K-P boycotts NFC talks

In a first setback, Khyber-Pakhtunkhwa (K-P) on Thursday refused to join National Finance Commission (NFC) deliberations after the other three provinces declined to include the 6.1 million population of the merged districts in any new resource distribution formula.

The K-P government walked out of the NFC sub-group meeting on the merged districts and their share after the three provinces stated that they could not allocate resources for the districts in a new award.

The meeting had been convened by K-P in light of decisions taken during the maiden NFC meeting held in December last year.

K-P Finance Minister Muzzammil Aslam on Thursday briefed the provincial assembly about the development.

When contacted, Aslam said the K-P government was keen to resume deliberations on the 11th NFC and future formula computations, which are essential for the country's fiscal health. However, he said the process could not move forward unless the three provinces reverted to their earlier commitment to enhance K-P's share in line with the increased population.

He said he would request NFC Chairman and Finance Minister Muhammad Aurangzeb to convene a meeting of the commission to first resolve the issue.

The K-P government expects its share in the NFC to rise from 14.62% to 18.96% after the merger of the erstwhile Federally Administered Tribal Areas (FATA) in 2018.

During the sub-group meeting, the provinces declined to honour in-principle decisions on increasing the provincial share. The three provinces maintained that any enhancement could be considered in the 12th NFC, a position rejected by the K-P government.

The K-P government argued that non-payment of the merged districts' share meant the other provinces were illegally and unconstitutionally receiving the funds.

It stated that about Rs980 billion had already been diverted to other provinces, which should have been given to K-P after the merger.

Sources said the provincial government had also refused to support any further extension of the existing NFC until the merged districts' share is decided.

With K-P's refusal, the existing NFC also lacks consensus. Sources said that if the new NFC award is not finalised by June, the K-P government may not agree to extend the current award without first settling the merged districts issue.

It has proposed that, in the interim period, the federal government should provide discretionary grants to compensate the province until consensus is achieved.

To a question, Aslam said the NFC process could not move forward as long as the issue of the merged districts remains unresolved.

The provincial government is of the view that 6.1 million citizens of the newly merged districts remain financially excluded. Despite the extension of district administration, civilian law enforcement, higher judiciary, police, essential services and infrastructure, the absence of financial inclusion continues to hinder development, peace and stability in the region.

As a result, K-P's share remains stagnant at 14.62% instead of the expected 18.96%, depriving the province of its constitutional rights and preventing the fiscal implementation of the 25th Constitutional Amendment for the 6.1 million citizens, it added.

The provincial government said the share of resources in the divisible pool meant for the development of the newly merged districts has instead been flowing to Punjab and Sindh, harming the spirit of the federation and affecting the operation of Article 160 of the Constitution.

Khyber-Pakhtunkhwa, particularly the merged areas, is once again in the grip of increased terrorist incidents in the wake of the August 2021 regime change in Afghanistan.

The 7th NFC did not allocate any designated funds to FATA, which remained a federally administered territory at the time. The award's equalisation formula provided higher per capita allocations to Balochistan and recognised the needs of other provinces.

While all four provinces started receiving higher allocations under the 7th NFC, FATA largely continued with its historical level of public expenditure, resulting in lower levels of development.

As per recent regional poverty numbers released by the Planning Commission, the merged districts significantly trail behind the four provinces in both income levels and multidimensional poverty indicators. Using the Household Integrated Economic Survey 2018-2019, the Planning Commission estimated an income poverty incidence rate of 74% in the merged districts.