Jul-Mar FY19: Federal govt gives Rs1.8tr to provinces under NFC Award

Finance ministry says Centre has neither reduced nor delayed funds to provinces

ISLAMABAD: The federal government has transferred Rs1.8 trillion to four provinces as their share under the National Finance Commission (NFC) Award, which is largely in line with annual projections and negates Sindh’s claim that the Centre has withheld its rightful money.

The Ministry of Finance on Monday released details of federal transfers to the provinces under the NFC Award for the July-March period of current fiscal year 2018-19. The Q-block moved after Sindh raised hue and cry that the Centre had withheld nearly Rs144 billion which, it said, was its share in the NFC.

From July through March, the four provinces received Rs1.8 trillion as their share under the NFC, according to the finance ministry. It was higher by Rs130.1 billion or 7.9% when compared with the same period of previous fiscal year. The Rs1.8-trillion transfers were equal to 69.5% of the annual projection under the NFC Award for FY19.

For the current fiscal year, the share of provinces in the federal divisible pool is projected at Rs2.59 trillion, subject to collection of Rs4.4 trillion in taxes by the Federal Board of Revenue (FBR).

The federal government has neither reduced nor delayed the transfer of funds to any of the provinces, according to the finance ministry. All the provinces have been receiving their share in federal transfers in accordance with the NFC Award, it added.

The finance ministry said the federal government made these transfers fortnightly on the same day of reporting of collections by the collecting agencies. Any shortfall in revenue collection results in a uniform change in the share of the federation and provinces in federal transfers, it added.

The federal government has set a Rs4.4-trillion tax collection target for FY19. But the FBR has already recorded a shortfall of over Rs300 billion in first nine months of the fiscal year, which also affected the share of provinces, except for Balochistan, in the NFC.

Balochistan gets its share on the basis of projections as compared to other three provinces which receive their share as per actual tax collection.



According to the 7th NFC Award, the provinces get 57.5% of the federal divisible pool. The award had been agreed in 2010, which expired three years ago, but the president of Pakistan extends it every year since there is no new award.

Of the 57.5%, most of the resources, 82%, are distributed among the four provinces on the basis of population under horizontal distribution. The remaining 18% is distributed on the basis of poverty and backwardness (10.3%), inverse population density (2.7%) and revenue collection and generation (5%).

Punjab received Rs866.6 billion in first nine months of the current fiscal year, higher by Rs65 billion or 8.1% over the same period of last year. Transfers to Punjab were equal to 67.6% of its total projected share of Rs1.28 trillion.

Sindh got Rs441.8 billion in federal transfers during the Jul-Mar period of FY19 as compared to Rs418.1 billion in the same period of last fiscal year. Transfers to the Sindh government were higher by 5.7% or Rs23.7 billion and it received 68% of its annual share of Rs648.8 billion. Khyber-Pakhtunkhwa (K-P) received Rs290.4 billion, higher by Rs21.1 billion or 7.9% when compared with the last fiscal year. K-P’s receipts were equal to 67.6% of its annual projected share of Rs426 billion.

Balochistan saw a 12.8% or Rs20.4-billion increase in its receipts, which surged to Rs180.3 billion in first nine months of FY19. Balochistan received 77.3% of its annual projected share of Rs233.2 billion. Its receipts in terms of percentage were the highest among all the provinces as Balochistan got its pie on the basis of projected FBR revenues.



The growing transfers to provinces have remained a concern for both the finance ministry and the International Monetary Fund (IMF). Both of them want a reduction in the pie of federating units aimed at creating space for spending on debt, defence and social sector.

However, during the last IMF visit to Pakistan, all the four provinces unanimously told the IMF that they would oppose any structural change in the NFC Award. At the same time, the provincial governments assured the IMF of providing Rs286 billion in cash surplus to help the Centre achieve its fiscal targets for the current fiscal year.

The IMF has taken a position that the current NFC Award is not in favour of the Centre whose borrowings to meet its obligations have skyrocketed since then. The 2010 award that transferred 10% additional sources to the provinces had been finalised on the assumption that the FBR would increase its collection by 1% of GDP every year. But it did not happen and the FBR’s tax-to-GDP ratio remained almost stagnant. The finance ministry is also seeking to recoup 7% of the divisible pool to meet requirements of Azad Jammu and Kashmir (AJK), Gilgit-Baltistan, tribal areas and security-related expenses.

Published in The Express Tribune, April 30^th, 2019.

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