Without reaching a consensus on the core issue —
share ratio of the federation and provinces in the divisible pool, the
second meeting of the National Finance Commission held in Lahore on
December 14, came out with 2 firm decisions. It has given itself for
deadline of March 31 to finalize the 6th award and it has — referred
two issues — the gas development surcharge and the hydel project issue
for bilateral negations. The issue of gas development surcharge is to be
settled between Sindh and Balochistan and the other between WAPDA and
the NWFP province.
Federal Finance Minister Shaukat Aziz who presided
over the meeting, attended by all the four provincial Finance Ministers
besides other members, declared that the 6th NFC award with enhanced
provincial share will be finalized by March 31, 2004 and consensus would
be evolved on all issues after a series of meetings among economic
managers of all the four provinces. " I am confident that the
federal government and the provinces will be able to achieve this goal
after sorting out all the differences," Shaukat Aziz told newsmen
after conclusion of the second NFC meeting.
Shaukat Aziz flanked by the finance ministers of all
the four provinces said that Punjab, Sindh, NWFP and Balochistan would
submit the estimates of their income/expenditure projected for the next
five years to the Federal Finance Ministry before the third meeting of
the commission being held in Islamabad on January 2nd next. The NFC
would meet in Karachi, Quetta and Peshawar after January 2 meeting in
Islamabad. He said that the federal government wanted to increase the
share of provinces from the divisible pool in the sixth NFC award.
The Finance Minister said, besides general discussion
on the provinces, share in the resources, the issues of net hydel profit
for NWFP and (Gas Development Surcharge) relating to Sindh and
Balochistan were also discussed at Saturday's meeting. He hoped that the
finance ministers of Sindh and Balochistan would come up with a solution
to the issue of Gas Development Surcharge (GDS) within a couple of days.
The process for the resolution of net hydel power profit would go side
by side with that of NFC award formulation.
According to the informed sources, provinces are
demanding 45 percent share in the divisible pool instead of prevailing
37.5 under the 5th award. Smaller provinces were also demanding a
revision of formula of distribution of Provincial share amongst the four
provinces. According to them 50 percent of the provincial share in the
divisible pool should be divided amongst the provinces on the basis of
the population 25 percent on the basis of area and the remaining on the
basis of level of development or the backwardness of the provinces. At
present the distribution is made on the basis of the population alone
under which Punjab takes away over 50 percent while Balochistan share
comes to only 5 percent.
The National Reconstruction Bureau (NRB) has proposed
the government to allocate fifty-fifty share to the federal and
provincial governments from the divisible pool in the upcoming National
Finance Commission Award. The NRB has further proposed that population
should not be the only basis of allocating resources from the divisible
pool. "It is wrong to say that NRB is against the provincial
rights, rather we are recommending to the federal government for
resolution of the long standing issues of the sharing of resources,
Chairman NRB Danyal Aziz told a press briefing here. He said that NRB is
in favour of provincial autonomy, and real autonomy is not possible
without giving financial autonomy to the federating units. He said that
NRB is of the view that the issue of finance distribution be resolved on
permanent basis, and financial autonomy should be given as a right.
There should be constitutional guarantee on provision of share to the
provinces. NRB has recommended to the government that the next NFC
should be awarded on the fifty-fifty share basis to resolve this
half-century-old issue once and for all, NRB Chairman said.
Replying a query he said that only population should
not be considered as the basis of distribution of shares among the
provinces, and the government should follow the international standards
in distribution of shares. The shares among the federating units be
distributed keeping in view the percentage of population, school going
children, health facilities etc. The revenue collection by the province
is also seen as a factor of adding to the share of the province. For
example he said that if provinces meet certain target for revenue
collection it should be provided with an additional share, apart from
its fixed share, and that should be mentioned in the NFC award, NRB
When asked to comment on the NRB proposal Shaukat
Aziz said that the commission had yet to make any decision about any
arrangement for the distribution of resources among the provinces. The
NFC was reconstituted just to ensure that people's representative
government formulated the award.
Talking to newsmen to this occasion, Sindh Finance
Minister, Syed Sardar Ahmad, said that the NFC meeting was held in a
very cordial manner. He hoped that the estimates of expenditures project
for next five years to be submitted by the provinces would be realistic
and in line with the country's resources. He said that there should be
equation between the needs and the resources.
NWFP Finance Minister Sirajul Haque said that there
was need of economic revolution in the country, as without economic
well-being, every effort for political stability would have no meaning.
Only prosperous provinces could help develop Pakistan into an
economically developed nation. He hoped that the NFC award would lead to
equitable distribution of resources among the provinces.
Balochistan Finance Minister, Syed Ihsan Shah hoped
that the commission would be able to finalize the award within the
stipulated time. He said that Balochistan would make efforts to get the
issue of Gas Development Surcharge resolved with the help of Sindh.
Punjab Finance Minister Sardar Hussain Bahadur
Dreshak said that all the provinces resolved to give first priority to
the national integrity while taking any decision about the resource
sharing. He hoped that the award would lead to an equitable distribution
of resources among the provinces.
Under the prevailing award the federal/provincial
ratio is 62.5 and 37.5 percent. All the provinces are dissatisfied with
this, and wish for a greater share of funding to achieve the social
services delivery that present funding levels do not allow. With over 80
percent of their revenue inflows for current expenditures coming from
the federal government can probably afford this, provided the taxation
mechanism improves its performance, but it would have to control its own
non-development spending, on debt servicing, defence and general
administration, to allow for this. Previous NFCs have left the
provincial delivery of social services, never very robust, to run down
to levels which are now likely to cause social instability. This NFC
must not make the same mistake. Then there is the issue of distributing
the overall provincial share amount the provinces. This too has been
done on the crude basis of population alone, creating resentment among
the smaller provinces. The last two NFCs gave away ad hoc federal
grants, without establishing any real basis for these. Population must
remain the principal basis, but it should be modified by other measures.
Unfortunately, the provinces have not prepared any meaningful proposals,
so probably this NFC too will settle for a flawed formula.