NFC award revamp essential for fiscal stability: Aurangzeb

ISLAMABAD: The government has sounded an alarm on the National Finance Commission (NFC) Award, informing the Senate Standing Committee on Finance that it’s time for a rethink due to its far-reaching impact on Pakistan’s fiscal landscape.

The current framework of the NFC Award has “distorted” the country’s fiscal architecture, sparking concerns about revenue distribution and resource allocation. “It is a considered opinion that the NFC needs to be revisited to address the distortions in the existing arrangement,” Finance Minister Mohammad Aurangzeb told the meeting of the Senate panel held under Senator Saleem Mandviwalla here on Wednesday.

While observing increasing “distortions” in the resources distribution formula under the 7th National NFC Award, the committee asked Aurangzeb to call a meeting of the constitutional forum to review the resources distribution formula. The secretary finance said under the 7th NFC, 60 percent share goes to provinces and 40 percent to the federal government. This has increased the fiscal and debt burden for the federal government. He also clarified that the IMF has not imposed any condition to review the NFC formula. The finance minister assured the committee of being informed of any IMF conditions relating to fiscal policy, including the NFC Award. Secretary Finance Division said the National Fiscal Pact between the Centre and the provinces would create fiscal space by shifting the provincial nature development projects to federating units. The pact would focus on three major areas, including raising tax revenues through close coordination such as slapping Agriculture Income Tax (AIT) by the provinces and devolving expenditures. Senator Syed Shibli Faraz said that following the merger of erstwhile FATA with Khyber Pakhtunkhwa, resources were not enhanced according to the population criteria. The secretary of finance responded that Rs66 billion were allocated for the erstwhile FATA in the budget for the current fiscal year. Finance Minister Aurangzeb said that it was decided to end tax exemptions under the head of sales tax and income tax for erstwhile FATA but on the prime minister’s intervention, the decision was reversed. Regarding the terms and conditions of the IMF programme, the secretary finance informed that they included a 4.5-year grace period and 10-year payment in 12 equal semi-annual instalments. The interest rate included Special Drawing Rights (SDRs) rate+1 percent, said the secretary, adding that SDR is currently equivalent to 3.37. He further said that an additional service charge of 50 basis points is applied to each amount drawn. The committee was informed that the government has borrowed $7.4 billion from foreign commercial banks with a general maturity tenor of 24-36 months. Aurangzeb rejected the notion that Pakistan was seeking expensive external commercial loans. He said discussions with international commercial banks had been ongoing since April, but no decisions had been made to secure commercial loans at this stage. Senator Abdul Shakoor asked for the names, designations and places of domicile of the employees appointed in the Agricultural Development Bank in the last 10 years. President of the Agricultural Development Bank, Tahir Yaqoob, outlined the bank’s efforts to ensure merit-based appointments. He said that 1,900 appointments were made over the last decade, with no job quotas imposed.