Disorderly devolution

Flush with liquidity, the provincial governments are on a high. The massive hikes in provincial budgets for next financial year have been possible on projections of receiving higher amount of funds from the Federal Government. But the provinces will be spending all of that, and more, with their oversized development outlays and rising overheads. A consistent fiscal policy framework is visibly lacking in the country. The Federal Government expects the provinces to generate budget surplus every year-end, in lieu of rising Federal transfers, yet the provinces continue with their spending spree. At the core of this prevailing policy haphazardness lays the messy handling of the process of devolution which started after the 18th Constitutional Amendment. Its been almost over two years since the responsibilities of various ministries and divisions were transferred to the provinces, but there are question marks over the handling of the process. For one, the sequencing of the process was wrong, in that the 7th NFC Award preceded the 18th Amendment. The provinces demanded more resources and capacity-building timeframe for the devolved ministries, functions and divisions. Things would have been somewhat different had the NFC Award succeeded the 18th Constitutional Amendment and contained stipulations for provincial revenue mobilisation. In the absence of a phase-in, phase-out approach and without linking incremental Federal transfers with the progress on devolved subjects, the Federal Government could do little to address this mismatch between resources and responsibilities. Another negative consequence of this muffing is the severity in the Dutch disease the provinces are suffering from. Thanks to the enhanced (and growing) Federal divisible pool, the provinces have little incentive to take any significant revenue mobilisation measures. Yet their spending binge has greatly increased since, even as the reluctance to take up the additional responsibilities and liabilities continues. For its part in the mess, the Federal Government also went against the very spirit of devolution by creating new ministries. Churning out ministries for functions like national harmony, food security and research, national heritage, disaster management and national regulation defies any operational or fiscal logic. In such a scenario, a broad-based fiscal management regime seems a far cry. The Federal and the provincial governments are usually at odds and the platform like the Council of Common Interest is desperately seeking its revival. This situation has direct bearing on the governments borrowing needs, interest rate regime and the inflationary pressures. Devolution is a process, and it will likely be a relatively long-drawn out one for a country like Pakistan. However, there is a need to move forward, to make this work. To start with, the Federal Government must synchronise its administrative overheads and governance footprint in line with its reduced responsibilities. The provincial governments need to be more forthcoming towards their assigned responsibilities, and should do more with less in these times. The fiscal crunch at the Federal level may ease up if the provinces share the debt servicing burden for projects relating to devolved subjects. Moreover, they should devolve the transferable resources and responsibilities further down to the local governments. But, most importantly, the provinces should work towards resolving the issues that are affecting the social fabric. The top priority should be the development of power generation resources. In addition, there is a dire need for the provincial governments to work towards creating an enabling investment climate, so that the trends of rising unemployment and poverty are arrested.