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National Finance Commission ToRs

The Finance Ministry after approval from President Arif Alvi has notified the constitution of the National Finance Commission (NFC) as required under Article 160 of the constitution to be chaired by the Advisor to the Prime Minister on Finance in the abse

Updated May 16 2020

The Finance Ministry after approval from President Arif Alvi has notified the constitution of the National Finance Commission (NFC) as required under Article 160 of the constitution to be chaired by the Advisor to the Prime Minister on Finance in the absence of the prime minister who is also the finance minister (with criticism by some quarters that an advisor is not empowered to be a member leave alone chair the NFC meeting), and comprising the four provincial chief ministers, four non-statutory members representing the provinces and the federal finance secretary as an official expert. Two terms of reference not part of previous NFCs include: (i) assessment and allocation of resources to meet expenditures on security, natural disasters and calamities; and (ii) assessment of public debt and allocation of resources for its payment. Those who may consider this an out of the box solution to the Centre's worsening resource problem vis-a-vis its expenditure subsequent to the passage of the 2010 seventh NFC award (which envisaged a rise in the provincial share of the divisible pool to 57.5 percent with a commensurate decline in the centre's share to 42.5 percent) coupled with Article 160 (3A) of the constitution (stipulating that the share of the provinces in each award of the NFC shall not be less than the share given to the provinces in the previous award) would do well to recall that the then finance minister Ishaq Dar's proposal to set aside an additional 3 percent from the divisible pool taxes to meet expenses for additional security, natural disaster management and aid to special regions including Gilgit-Baltistan, Azad Jammu & Kashmir and the yet to be merged districts into KPK referred at the time as FATA. Dar's proposal was rejected by those provincial governments where the PML-N did not form a government notably Sindh led by the PPP and KPK led by the PTI.
However, Dar did not include provincial allocation of resources for payment of the federal government's debt - a proposal that provinces may oppose on two grounds as they: (i) have little say in the federal government's expenditure priorities; and (ii) are required to generate a surplus since the passage of the 18th Amendment - a surplus that is pledged but rarely achieved. Successive finance ministers have used this component of its revenue as a means to show a lower budget deficit and this trend continues as the current year's budget envisages a provincial surplus of 423 billion rupees. Thus even though Dar's proposals did not form part of the NFC terms of reference yet they were the stumbling block in its passage.
The constitution is not clear on whether or not consensus is necessary to enforce an NFC award (a condition met only in three NFC awards) or whether a majority opinion may prevail (as stipulated in the constitution in the case of the Council of Common Interests) though no government (civilian or military) has so far announced an award opposed by any one province. However, the President does have the constitutional power to extend an ongoing award and this has been the case with many previous administrations.
The PML-N cannot of course assist the PTI in the NFC award as it does not have a government in any province though the PPP's support would be critical and that of any other province which may oppose the Centre's desire for a readjustment in the existing resource distribution that would see its share decline. However, the PML-N can play a critical role in amending the constitution as it has the numbers in the National Assembly (84) and the Senate (33) that would give the PTI a two-third majority in the two houses required to amend the constitution. Informed sources have told Business Recorder that notwithstanding the public position taken by several senior PML-N leaders on this issue the party may eventually vote in favour of the amendment if the Sharif family and other senior party leaders are provided relief from their pending legal cases.
There is, however, an emerging opinion today that the PTI administration may succeed where the PML-N failed because the civilian and military establishment are on the same page on this matter. However, we would like to point out to the federal government that even if its share of the divisible pool is increased by 10 percent it would still be unable to meet its defence and debt servicing allocations for the year and therefore it needs to focus on not only reducing expenditure but also in widening the tax net and attracting foreign direct investment (FDI).

Copyright Business Recorder, 2020