Islamabad:
President Asif Ali Zardari constituted the 11th National Finance Commission on Friday to end a new Resource Distribution Award, racing the way for a new confrontation while the center seeks to recover the lost fiscal space while the provinces prepare to stand firm.
In compliance with clause (1) of article 160 of the Constitution, the president of Pakistan is pleased to establish the 11th National Finance Commission (NFC) with immediate effect, according to a notification issued by the Ministry of Finance on Friday.
The five -year life of the tenth commission ended last month, which held some meetings, but lost steam after the provinces did not find an incentive to negotiate due to the possibilities of losing fiscal space to the center.
According to the seventh 2010 NFC award, provincial participation increased by 10% to 57.5% of the total federal divisible group without giving them additional responsibilities. This contributed to a massive increase in public debt due to the unsustainable budget deficit that the federal government has been executing since 2010. Successive central governments also excessively retained some of the expenses to achieve their political objectives in the provinces.
The Minister of Finance, Senator Muhammad Aurengzeb, will be the president of the Nine Members commission. The four provincial finance ministers will be the permanent members, while each province has the right to nominate a technical member.
Nasir Mahmood Khosa, former secretary and former executive director of the World Bank, would represent Punjab. Sindh has retained Dr. Asad Sayeed, while Dr. Musharraf Rasool Cyan will represent Khyber-Pakhtunkhwa. Baluchistan has brought Farman Ullah as his technical member.
In a joint work document written by Sajid Amin and Vqar Ahmad, the authors had argued that “future NFC awards include a gradual change of a resource distribution based on needs to an exchange of resources to share efficiency.”
They suggested to reduce the weight of the population by at least 10% in the following two NFC awards; It decreases its participation in another 15% in the two subsequent awards to ultimately reduce their weight to 50% of 82%.
The federal government is already working on some of these lines. The Minister of Planning, Ahsan IQBAL, has already proposed to freeze the population in 241.5 million with the purpose of distribution of resources.
According to an internal meeting held this week at the Ministry of Finance, one of the initial options that the federal government is considering is that at least 10 to 15% of provincial actions in federal taxes must be linked to improvements in education, health, population management and climatic indicators. The Government also wants to encourage provinces for fiscal efforts by linking resources with fiscal efforts, sources said.
The Ministry of Finance is also preparing a document to show how federal government finances would be seen in terms of public debt and budgetary deficits after five years. The issue of the document will be that the existing 57.5% of the divisible group that the provinces obtain must be reduced and the cuts must be placed in the expenses that are the responsibility of the provinces but that the center is incurred in their own compulsions.
According to the terms of reference of the 11th Commission, the NFC will make recommendations to the President for the distribution between the Federation and the provinces of the net income of the taxes mentioned in clause (3) of article 160 of the Constitution.
The new commission will also make recommendations on subsidies by the federal government to provincial governments. The Commission will analyze the powers of the loans that the federal government and the provincial governments.
It will also discuss and decide issues related to the exchange of financial expenses incurred or incurred by the Federation with respect to the subjects and issues that fall within the domain of the provinces and issues related to the exchange of financial expenses incurred or incurred by the Federation or the provinces or both with respect to the transprovincial matters.
This is the main problem, since the center is incurring expenses that are not transprovincial and put an undue burden on the federal treasure. The federal government is financing roads in Punjab, Sindh and Baluchistan, which should have been funded by the respective provincial governments.
The new commission will also discuss issues related to financial expenses for national projects that the Federation and the provinces share; and any other issue related to finance referring to the commission by the President.
The federal government can ask the provinces to reserve a part of the divisible pool to build large dams. Dams are now a matter of national security and the provinces should contribute to it.
Under the seventh NFC Award, Khyber-Pakhtunkhwa obtains 1% of the divisible group to mitigate the impact of war on terror.
The Federal Government is also considering demanding explicit assignments for the capital territory of Islamabad, Gilgit-Baltistan and Azad Jammu & Cashmira, which are the responsibilities of the center.
Another significant consideration of the center is that transfers to the provinces must also be related to subsequent allocations for local governments, the sources added.
