Fiscal ‘equalization’

THE World Bank (WB) has asked Pakistan to revise the National Finance Commission (NFC) Award formula — both vertically and horizontally — and adopt fiscal ‘equalization’ for resource distribution among the provinces based on spending needs and projected revenue capacity. The Washington-based lender released a comprehensive report on the implementation of the seventh NFC Award and found the federal government at fault for spending in areas that, under the constitution, were not its responsibility and caused fiscal stress. It also wrote that the provincial governments, too, did not spend wisely and major spending was incurred on creating more government jobs, increasing salaries and pensions after 2010. The conclusions drawn in the report strengthen the viewpoint that the provinces should contribute their share in fulfilling financial needs of seven public goods services to lessen financial stress on the federation. According to the Bank, the function-specific deductions from the divisible pool could share the burden of continued federal expenditure on national public goods such as national transport infrastructure, certain security expenditures, debt servicing, social protection, environmental programmes, strategic interprovincial water infrastructure and national policy coordination. It was in line with this thinking that the provinces were asked to contribute to national security expenditure and Punjab and Sindh did oblige by committing Rs. 546 billion and Rs. 260 billion respectively but Khyber-Pakhtunkhwa, (which receives additional share from the NFC on account of counter-terrorism) and Balochistan did not allocate any amount in their new budgets for the purpose. Similarly, the provinces, especially Sindh, were not cooperating in saving the tax-payers’ money that is currently lavishly being spent on the Benazir Income Support Programmes (BISP) despite the fact it has failed to improve the lot of the poor in any manner. The World Bank too has favoured continuatio