By Naseer Memon —

The 7th National Finance Commission Award (NFCA) marked a major policy shift that attempted to enhance provincial share in vertical distribution and diversify the distribution criterion for horizontal distribution of resources. Additionally, the federal government reduced its tax collection charges substantially from five to one per cent. These three measures augmented overall share of the provinces in the divisible pool.

A policy paper of Social Policy and Development Centre (SPDC) on the subject matter provides a comprehensive analysis of benefits accrued to the provinces through the 7thNFCA. The paper reveals that compared to the 6th Award, the provincial share has increased by Rs1228 billion in the 7th NFCA and the federal share has reduced by Rs1148 billion. Punjab and Balochistan were poised to gain Rs320 billion and Rs319 billion whereas Sindh and KP were set to gain Rs290 billion and Rs307 billion respectively. However, tax receipts of both the federal and provincial governments fell below the projections. In contrast, the current expenditure of the federal government and the provinces dwarfed their projections. As a corollary, actual receipts of the provinces under the NFCA fell below the original estimates, yet higher than the previous NFCA.

While the provincial share was augmented in the 7th NFCA, its dividends were not adequately transferred to the common citizens. Nevertheless, overall development spending as well as social sector spending in provinces witnessed substantial increase in absolute numbers during the post-7th NFCA years. On the contrary the federal government’s contribution dipped considerably.

Pakistan has a chronic deficit of human development. Pakistan’s ranking on human development has always brought ignominy for its rulers and subjects. According to the UNDP’s Human Development Report-2014, Pakistan ranked at 146 out of 185 countries. The country has been bracketed with the low human development countries. Pakistan barely maintained the previous year’s ranking when it shared 146th position with Bangladesh. However, Bangladesh this year moved four rungs up and stood at 142nd position. With such an unceremonious ranking, a nuclear power flaunting atom bomb has been outshined by all other SAARC countries except the war-ravaged Afghanistan. Even Afghanistan has improved its position from 175th in 2012 to 169th in 2014.

Similarly, Pakistan is set to miss most of the vital targets under Millennium Development Goals (MDGs). According to the MDG Report 2013, the country is off-track on 23 out of 33 targets. This yawning deficit of human development merits higher spending and effective delivery of social sector services.

According to the aforementioned report of SPDC along with increased share in the NFCA, the provinces also mobilised more revenues through a devolved sales tax on services. The 18thAmendment empowered provinces to directly collect sales tax on services. While tax collection by the FBR registered a net decline during the pre and post-7th NFCA years, tax collection by provinces registered an impressive annual growth from 14.2 per cent during pre-7th NFCA to 43.3 during the post-Award years. This enabled provinces to allocate more resources for development. Spending on development is pivotal to generate employment and build productive assets that may fuel economic growth in a society. Thus, it contributes to overall wellbeing of the citizens.

Punjab’s annual growth in development spending increased remarkably from 6.5 per cent to 22.3 per cent during pre and post-7th NFCA years. Similarly, Balochistan’s annual growth in development spending increased from 11.1 to 18.7 per cent during the same period. Sindh marginally increased from 24 to 24.8 per cent. However, KP’s annual growth declined from 18.9 to 12 per cent.

As percentage of GDP, overall annual development spending increased from 4.7 per cent in 2009-10 to 5.1 per cent in 2013-14. However, as per cent of GDP, sum of the average annual spending of provinces marked a decline from 1.8 to 1.6 per cent. Punjab which depicts impressive annual growth in rupee terms, showed a net decline of average spending from 1 to 0.7 per cent in development sectors as percentage of GDP. Average annual development spending by other provinces almost stagnated as per cent of GDP. This indicates a dismal picture. Provinces still have room to enhance overall development spending.

Within overall development budgets, spending on social sector avenues is of critical importance. It directly contributes towards improvement of human development indicators by creating social capital, improving basic social services that are considered as basic human right and reducing poverty that ultimately leads towards socio-political stability in a society.

Pakistan is bracketed with the countries with low spending in social sector, mainly in education and health. Overall social sector spending increased from 2.2 to 3.0 per cent of GDP during pre and post-7th NFCA years, which depicts a healthy trend. While the federal government’s average annual spending declined from 0.51 to 0.41 per cent of GDP, the provinces picked up the momentum and registered a robust increase from 1.99 to 2.4 per cent of GDP during these years. All the provinces showed a positive trend in social sector spending as per cent of GDP.

The education sector’s overall spending improved from 1.5 to 2.1 per cent of GDP during the pre and post-7th NFCA years. The federal government reduced average annual spending from 0.36 to 0.32 per cent whereas the provinces’ average spending in education sector jacked up from 1.37 to 1.66 per cent during the same period.

The same trend was maintained in health sector. The overall health sector spending improved from 0.51 to 0.8 per cent of GDP during the pre and post-7th NFCA years. The federal government’s average annual spending declined from 0.14 to 0.09 per cent of GDP whereas the provinces’ spending in health sector was bolstered from 0.45 to 0.59 per cent of GDP during the same period. All the four provinces depicted positive trend in this regard.

Although data shows an increase in the social sector spending by provinces, transfer of new subjects has also put additional burden on their resources. With the adoption of 18th Amendment, 47 subjects of the erstwhile concurrent list were devolved to the provinces. Transfer of these subjects entails staggering salary and pension bills, maintenance and development of infrastructure of the devolved departments and expenditure on operation, maintenance and procurements. In other words, impact of higher spending in social sector is offset by the burden of new expenditures and administrative obligations.

Ultimately it is not the spending but the results that will matter to judge the social sector performance. This injection of additional resources cannot be rejoiced if key human development indicators do not register some visible improvement. An example is a decline in overall literacy rate of Pakistan.

According to the latest report of Pakistan Social and Living Standards Measurement (PSLM) survey, Pakistan’s literacy rate has slipped from 60 per cent in 2012-13 to 58 per cent in 2013-14. Increased spending could not yield aspired results here. Spending is very important yet it is just one of the variables. Other critical factors such as population growth and investing resources at right place in an effective manner are of equal importance.

From a common citizen’s stand point improved service delivery and better justice system would be the real value of increased share of provinces in financial kitty. The 18thAmendment and 7th NFCA will bring real fruition when devolved political powers and enhanced share in financial resources to provinces ultimately trickle down to common citizens and bring some relief in their lives.

The newly formed local governments can be a viable conduit to channelise resources to people living at the bottom of social pyramid. Ultimate destiny of political, administrative and financial devolution should be to ameliorate lives of citizens. Anything less than that would be mere ritual and ruse. If democracy and devolution cannot lessen miseries of simpletons, their legitimacy and sustainability will always remain vulnerable to lurking nemesis.

This article was originally published in The News on 16th Nov 2015.