Seventh NFC award a positive step in the right direction

By Mohammed Arifeen

The 7th National Finance Commission (NFC) award has been announced and the consensus reached between the Centre and provinces on the division of resources is a major achievement for the country’s democracy. The Centre and the provinces of Punjab and Sindh played a vital role in addressing the problems faced by Balochistan and NWFP. The previous award rewarded the Centre with 52.5 per cent of the divisible pool; whereas the current award reduces this to 44 per cent i.e. an increase of 8.5 per cent in the share of the provinces. The sole criterion for allocation of resources on the population basis has been modified. The long standing demand for more provincial autonomy has been met to a great extent.

All the four provinces have shown enormous flexibility to accommodate one another. The federal government too played a strategic role and tried its level best to create a trust between itself and the four provinces. The past practice in which grants and other special awards by the Centre took 10 per cent of the total revenue pool has been cast off and the revenue collection charges taken by the Centre have been cut down to one per cent.

The non- NFC issues like the federal government’s dispute with NWFP on net hydel profits and with Balochistan on gas development surcharge has been amicably settled. Both the provinces will receive over Rs100 billion each as a resolution of these issues. 

According to the new award the four factors including population, poverty/ backwardness, revenue collection and inverse population are to be balanced against each other. Population has been allocated a weight of 82 per cent in the horizontal distribution formula, poverty/ backwardness 10.3 per cent, revenue collection / generation 5 per cent and inverse population density 2.7 per cent.

Under the new formula, the percentage share of Punjab will be reduced to 51.74 from 53.1 per cent; Sindh’s share will decline to 24.9 from 24.55 per cent and NWFP’s share to 14.62 from 14.88 per cent. In view of the special needs of the Balochistan province, the three provinces mutually agreed to reduce their shares. In this aspect, the share of Balochistan increased to 9.09 from 7.17 per cent.

For the projection year 2010-11, Rs471 billion would be allocated to Punjab, Rs223 billion to Sindh, Rs133 billion to NWFP and Rs83 billion to Balochistan. For the rest of the award’s time duration, based on the provincial share of 57.5 per cent, Punjab would receive Rs938 billion, Sindh Rs445 billion, NWFP Rs265 million and Balochistan Rs165 billion. At present, Punjab is receiving Rs419 billion, Sindh Rs197 billion, NWFP Rs118 billion and Balochistan Rs53 billion. Sindh would receive an additional transfer of Rs6 billion from the federal government. NWFP would receive an additional 1 per cent of the federal divisible pool as compensation for the losses it has faced due to its crucial role in the war on terrorism. The federal government has also committed to underwrite all the expenses borne by NWFP because of the damage it has faced due to the war against militants.

The National Finance Commission has also decided to pass on the subject of ‘sales tax’ to the provinces under the Constitution of Pakistan. The federal government has agreed to reduce the collection charges from 5 to 1 per cent. These concessions by the government have been appreciated by the provinces and will no doubt contribute significantly to the agreement.

The projections of revenue and distribution of the seventh financial award seems to be optimistic and transparent, entailing a virtual doubling of revenues and thus the respective shares of the federation and provinces. Balochistan, the largest province with its immense gifted resources has been given the share it deserves. The success of the NFC award will depend upon the economic and political stability in the country and the global economic recovery. There are some signs of economic recovery on the international side, but the latest mixed trends of domestic politics and the economy is hard to predict in the near future.

The NFC has done its homework very faithfully. There are still great challenges on the revenue and expenditure forecasts. The finance minister has stated that tax- to- GDP ratio will be increased to 13.9 per cent over the next four years- it presently hovers around 10 per cent. The federal expenses will be reduced to 12 per cent at the end of that period, as compared to the current 14.6 per cent.

The work however, is still not done and a broader cooperation between the provinces and federation will be greatly required. Both will have to work hand in glove with each other. A lot of sacrifice for the sake of the people will have to be given by the respective provincial governments. It is hoped that the four provinces would ensure financial responsibility in return. It is vitally important in this context that the provincial governments ensure that any decision to borrow within and outside the country must be made in a responsible manner, and in no way endanger the major economic policy framework supported by the government.

The award now requires sincere efforts by the provincial governments in augmenting its resources. The agriculture sector, which is the most significant sector of the economy, must be given special attention by the feudal landlords of the provinces. The non productive expenditure and the habits of living beyond one’s means have to be stopped immediately, for the sake of the common man. At this crucial time, one must realize that the federal government’s finances will not be sufficient enough to freely provide any kind of help or grant to the provincial governments that easily, therefore prolific spending by the officials of the provincial governments needs to be curtailed immediately.