DEVELOPMENT ADVOCATE PAKISTAN 2, Issue 2 Volume June 2015 thNational Finance 7 Commission Award DEVELOPMENT ADVOCATE PAKISTAN © The Express Tribune June 2015 CONTENTS Analysis Interviews Dr. Ayesha Ghaus Pasha The NFC Awards: Past, Present and the Future 02 28 Provincial nominee for NFC - Punjab 28 Chaudhry Abdul Majid Opinion Prime Minister - Azad Jammu and Kashmir Dr. Hafeez Ahmed Pasha 7th NFC Award: Has it worked? Distinguished Economist and Chairman, 16 Dr. Ashfaque H. Khan 29 Panel of Economists (Independent advisory committee for the government) Provincial Finance Commission Awards: 21 A tool for inclusive development Dr. Jehanzeb Jamaldini Muhammad Sabir 30 Senator - Balochistan 7th NFC-Constitutional and Legal importance Muzaffar Said Development Advocate Pakistan provides a platform 23 Nasir Jamal 31 Finance Minister - Khyber Pakhtunkhwa for the exchange of ideas on key development issues DEVELOPMENT ADVOCATE and challenges in Pakistan. Focusing on a speci.c 7th NFC Award: Is there any impact? development theme in each edition, this quarterly Mir Khalid Langove 25 Naseer Memon publication fosters public discourse and presents 31 Advisor to Chief Minister on Finance varying perspectives from civil society, academia, Balochistan government and development partners. The PAKISTAN The Perspective of Development Partners on publication makes an explicit effort to include the 26 the 7th NFC and the Way Forward Ch. Muhammad Berjees Tahir voices of women and youth in the ongoing discourse. Faisal Rashid A combination of analysis and public opinion articles Disclaimer 32 Federal Minister - Kashmir affairs and Gilgit Baltistan promote and inform debate on development ideas The views expressed here by external contributors or the members of whilepresentingup-to-dateinformation. the editorial board do not necessarily re0ect those of the organization Akhunzada Chitan for which they work, and none of the opinions contained herein are YouthVoices 32 Central leader of FATA joint political UNDP’s official views. parties and member of FATA reforms committee Editorial Board Editor External Reviewer Youth voices from Balochistan Sikandar Khan Sherpao Mr. Marc-André Franche Maheen Hassan Dr. Abid Qaiyum Suleri 38 UNDP Country Director Provincial President and parliamentary leader of Qaumi Executive Director 33 Watan Party, Khyber Pakhtunkhwa Assembly Designer Sustainable Development Policy Mr. Aadil Mansoor Institute (SDPI) Youth Voices from Sindh Assistant Country Director/Chief Syed Asfar Hussain Shah 39 Saleem Mandviwalla Crisis Prevention and Recovery Unit 34 Provincial nominee for NFC - Sindh Layout Mr. Amir Goraya Torsum Khan 40 Youth Voices from Punjab Assistant Country Director Prof. M Ibrahim Khan Democratic Governance Unit Printed by: Agha Jee printers, Islamabad 35 Provincial nominee for NFC - Khyber Pakhtunkhwa Mr. Shakeel Ahmad 41 Youth Voices from Azad Jammu and Kashmir Assistant Country Director/Chief Mian Mehmood-ur-Rasheed Development Policy Unit United Nations Development Programme Pakistan 36 Leader of opposition - Punjab 4th Floor, Serena Business Complex, Youth Voices from Gilgit Baltistan Mr. James Littleton Khayaban-e-Suharwardy, Sector G-5/1, 42 Chief Technical Advisor P. O. Box 1051, Sakib Sherani Strengthening Electoral and Legislative Processes Islamabad, Pakistan 37 Senior Economic Advisor Ms. Fatimah Inayet /undppakistan /DevelopmentAdvocatePakistan Communications Analyst For contributions and feedback, please write to us at: www.twitter.com/undp_pakistan [email protected] Saleem Mandviwalla www www.pk.undp.orgProvincial nominee for NFC - Sindh ISBN: 978-969-8736-11-8 us Follow Editorial n 2015, the 7th National Finance Commission Award (NFCA) will Provincial Finance Commission Awards (PFCA). The share of local conclude its .ve year term. Deliberations on the8th NFCA have governments is very low – around 24 percent for Punjab, 6 percent Ialready begun. As we transition to the new NFCA, it is important for Sindh and 4.6 percent for KP. The lack of elected local to take stock of the achievements and failures of the current award, governments for almost 10 years, has virtually stopped the and its impact on the future of development policy and Pakistan's processofdecentralization. effortstoachievetheSustainableDevelopmentGoals. Moving forward, the 8th NFCA must build on the foundation laid The 7th NFCA was unprecedented in the history of Pakistan. First, it down by the 7th NFCA and encourage provinces to establish well- generated an unparalleled political consensus on the NFC process. functioning PFCAs. The multiple indicator formula for horizontal The political process which underpinned it was participatory and distribution of resources must be retained, with poverty/ inclusive, with a broad buy-in