To develop a consensus for the sixth NFC awarded will be a big achievement



Nov 24 - Dec 07, 2003



As was expected, the first meeting of the National Finance Corporation (NFC), held in the Capital last week formed and announced by President Musharraf after a long wait last week, proved stormy as provinces rejected the recommendations prepared by the previous NFC committee, before October 2002 polls. They made fresh proposals showing consensus only on one point a larger share for the provinces from the divisible pool. They were, however, divided over the basis of allocation of this enhanced share amongst the provinces.

According to an official announcement, the Federal Government has agreed to enhance provincial shares to 40% from present 37.5%. Further, the Federation has agreed to transfer, 2.5% of GST collections to provinces in lieu of abolished octri and zila tax, and another 20 billion of subvention for Sindh, Balochistan and NWFP bringing the total share of the provinces to over 45.5%. Provinces were, however, demanding a minimum 50% of the divisible pool. The main differences surfaced on the basis of allocation of this share for which each province came out with a different formula. Punjab wanted population to be the basis, while Balochistan insisted that area and poverty level should be the basis of the allocation. Sindh claimed its share on the basis of the revenue collected from the province, while NWFP focused on royalty claims on electricity generation.

The meeting which was presided over by the Finance Minister Shaukat Aziz, who is also the chairman of the NFC, and attended by all its members from all the provinces, including all the provincial Finance Ministers, decided to meet again in Lahore in the second week of December. Third and fourth meeting of NFC, will be held in March/April, 2004 in Quetta and Peshawar respectively.

The National Finance Commission for the sixth award also decided to prepare revenue and expenditure projections of the provinces for the next five years and develop provincial debt strategies to follow a holistic approach for the next award to be effective from the next fiscal year, provided a consensus among the stakeholders emerged.

However, the fiscal devolution, greater provincial contribution for the development and social uplift and a significant fall in the debt servicing burden have forced provincial governments to form a unified position for higher allocation of resources. In view of rising poverty and unemployment, and pressure from the local government for money to finance community level development schemes, the provincial representatives of the NFC made clear that they need more resources.

Before the reconstitution of the present NFC, the previous committee headed by Shaukat Aziz had already done a lot of work just before the October 2002 elections. Last NFC award committee decided to maintain the population as the main determinant to distribute the divisible pool among the provinces. The government was about to announce this award when better sense prevailed, and the task was left to be decided by the elected government.

After the Tuesday's meeting the chairman NFC, Shaukat Aziz, told newsmen "we have asked to provinces to start fresh work. We have presented the previous committee report, which has now only an academic status". As usual, he sounded optimistic that all differences will be resolved, and sixth award will be announced by May 2004, and made applicable from next financial year. He however assured that provincial share in the divisible pool, will be increased and all justified demands and needs of the provinces will be met.

No one can deny that the subject under discussion is complex and can be resolved only with mutual understanding and policy of accommodation. As complex and sensitive as the subject is, it cannot be resolved through a bureaucratic plan for the distribution of nations financial resources. It involves, a pervasive sense of deprivation, on the part of smaller units of the Federation, and therefore, needs to be addressed, through a meaningful engagement, interaction, debate and discussion amount the representatives of the Federation and the Provinces. The objective should be to remove the impediment in the path of provincial harmony, which is infact a part of seven-point agenda that General Pervez Musharraf had presented in his very first speech in October 1999. To develop a consensus for the sixth NFC award will be a big achievement in that direction.