An equal Pakistan

by Muhammad Saleem who tweets at @memzarma

[originally published in Pakistan Today on 7th September, 2017 and is reproduced here with permission]

Pakistan is a constitutional federation with a three-tier system of government; federal government in the center, provincial governments in the provinces and local governments at the districts and lower levels. All these three tiers of government are managed through a fiscal federalist framework where functions are assigned to different levels of government with appropriate fiscal instruments. The federal government has the basic responsibility of macroeconomic stabilization & income redistribution through taxes and expenditures while provincial/local governments are entrusted with decentralized provision of socio-economic services to maximize welfare.

Revenue generation is highly centralized in the federal government while expenditure has been decentralized, largely, to the provincial governments. For example, during the last fiscal year which ended in June 2017, consolidate fiscal account of federal and provincial governments shows that 92% of total resources were collected by federal government while provincial governments spent around 38% of these resources. The increased spending space of provincial governments, well above their own resources, is provided by federal transfers through National Finance Commission (NFC) Awards.

The purpose of NFC Award is, thus, to achieve fiscal equalization to fill the gap between revenues and expenditures in the provinces. In case of Pakistan, the true spirit of fiscal federalism was first introduced in 1973 constitution. That spirit was then further strengthened in 2009-10 through 7th NFC Award where provinces share in total divisible pool taxes were considerably increased to 57.5% from 45%, which help all provinces. A special clause was inserted in constitution through 18th amendment that the share of provinces in each NFC award shall not be less than the share given to the provinces in the previous award. Further, a multi-indicator formula was devised in the 7th NFC award to horizontally distribute these increased resources among provinces. Population as a sole criteria of resource distribution among provinces was discarded and other indicators such as poverty, inverse population density and revenue generation capacity were introduced. This revised horizontal distribution formulae thus increased the fiscal space in Balochistan province where its share rose from a mere 5.11% to 9.09%. Research on the impact of 7th NFC award show that the award did improve fiscal equalization matrix among federating units as compared to previous awards. This, in turn, helped in improving budgetary allocation by provinces to vital social services such as education, health, rural and urban infrastructure.

7th NFC Award is truly historic for the four provinces but it misses out three ‘special status’ regions namely Gilgit Baltistan (GB), Azad Jammu & Kashmir (AJK) and Federally Administered Tribal Areas (FATA). These three regions of Pakistan receive only a one-liner block allocation in the federal budget, which is an arbitrary number not based on some rule or formula. The dream of fiscal equalization is thus unfulfilled for the Pakistanis inhabiting these regions. Out of these regions, FATA is integral part of the federation while GB and AJK are ‘autonomous’ regions as per our constitution. The true spirit of fiscal equalization in Pakistan can only be achieved by including these regions in the NFC award.

Moreover, 7th NFC Award given for fiscal year 2010-11 onwards, used poverty figures which were as old as 1998-99. Specifically, the award used an average of three poverty figures derived in 1998-99, 2003 and 2008. Using old poverty figures has serious implications for the fiscal equalization efforts in the 7th NFC award. Luckily, we now have two latest poverty figures calculated by UNDP & World Bank, which were owned by the federal government. Poverty figures of the UNDP capture the multi-dimensionality of poverty while the ones by World Bank captures the monetary side of poverty. These new poverty figures coupled with new population numbers of the recently concluded 2017 census should be used which will ensure fiscal equalization across different regions.

What will be the fiscal equalization impact of a new NFC award if FATA, GB and AJK are included as constituent parts of the next NFC Award? While provisional figures of 2017 census are out for the four provinces, Islamabad and FATA regions, we have to wait for the regional governments in AJK and GB for the population figures for these two regions. However, by plugging in new census & poverty figures in the old 7th NFC Award formula, we can derive an estimated NFC share for FATA. As per calculations of the author, FATA’s share in NFC award comes to around 5.2% of the total divisible pool taxes using the new population census with UNDP poverty figures. This is higher than the demand of an arbitrary figure of 3% NFC share for FATA as approved by Federal Cabinet on the recommendations of the Committee on FATA Reforms & is well above the current amount FATA receive as a one-liner block grant. FATA & FR regions were allocated a total of Rs 55.5 billion in 2017-18 federal budget. In contrast, a 5.2% share in NFC for FATA will translate to Rs 118 billion, even if we do not include FATA in other state transfers. Besides due share in NFC awards, FATA, GB & AJK also deserve Royalty from various dams like the other four provinces.

