NFC award: a challenge

The four provinces have appointed their representatives for negotiating the eighth NFC award however there are credible reports that indicate that the seventh NFC award would be extended for another year.
A look at the background of the NFC awards reveals that no consensus was ever reached during military dictatorships, though one did hear of sycophantic statements by the provincial governments represented by those supportive of the dictator that any award he may consider appropriate would be acceptable. Thus 1985 under Ziaul Haq's dictatorship and 2000 and 2006 awards under Musharraf's dictatorship were only interim awards.
The first NFC award was mandated by the 1973 constitution under Article 160 and envisaged its constitution at an interval not exceeding five years by the President with members consisting of the Federal Finance Minister and ministers of finance of provincial governments and other persons appointed by the president after consultation with the governors of the provinces. The first NFC award was approved a year later in 1974 with the ratio of federal to provincial share at 80:20 with Punjab's share at 60.25 percent, Sindh's 22.5 percent, NWFP's 13.39 percent and Balochistan's 3.86 percent. Population was the sole criteria for revenue distribution amongst provinces and customs duties, the main revenue earner at the time, was kept out of the divisible pool and sales tax was federalised.
The ratio of federal provincial distribution remained at 80:20 till 1990, as did population as the major criteria for allocation. However with changing population patterns in different provinces Punjab's share in 1979 declined to 57.97 percent, Sindh's rose to 23.34 percent, NWFP's remained the same while Balochistan's rose to 5.3 percent. In 1996 under the PML-N government the share of the federal government was reduced to 62.5 percent and provinces' share was raised to 37.5 percent. In 2006 during Musharraf's dictatorship the estimated federal provincial allocation was 55:40 with provincial share expected to be increased by one percent each year till the ratio was 50:50 with Punjab estimated to receive 56.07 percent, Sindh 25.67 percent, KPK 13.14 percent and Balochistan 5.134 percent. Significantly the man who brokered the deal was the then Finance Minister Sartaj Aziz.
Thus post 1990s military dictatorships as well as civilian governments realised that there was a need for greater financial autonomy though this objective was offset by (i) the need for greater finances by the federal government given the rising demand on its scarce resources due to heavy borrowing from within the country as well as without, necessitated because of a flawed tax system, with a consequent steady rise in interest payments as a component of the budget, (ii) the rise in military expenditure due to not only the constant threat on our eastern border (with three wars having been fought there) but post-Soviet invasion of Afghanistan there was a military threat on our Western borders as well while after 9/11 the threat escalated into a full blown war against terrorism requiring massive funds; and the deteriorating law and order situation in Karachi and spread of terror in other settled areas particularly south of Punjab also necessitate enhanced funding; and (iii) sustained failure to resolve the systemic energy sector issues and to mitigate the negative political impact heavy subsidisation of the energy sector.
That this expenditure allocation trend continues to this day is evident from the following data: interest payments (domestic/foreign and foreign loan repayment) were budgeted at 1520 billion rupees last year and at 1657.5 billion rupees in the current year; defence was allocated 629 billion rupees last year and budgeted 700 billion rupees in the current year; and subsidies to the power sector in 2013-14 budget was 165 billion rupees (actual 245 billion rupees) and in the current year 156 billion rupees was budgeted though the figure is expected to be in excess of what was actually allocated last year. Percentage allocation for these three items last year was 66.5 percent of the total budget while in the current year the budgeted figure is 63 percent - the decline is yet to be realised as the current year's revised estimates are not yet available. However if one adds the funding required to implement the National Action Plan - funding which has so far not been released as per the plan - the percentage allocated under these three heads would rise dramatically. And it is this factor that is being repeatedly stressed by the incumbent Finance Minister.
Thus Ishaq Dar is in an unenviable position of raising borrowing, requiring ever rising allocation for defence and subsidies yet the constitution bars him from reducing the provincial share. All he can hope to do is to palm off one of the three major expenditure items identified above onto the provinces. And this is precisely what he tried to do during the first meeting of the NFC that he chaired recently. He was quickly disabused of the likelihood of the provinces accepting his argument by the finance ministers of all the provinces as well as their technical advisors, including Punjab. The Punjab representative maintained that the province had sacrificed enough in the 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 as well as outright allocation to fight terror and Balochistan proposed greater resources based on poverty and area.
So what can Dar do to make the eighth NFC award a success drawing from Sartaj Aziz's and Shaukat Tarin's successes in this instance? Shaukat Tarin who was politically on a weak wicket in marked contrast to the incumbent Ishaq Dar, made the deal a success not only by his willingness to allow greater financial autonomy through agreeing to reducing federal share to 42.5 percent effective 2011-12 onwards but also skilfully convinced Punjab to agree to a reduced share of population in the award enabling him to meet the change of criteria demand of the other three provinces.
Those who claim that Ishaq Dar has repeatedly shown a capacity to successfully negotiate with die-hard political opposition and is a dove in a party of hawks which explains why the Prime Minister increasingly relies on him to mediate with other parties and has given him the stewardship of over 35 committees are no doubt correct. However Dar rules the Ministry of Finance and its attached departments/boards with an iron hand. And he has persistently opposed any move to render this entities' autonomous in spirit (though in letter he has capitulated to the demand of the IMF to grant financial autonomy to the State Bank of Pakistan) - a proposal that is widely believed to be in the interest of Pakistan by multilaterals, bilaterals as well as local analysts based on the experience of other countries.
To conclude, Ishaq Dar may not be the right man to ensure the success of the eighth NFC award which may explain why a one year delay is being considered as the most likely outcome.--(The views expressed in this article may not be necessarily those of the newspaper).