The amendment and the award

The 18th Amendment and the new NFC Award are under discussion these days. Recently, the PTI’s Asad Umar had stated that there were “certain flaws” in the 18th Amendment that needed to be removed.

Question marks have been raised over the 18th Amendment since the PTI came to power. The 10th NFC Award Commission has also been constituted recently. We review the issues related to the 18th Amendment and the NFC Award in this article with the help of literature (Waseem 2010, SPDC 2018, IMF 2017, and press reports).

The 18th Amendment has been the most important milestone in democratic dispensation after the 1973 constitution by introducing over 100 changes in the constitution. Mainly, the amendment abolished the Concurrent List in the constitution and gave the “residuary powers” to the provinces. As a result of the 18th Amendment, 17 ministries were devolved to the provinces.

The amendment also restored sovereignty of parliament by getting rid of Article 58 (2) (B). It made the Council of Common Interests a more substantial body on paper, if not in practice. It provided for a mechanism to appoint the chief election commissioner. It set up the criteria for judicial appointments. It did a lot, and still more needs to be done to strengthen devolution particularly to the local level.

Federalism generally progresses under the civilian democratic periods (1973-77, 1988-99, and 2008-18) and faces retrogression under authoritarian setups (1958-71, 1977-88 and 1999-2008). In this way, the PTI government is unique in that it is civilian at the de jure level yet there are verbal attacks on the federalist nature of democracy under its rule.

In an insightful article on the 18th Amendment, Faisal Bari asks some pertinent questions. For example, the assumption that the centre is transferring too much money to the provinces of the divisible pool under the 7th NFC Award (the shares of provinces cumulatively was increased from 46.25 percent to 57.5 percent); the counter argument is that provinces are spending the bulk of that money on service delivery: health, education, water and sanitation etc. If devolution of power is reversed from the provincial to the federal level, then the central government would also need to spend similar amounts of money on service delivery. How would the reversal of roles help bridge the fiscal deficit?

The main problem with the 18th Amendment seems to be that it protects the provincial share of the divisible pool by stipulating that the provincial share cannot be reduced from the previous award benchmark. So is it about the money? Yes, to a large extent. However, it is equally about control and power. To cut the fiscal deficit, surely the government can reduce the number of frivolous ministries at the federal level and cut down non-developmental expenditure rather than eyeing the provincial share.

For the newly announced 10th NFC Award Commission (which has already become controversial), the government wants the provinces to pitch in the expenditures on public debt, disaster mitigation, public enterprises’ losses, subsidies, allocations to Gilgit-Baltistan, Azad Jammu and Kashmir and newly merged tribal districts of Khyber Pakhtunkhwa. Some of it might be justified like sharing the allocated share of GB, AJK ,and some quite unjustified like sharing the public debt that is contracted by the federal government solely.

It is not only the PTI government or those supporting it that are against the 18th Amendment and the 7th NFC Award formula; it is also international finance. The IMF keeps on saying that there is a need for a “better balance devolution of revenue and expenditure responsibilities in a way consistent with the objective of macroeconomic stability.”

The IMF Country Report of 2017 uses loaded terms against the 7th NFC Award formula as it has led to “substantial vertical (between the centre and the provinces) fiscal asymmetry”. However, at the same time it acknowledges that the fiscal decentralization design of Pakistan is according to the “principles of successful decentralization”.

It calls for more flexibility, efficiency and responsiveness for the next NFC Award to address the imbalances that have been created. It also calls for the provincial governments to share the unforeseen contingencies burden with the federal government as the present dispensation has made macroeconomic management “more difficult” and it has implications for the long-term socio-economic outcomes.

On one point, the IMF report (2017) and the SPDC (2018) paper differ. The IMF report states that the public investment did not substantially increase by the provincial governments in the five years after the Award and it only increased by 0.3 percent of GDP. However, the SPDC (2018) report states that provincial governments increased their social sector spending from 2.1 percent to 3 percent of GDP in the post 7th NFC Award.

However, both the reports agree that this increased spending did not necessarily lead to better social sector outcomes across the board and there have been mixed results (other than the child immunization rates as per the IMF). Population growth might have contributed to these outcomes.

The overall lesson is that there might be areas of the NFC Award where there is genuine need to rework things to take into account the low taxation and low tax-to-GDP ratio that was not anticipated at the time of the 7th NFC Award. However, if cuts have to be made, the main priority should be to cut the non-development expenditure and not attack the provincial share that guarantees provincial autonomy.

The spirit to work out things should show respect for the constitutional principles of federalism rather than having control over power and money that belongs to provincial governments and should ultimately be passed on to local governments.

The writer is an Islamabad-based social scientist.

Email: fskcolumns@gmail.com