programmes related to health, population welfare and the Higher Education Commission. It was also providing financial assistance for implementing special development projects in the provinces besides sharing the losses in case of natural disasters and emergencies.

Altogether, the federal government is left with inadequate resources to fulfil its responsibilities related to defence, foreign debt, internal security and investment in critical energy and infrastructure sector projects.

Additionally, during the last several years, Pakistan has been facing a challenging security situation, both internally and externally. The operation Zarb-i-Azb — along with displacement, rehabilitation and resettlement of Temporarily Displaced Persons (TDP) — has placed a significant burden on the federal exchequer.

Similarly, for the safety and security of the CPEC, around 100 battalions of paramilitary forces are being raised. In aggregate, since 2011-12, an amount of Rs910bn has been spent, while allocation for 2016-17 is merely Rs283bn.

Since 2014-15 alone, when new security operations started, the federal government has spent some Rs300bn specifically for meeting security related expenditures, rehabilitation and capacity building of security forces to meet law and order challenges.

Giving a break up, the finance ministry said it spent Rs121.78bn on these accounts in 2011-12, which increased to Rs146.69bn in 2012-13 and then reached Rs191.87bn in 2013-14. This spending further increased to Rs200bn in 2014-15 and Rs249.4bn in 2015-16 with estimates for the current fiscal year at Rs283bn.

Finance Minister Ishaq Dar told the provinces that even though some immediate security threats facing the country had receded, the situation demanded continued focus and strengthening of the capacity of law enforcing agencies.

Therefore, keeping this in view, as well as the geopolitical realities in the region, the expenditure on security will remain a major charge on federal resources in the years to come.

“The Federal Government is financially constrained and unable to share full burden on the security related expenditures”, said Mr Dar calling upon the provincial governments to share said expenditure equally as maintaining the law and order situation was a common goal.

Secondly, he explained that another 3pc funds for the Federally Administered Tribal Areas (FATA) were required by a six-member committee — constituted by the prime minister on FATA Reforms in November 2015 and led by Advisor to the Prime Minister on Foreign Affairs, Sartaj Aziz, — to consult all stake holders and propose a concrete way forward for political mainstreaming of FATA.

The committee, after intensive consultations with all stakeholders, presented its report to the prime minister on Aug 23 and proposed the integration of FATA with the province of Khyber Pakhtunkhwa in a period of five years, along with concurrent reforms.

These included a 10-year socio-economic development plan with an annual allocation of 3pc of the available resources in the Federal Divisible Pool, in addition to the existing annual PSDP allocation.

It was reported that the share of resources allocated to FATA by the federal government had continuously declined over the years.

In 2008-09, FATA was provided 2.7pc from the Federal Consolidated Fund. The allocation was considerably reduced over the years and declined to 2pc in 2014-15. In case of Khyber Pakhtunkhwa and Balochistan, the same increased from 11.6pc and 6.5pc in 2008-09 to 16.1pc and 9pc in 2014-15 respectively.

The difference in total budget received as against the NFC based share for FATA runs into billions of rupees starting with Rs25bn in 2010-11 and reaching a total of Rs49bn in 2014-15.

Furthermore, in the absence of credible census data, the total population figure of 4.8m, as given in the FATA committee Report 2016, is quite conservative and the actual figure may be around 7m.

Incorporating this difference in the total population would further raise the existing shortfall in total budget received, as against the NFC based share given to FATA, and the total deficiency in budget allocation would become much higher than the above estimate of Rs49bn per annum.

It was argued that in order to sustain the successes gained through Zarb-i-Azb in restoring the writ of the State in tribal areas, the concern with security and peace building in FATA needs to be translated into adequately enhanced resource allocations.

In order to cope with these requirements and to support the proposed 10-year Socio-Economic Development Plan for FATA, resource allocation to FATA needs to be organised on a sustainable basis, in order to redress the shortfall in allocations over several decades and to bring it at par with the rest of the country.

This was because the rights of the people of FATA, as citizens of Pakistan, were inalienable and equal to the residents of rest of the provinces.

Published in Dawn, Business & Finance weekly, December 26th, 2016

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