The main objective is to remove the provincial disharmony by granting them more financial autonomy


Aug 19 - 25, 2002



A high-level meeting was held in Islamabad last week to discuss the thorny issue of NFC Award. President General Pervez Musharraf chaired the meeting which was attended by four Provincial Governors, Federal and Provincial Finance Ministers, Chairman NRB, Secretary General Finance, Chairman CBR and other senior officials. Following a threadbare discussion with all stakeholders, the Government has decided in principle to announce National Finance Commission Award before October elections by altering the federal concurrent list and divisible pool to shift more financial autonomy to the provinces. Under the new Commission Award more taxes will be shifted to the provinces and less will be retained by the Federation.

The main objective is to remove the provincial disharmony by granting them more financial autonomy. This is also necessary to make successful government's devolution of power plan under which the district governments will be allowed to introduce their own taxation system for development projects. Once the National Financial Commission finalizes Federal Award then the Provincial Financial Award will also be announced for disbursement of money from provinces to the districts.

One participant proposed that the issue of distribution of funds and taxes be left to the elected government and second was that the present government which is carrying out massive reform programmes should also sort out the contentious issue of NFC Award.

Some of the participants were of the view that distribution of resources has always been bone of contention between the Federation and the federating units. Therefore NFC be left for the elected Parliament which can conclude this award in consultation with elected members from all the four provinces. But yet another view was that what can be the consequences if a controversial or a weak government comes into power and fails to address the issue on merit. It was very strongly recommended that it is the government of Pervez Musharraf which will have to take the crucial plunge in this direction. The President then directed the Provincial Finance Ministers and the Federal Finance Ministry to finalise the Award and submit a report to him in two weeks. Another high level meeting will be held in Karachi in September to finalise the NFC Award which will then be put before the joint sitting of the Federal Cabinet and the National Security Council for approval. The President may himself announce this Award by end September 2002.

The Finance Minister, Shaukat Aziz, who presided over the meeting of the 8th National Finance Commission in Islamabad on September 9, 2001 had assured the nation that thorny issues will be resolved and the new award applicable from next financial year will be finalised in the next few months with consensus of all the federation units. It would need some drastic changes in the present award in force since fiscal year 1996-97 both in shares of Federal Government and the Provinces wise share besides enhancing the size of the divisible pool. The Finance Minister, however, could not keep the promise.

Earlier a meeting of the Provincial Finance Commissions concluded that the interim awards for local governments from provinces should be finalised before September 2002. The main functions of the Provincial Finance Commissions are to distribute the provincial resources among the provinces and the local government and to further distribute the local governments' share amongst them. The funds shall be transferred directly to the local governments on monthly basis based on actual receipts of the provinces.

The 8th National Finance Commission was constituted by the then Chief Executive Gen. Pervez Musharraf in Dec. last on the recommendation of Inter Provincial Coordination Committee to review the 1996 award two years ahead of schedule. Earlier a high level meeting of inter Provincial Coordination Committee (IPCC) called by the Interior Minister and attended by provincial governments, federal & provincial ministers and senior officials had recommended to the government to review the NFC Award over which the small provinces have been agitating for long. The Chief Executive has already hinted at removing provincial disharmony through equitable distribution of federal and provincial resources. In the past Sindh and Balochistan have been agitating over the inequitable distribution of shares of provinces in divisible taxes.

Distribution of resources has always been a matter of contention between various provinces of Pakistan. Given the paucity of funds and the urge of different regions to develop at a fast rate, it is not surprising. Since the inception of the country, Heads of state have been constituting commissions/committees under the statutory provisions and announcing National Finance Commission (NFC) awards which determine the share of each province in the divisible pool of resources. The 1973 constitution makes it mandatory for the President to constitute NFC under Article 160. At present, distribution is governed by the seventh 1996-97 award which is to expire by the close of the current fiscal year. The eight commission was announced in August last year, its composition was completed by December, 2000 and its work is now in progress.