NFC award: inordinate delay


WEB DESK: According to a Business Recorder exclusive, the federal government is likely to promulgate an ordinance extending the 7th National Finance Commission (NFC) award agreed in 2009 and approved by parliament in April 2010 for yet another year.

The reason cited by relevant officials is the serious concern of the federal government that negotiations on the 8th award would inevitably focus on provinces’ demand to raise their take of resources under the divisible pool. The federal government is opposed to any such demand on grounds that its existing 42.5 percent share has already rendered it incapable of meeting its own expenditures, particularly those relating to counter-terrorism. At the same time, the provinces have shown little inclination to enhance their allocations for all the devolved subjects under the 18th Constitutional Amendment, particularly those relating to social sector development, including education and health.

Divisible pool consists of tax revenue that includes income tax, wealth tax (not applicable), capital value tax, sales tax, export duties, customs, federal excise duties and any other tax levied by the federal government. What is not included is of course non-tax revenue and debt. The provincial share from the divisible pool as a consequence of the 7th NFC award was budgeted at 1.9 trillion rupees and the federal government’s share at 1.48 trillion rupees in the current year.

The Finance Ministry has been attempting to meet its extremely ambitious budget deficit targets, determined after consultation with the International Monetary Fund as required under the 6.64 billion dollar Extended Fund Facility, by not only offering the incentive of a high rate of return to provinces through generating a provincial surplus (the target for the current year is 298 billion rupees) which provinces claim undermines their efforts to allocate/appropriate amounts for social sector development, but also through incurring debt both from external and internal sources thereby accounting for the escalation in our debt profile.

According to a recent Bloomberg report, “about 40 percent of Pakistan’s outstanding debt – both local and foreign – is due to mature in 2016, according to data compiled by Bloomberg. That’s roughly $45 billion, of which about 4.3 trillion rupees ($41 billion) is in local currency. Since Sharif took the IMF loan, Pakistan’s debt due by end-2016 has jumped about 79 percent.”

Privatisation proceeds are not included in the divisible pool and this explains the Sharif administration’s focus on this source of revenue without taking account of whether the environment is appropriate for a sell-off. In this context, reports carried by Business Recorder recently indicate that the Ministry of Finance had to pressurise the Ministry of Information Technology to auction the remaining 3G/4G licence before the end of the current fiscal year on 30th June, a time period which the relevant ministry had indicated was not appropriate due to prevailing market conditions, and succeeded in bulldozing its decision after getting the approval of the Prime Minister.

The budget documents for the current year state that “the 8th NFC award was constituted on 21st July 2010 but it did not give any award. The 9th NFC award has been constituted on April 24, 2015 and its first meeting was held on 28th April 2015.” To set the record straight, the 7th NFC award was agreed late 2009 and approved by parliament in 2010 and hence it is unclear why the 9th instead of the 8th NFC award should be negotiated.

It is also relevant to note that during the one, and reports indicate the only, meeting Dr Ayesha Ghaus Pasha, Punjab’s technical member of the NFC, revealed that four studies would be undertaken including (i) resource mobilisation at the federal and provincial levels; (ii) devolved versus integrated tax structure – evolution of tax collection framework in Pakistan; (iii) allocation efficiency and expenditures analysis at the federal and provincial level; and (iv) rationalisation of subsidies and grants. No further update on the studies has been reported and one can only hope that these studies are under process and their preliminary results released to further strengthen the waning perception that the federal government is focused on meeting the constitutional obligation of getting an agreement on the 8th NFC award with the four provinces.

Source: Business Recorder