Being constituent parts of NFC, the four provinces receive regular annual fiscal transfers from the federal divisible pool taxes. In contrast, FATA, GB & AJK receive ‘gifts’ from the federal government in terms of block allocations which need to be converted to a due right of these regions. To achieve fiscal equalization among all regions of the federation of Pakistan, the next NFC award need to remove these anomalies. The new award should also correct the historical neglect of these regions by allocating a specific percentage of resources to regions over & above their due share. Regional inequalities has serious implications for the future of our federation and a higher economic growth can only be achieved by a balanced and equal growth across Pakistan.

Are we deliberately excluding FATA?

by Muhammad Saleem, who tweets at @memzarma

[the article originally published at Pakistan Today on August 29, 2017 and is reproduce here with permission]

If not, let’s not encourage the notion

Availability of reliable and timely data is the prerequisite for any solid research and policy interventions by different tiers of governments. Last week, I attend a conference on ‘Marginalization and Social Exclusion in the Perspective of Market Economy” organized by Department of Economics, University of Peshawar with collaboration from Quaid-e-Azam University and Higher Education Commission of Pakistan. Around 30 research papers were presented in the conference by researchers in the field of economics from across Pakistan. A majority of these research papers used rich socio-economic datasets of Pakistan Bureau of Statistics (PBS). The findings of these papers offered some concrete policy recommendations for the policy makers. However, in an unfortunate reflection of government data, the scope of all these research papers were limited to the four provinces of Pakistan and excluded FATA, GB & AJK from the analysis due to unavailability of data on these regions. The irony is that a conference on marginalization and exclusion cannot study the regions because, of the fact, that federal data collecting organization do not collect socio-economic data on these regions.

PBS is the single most important organization at the federal level which conduct nation-wide representative surveys on different socio-economic indicators on yearly basis. While some surveys do include GB and AJK, it completely ignores FATA as a region. With its head office in Islamabad, PBS has 18 Regional and 16 Field Offices across Pakistan but there is not a single office in FATA. With lesser population then that of FATA, PBS has one regional office in AJK and one field office in GB. FATA is probably the only region in the world where Millennium Development Goals (MDGs) were not monitored and, if the neglect continues, Sustainable Development Goals (SDGs) too will be not monitored in FATA.

Almost all the socio-economic surveys conducted by PBS clearly states that the sample designs of these surveys excludes the whole FATA region. As discussed earlier, this exclusion not only limits serious research on the region but also excludes FATA from important policy documents. Everything from the Economic Survey of Pakistan, Annual and Quarterly Reports of State Bank of Pakistan, Pakistan’s Vision 2025, Annual Plans of Planning Commission of Pakistan, CPEC Short and Long Term Plans, Public Sector Development Programs, Poverty calculations and many other government policy documents mention only the four provinces and exclude FATA and other regions of special status. FATA gets a mention only when the reference is made to War on Terror or security concerns in the country.

FATA is also excluded from important national economic and social policy forums such as National Economic Council (NEC), Council of Common Interest (CCI), National Finance Commission (NFC) Awards and other such policy forums.

This marginalization is not driven by economics or a lack of interest by researchers, instead analysts and legal experts are in consensus that these FATA exclusions stems from article 246 and 247 of the constitution. This marginalization and exclusion of FATA has serious consequences on the wellbeing of the people living in FATA. Pick any socio-economic indicator on FATA and a comparison with the national average will reveal that FATA lags behind the rest of Pakistan by a big margin. For example, the first ever official national multidimensional poverty index (MPI) developed by UNDP, revealed that poverty incidence in FATA is 73.7% as compared to national average of 38.8% during 2014-15.  It should be noted here that the MPI figures for FATA were derived from a data source, which is less rigorous than the one conducted, by PBS.

Governing FATA through an opaque and unaccountable system like the FCR has serious repercussions on service delivery. The political marginalization of FATA in Pakistan’s constitution led to its economic and social exclusion from different national policy forums, policy documents and data collections. This marginalization is not because of the people of FATA but in spite of their desire. In a recent statement released by Ministry of SAFRON, around 31,000 messages were received by the ministry from people of FATA in support of FATA’s mainstreaming. Similarly, the recently held 6th population census peacefully concluded in FATA by PBS with not a single incidence of obstruction in FATA. There were huge rallies from Lawyers, students, and political parties in FATA demanding constitutional reforms in FATA to mainstream the region.

Pakistan’s constitution may have codified marginalizing FATA and to some extent AJK and GB but despite this, its writers aspired for a better world in the future. This is best reflected in Article 37a ‘Principles of Policy’, which states “..State shall promote the educational & economic interests of backward classes or areas”. If we want to create a more inclusive Pakistan, reflecting those principles, mainstreaming FATA should be a top priority, and a small step in that direction would be to immediately include FATA in PBS surveys.