NFC Award acquires new meaning, significance

The federal government has notified the constitution of the National Finance Commission (NFC) with the meeting scheduled on 28th April with the 2009 7th award nearing its date of expiry subsequent to the passage of five years. In this context, it is relevant to note that the 7th NFC Award, under the able leadership of the then Finance Minister, Shaukat Tarin, was unanimously approved by all the four provinces with major sacrifices rendered by the federal government and flexibility exhibited by Punjab, the largest federating unit.

The federal government had agreed to sacrifice its share of the divisible pool by 10 percent, thereby releasing 57.5 percent to the provinces instead of the earlier 47.5 percent. This was a long-standing demand of all the provinces and together with the 18th Constitutional Amendment that devolved major social sectors to provinces this rise in their share of the divisible pool was widely hailed as a policy aimed at greater financial provincial autonomy. However, it is relevant to note that the provincial governments have been unable to take advantage of higher revenue from the divisible pool to improve the performance of their social sectors, including education and health mainly because they have failed to develop capacity in implementing programmes in these sectors.

In addition, the then Punjab Chief Minister, Shahbaz Sharif, emerged as the ultimate supporter of inter-provincial harmony as he acquiesced to Punjab’s reduced share by agreeing to a tweaking of the earlier formula that was solely based on population. The 7th NFC formula thus envisaged a reduction of the population share of the divisible pool by 8 percent with an “inverse density population” (the less the population, the greater the allocation), poverty share increased to 10.3 percent, revenue collection to 5 percent (2.5 percent revenue generation, 2.5 percent revenue collection) and area 2.7 percent. One percent was to be given to the KPK for the war on terror. In other words, Punjab’s share declined to 51.74 percent of the divisible pool, Sindh’s rose to 24.55 percent, Khyber Pakhtunkhwa’s to 14.62 percent and Balochistan’s to 9.09 percent.

So what exactly are the chances of success of the upcoming NFC award which as per the constitution has to be by consensus? The incumbent Federal Finance Minister, Ishaq Dar, is on record as expressing serious concern over the reduced percentage share of the federal government from the divisible pool and credibly maintaining that this disables the centre from meeting its annual financial obligations. These obligations include rising payment of interest on domestic and foreign loans as well as defence allocations that by now account for over half of the entire budget leaving little for development expenditure. However, the constitution in its Article 160 (3) stipulates that “the share of the provinces in each award of NFC shall not be less than the share given to the provinces in the previous award,” or in other words, the federal government is barred from reducing the share of the provinces allocated in the 7th award. Therefore, the federal government cannot reduce the share of the provinces, it can, however, reduce allocations under other heads including, for example, carrying out development projects in any one province or indeed, as has been recently reported, compelling the provinces to share in the implementation of the over Rs 80 billion National Action Plan targeting terror activities throughout the country.

There are many issues facing Sindh and KPK where the PML-N has not formed governments. There is a growing consensus between all political parties represented in the National Assembly that the PML-N government must provide greater clarity in terms of design of the projects under the China-Pakistan Economic Corridor (particularly the route of the proposed road linking China to Gwadar) and the actual financing arrangements (with ministers sometimes stating that investment would be with the Pakistani private sector, a contention that allows them not to detail the nature of the loans, and at other times claim credit for Chinese investment in the state-financed power sector projects). In addition, Sindh, together with the rest of the country, has expressed extreme reservations over the continued lack of clarity over the import of LNG, with two ships of the product already distributed in the country, and the government has tackled that by declaring LNG as a petroleum product which raises more questions than it answers.

In spite of the failure of the PML-N government to take the provinces on board on many issues, the fact remains that it was the PML-N government in 1990 that broke the deadlock in declaring a consensus NFC award after 16 years. And one would hope that this time around too it takes account of legitimate concerns of all the provinces.