The National Finance Commission Award or NFC is a series of planned economic programs in Pakistan enacted since 1951. Constituted under the Article 160 of the Constitution, the program was developed to take control of financial imbalances and equally manage the financial resources of four provinces to meet their expenditure liabilities while improving the horizontal fiscal imbalances. As per Constitution, the program awards the designs of financial formulas of economic distribution to provincial and federal government for five consecutive years. Altogether, a total of seven awards have been reimbursed since its emergence in 1951. Intergovernmental transfer of economic resources is chaired by the President of Pakistan whose constitutional purpose is to supervise the system of fiscal transfer to correct the vertical fiscal imbalance between provincial and federal government, and horizontal fiscal imbalances between four provinces. The chairman of the commission is the Federal Finance Minister, and its members include all provincial finance ministers and experts to be nominated by the president of Pakistan in consultation with the provincial governors.
Pakistan is a federation consisting of four provinces, federally administered tribal areas, northern areas and Islamabad Capital Territory. Pakistan is a federation so majority of the revenues are collected at the center and then re-distributed vertically between federal and provincial governments, and horizontally among provinces through National Finance Commission (NFC) awards. Then the provinces further re-distribute the resources to local governments through a revenue-sharing formula framed by Provincial Finance Commission (PFC). The criterion of revenue sharing has always been a bone of contention between the federation and the provinces because of a tug of war between them for getting the healthier share. As per law, NFC was supposed to be constituted for smooth and equitable revenue transfers between the Federal government and provinces. But in reality, it faced difficulties which hindered its development. Only 7 NFC awards have been given up till now, of which three were conclusive. The rest 4 remained inconclusive because federal government and provinces couldn’t reach an agreement on the distribution criteria of revenues therefore an interim award was awarded by the president in this situation.
Eventually after the delay of several years, talks on the next National Financial Commission (NFC) Awards started between the federal and provincial governments. Keeping in view huge economical and particularly fiscal challenges to federal government and provinces, finalization of the new NFC would be an uphill task. Nevertheless, the beginning of the process of talks is indeed a very welcome development and its credit must be given to the Pakistan Tehreek-e-Insaf (PTI) government at the Centre to have started the process. The previous Pakistan Muslim League-Nawaz (PML-N) government failed to even initiate the process of talks on the NFC, fearing it would be extremely difficult to evolve a consensus among the federal government and the provinces on the division of financial resources of the country.
Pakistan’s total debt has more than doubled during the last 5 years. The total debt and liabilities have crossed Rs41 trillion that are now almost 95 percent of the country’s GDP. The federal government is obviously responsible for debt servicing and repayment of this massive debt. The government leaves no stone unturned to get its debt liabilities rescheduled from international lenders, particularly the IMF. Sometimes, while doing this, the country’s economic sovereignty also gets at stake. Similarly, over a period of time, there has also been a substantial increase in Pakistan’s defense spending owing to India’s aggressive military posture against it as well as the rapidly-changing geostrategic realties in the region.
Keeping the above in view and considering that the federal government is performing large number of functions which are otherwise the responsibility of the provincial governments. This includes matters relating to public health, drugs, dams, education, public projects in Provinces, labor, environment and many other trans provincial activities which are obligations of the provinces but have to be performed by federal government. All these activities cost a huge sum. Likewise, the constitution though requires financing and functioning of local governments, yet they have no funds available directly. Therefore, the new NFC award must ensure that provincial share in the NFC Award is equitably divided into three portions i.e. provincial government share, local government share and federal government share for the works done by federal government on behalf of the Provinces. The NFC award should reflect this distribution and should be amended accordingly.
