10th NFC agenda tilts in favour of Centre

Notification says finance adviser to chair meetings; Centre seeks to pass cost of inefficiencies onto provinces


Shahbaz Rana May 13, 2020

ISLAMABAD: President Dr Arif Alvi on Tuesday constituted 10th National Finance Commission (NFC) to determine new resources distribution formula between the Centre and the provinces and set an agenda that seeks to pass the cost of inefficiencies of the federal government onto provinces.

The terms of the reference of the 10th NFC included new clauses about allocation of resources to meet security expenditures, loss-making enterprises, subsidies mechanisms and debt repayments – the four new areas that would be thorny issues to be decided by the Centre and the provinces.

The 10-member NFC has been notified under Article 160 (1) of the Constitution. A former NFC member said that appointment of the Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh to the NFC was unconstitutional.

There will be three persons representing the Centre on the NFC – Prime Minister, finance adviser and the federal finance secretary. The status of the finance secretary will be of an “official expert” and he has not been described as a member in the notification issued by the finance ministry.

Article 160 (1) says that the president will constitute an NFC, consisting of the finance minister of the federal government, the ministers of finance of the provincial governments and such other persons as may be appointed by the president after consultation with the Provincial governors.

The federal finance minister, who happens to be Prime Minister Imran Khan himself, will be the chairman of the NFC. However, President Alvi has added Dr Shaikh as a member to the NFC and also “authorise the Adviser to chair the meetings of the NFC in the absence of the Federal Finance Minister”, read the notification.

“Under the Constitution, there is no place for finance adviser on the NFC and his appointment is unconstitutional,” said Dr Kaiser Bengali, a former member of the NFC.

Historically, the finance minister chaired the NFC, comprising the four provincial finance ministers and their respective technical members. The NFC decides the division of fiscal resources between the Centre and the provinces and among the provinces for a period of five years. But there is a deadlock between the Centre and the provinces on new award for last five years.

Punjab has nominated Tariq Bajwa, a former governor of the State Bank of Pakistan (SBP), as its non-statutory member. Sindh has retained Asad Sayeed, who was also a member of the last NFC that could not decide the award. The Khyber Pakhtunkhwa government has also retained Musharraf Rasool as its non-statutory member.

Former information minister Javed Jabbar is the new non-statutory member from Balochistan. Last month, Jabbar had told The Express Tribune that he regretted to become the NFC member due to his other engagements. When contacted on Tuesday, Jabbar said that was thankful to the Balochistan chief minister and would contact him soon. However, he did not say in clear words whether he would serve on the NFC or not.

The 7th NFC Award that had been unanimously agreed in 2010 expired in 2015 and is being extended every year by the president due to a lack of consensus on the 8th Award.

There is increasing pressure on the provinces to give up part of their fiscal shares or take additional expenditure responsibilities. Wrong policies of the last three federal governments, including that of Pakistan Tehreek-e-Insaf (PTI), have not only led to an exponential increase in expenditures, causing huge debt burden, but have also resulted in stagnant Federal Board of Revenue’s (FBR) tax-to-GDP ratio in the last 10 years.

Despite transferring various functions to the provinces, the successive central governments have been financing health and education-related expenditures under political expediency. The federal government also made parallel setups at the Centre despite such functions rest with the provinces under the constitution.

Under the 7th NFC Award, the Centre got 42.5% from the divisible pool. The remaining 57.5% share was distributed among the provinces on the basis of multiple formulae. Eighty-two per cent share was determined on the basis of population, 10.3% is based on poverty and backwardness, 5% on revenue collection and 2.7% on inverse population density.

That was the last award agreed unanimously that led to 11% increase in the shares of provinces in federal taxes. To compensate for this 10% loss to the Centre, the federal government at that time had developed a plan to increase the tax-to-GDP ratio by one percentage point every year to 15% by 2015. However, three successive governments failed to enhance the tax collection due to poor performance of the FBR and political compromises struck by every government.10th NFC TORs

The president has expanded the agenda of the 10th NFC by adding at least four new areas to be discussed and decided by it. “Assessment and allocation of resources to meet expenditures made on security and natural disaster/calamities”, according to TOR (f) of the 10th NFC.

The federal government has been pushing the provinces to give up at least 4% of their shares to finance the security expenditures – a demand that the provinces turned down in the NFC. However, this has again been made part of the agenda.

Assessment of the total public debt and allocation of resources for its repayment is yet another new agenda added to the NFC-fold. The debt servicing is the federal subject under the Constitution and the Centre charges the provinces on concessionary foreign loans more than double the rates.

The president has also included an agenda on “exploring ways to reduce losses of state-owned enterprises and agreeing on mechanism for sharing these losses between the federal government and the provincial governments”.

The job of the NFC is only limited to distribution of resources and it in no way can support to find ways to finance the federal government’s expenditures, said Dr Kaiser Bengali.

The president has also included “assessment and allocation of resources to meet expenditures” related to the government of Azad Kashmir, the government of Gilgit Baltistan and the newly-merged districts of the KP. The federal government is demanding that the provinces should contribute 3% of their shares to fund these areas. The federating units have rejected this demand.

Under the Constitution, the provincial share cannot be reduced from 57.5% and the federal government is now exploring various options to bypass this constitutional limit but the provinces have so far resisted it.

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