The federal government has reportedly deferred implementation of 7th National Finance Commission (NFC) Award due to financial constraints. It was revealed in the Budget Strategy Paper 2011-14 submitted to the Cabinet on Wednesday.
"Finance (Ministry) is unlikely to transfer additional Rs 360 billion to the provinces for few years which is their constitutional right after the announcement of 7th National Finance Commission (NFC) award," the Paper added.
The Paper further states that with the announcement of 7th NFC award, additional resources to the tune of Rs 360 billion will be transferred to the provinces. This will have a salutary effect on provision of critical social services being provided by the provinces to the citizens.
However, before the requisite capacity is developed among the provinces to expand such services, it is expected that these additional resources will be used prudentially including building of surpluses that will be helpful in containing overall fiscal deficit which is likely to be adversely affected at least in the first few years of the NFC Award because of such high transfers under the NFC. Finance Ministry hopes that such surplus will amount to at least 0.6 per cent of the GDP, the document adds.
Last year, the amounts transferred through NFC including amounts from net divisible pool and straight transfers were around 48 per cent of federal tax revenue. This year the federal government through the NFC Award was to transfer around 62.5 per cent of federal tax revenue to the provinces.
The provinces are required to demonstrate increased fiscal prudence in two areas: (1) by helping the federal government in maintaining a fiscal surplus of 0.6 per cent of GDP in 2010-11 and 2011-12 and (2) by maintaining a certain acceptable level of borrowings from the schedule banks, external resources and State Bank of Pakistan (SBP). For both these options to be implemented, Finance Ministry recommends that these should be discussed and agreed through the Council of Common Interest (CCI). At the same time, federal government is to increase defence budget by Rs 52 billion to Rs 495 billion in 2011-12 from Rs 442 billion earmarked for the current financial year.