The President of Pakistan has finalised the 10th National Finance Commission (NFC) meant to deduce a new formula for distribution of resources among the federation and the federating units. Since the federal budget for fiscal year 2020-21 is possibly only a month away, it is not going to be an easy job for the new commission to reach a consensus in time and come up with what would be called the 8th NFC Award — more so because the 18th Amendment has become a point of conflict between the government and the opposition parties. Even though the Award has to be renewed every five years under Article 160(1) of the Constitution, we have had just seven since 1973, with the last one coming in 2010, leading to an 11% increase in the shares of provinces in federal taxes. Since then, however, consensus has defied the stakeholders on this key issue.
So a new NFC Award will be negotiated 10 years after the last consensus-based award had been announced. Under the existing arrangement, funds from the Federal Divisible Pool are distributed under the ratio of 57.5% to 42.5% for provinces and the Centre, respectively. Eighty-two per cent share is determined on the basis of population, 10.3% on the basis of poverty and backwardness, 5% on revenue collection and 2.7% on inverse population density.
It will, indeed, be a test of the skills of the PM’s Adviser on Finance and Revenue Dr Hafeez Shaikh — who is appointed (though unconstitutionally, according to some experts) to serve as chairman of the 10-member commission in the absence of a federal finance minister — and his team at managing a delicate balance between the Centre that has been complaining of a contracting fiscal space, especially in the wake of the coronavirus pandemic, and the provinces that are understood to press for further financial devolution. The main challenge to the Centre is, however, expected to come from Sindh, the only province not being ruled by the PTI.
The commission is supposed to operate on the principle of consensus, and a departure from the very principle is unlikely to result in a new resource distribution formula — like in the case of the last two commissions, one each constituted by the PML-N and the PTI.
Published in The Express Tribune, May 14th, 2020.