Way out of deepening inequality

Financial stability cannot be attained in the country in the presence of the 7th NFC Award

M Ziauddin March 17, 2018
The writer served as executive editor of The Express Tribune from 2009 to 2014

All these 70 years Pakistan’s economy has remained caught between two schools of thought — the so-called Harvard Advisory Group and Milton Friedman’s Chicago School since the mid-1970s. The Harvard group guided the decade of development of Pakistan in the 1960s. The group was obsessed with the GDP not as a measure of development but as the end itself. For this they recommended the creation of inequality as a strategy for increasing the rate of growth of GDP. It was assumed with a religious finality that trickle down of these benefits of growth would take care of social justice objectives of growth.

Interestingly the Chicago School also promoted almost the same ‘trickle down’ theory with three trade-mark demands: privatisation, government deregulation and deep cuts to social spending. But the ‘free market’ mantra was not creating a harmonious economy, instead it kept turning the already wealthy into the superrich and the working class into the disposable poor, further deepening inequality.

The Harvard-driven official economic managers did not see the deepening inequality between East and West wings of Pakistan during the decade of development leading to the emergence of Bangladesh. And now the Chicago school graduates or those influenced by this school of thought are refusing to see the route to escape from the deepening inequality that the 18th Amendment is offering and the National Finance Commission Awards that this amendment proposes to give birth to have the potential to devise equitable distribution of resources among the four provinces.

That is perhaps why some of these economists see some kind of ‘manufacturing defect’ in the 7th NFC Award. In their opinion financial stability cannot be attained in the country in the presence of the 7th NFC Award. They seem to believe that no government can achieve fiscal deficit less than 6% of the GDP in the midst of the award. They further believe that this award has sowed the seeds of perpetual macroeconomic crisis in Pakistan. And to prove their point they point out that of the Rs4,000b that the FBR is budgeted to collect during the current fiscal year (2017-18) Rs2,400b would go to provinces under the 7th NFC Award, leaving Rs1,600b for the federal government to discharge its responsibilities which after interest payment (Rs1,400b) will be left with only Rs200b to finance only 20% of defence spending and that’s all.

If the 18th Amendment is implemented in its true letter and in spirit, the federation will have no more than four portfolios to look after: finance, foreign affairs, defence and communication. Additionally, it would need to spare resources for expanding and building physical infrastructure.

So, the resources the 7th award and the subsequent awards would make available to the federation after deducting the share of provinces should be more than adequate for Islamabad to carry out its four constitutional responsibilities comfortably.

The provinces, on the other hand, would need to take care of development, law and order, agriculture, commerce and industry. And the local governments would be left with taking care of education, health and drinking water, etc.

The 18th Amendment had abolished the Concurrent List introduced in 1973 and maintained only the Federal Legislative List divided between Cabinet and the Council of Common Interests (CCI). Forty out of 47 subjects of the scrapped list were devolved to provinces, and the CCI since the very beginning was entrusted to formulate and regulate policies in relation to matters in part two of the Federal Legislative List.

The subjects going to provinces include water, power, petroleum, natural resources, railways, ports, industries, production and inter-provincial coordination. Similarly, other subjects such as oil, gas, railways, ports, inter-provincial coordination come under the purview of the CCI. The federal government has illegally retained many of the functions that are purely provincial because of which its budget continues to go haywire since the 7th NFC Award which would expire in 2020.

Published in The Express Tribune, March 17th, 2018.

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