NFC discussed in detail the various proposals put forth by the provinces in respect of setting determinants for the distribution of resources



Mar 01 - 07, 2004





The National Finance Commission's fifth meeting in Peshawar last week has led to an agreement on a federal provincial ratio of 55:45 of the federal divisible pool, but the meeting could not evolve a consensus on a formula for distribution of resources among the federating units.

The core issue of federation province share was resolved because of the magnanimity shown by the federation which agreed to raise provincial share in the divisible part from present 37.5 percent to 45 percent against the demand of the provinces for 50 percent. The provinces also agreed not to insist on inclusion of petroleum surcharge being received by the federal government in the pool. The NFC member of the four provinces, however, failed to agree in their 2 sessions of informal meetings to work out a new formula for distribution of their share amongst the four provinces. The present basis of distribution of resources on the basis of population is being opposed by the smaller provinces specially Balochistan.

The Federal Finance Minister Mr. Shaukat Aziz, who presided over the meeting, told newsmen after the meeting that NFC discussed in detail the various proposals put forth by the provinces in respect of setting determinants for the distribution of resources among them from the federal divisible pool. But they could not reach any decision as they wanted to consult their respective governments over the various proposals put forth in the meeting. Shaukat Aziz was, however, optimistic as usual when he said this issue will also be resolved in the next meeting and the final award will be announced before March 31, 2004 and would be implemented from next financial year starting July 2004. Finalizing NFC award in an amicable manner requires a step by step approach and a bloc building process, he added.

Some NFC members conceded that the issue was difficult and it will not be easy to hammer out a consensus in view of the conflicting stand of the provinces. They (the provinces) stand poles apart and are not ready to change their stated position. In their joint press conference, held following the NFC meeting the provincial representatives agreed with the stand adopted by the federal finance minister that things were moving in the right direction. "Considerable progress has been made in the Peshawar meeting, giving rise to hope that during the course of next few meetings the award would be finalized". NWFP's finance minister Siraj-ul-Haq, Sindh's non-statutory member on the NFC Mr. Lodhi, Punjab's Finance Minister Hasnain Bahadur Dareshak and Balochistan's Finance Minister Ehsan Shah also addressed the press conference, expressing their optimism that consensus would be achieved to evolve an award acceptable to all.



The previous award, declared in 1997, had provided for the Centre to get 62.5 percent of the pool, which was later reduced to 60 percent, when the 2.5 percent GST levied to compensate for octroi abolition was transferred to the provinces. The federal government had wished to preserve this ratio, but the provinces had insisted that their share be raised to 50 percent. Therefore, the 55:45 distribution might be seen as a midway point between the Centre and the provinces. Neither side has got what it wanted, but that is the nature of all compromises.

That was probably the easy part. The more difficult work still lies ahead. The more tangled issue of how the provinces are to distribute their share among themselves is still to be decided. This NFC has seen a departure from the past. The agenda is no longer about choosing between alternate bases for distribution, but an approach has developed of using population as the primary basis, and giving other factors weightage to provide a more sophisticated adjustment among the provinces. Giving weightage to other factors, such as area (Balochistan's longstanding demand), and efficiency in provincial fiscal efforts would not change the pool distribution by much, but including revenue collection (Sindh's longstanding demand) would reduce the share of the Punjab considerably, but it would hit Balochistan and the NWFP even worse. The revenue collection basis is a bad idea, for it ignores the end-payer, or where the revenue is actually generated. Customs and import duties are mostly collected in Karachi, because it is the country's only port. Many companies are registered there, despite their factories as well as customers being in other provinces, because most financial institutions are headquartered there. This also applies to large trading houses, attracted by the port, though their consumers are elsewhere. Karachi does not contribute all that much revenue; it is just a convenient collection point. This is weighty argument being advanced by other provinces.