Sindh, Punjab oppose interim NFC

Sindh would not support Khyber-Pakhtunkhwa's (K-P) demand for an interim National Finance Commission (NFC) award to retrospectively increase its share on account of newly merged districts but stands ready to address the issue under any new resource distribution formula, said the provincial NFC member.

Sindh would not back the K-P government's bid for an interim seventh NFC award, said Dr Asad Sayyed, Sindh's member of the 11th NFC, while talking to The Express Tribune.

The 11th commission is currently working to finalise a new consensus formula for the distribution of resources between the Centre and four federating units. The seventh award was finalised in 2010.

The provincial representative made the statement a day after K-P accused the three provinces of backtracking on their earlier commitments to allocate additional resources for the merged districts.

K-P on Thursday walked out of a meeting of the sub-group on the allocation of K-P's share on account of the newly merged districts and also called off another sub-group meeting on the issue of how to enhance the tax-to-GDP ratio.

The provincial government has linked its future participation in NFC talks with the convening of the main NFC meeting and addressing the new burning issue. Under the 25th Constitutional Amendment of 2018, the tribal districts had been merged with K-P, which increased the provincial population by at least 6.1 million.

K-P is demanding an increase in its NFC share and the payment of about Rs980 billion arrears since 2018 through an interim award.

Asad Sayyed said that the Sindh government would not support any attempt to pay arrears from back date. "We are ready to consider the newly merged districts as part of the 11th NFC award," he added.

However, the K-P's demand for an interim award and the other provinces' refusal to support it have ended consensus, which now requires political mediation at the highest level.

Punjab's position was also similar to that of Sindh. The government of Punjab said in the meeting that the 11th NFC did not have a mandate to give an interim award. It was also of the view that the constitutionally guaranteed shares of provinces could not be changed retrospectively.

Had it been easy to change the provincial shares without agreeing on a new award, the PTI government should have done it when it was in power, remarked one of the largest provinces.

Muzammil Aslam, K-P Finance Minister, said the provincial 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 agree to enhance K-P's share in line with the increased population from the year 2018.

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.

K-P argued that non-payment of the merged districts' share meant other provinces had been illegally and unconstitutionally receiving the funds since 2018. It stated that about Rs980 billion had already been diverted to other provinces, which should have been given to K-P.

The K-P government made the 2016 report of Sartaj Aziz committee as a base for its interim award claim. The PML-N government had constituted a committee on FATA reforms in November 2015 under the chairmanship of Sartaj Aziz, which finalised its recommendations in August 2016.

The committee noted that the non-provincial status of FATA, since the creation of Pakistan, excluded the region from the NFC, which is an instrument of fiscal equalisation across the federating units. This exclusion, it was recognised by the committee, resulted in a lack of funds for the region, thus leaving it far behind the rest of Pakistan in human development and infrastructure provision.

Sartaj Aziz report estimated that during five fiscal years (2010-11 to 2014-15), the average per capita shortfall touched 44.39% owing to the exclusion of erstwhile FATA from the NFC, according to the K-P government.

K-P said that in its recommendations to ensure socio-economic development in FATA during the transition period, the Sartaj Aziz committee proposed a 10-year development plan, which should be financed through a 3% allocation from the NFC's undivided pool, which should be in addition to the existing annual regular PSDP allocations. This was later approved by the federal cabinet in March 2017.

However, the three other provinces were of the view that the Sartaj Aziz committee's recommendations were non-binding on the 11th NFC and any compensation could only be agreed under the new award.