NRB has proposed the government to allocate fifty-fifty share to the federal and provincial governments from the divisible pool


Dec 22 - 28, 2003



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 Chairman added.

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.