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.

Pakistan: Spending its way into social inequality

by Saleem

Discretion Vs Rules in Federally Funded PSDP Projects Allocation

The overall size of the Public Sector Development Programme (PSDP) for the Financial Year (FY) 2012-13 is Rs 873 Billion as approved by National Economic Council (NEC) and reported in the budget documents of the Ministry of Finance¹.  Different components of the PSDP can be summarized as below;

Table 1
S.No	Area	Funds Allocations as per Budget FY 2012-13
1.	Federal Ministries/Divisions	Rs 207        Billion
2.	Corporations	Rs 80.382  Billion
3.	Peoples Works Programs (PWPs)	Rs 27          Billion
4.	Special areas	Rs 36.055  Billion
5.	ERRA	Rs 10          Billion
6.	Provincial PSDP	Rs 513        Billion
	Total PSDP	Rs 873       Billion

   

                                               

After the adoption of 7th NFC award in December 2009 with consensus among the federating units, which is applicable to the budgets in FY 2010-11 and onwards, the share of Provincial PSDP has been considerably increased as more resources were transferred from federal government to the provincial governments.  Earlier, the 5^th NFC award, which was adopted in 1997 and valid for five years, was in place till 2010 as no consensus has been reached over the 6^th NFC award. Under the 7th NFC award, the financial autonomy of the provinces has been ensured by increasing their share in the divisible pool from 50 percent to 56 percent in 2010-11 and 57.5 percent from 2011-12 onwards². The size of the provincial governments Annual Development Programmes (ADPs), thus, increased considerably.  This is a healthy sign for the federation of Pakistan as provinces can now devise their own developmental schemes in accordance with the development requirements of its own people with more resources at their disposal.

However, there is still considerable amount of funds left with the federal government in federal PSDP to be utilized in the public sector development projects (See Table 1) of national importance. These include Funds available with the Federal Divisions/Ministries and Peoples Works Programmes (PWPs) among others. 

Should these funds be utilized throughout Pakistan under some Rules or should it be ‘discretionally’ used by the Chief Executive (PM) or his federal ministers?  There should be no room for discretionary allocations of these funds and strict rules are needed to maintain the regional parity while distributing these resources across different federating units.  This is the main point of this write-up and to show it I will try to highlight two such areas where extensive discretionary powers with the PM/Federal Ministers distort the allocation of these funds where some provinces are preferred while others were ignored. To me, this may ultimately increased alienation among the deprived provinces and their elected representatives will echo their voices in the parliament.

One Such area where discretionary allocations were made is from the PSDP allocation to the Planning and Development (P&D) Division.  P&D Division is one of the 41 other federal divisions which were allocated with funds to be used under PSDP (See PSDP 2012-13 published by Planning Commission of Pakistan). The total PSDP allocated to this division is Rs 37.840 Billion³. Out of this total amount, Rs 22.2 Billion has been allocated to some 25 projects across the country on some very vital programs in the social and development sector. These projects include, for example, Population Welfare Programs (part of the Vertical Programmes) for four provinces and GB, AJK & FATA. The shares allocated to different federating units indicate the proportionate share of each region according to its size. This is fair enough as the shares indicates the proportionate share of each region according to its size and that rules were adopted to maintain regional parity. However, the remaining funds of Rs 15.7 Billion were block allocation under 4 ambiguous heads namely a) Challenge Fund; b) Feasibility studies; c) Project Prefatory Funds & d) Develoved/closed Projects Liability. The funds allocated under these four heads are as under;

Table 2
S.No	‘Ambiguous’ Heads in PSDP with Serial Numbers	Funds Allocated in FY 2012-13
1.	26. Challenge Fund	Rs 10 Billion
2.	27. Feasibility Study	Rs 2.5 Billion
3.	28. Project Preparatory Funds	Rs 2.2 Billion
4.	29. Devolved/Closed Projects liability	Rs 1.0 Billion
	Total	Rs 15.7 Billion

 

According to the preface of the PSDP document of 2012-13 (published by P & D division under its secretary Asif Bajwa) , the ‘Challenge Fund’ will be the first step in setting fresh trends in the Public Sector Development arena to align PSDP with the objectives of New Growth Strategy announced by the Planning Commission of Pakistan.  The document says that this fund will be available to provinces for making ‘innovative projects’ targeting at ‘creative cities’ and ‘promoting youth skills’. I think it will be good to quote the entire 3^rd paragraph of the preface to the PSDP 2012-13 document here

                “For the year 2012-13, the elements of New Growth Framework form the basis of allocation of resources. Measures have been taken to align PSDP with the objectives of new growth strategy. Federal PSDP 2012-13 sets fresh trends in the public sector development arena. As a first step ‘Challenge Fund’ has been created. This fund will be available to provinces for making innovative projects targeting at creative cities and promoting youth skills’

 In the total PSDP of Rs 37.84 billion of the Planning & Development Division, the money allocated to the challenge fund was Rs 10 Billion. As of today, Rs 9.6 billion has been spent on various projects under this head  which means the funds were utilized in the first four month of the fiscal year as budget was presented in June, 2012 (this is a remarkable! achievement as normally PSDP projects are faced with slow utilization which often lead to lapse of funds).  

