Policy Dialogue – Fiscal Federalism & Devolution-Peshawar

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Policy Research Institute of Market Economy (PRIME) organized a policy dialogue on fiscal federalism and devolution, at Pearl Continental, Peshawar. A select group of the informed audience was invited to participate in the discussion. Participants belonged to a diverse background of government, academia, business, media, and civil society. PRIME is conducting these dialogues in all four provincial capital cities in the country.

These sessions serve to provide a platform to the concerned stakeholders across the country to provide their inputs to PRIME’s ongoing research. For the purpose, PRIME has engaged five economists for authoring policy papers on 5- different NFC related issues. And these authors are part of all these provincial level dialogues.

Inter-governmental resource distribution is more of a political matter rather than a purely economic one. All decisions reached the National Finance Commission have to be reached at by a consensus. Therefore, in order to come up with pragmatic recommendations, research authors from PRIME are holding consultative sessions across the country. Peshawar session was moderated by Shehryar Aziz, whereas authors briefed the audience on their respective NFC paper. It was followed by an open discussion at the forum.

Dr. Ghulam Samad (Director, Centre for Environmental Economics and Climate Change, PIDE)

Pakistan does not have a framework for provincial government expenditures. The federal authorities are collecting almost 98 percent of the total revenue and the provincial governments’ total expenditures are more than that of the federal expenditures. While the provincial governments’ expenditures are increasing, the same trend cannot be observed in the provinces’ contribution to revenue growth. The forum voiced its concern that while the federal government is seeking a great share in the gross divisible pool, at the same time it is vying to take over control of major hospitals from the provincial government in Karachi.

Dr. Sajid Amin (Head, Policy Solutions Lab, SDPI)

Granting such a high weightage to the population as a resource distribution criterion needs to be evaluated. When the population has a weightage of 80 percent in the horizontal distribution formula, other important indicators get left with very insignificant weightage.

Provinces that have a high population naturally are in need of greater resources to be able to meet their needs. When the population has such a high weightage in the resource distribution formula, this creates an incentive for the provinces for not keeping a lid on their population growth rates.

A major sticking point in the NFC discussions is achieving a consensus. And that becomes further difficult when certain stakeholders do not even sit at the table for discussions. Case in point is the first meeting of the recently reconstituted NFC, which was not attended by Chief Minister Mr. Murad Ali Shah, the representative of Sindh province.

Shahid Mehmood (Public Policy Consultant; Instructor, Pakistan Institute of Trade & Development)

Under article 160 of the constitution of Pakistan, the provinces have ownership of their natural resources. However, it is seen that the federal government exercises far more control over them as against the provincial governments. For example, it is the federal government which bi-annually determines the well-head pricing.

This argument was further strengthened by the participants who questioned that if oil and gas are shared resources; then where is the representation of provincial representatives on the boards of SOEs operating in the Oil and Gas sectors? Granting the right of collection of revenue (that is eventually transferred to provinces in the form of straight transfers) to provincial governments is currently disadvantageous for the federal government, which faces a budgetary shortfall of Rs.2 trillion.

Unfortunately, the districts from which natural resources are being extracted, their human development indicators are faring too bad as compared to other settled districts in the country. Neither the provincial nor the federal government spares a thought about the uplift of these areas.

Sohaib Jamali (Editor, BR Research)

Discussants at the forum spoke on the need to adhere to the constitution. It was pointed out that before the NFC deliberated upon a new formula for resource distribution, one must first ensure compliance on the existed formula. As per the participants, KP is still deprived of its due share in net hydel profits. There is a severe trust deficit between the federal government and the provinces. How can then a new formula benefit from a consensus, when the formula that has previously been agreed upon is not being respected?

Sohaib elaborated that the issue of Provincial Finance Commission (PFC) is an entirely provincial domain. If there is some bone of contention between the federal and provincial governments, it does not mean that the provinces should not proceed with improving their PFCs or empowering their districts. Provinces’ grievances with the federation and the subject of municipal empowerment are mutually exclusive. Out of a provincial finance commission comprising of 12 members, 8 are bureaucrats and only 4 are elected representatives of the people. So if there is tilted representation on the PFC, this cannot be justified with lack of mistrust between the federation and the provinces.

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Policy Research Institute of Market Economy

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