Missing ministry in the NFC debate

Updated January 07, 2019

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THE consultation process for the ninth National Finance Commission (NFC) to strike a deal on the eighth Award is expected to start in the last week of the current month. To serve the spirit of fiscal federalism it is imperative for the federal and provincial tiers of government to prepare intelligently in order to deal with a contentious agenda.

Unfortunately, there is little evidence of homework being done at the centre and sub-national levels beyond the political statements at this point. This is despite the fact that the next award is expected to alter both the inter-provincial and the centre-provinces resource sharing arrangement.

The new population census and the merger of Fata with KP necessitate revising the current resource sharing formula.

No one in Islamabad had a clear explanation why the Ministry of Finance is calling the shots over the NFC when there is a separate ministry to manage relationships amongst the federating units

The assertions from influential quarters, the International Monetary Fund, the federal Ministry of Finance and the security establishment, mean that there will be demand to rebalance the consolidated share of provinces and the centre. It may be noted that constitutionally scaling down the provincial share of the total resource pie is forbidden.

The enormity of the challenge and its link to peace, national unity and economic stability demands leveraging all platforms that can facilitate dialogue in this regard.

In Pakistan, however, often the most obvious choice fails to capture the attention of the rulers. During background research it was intriguing to discover that the Ministry of Interprovincial Coordination has been excluded from the process of deciding the economic dynamics of the relationship between federating units and the centre.

No one in Islamabad had a clear explanation why the Ministry of Finance is calling the shots over the NFC when there is a separate ministry to manage relationships amongst the federating units. Some senior bureaucrats blamed the historic tendency to centralise and control.

“The federal Ministry of Finance enjoys the same status in the ministries as the finance minster amongst his other cabinet colleagues. It is vested with the responsibility of budgeting and it controls the purse strings.

“It should not be a surprise that the finance ministry acts as first amongst equals. There is a reason why it is often referred to as the ‘mother of all other ministries’,” a senior officer grunted. “Its behaviour generates heart burn more than it serves any purpose,” he added narrating stories of high-handedness.

Fehmida Mirza, Federal Minister for Inter Provincial Coordination, currently heading a committee to fix sports issues, did not respond to Dawn’s request for comments. Jamil Ahmed, federal secretary of the Ministry of Inter Provincial Coordination, defended the government.

“It is for everyone to see that the PTI-government has given high priority to the issue of financial devolution. After the appointment of non-statutory members by all four provinces, hopes are high that soon a new deal will be struck paving the way for a more equitable resource sharing formula.

“No, we are not in the loop on matters related to the finance commission or the award. This falls in the domain of the Ministry of Finance. If you ask for my opinion I think it is handled better in the current arrangement. Our ministry lacks the capacity to handle such technical financial issues,” he said apologising for a weak website of the coordination ministry.

Finance Minister Asad Umar was also approached but his response did not reach till the time of the filing of this report.

Arif Khan, federal finance secretary, convinced of the centrality of his ministry in dealing with issues of economic management, told Dawn that despite its preoccupation with multiple pressing issues the ministry hopes to start the process of negotiations in the coming weeks. It was reported last week that the reference for ninth NFC reconstitution is with President Dr Arif Alvi pending action.

The ninth Commission was constituted as per Constitutional requirement by the PML-N government in 2015 but the reluctance of the provinces, fearful of a possible cut in their share, stalled the process.

The last government also failed to give the issue the attention it deserved. To its credit Prime Minister Khan’s government succeeded in mobilising the provinces to forward the names of non-statutory members necessary to restart deliberations on resource sharing, soon after it assumed power.

Under the last agreed resource distribution formula the share of provinces had been raised to 57.5 per cent with the centre getting residual 42.5pc of the divisible pool.

It is fact that without justifiable reasons and despite the fast changing economic and political situation, the validity period of the seventh NFC Award (implemented in July 2010) was extended beyond 2015 because of inaction on this count. The long interval did not serve well as it deprived the stakeholders a chance to discuss and resolve issues, as they emerged, in the spirit of mutual cooperation.

The hierarchy at the federal Ministry of Finance insisted that Mr Khan’s government is committed to financial federalism and has instructed the relevant functionaries to move swiftly to strike the next deal for amicable resource distribution, keeping the changing demands in sight.

Experts maintain that without formal notification of population census results, the commission may not be able to progress because of reservations of participating members over the results.

“What is stopping the government to convene the meeting of the Council of Common Interest to settle issues and create an environment conducive for achieving a consensus on the eighth NFC award,” a source involved in the process commented.

Published in Dawn, The Business and Finance Weekly, January 7th, 2019