Criticism of the press release uploaded on the International Monetary Fund (IMF) website on 12 May 2019, amongst other considerably more socio-politicaly challenging prior conditions, also focused on the mention of the National Finance Commission (NFC) award as an attempt to interfere in the constitution of the country.
The Fund's press release dated 12 May 2019 ends with the following sentence: "to improve fiscal management the authorities will engage provincial governments on exploring options to rebalance current arrangements in the context of the forthcoming National Finance Commission." IMF, like other multilaterals, is careful in its selection of words to ensure that there is no room for doubt and, therefore, 'will engage' cannot be confused with 'may engage' that would have left the option with the authorities whether to engage with the provinces or not on the next NFC award that was due in 2015.
On 16 May, while interacting with the media at Governor's House, Karachi Advisor to the Prime Minister on Finance Hafeez Sheikh, stated: "the IMF deal has nothing do with the NFC Award. There is freedom of expression in the country so we can't stop anyone from issuing statements. But the fact of the matter is that the IMF deal has nothing to do with our NFC Award, neither have they asked us to do anything on these lines." This statement indicates that Sheikh may not have been present when this subject was discussed and agreed; however one would hope that it implies that Sheikh neither bothered to read the IMF press release nor read the notes of agreements reached between Pakistan and the IMF mission, as one would not like to infer that he told a deliberate and unnecessary lie as anyone with a computer and an internet connection can upload the IMF website and peruse the press release.
An NFC award reflects a consensus between the federal and all the four provincial governments. The constitutional clause that has been a source of much irritation to all post-seventh NFC award federal finance ministers is Article 160 [(3A)] which stipulates: "the share of the provinces in each award of National Finance Commission shall not be less than the share given to the provinces in the previous award."
With rising percentage allocations for debt servicing (due to a steady rise in reliance on foreign and domestic borrowing), defence (given our serious security concerns across our eastern and western borders) and running of civilian government (on average about 10 percent was the annual raise in salaries and perks during the PPP-led coalition and PML-N administrations - well above the inflation rate), annual revenue shortfalls (coupled with exemptions and special treatments amounting to 680 billion rupees in the current year alone) led to unsustainable budget deficits that could be dealt with only through slashing development expenditure with a consequent negative impact on Gross Domestic Product. By 2017-18 (for which revised data is available) expenditure on these items was as follows: debt servicing accounted for 36.4 percent of total budget expenditure, defense for 18.6 percent, running civil government 7.5 percent and pensions 6.2 percent; or a total of 70 percent was allocated for these expenditures leaving little money for subsidies, grants and transfers, and for improving the deficient social and physical infrastructure sectors; exemptions and special treatment accounted for 540 billion rupees last fiscal year.
Thus as the bulk of federal expenses could not be reduced (from an economic, political or security perspective) the reduced federal share after the 2010 NFC was criticized by all post-seventh NFC award finance ministers including Ishaq Dar who, ironically, was a member of the Punjab team that approved the final award. And almost certainly this lament was voiced to the IMF missions, the most recent as well as previous missions, which accounts for mention of the award in several IMF documents.
In the second staff review under the Extended Fund Facility programme (2013-16) dated March 2014, the IMF noted that "with adjustments concentrated on the revenue side on the second and third years of the program, progress in the negotiations towards a new NFC award will be key for the sustainability of the program, but may not be ready for the next budget."
By the eleventh, second last staff review under the EFF, dated June 2016 the mission noted that "the authorities are seeking an agreement with provinces to balance the devolution of revenue and expenditure responsibilities in support of macroeconomic stability. An extensive national dialogue will be needed to achieve this objective." This was contrary to what Dar was actually doing behind the scenes: postponing and/or not scheduling NFC award meetings with provincial finance ministers once his suggestion for 7 percent additional allocation for security from the divisible pool was rejected by all provinces. Even Punjab where the PML-N was in government refused to consider his suggestion on the grounds that the province had sacrificed enough in the 2010 seventh award by agreeing to a reduction in the population criteria; Sindh proposed a greater share for the province where revenue is actually generated, KPK requested more resources for poverty alleviation as well as outright allocation to fight terror and Balochistan proposed greater resource allocation based on poverty and area.
Kaiser Bengali who represented Balochistan as a non-statutory member and had represented Sindh in the 2010 award, while giving a talk on 'The New NFC Award: issues and challenges', organised by the Institute of Historical and Social Research, stated at the time that there was no justification for Ishaq Dar's demand for an upfront share of seven per cent for security while arguing that the Centre's fiscal space had shrunk.
The NFC award gives greater financial autonomy to the provinces, the federating units. In other words, devolution of finances, considered critical to empowering communities to decide on which projects to prioritize, must be supported. The NFC award must be taken in conjunction with the 18th Amendment that, amongst other amendments, supported devolution of social sector delivery to provinces. The idea was to enable provinces to determine their social sector priorities and the additional funds would ensure implementation. That sadly has not happened as provinces have not strengthened their capacity to deliver on their responsibilities nine years down the line. But the federal government too has not disbanded its social sector ministries and continues to spend large sums of money to support the bureaucratic structure. It is here where changes must be made.
The National Assembly unanimously approved the 26th Amendment to the Constitution allowing an increase in the number of National Assembly and Khyber Pakhtunkhwa Assembly's seats for the former Federally Administered Tribal Areas (Fata). This has raised hopes that the proposal to release 3 percent of the divisible pool for developing former FATA areas may be acceptable to all provinces however this conclusion maybe premature till the NFC award discussions actually begin. Be that as it may, the Prime Minister made one of his rare appearances in the assembly during the voting on this issue this month and after the approval stated: "I want to tell the provinces that the decision to allocate three per cent from the NFC award is necessary because of the destruction in Fata due to the war on terror. KP can never fulfill this from its budget."
To conclude, however much the Prime Minister may blame PML-N and the PPP for the country's economic woes the fact is that for him to bring several of his manifesto pledges to fruition he needs support from the opposition.
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