PESHAWAR, Dec 17: In the wake of repeated indications from the federal government in respect of increasing provinces’ share under the new National Finance Commission (NFC) award, fiscal space available with the Centre as a result of debt rescheduling is likely to be shared with the federating units, according to sources.
Well-placed official sources told Dawn that there were strong indications from the federal government that it might share the extra fiscal space generated as a result of debt rescheduling.
The issue was raised during the second meeting of the NFC held at Lahore on Dec 13.
“Though the resource distribution formula and ratio of shares of the Centre and the federating units have yet to be finalized, there are positive signs emanating from the federal government indicating its readiness to share its fiscal space,” said an important official source.
Rescheduling of part of bilateral and multi-lateral foreign debt during the days of the last military government has created fiscal cushion with the Centre enabling it to enjoy financial comfort.
“If it (the federal government] is to increase provinces’ share from the FDP under the new award then the fiscal space available with the Centre would be an ultimate choice to implement its announced move,” said a senior functionary.
A demand to the effect of sharing federal government’s fiscal space, said the sources, was also made by provinces, particularly, by the NWFP’s team in the NFC meeting held in Lahore.
Sources said that provinces were also of the view that the scope of FDP should also be expanded by putting in it income head of fuel surcharge adding to the number of distributable resources.
The move would alone increase the quantum of FDP by around Rs46 billion to Rs47 billion — the amount the federal government raises every year under this head.
“If the Centre opts to increase provinces’s share under the new award and it does not introduce new taxes, then it is left with two major options to do so,” said a finance manager of the province, adding that “it (Centre) would either have to share fiscal space available with it or expand the scope of distributable resources by adding to the list of heads contained under the FDP.”
Similarly, a cut in the federal government’s public sector development programme (PSDP) has also been suggested to enable provinces get greater amount of funds for development.
Provinces, said an official source, had suggested that federal government should reduce the size of its development expenditure (other than mega and umbrella development projects) so that maximum amount of public funds are put at the disposal of the provincial governments to help them finance development activities under their respective annual development programmes (ADP).
In view of the recommendations put forth by provinces during the meeting, added official sources, Centre had asked them to come up with their own sets of projections of receipts and expenditure for the next five years by applying different ratios of growth for the same period.
“One thing is for sure,” said a senior government functionary, “that the amount left over after federal government’s most important expenditure obligations including defence, debt servicing and spending under civil accounts would be distributed among the federating units.”
Official sources said that though there were indications that provinces’ share under the FDP might be raised to 50 per cent, from the present 37.5 per cent under the current NFC award, it had yet to be seen that on what basis the same would be distributed among the federating units.
“The possibilities of creating a subvention pool to compensate smaller provinces would have to be looked into because if provinces’ share is increased to 50 per cent then, the question arises, what would be the fate and need of the subvention pool,” said an official.