When the chips are down

When the chips are down, the going gets tough and as a consequence taking hard and strategic decisions becomes inevitable. The incumbent government took two policy decisions this week with a significant impact on the social landscape of the country and invoked the 7th NFC award related provisions to harmonise the divergent contentions of the Centre and the Provinces on sharing of financial resources from the divisible pool and transparency in utilisation of allocated fund and its management by the provinces.

It has been reported that the caretaker federal government has decided to scrap or shelve hundreds of development projects and schemes including non-starter projects and elimination of subsidy on urea and BISP (Benazir Income Support Programme) funding on the basis of 50:50 percent between the Centre and provinces.

The federal government has also reportedly decided to offload the financial burden on the federal government and make it mandatory for the provinces to share 50 per cent of total cost of projects within the provincial domain that are part of the Public Sector Development Programme (PSDP) and other sectors of common interests such as Higher Education Commission program (HEC), Benazir Income Support Programme (BISP), subsidy in the agriculture and power sectors, etc.

While the decision to shelve development projects can be considered within the caretaker government’s mandate due compulsion of severe paucity of fiscal resources but any attempt to revisit the constitutional amendments governing the 7th NFC Award is a highly complex political subject.

The 7th NFC Award, rolled out in 2009, has indeed been a source of concern for the Center, especially when it comes to debt servicing and defense expenditures. After meeting the obligations of interest payments on international and domestic debts, along with defense expenditures, the government has to borrow money from internal and external resources to bridge the gap.

Since the passage of the 18th Amendment, a number of ministries have been devolved to the provinces but the mechanism for an equitable cost sharing between the federal government and provinces and the transparency in utilization of funds by the provinces remains an unfinished agenda.

Some attempts were made in the past by the federal government to restructure and resolve the issue but could not make inroads. The caretaker government, with a strong institutional backing, may have been considered the right forum and an appropriate time to achieve this objective within its tenure.

Federal Government sources claim that the provincial projects have made inroads into the federal PSDP at the cost of federal nature projects. Presently, 33% of financial resources are claimed by the provincial projects in the federal PSDP 2023-24 with allocation of Rs 314 billion and due to resource constraints.

Consequently, funding is not being provided to the important national strategic projects, which are facing cost overruns, depriving the country of accrued benefits, adding that the 18th Constitutional Amendment and the 7th NFC Award made the provinces more autonomous and financially strong to undertake initiatives in the devolved subjects through respective ADPs (annual development programmes).

Reportedly, the Finance Ministry intends to share the following plan with the Provincial Finance Secretaries: (i) all 137 non-starter projects with zero financial progress may be dropped from the PSDP 2023-24 to save allocation of Rs 116 billion during CFY; (ii) no further release to SDGs Achievement Programme (SAP) to save balance allocation of Rs 29 billion; (iii) all 49 projects having financial progress from 0-20% may be considered for shifting to respective provinces for further financing through respective ADPs and postponed; (iv) 150 projects having financial progress between 21% and 80% may be critically reviewed by provinces and may be completed by the provinces through respective ADPs and/or bridge financing in case of cost sharing projects; (v) 20 projects with 80% plus progress may be completed during CFY on priority through re-appropriations/adjustment, if resources become available

On Higher Education Commission (HEC), Finance Ministry argues that Federal Government continues to engage on devolved subjects whereas the 18th constitutional amendment had planned to devolve key functions of the HEC to the provinces.

Despite devolution of education to the provinces, HEC remains a federally-funded entity with Rs.66 billion current grant and Rs.70 billion development grant of which it has been disbursing a major share to the provinces.

Finance Division while issuing Indicative Budget Ceiling (IBC) for the FY 2023-24 categorically advised HEC to approach the provincial governments to meet the shortfalls of their universities and accordingly the Finance Ministry has asked provincial governments to provide at least matching grants to the universities and ultimately take up the entire responsibility in due course.

Finance Ministry stated that Benazir Income Support Programme (BISP) operations are presently funded by the Federal Government. BISP’s budget allocation since its inception has been steadily increasing, and has doubled during last two financial years from Rs 235 billion for FY 2021-22 to Rs 471 billion for FY 2023-24 (BISP’s program/activity wise budgetary allocation for FY 2023-24). There is a growing risk that this level of spending may not be financially sustainable for the Federal Government

In this regard, the following two-step Action Plan is submitted for consideration: (i) as the first step, joint financing should be implemented for BISP’s two Conditional Cash Transfer (CCT) programs, BISP Taleemi Wazaif (children stipends) and BISP Nashonuma (Nutrition Program).

These programmes are related to Education and Health, which are Provincial subjects, and are being implemented in the Provinces through Provincial Government setups, i.e., educational institutions and health facilities.

Provincial governments should contribute 50% of the agreed budgetary outlay towards BISP’s budget of these Programs. An institutional mechanism may be created for this purpose by giving representation to Provincial Governments’ representatives on the BISP Board.

The financial burden of subsidies has been borne by the Federal Government without any Provincial contribution. In the case of subsidy on imported urea, Provinces have in some cases agreed to provide 50% share of the subsidy.

However, the payments due on account of the Provincial share have not been made in a timely manner. Currently, an amount of Rs.25.6 billion is outstanding towards the Provinces. Equitable sharing of cost between the federal government and the provinces is a positive step forward which had been left out for too long.

As the subject is now being resolved more at the level of state functionaries it may well be implemented and inducted into the process and would be difficult to undo. What is equally important and needs to be structured is the transparency in allocated funds expenditures by the provinces.

With the 18th Amendment and 7th NFC Award it was expected that the social sector, infrastructure and other development projects of public interest would witness a significant uplift once managed by the provinces in the best public interest.

This has not happened and has in fact seen deterioration in these sectors with more public funds being squandered.

Copyright Business Recorder, 2023