The Sindh government has reportedly not yet nominated its private member for discussions on the eighth five-year National Finance Commission (NFC) in spite of repeated reminders by the Ministry of Finance. The 2009 7th NFC Award is operative at present, however, Article 160 of the constitution stipulates that the setting up of NFC must be at intervals not exceeding five years, which implies that the eighth NFC award is due. The obvious question is why Sindh dragging its feet?
The seventh (NFC) award, under the then leadership of the then Finance Minister, Shaukat Tarin, was widely hailed throughout the country. It was a document that reflected maturity and political wisdom on the part of not only the PPP-led coalition government that agreed to increase the share of provinces in the divisible pool to 57.5 percent (compared to 47.5 percent) but also of PML-N’s Chief Minister Shahbaz Sharif: population 82 percent weight, poverty 10.3 percent, revenue collection 5 percent (2.5 percent revenue generation and 2.5 percent revenue collection) and area 2.7 percent. The 7th NFC Award also removed disparities in hydel royalties from Khyber Pakhtunkhwa (KPK) and gas development surcharge (GDS) from Balochistan while extending an additional 1 percent from the divisible pool to KPK in recognition of its role as a front line province in the war against terrorism. It is relevant to note that the budget document for fiscal year 2014-15 acknowledges the achievements of the 7th NFC Award by noting that it has strengthened the financial autonomy of the provinces by increasing their share in the divisible pool as well as the adoption of multiple criteria whereas after the fall of Dhaka, in “previous awards population remained the sole criterion for distribution of provincial share in the divisible pool with special grants (subventions) to smaller provinces”.
The members of the NFC as per the constitution include the Minister of Finance, the ministers of finance of the provincial governments, and “such other persons as may be appointed by the President after consultation with the governors of the provinces” (an induction that clearly favours the federal government). In this context, the constant harangue by the Minister of Finance that the 7th NFC Award leaves inadequate resources for the federal government to meet its expenditure may have raised concerns within the Sindh government that the centre may be considering a criterion that envisages the reduction of the provincial share in the divisible pool and that it is best to delay or postpone the eighth award for as long as possible. If Sindh’s concerns are justified then it is extremely unfortunate as that would be premised on a ‘reverse devolution’ with financial power again consolidated with the federal government. Furthermore such reduction is not permitted by the constitution and would require a constitutional amendment.
The question is why Ishaq Dar would support such a policy that is obviously at variance with studies undertaken throughout the world that maintain that devolution is essential to ensuring an improvement in the quality of life of communities. The answer lies in the rising percentage of the allocations as a component of the total budgeted expenditure for two major expenditure items namely defence and interest payments on loans (foreign as well as domestic). This is a valid argument, however, two statistics need to be highlighted to ascertain who is responsible for the escalation in annual outlay on these two items. Firstly, the last budget presented by the PPP-led coalition government for 2012-13 envisaged 926 billion rupees on interest payments (846 billion rupees for domestic debt and 80 billion rupees on foreign debt) while in 2014-15 the government budgeted 1.65 trillion rupees for interest payments (1.22 trillion rupees for domestic debt and 434 billion rupees on foreign debt interest and repayment). This clearly reflects the increase in reliance on borrowing by the centre during the Sharif administration. Defence on the other hand was allocated 545.3 billion rupees in 2012-13 while in 2014-15 the outlay was 700 billion rupees – an expenditure that can be justified on account of the ongoing Zarb-e-Azb.
The KPK government, too, has threatened to boycott the NFC unless its due share in the Coalition Support Fund (CSF) and the Public Sector Development Programme is released by the federal government. It is irked by the federal government’s resistance to share the details of the CSF funds received by the federal government and feels that it is being short-changed by Islamabad. One can only hope that Sindh and KPK governments’ concerns are unjustified and that the Finance Minister has no intention of slashing the provincial share in the divisible pool or renegotiating a new criterion for the 8th NFC Award and would address the apprehensions of the KPK government. Ishaq Dar would be well advised to take all provincial governments on board with respect to this to ease concerns and facilitate an agreement on the next award.
