Nov 27, 2009

Sindh: NFC Award Report on Resource Distribution

Active ImageFinance Minister Shaukat Tarin said Punjab had agreed to drop insistence on population as the sole criterion and loss to any province will be compensated by vertical formula.



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A four-point multi-criteria formula for resource distribution between the federation and the provinces based on population, backwardness, revenue and inverse population density was agreed upon by representatives of the four federating units at a meeting of the National Finance Commission here on Nov 19. Finance Minister Shaukat Tarin said Punjab had agreed to drop insistence on population as the sole criterion.

The provinces and the federal government had also agreed to create a fund to compensate the NWFP for losses suffered in the war on terror. While the federal government undertook to underwrite the entire expenditure in this regard, the provinces also agreed to chip in with their share from the divisible pool before vertical distribution of resources. The chief ministers of the four provinces also participated in the proceedings.

While the meeting gave a conceptual direction to the next NFC award amid reports that provinces would get more than 50 per cent in resource distribution, the real issues of percentage and weightage were left for the next meeting to be held in Lahore on Dec 9 and 10.

Although Mr Tarin claimed “good progress” on horizontal distribution and said work on vertical distribution would be completed in Lahore, the absence of a substantive agreement indicated that differences on core issues persist and the meeting was wrapped up by claiming progress on the conceptual aspect.

Mr Tarin emphasised that the positions of the provinces on horizontal distribution were very strong and needed more work and refining. Although Sindh is happy over inclusion of revenue as one of the four criteria, the progress in reconciling divergent views on revenue collection and generation as the basis might delay the final outcome.

One of Sindh’s representatives in the meeting, Kaisar Bengali, was of the view that revenue had for the first time been accepted as a criterion for distribution of resources which would be beneficial for the province in either case. He said calculations had to be done in the context of corporate and personal income tax, etc. Mr Bengali said that provinces would get more than 50 per cent in the next award.

While giving details of the day’s proceeding in which discussions were held on both vertical and horizontal distribution, Mr Tarin said that once horizontal distribution was worked out, the parties might be required to revisit the vertical module to iron out points of difference, if any.

He said that Punjab, while exhibiting flexibility, had agreed on a multi-pronged formula for resource distribution and in the next meeting the NFC would calculate the weightage and percentages of various factors suggested by the provinces. He claimed the provinces would get more even in terms of percentage.

Mr Tarin said the participants discussed in detail the horizontal distribution of divisible pool and in case of any loss, it would be compensated under the vertical distribution formula.

The minister said the issue of revenue collection and generation came up for discussion and both the positions were very valid, but there was not much data available to help reach an agreement. Time was needed to come up with a practical formula in this regard, he added. He said horizontal distribution would be finalised at the next meeting and it had been left open for any adjustment, if needed