PFC Award controversy leaves governance in limbo

Since the past 17 years, local government bodies remain deprived of their due share of funds

KARACHI:

Every couple of years, the Sindh government complains to the federal government that it is not receiving its due share of funds under the National Finance Commission (NFC) Award. However, the provincial government itself behaves no differently when it comes to allocating funds to its own local government bodies.

Just as the NFC Award governs the distribution of financial resources from the federation to the provinces, the Provincial Finance Commission (PFC) Award is meant to ensure the fair distribution of financial resources among local bodies within a province. While Sindh complains about the federal government's failure to implement the NFC Award, local bodies across the province, including the Karachi Metropolitan Corporation (KMC), have long-standing grievances against the Sindh government regarding the non-implementation of the PFC Award.

According to the Constitution, the federal government must announce a new NFC Award every five years, and similarly, provinces are constitutionally bound to issue a new PFC Award every five years to ensure proper financial distribution among local governments. In Sindh, however, the last NFC Award was announced in December 2009 and came into effect in July 2010. Its term ended in June 2015, but no new award has been issued since. Similarly, the last PFC Award was issued in 2002, and it expired in 2007. Nearly 17 years have passed since the last award expired.

Despite this, the Sindh government has yet to announce a new PFC Award, and funds are still being distributed based on the outdated award, creating mounting financial pressures on local bodies. KMC, the province's largest municipal institution, is also facing serious financial challenges due to the delay in the new PFC Award. In its latest budget documents, KMC has specifically highlighted this issue, formally requesting the Sindh government to issue a new PFC Award without further delay.

According to KMC's recent budget report, it contributes towards 60 per cent of the octroi tax revenue generated in Sindh but does not receive its share accordingly. Its expenditure, on the other hand, continues to rise. For instance, in the 2023-24 fiscal year, KMC required Rs28.93 billion for non-salary expenses but received only Rs17.98 billion from the Sindh government, leaving a deficit of over Rs11.19 billion for this category alone.

While the provincial government fails to allocate the required funds to KMC, it continues to increase the salaries of government employees every year, adding to the corporation's financial burden. Official figures show that while KMC's revenue from octroi taxes has increased by 95 per cent over the past few years, its expenditure on salaries and pensions has gone up by 255 per cent.

Naseer Memon, a political economist, opined that the PFC Award was a genuine issue across all provinces. "The provinces force the federal government to devolve powers to the provinces but are not in favour of transferring those powers to the local governments, which are at the foundation of a democratic system. There should be a fair criterion for the distribution of resources through the PFC Award. Unlike the NFC formula where population is the major criteria for distribution of resources, the PFC should have multiple criteria for distribution among local governments including resource collection and backwardness," suggested Memon.

On the other hand, Dr Kaiser Bengali, a renowned economist, revealed that the Provincial Finance Commission still did not have constitutional protection. "Until this issue is resolved, the PFC award controversy will continue. Just as the Constitution clearly mentions the functions and powers of the federation and the provinces, it is also necessary to include the functions and financial matters of the local government separately," noted Dr Bengali.

When The Express Tribune reached out to Sukkur Mayor and Sindh government spokesperson Arsalan Islam Shaikh regarding the delay in the new PFC Award, he stated that Sindh had been severely affected by natural disasters like COVID-19 and floods over the past several years, which has delayed the announcement of the new PFC Award. "Issuing a PFC Award is a constitutional obligation and it will be finalized soon," assured Shaikh.