A Careful Balance | Editorial

The ruling party clearly has its frustrations with the National Finance Commission (NFC) Award. While it has confirmed that it will not try to repeal the 18th Amendment which brought the NFC Award under the constitution, the government is trying to pave the way for more accountability of the spending of provinces and increase some federal control over it. According to Information Minister Shibli Faraz, the federal government will seek to improve the mechanism for funds distributed under the NFC Award in order to hold the provinces accountable for how they spend the money.

The federal government is not wrong in its exasperation with the NFC Award. There should definitely be a check on provinces and how funds are spent. It follows a basic rule of economics that if provinces are guaranteed certain funds from the federal government, without any checks and balances, they will have little incentive to increase their revenue. This leads to a situation where provinces raise funds locally that are less than half of the amount given to them under the NFC Award. This is made particularly difficult when the federal government and the provincial government are of opposing political parties—in this case, the federal government has had woes with the PPP-led Sindh. In the midst of a pandemic, which requires more funds from the federal capital, the government’s initiative in looking into mechanisms to make the NFC Award spending more transparent makes sense.

However, there is a tricky balance the government must keep. Firstly, the Award is enshrined in the constitution, so the federal government must be careful with not overstepping its limits. While it needs to lay out mechanisms to ensure that funds allocated are not misused on personal salaries or cars, not every approach has to be purely revenue-based. This would disadvantage provinces with little industry that do not have the same revenue generation. The point of the 18th Amendment was to uplift all provinces in an equitable way—this must be remembered as the government crafts a plan to make utilisation of funds more transparent.

Source: https://nation.com.pk/17-Dec-2020/a-careful-balance

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