World Bank and NFC Award

A RATHER damning indictment of the seventh NFC Award has just been published by the World Bank in a study titled Strengthening Fiscal Federalism in Pakistan. The study plugs a crucial gap in our understanding of the impact that the NFC Award has had on the state’s ability to function and deliver social services. The findings are not flattering for the performance of the provincial governments across Pakistan, since 2009. In typical World Bank style, the authors generously pepper the report with observations about the strengths that the NFC Award has brought, noting it “provides predictability and protects provincial revenue shares”, “supports provincial autonomy” and is “consensus-based”. Then it pivots, usually with “[h]owever, from a technical perspective…” to the critical commentary. The critical vocabulary is notably blunt for a World Bank document: the mechanism rests on “an arbitrarily determined pool of resources … distributed … based on multiple factors with again arbitrarily determined weights”; the seventh Award produced “windfall gains to provinces”; “financing has not followed function”; and the indicator weights “reflected a negotiated outcome rather than application of a clear legal or technical framework”. The Award, it says, has been “a material contributor” to the “structural federal fiscal deficit”. The frankness here makes for refreshing reading given how the policy conversation tends to be so risk averse in our country as to devolve into platitudes. And then come the material observations. The authors start by observing that the award led to an increase in transfers to the provinces of around two percentage points of GDP — from an average of 3.2 per cent of GDP over FY02-09 to 5.1pc over FY10-24. This is huge. So the next question to ask is what did the provinces do with all this money? And here comes the rub. A new report shows how our fiscal-federalism problems are not, at root, technical failures to be fixed with better systems. The bulk of th