Revising NFC’s Mechanism | Editorial

For an overwhelmed new government and its finance minister, who while practising prudence did not rule out the possibility of reaching out to the International Monetary Fund (IMF), former caretaker finance minister Shamshad Akhtar has recommendations on how to better manage the economic affairs. The policy recommendations feature cut in the share of the provinces under the National Finance Commission (NFC) Award.
The recommendations propose shrinking the share of the provinces by 8.2% to 49.3% that currently stands at 57.5%. The NFC award, due to its distribution mechanism, is believed to be highly unjust with the provinces not being awarded in terms of the development graph but according to the set metrics of population and revenue generation. The metrics for distribution have remained problematic for the federal and provincial units where provinces try to avert the imposition of additional expenditure from the federation.
Much like the previous governments, the new set-up should not consider the recommendations as due to near-stagnant tax revenues, Pakistan is massively losing out on business deals with foreign investors. However, in the long run this will only worsen the economic and financial management of the provinces. Particularly, if the provincial governments are to do better than the previous ones, mainly to keep the education programmers and social sector initiatives functioning, a cut in the share is likely to decrease the delivery graph.
With a Rs2.26 trillion budget deficit recorded for the previous fiscal year, a shrunken fund will finance the expenditure of the federal government but will not do much to increase the receipts and lessen the looming loss.
It is plausible that if the new government plans to conduct forensic audits and feasibility of the prior business deals and projects undertaken by the previous government, it should also work to revise and make the quota sharing formulae among the provinces a fairer one.
Published in The Express Tribune, August 28th, 2018.

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