NFC Negotiations

By now it is clear that the upcoming budget will be formed on the basis of the 2010 NFC Award. There is also little expectation that an award could be announced next year, simply because it will be difficult to reach a consensus in the election year. The can, therefore, will be kicked further down the road. But isn’t this what it was destined to be in the first place?

Sources close to the NFC committee say that the Chairman NFC, Senator Ishaq Dar, hasn’t been interested in getting a new award since the very start, so much so that in one of the NFC meetings, the NFC agenda itself was not even taken up.

In the first NFC meeting since the expiration of the 2010 award, Dar said that each province and the centre should come up with studies based on which NFC would reach its decision. When provinces came up with their studies, they were told to wait since the centre hadn’t completed its study, which caused delay. When the centre finally prepared its study, Dar is reported to have said that the NFC will not be based on studies. In other words, the ‘studies’ were just a part of delay tactics.

Apparently Dar is very much concerned by the amount the centre is getting under the vertical distribution of the NFC award. The centre is currently getting 42.5 percent from the divisible pool; the provinces 57.5 percent. Dar complains that is inadequate to meet the needs of the centre. This oft forms the reasons why the NFC meetings under Dar so far haven’t been successful. But Dar tends to forget that it was his own party representing Punjab at the time of 7th NFC that got the centre into this problem.

Before the 7th NFC, population was the only basis of horizontal distribution; the 7th NFC however expanded the formula of distribution to include poverty, revenue collection, and inverse population density. Sources say that when Punjab gave in to having an expanded criterion for horizontal distribution, it insisted on being compensated for the loss of revenue stemming from a multiple-indicator formula.

This compensation could have only been made by reducing the centre’s share in vertical distribution. Sources say that 52 percent share of provinces in vertical transfer would have settled for the loss of revenue for Punjab. However, Dar and company from Punjab asked for 67 percent, which would have shut down the centre. Eventually, the then Federal Finance Minister Shaukat Tarin convinced Punjab to settle for 57.5 percent.

Anyway, revenue distribution and fiscal expenditures are the materials that politics is made up of. There can never be an ideal formula. The inclusion and exclusion of any indicator will be at the expense of one province, or another, or even the centre. The NFC-related political wrangling can be expected to strengthen over time as political competition grows between the provinces, with different political parties vying for the helm of different provinces.

It is therefore difficult to imagine that even a minor change in the distribution method will cause zero opposition from provincial governments. However, changes in the very process and structure of the NFC award can at least lessen the risks of annual NFC deadlock, if not prevent them at all.

What could be those changes, and what could be the change in narrative to bring about those changes? These are some of the questions that the Islamabad-based think tank PRIME Institute seeks out to answer over the course of the next twelve months via research publications, reports, conferences, and consultative dialogues. This column would dwell on some of those questions and items on the agenda in tomorrow’s edition.