characteristic of a truly democratic backwardness remaining a key criterion. Indeed, the NFC process development process. Second, it introduced much needed should consider integrating regular reporting of the Multi- structural changes to how funding was distributed between dimensional Poverty Index and Human Development Index provinces. For the .rst time, the criterion for distribution was not developed by the Government of Pakistan with support from based on population alone but on multiple indicators including UNDP.This will not only provide a measure to assess the impact of poverty. increased expenditure locally but will also establish baselines for subsequentFCAs. Resource distribution is widely used as an instrument of .scal equalization to address socio-economic inequalities. For example, Recognizing that this may need constitutional amendment, the the Indian Finance Commission (FC) has been constituted 14 times NFC process should also integrate the three administrative since independence, compared to four conclusive NFCAs in regions – Azad Jammu and Kashmir, Gilgit-Baltistan and the Pakistan. The regularity of awards by the Indian FC is largely thanks Federally Administered Tribal Areas (FATA) – but not at the cost of to being delinked from population. In the spirit of .scal equalization, provincial shares. Given the special needs ofTemporary Displaced the FC awards assign signi.cant weighting to deprivation or People, FATA particularly needs urgent attention. The “backwardness” measured through poverty, geographical continuation of the NFC process will strengthen Pakistan and remoteness, per capita income, etc. Other countries, such as enhance the functioning of the many layers of government Germany and Canada, also use multiple criteria successfully. The whose productive participation is crucial for development and introduction of multiple criteria in Pakistan's 7th NFCA was thus inclusivegrowth. welcome. Some critics believe the use of the 'backwardness' or poverty indicator for the NFCA creates perverse incentives for provinces – to increase their share, provinces will want to remain poor or at least appear poor – and propose replacing it with 'poverty reduction'. However, we believe the issue is not the criterion used, but the need to develop a proper monitoring and evaluation system to assess the localimpactsofdevelopmentexpenditure. The 7th NFCA was expected to increase federal transfers by 24 percent from the base year of 2009–10.While actual federal transfers increased by 22 percent, due to revenue shortfall provincial development expenditure increased by only 13.6 percent against a 37 percent projection. The provincial current expenditure, on the other hand, increased by 16.4 percent against a projected 14 percent. This suggests that increased funds did not proportionally convert into development expenditure. Even poverty reduction expenditures as a percentage of GDP have remained unchanged at 7.6 percent. While it is encouraging that education and health are top priorities at both provincial and federal levels, other sectors (including environment, agriculture, and climate change) are now muchlowerprioritiesfortheprovincesinthepost7thNFCAera. The impact of the 7th NFC has also been weak. For example, Punjab has shown only a marginal increase in the proportion of primary Pakistan Gold Coins school aged children enrolled in an appropriate level of education, the Net Primary Enrolment (NPE), from 62 percent in 2008–09 to 64 Pakistan only issued its own coins for the .rst time in 1976, percent in 2013–14, whilst Khyber-Pakhtunkhwa (KP) has risen from and its gold coins are commemorative pieces. 52 percent to 54 percent. In Sindh and Balochistan the NPE has actually declined, from 54 percent to 48 percent and 44 percent to 39 percent respectively. These insigni.cant changes point towards a critical issue: increased resources are simply not converting into enhancedsocialsectoroutcomes. Reasons for this include weak public administration capacity to spend adequately and, importantly, the dormant status of the 01 Analysis and increasing annually in line with the octroiandzillataxfor1998-99. remained the single factor of population growth in the pool. An amount equal to until 2010. There were slight variations in The NFC Awards: 1/6th of general sales tax (GST) was The vertical distribution and the shares whenever the population distributed among provinces; 50 percent composition of the divisible pool have distributionalteredduetocensus. on the basis of population and 50 percent been changing with every award, but the Past, Present and the Future in proportion to the collection of audited criteria for horizontal distribution Chart 1: Salient Features of Various NFCs Vertical Horizontal Grants and Straight