FEDERAL and provincial budgets for fiscal year 2018-19 will be announced without the elusive 9th National Finance Commission (NFC) award, as stakeholders grope for a way forward.
Facing financial constraints after transferring resources to the sub-federations under the existing NFC distribution formula, the federation wants provinces to share some of its responsibilities.
The provinces have rejected Islamabad’s proposals but continue to produce budget surpluses to contain the country’s budget deficit. A Sindh government official complained that the centre did not share non-tax revenues with the provinces.
Rejecting the International Monetary Fund’s report that the 7th NFC award created a vertical fiscal imbalance, he said: “The Fund is acting as an agent of the federal government.”
The federation runs a bulging administrative set-up and is carrying baggage in excess of what the 18th Amendment stipulated. For example, attached departments and autonomous bodies have been retained in cases of subjects transferred to the provinces.
The number of federal ministries can be reduced from 27 to 18, and the divisions can be reduced from 35 to 23 through mergers, creation of new entities, and transfer to the provinces, according to the head of the erstwhile National Commission for Government Reforms.
It’s about time political leaders started thinking about ways to strengthen and activate finance commissions
The different approaches among the sub-federations to resolve the NFC award issue is also becoming problematic. Sindh and Punjab generally share a common perception on crucial issues related to the full implementation of the award.
The two smaller provinces, however, have their reservations. Though seeking more resources, Balochistan and Khyber Pakhtunkhwa are handicapped by a hazy concept of fiscal federalism. It is quasi-federalism at work.
Some provincial tax experts believe that to remove the mismatch between revenues and expenditures at various levels of the government, policymakers should stick to the letter and spirit of the 7th NFC award.
The introduction of multiple criteria for horizontal distribution of resources was a departure from the sole criterion of population. The criteria for resource distribution (population 82 per cent, poverty 10.3pc, revenue collection and generation 5pc, and reverse population ratio 2.7pc) are “at a minimal level” and need to be expanded.
For example, the depleted countrywide infrastructure qualifies for a separate share in the new NFC pool. In this context, officials in the Sindh government say that the amount spent on infrastructure and other development projects, funded by federal revenues, is unilaterally decided by the centre.
They point out that in the United States, matching grants are provided by the federation for major state projects. While the issues related to 9th NFC award remain unresolved, events and national discourse over the past year have brought fresh calls for further devolution.
Six parliamentarians from the Saraiki-speaking belt of Punjab, who quit the Pakistan Muslim League-Nawaz recently, are renewing the call for a separate province to resolve their own regions’ neglected problems.
And the PML-N leadership is reminding people that the Punjab Assembly is the only one to have voted for the creation of a South Punjab province. Similarly, two resolutions were passed for “restoration” of the Bahawalpur province, says Prime Minister Shahid Khaqan Abbasi.
Making an oblique reference to demands of new provinces in Punjab, Sindh, KP and Balochistan, he said, “It might be in the best interests of the country.” He invited all political parties to a dialogue to reach a consensus.
He referred particularly to the demand for the creation of the Hazara province. Mounting pressure for mainstreaming Federally Administered Tribal Areas is designed to transfer the federal territory to KP. The Pakistan Tehreek-i-Insaf has backed the creation of a South Punjab province on “administrative grounds”.
The South Punjab province will reduce Punjab’s weightage in the federal set-up. As the bifurcation of provinces is a politically sensitive issue, policymakers can also look at another option to create autonomous administrative units within existing provincial boundaries.
So far the country has successfully developed a few industrial, business and financial centres. These growth points have not been able to radiate economic progress in the countryside. In fact, urban economics has its own dynamics that usually work at the expense of the hinterland.
Regional development has neither been a top priority for federal policymakers nor have the provinces done anything significant so far to change the quality of life of citizens in less-developed areas.
In the coming polls, the voter is likely to give a repeat verdict of 2013 elections, this time in favour of a stronger federalism, as none of the mainstream parties have an equally strong political constituency in all the provinces.
It is time for political leaders to start thinking about how they can strengthen and activate national and provincial finance commissions and the Council of Common Interests to reinforce participatory, democratic federalism.
Published in Dawn, The Business and Finance Weekly, April 23rd, 2018