The National Finance Commission, notified on 13th November 2003, has met about three times in as many months. After its last meeting in Islamabad all the five Finance Ministers claimed to have inched forward towards a consensus.
They will suddenly leap forward to a resolution when ordered by the COAS. There are reports that provincial share in the taxes collected by the Federation would be enhanced from 37.5 per cent to 50 in favour of the provinces. Eliminating subvention of Rs.20 billion has already reduced the expected increase.
All the four provincial finance ministers out of total NFC membership of ten represent no independent political constituency and are mostly subservient to the dictates of the federal government. As for the other four members from the provinces who are supposed to represent the real will of the people of their respective provinces are:
(1) Mr. Saeed Ahmed Qureshi (Punjab), (2) Mr. Abdul Karim Lodhi (Sindh), (3) Dr. Mohammad Zubair Khan (NWFP); and (4) Dr. Gulfraz Ahmed (Balochistan).
Mr. Qureshi has established his credentials for his competence in almost all the jobs he held in his civil service career. He too like Mr. Sardar Ahmad, Finance Minister of Sindh, belongs to the erstwhile CSP.
He has worked in the ministry of finance for a long enough period of time to acquire familiarity with public finance through and through. He has a reputation for being decisive, a quality fast disappearing, and has since been extinguished with the arrival of NAB on the scene.
He would perhaps be the most competent member of the ten-member commission, and may tend to lead the discussion in debates that take place. Mr. Lodhi is the third member of the erstwhile CSP on the commission.
He represents urban Sindh, if at all. He has also served in the World Bank in Washington as the nominee of Government of Pakistan for several years. He is not much given to introspection and has been a very successful Deputy Commissioner throughout his career. He also speaks reasonable Sindhi.
As for Dr. Mohammad Zubair Khan, he is a relation of Sardar Farooq Ahmed Khan Leghari who had inducted him in his 90-day Cabinet of the famous CSP government of 1964 batch.
This is his sole claim to fame. His close relationship did not present much cause for concern on the part of the then President. He does not represent any political constituency and may perhaps be a professional of some branch of business. He is a former IMF man.
As for Dr. Gulfraz Ahmed, he was a surprise choice because not many in Balochistan realized that he belonged to that Province. It was a very well kept secret.
Some people heard of him for the first time that he was a true representative of financial interests of the government of Balochistan, although as a former Secretary of Petroleum on contract for three years, he did not allow Balochistan government to receive its legitimate wellhead price of gas, which was only 15 per cent of the market value.
On an ethnic basis at least five out of ten members are from Punjab, two from urban Sindh, two from NWFP and one from Balochistan. There is no Sindhi on the NFC.
This, therefore, is a commission mostly of civil servants, both past and present. They are neither known for their expertise in public finance nor for their determined defence of the provincial rights, they presumably represent.
In their desire to find a seat on some other commission, these former civil servant members of the NFC, will not do anything radical to upset the comfort zone of the federal government.
They have spent their lifetime obeying orders and have been catapulted into political prominence by getting them nominated on a crucial commission like NFC and are quite unlikely to bring laurels to their jobs.
They will give in to a mild pressure from the federal government. The Award in its final analyses will represent the view point of the federal government, the high sounding name of the NFC notwithstanding, and a compromise would be reached based on an exaggerated estimate of the revenues which would be generously distributed.
In the ultimate analysis, what the provinces get depends on the performance or the lack of it on the part of the federal government. When there is a revenue shortfall as a result of poor collection or an optimistic budget, the same will be passed on to the provinces, which will bear the brunt like in the past, for the inefficiency of the federal government.
The solution to the financial crisis, the provinces and the local councils find themselves in, lies not in collecting more taxes, as the World Bank/IMF would dictate.
The limit to tax collection is set by the competence of the government. This reform minded government, as characterized by the IMF/World Bank duo, failed to make much dent. Remember those survey forms distributed with so much fanfare?
The solution lies in controlling the expenditure by the federal government, which is the biggest culprit. It has consistently failed to control its unbridled propensity to spend without regard to the future.
Besides the defence and debt servicing both of which are inter-linked it has taken upon itself a large chunk of responsibilities which belong to the provincial or local governments like education, local government, health, agriculture, etc.
Out of GDP of $60 billion, the government of Pakistan preempts about dollars $10 billion, 1/6th of the total, on public expenditure, most of it down right wasteful with nothing to do with the welfare of the people.
Higher deficit of the federal government is inversely related to the development expenditure. Whenever the non-development expenditure gets out of hand, which is always, the axe falls on the development expenditure.
The military government is insensitive to the people and their problems; and can claim to have brought down, to the wide acclaim of the World Bank and IMF, the deficit to 4.6 per cent of the public expenditure and the development expenditure down to 4.1 per cent.
In 2000-01 development expenditure came down to it's lowest at 2.1 per cent. This is the direct outcome of the reform agenda of this regime. On the contrary, in 1991-92, according to the Economic Survey 2002-03, both fiscal deficit and development expenditure were the highest at 7.5 and 7.6 per cent respectively.
The deficit could easily have been lowered, had development expenditure been reduced. But because there was a democratic government, it was not. It takes people into account.
The second most important reason for iniquitous distribution of resources, after the unbridled expenditure by the federal government, is its decision to preempt all the resources leaving very little for the provincial governments.
As a matter of fact it uses up all that it collects. It is the borrowing that gets transferred to the provinces. In 2000-01, the provincial share was Rs167 billion against total revenue of the federal government of Rs553 billion.
The next year the provincial share increased to Rs176 billion against the total revenue of Rs624 billion. In 2002-03 the provincial share went up to Rs185 billion against total revenue of Rs706 billion i.e. 30, 28 and 26 percent respectively.
The share of the provinces has been declining, not because of the share fixed by the previous NFC but because of the expenditure of the federal government, which almost always exceeds its total collection.
The total budget of the four provincial governments for 2002-03 was Rs325 billion, of which more than half came from the federal government. Provincial governments have not many sources left to tap for their revenues, almost everything including octroi having been usurped by the federal government, which, in spite of firm commitment in the NFC, goes back on its word and passes on its failure in collection of revenues to the provinces.
Total revenue receipts against targets for 1999-2000 fell by 6 per cent and in 2000-01 by 10 per cent and in 2001-02 by 5 per cent. Provinces are helpless in either restraining it from runaway expenditure or punishing it for its incompetence.
Punjab should join with its junior partners and confront the federal government on this vital issue of importance to the people. Its tacit or explicit support to the federal government is a short sighted policy.
Lastly a word on the composition of the NFC. If it comprised independent people of well-known competence in the public finance and represented a larger spectrum of political views in their respective provinces, there would be some hope for an equitable settlement on distribution of resources.
Otherwise, the crisis will only deepen with the provinces and the local governments not having much to spend and the poverty increasing by the day. Some day the level of tolerance of the people might give way forcing them to take matters into their own hands overthrowing the elites lording it over them for the last six decades of independence.