This is also in complete violation of the rules set by P & D Division where a maximum of only 20% of the total cost in each quarter can be released during the first two quarters of the fiscal year⁴. Now please have a look at the projects which were approved and where funds were allocated are as under (I personally ‘collected’ this list from the P & D Division as access to information is the right of every citizen Now!); 

Table 3
	Projects	Funds Allocated in FY 2012-13
A.	Challenge Fund
1.	M-4 Motorway Multan	Rs 1,000  Million
2.	Multan Inner Ring Road including 6 Interchanges	Rs 100     Million
3.	Khanewal-Multan Inter District Road (Bosan Road)	Rs 400     Million
4.	Dualization of Mandra to Chakwal Road	Rs 2,100  Million
5.	Dualization of Sohawa to Chakwal Road	Rs 350     Million
6.	Execution of 33 Miscellaneous development Schemes in NA-51 Gujar Khan	Rs 1,650  Million
7.	Kacchi Canal (Phase-I, Balochistan)	Rs 4,000   Million
	Total	Rs 9,600   Million
B.	Feasibility Studies	Rs 50.0     Million
1.	Establishment of COMSATS institute of IT, Jaffarabad	Rs 1.7       Million
2.	Inspector General Development Projects, Balochistan	Rs 126.3   Million
3.	Rainee Canal (Phase-I) Sindh	Rs 2,000   Million
	Total	Rs 2,178   Million

                                                                                    

While the funds allocated to Kachi Canal in Balochistan and other transfers from ‘Feasibility Studies’ to Balochistan make sense as it may be used by the federal government to reduce the grievances of the people of Balochistan but ignoring KP & FATA altogether clearly shows that while distributing these regional parity was not maintained.  The ‘domicile’ of these projects corresponds with the domiciles of our two illustrious Prime Ministers i.e. Punjab.  It is not in my knowledge whether this apparent inequality in funds allocation is somehow accounted for in somewhere else or not (I will feel happy if I am corrected).

Another such area is Peoples Work Program (PWPs) named as Special Programmes in PSDP 2012-13. A total of Rs 22 Billion were allocated in the initial budget as documented in June, 2012. There are media reports that another Rs 10 Billion were added to this particular head on the request of PM thus increasing the total amount to Rs 32 Billion. There are no such rules for the allocation of these funds (as no details were given how this money will be utilized across different federating units). This may depends solely on the discretionary authority of the PM and his ministers to utilized these funds⁵. There are media reports that almost all the funds under PWPs were utilized within the first four months of the budget by the new Prime Minister/ Federal Ministers on his selected projects.  The media reports indicate that these funds are mainly used for ‘vote-buying’. I have no problem as such with vote-buying as all government does it everywhere in the word but I am interested to know the ‘geography/domicile’ of this vote-buying. If votes are purchased in all four provinces, FATA, GB & AJK then it can be tolerated but if vote-buying is mainly restricted in Multan or Gujjar Khan (Punjab) at the expense of other areas then it becomes problematic.  

And by the way this is not limited to this year budget only as it is a recurrent practice.  Every year, in the federal budget, an amount is earmarked to keep it in large Block Allocation without any projects under its head. Last year the Federal Government used heads of a) feasibility study; b)Other requirements and c) devolved subjects at Federal level to ‘hide’ these block allocations to be used with discretionary powers of the PM/Federal Ministers.  

Now it is good that the share of the provinces from divisible fools have been increased but should the remaining funds with the Federal Government be spent in disregard of the provincial allocation? And the problem is that this is not the ONLY case where such disparities exist in the Federal PSDP. All such allocations spent on discretionary powers of the Chief Executive (in this case with the PM) will increase inequalities across different regions.

Lessons learned!

1.       There should be no discretionary authority of the chief executive or his ministers over the funds in federal PSDP. The same should also apply to the provincial governments. There should be clear and transparent rules for resource allocations across the different regions.

2.       No ambiguity should be kept in the federal budget as the representatives of the countries can discuss each and every component of the PSDP in both National Assembly and Senate of Pakistan.

3.       The existing Rules with the P & D regarding the utilization of the PSDP should be strictly followed.    

 -The writer @saleemiss is a PHD student 

Refrences:

1.       Source: Budget in Brief 2012-13, Ministry of Finance & Public Sector Development Programme 2012-13, Planning & Development Division, Government of Pakistan.

2.       Source: Pakistan Economic Survey 2011-12, Ministry of Finance, Government of Pakistan.

3.       Source: Public Sector Development Programme 2012-13, Planning & Development Division, Government of Pakistan page 75-76.

4.       http://www.pc.gov.pk/hot%20links/New_Mechanism_for_Release_of_PSDP_Funds.pdf

5.       Some rules can be easily devised here as in the case of initial launching of the BISP program where each elected MNA/Senator was given with 8000 BISP forms to be distributed in their respective constituency thus maintaining regional parity!