THE 7th National Finance Commission (NFC) Award was given in 2010 which expired in 2015, but was extended every year since because of the lack of consensus amongst the stakeholders. Under the 7th NFC Award, the Centre receives 42.5 per cent of the divisible pool, while the remaining 57.5 per cent is distributed amongst the provinces. The formula of shares was determined as 82 per cent on the basis of population, 10.3 per cent on the basis of poverty and backwardness, five per cent on revenue collection and 2.7 per cent on inverse population density. The 7th NFC Award had led to a 5 per cent increase in the shares of the provinces in federal taxes. In view of the debt mountain, which was the result of loans taken for the development purposes, of course, for provinces, and secondly for meeting the fiscal deficit because of debt-servicing, which takes away more than 50 per cent of the tax and non-tax revenue.
It has to be mentioned that the Federal Government is performing large number of functions that are otherwise the responsibility of the provincial governments. This includes matters relating to public health, drugs, dams, education, public projects in provinces, labour, environment, locusts and many other trans-provincial activities which are obligations of the provinces but have to be performed by Federal Government. All these activities cost a huge sum. Furthermore, the Constitution requires financing and functioning of Local Governments, yet they have no funds available directly. The NFC Award, therefore should reflect the important aspects; firstly provincial share in the NFC Award should be equitably divided into three parts — provincial governments, local governments and federal government share for the works done on behalf of provinces.
The NFC Award is a constitutional obligation. It is clearly indicated in the Article 160 of the Constitution of Islamic Republic of Pakistan, 1973 that it has been made mandatory for the government to compose National Finance Commission (NFC) at an interval extending not more than five years for the resource distribution among the Federation and its respective Units. According to Article 160 of the Constitution, after every five years the President will constitute the NFC for a period of five years. Last year, President Dr Arif Alvi had reconstituted the 9th National Finance Commission to formulate a new resource distribution formula between the Centre and federating units. The 18th amendment to Pakistan’s constitution (2010) provides the provinces with significant decision-making autonomy. In a major development, the federal government has decided to revisit the NFC Award, a private TV channel reported recently.
According to sources, the Federal Government has contacted several political parties for the key changes in the NFC Award, and some of them have assured support to the Centre for the changes in the NFC award and the 18th Amendment. Meanwhile, Minister for Planning and Development Assad Umar said some flaws have been noticed in the 18th Amendment, as it gave powers to provincial governments but the local governments are still powerless. He said problems cannot be resolved until the federal and provincial governments work in coordination. The National Finance Commission Awards have a chequered history. Of the nine NFCs since 1973, only four were able to deliver Awards. Five, including the current ninth one, failed to do so because of a lack of consensus amongst the federal and provincial governments. The Provincial Finance Commissions to be formed to frame an intra-provincial finances distribution formula for the districts have yet to see the light of the day.
In their absence, and with the local bodies dysfunctional, this distribution of finances down to the district level remains unfulfilled. The 7th NFC Award (2010) was decided with consensus by taking all governments, federal and provincial, on board. The original 1973 Constitution, and the 18th Amendment subsequently passed in 2010, were indeed the important milestones towards a federal form of government in Pakistan. Nevertheless, Pakistan is still not a perfect Federation, as the Federal Government is currently running a large number of ministries and departments exclusively or in parallel with provinces. Similarly, there are also a lot of federal government’s initiatives for infrastructural development, public health and social development and poverty alleviation etc, in addition of providing funds to AJK and GB areas.
The Federal Government also proactively assists the provinces in the wake of any national disaster or natural calamity in the country. It has been spearheading the entire anti-pandemic campaign since the Coronavirus outbreak in Pakistan in February this year. It has announced a ‘financial stimulus package’ to the tune of Rs1.25 trillion. Since the imposition of a nationwide lockdown, the government has disbursed tens of billions of rupees to millions of needy families across the country under its Ehsaas Emergency Cash Programme. The provinces, in fact, are primarily responsible for providing such financial assistance to their people in these testing times. Ironically enough, the provinces look more interested in securing provincial autonomy and financial resources from the centre than assuming their responsibilities under the 18th Amendment.
On 25 October 2017, Miftah Ismail, the then Special Assistant to then Prime Minister Khaqan Abbasi (who took oath after Nawaz Sharif was disqualified) had expressed concerns over the shift of revenues from federal level to the provinces, and said there was a need to revisit the seventh NFC Award, as it had created a fiscal imbalance. Talking to a group of journalists in the Press Information Department, he had said, “Resources have shifted towards the provinces while the budgetary pressure is faced by the Federal Government and this has increased the budget deficit, as Federal Government has higher expenditures.” It is hoping against the hope that PML-N would support PTI Government for changing NFC award.
—The writer is a senior journalist based in Lahore.