overnments in pursuit of national harmony and provision of equal access to public services to all citizens have to be aware of and concerned about horizontal imbalances —disparities that persist between various regions. While the administrative measures required for the merger of the erstwhile Federally Administered Tribal Areas into Khyber Pakhtunkhwa have been taken, the financial arrangements have lagged behind.

Before the merger, the region was governed under the Frontier Crimes Regulations. Lack of financial resources left the development challenges unaddressed. A frail fiscal framework and unchecked powers wielded by the political agents created disparities that hindered progress and perpetuated inequality. Eventually, the need for comprehensive reforms was recognised.

In 2000, a memorandum of understanding was signed between the federal and Khyber Pakhtunkhwa governments, leading to the establishment of the FATA Secretariat in 2002. The federal government provided the funds and the provincial government provided the human resources support. This arrangement persisted until the formal merger in 2018.

The merger aimed at integrating the region into the national mainstream. This posed many challenges, including financing development in the newly merged districts.

The provincial government is now responsible for an additional 5 million people. The task is made more difficult by problems such as militancy, developmental lag and the region’s low human development ratings. The financial integration remains incomplete. As a result, the administration of NMDs has been starved of funds needed to extend essential services to the residents of these areas.

The merger brought about a paradigm shift in both financial and administrative structures. The replacement of the FCR with the regular national legal framework gave equal legal rights to the people.

The provincial government extended various services, including police, courts, Rescue 1122, agriculture extension, education and health care to the new districts and introduced local government institutions.

Once local government institutions were introduced, the empowerment of elected representatives fostered a sense of ownership and participation. Additionally, services of 5,000 FATA employees were retained and regularised. Thousands of posts were upgraded and the levies force was transformed into police in line with the provincial human resources policy. The establishment of district and tehsil administration in the new districts added 22,000 workers.

Providing requisite funds for the new districts is a constitutional obligation. Article 160 of the constitution mandates the National Finance Commission to make recommendations to the president for the distribution of resources between the federal and provincial governments.

As we scrutinise the financing of tribal areas’ integration into Khyber Pakhtunkhwa, the need for bridging the gap grows clearer. The hope is that these efforts will lead to positive outcomes.

It has been argued that Article 160 (3A) protects the share of various provinces established in the previous NFC award, fixing it at 57.5 percent of the federal divisible pool. Given that the new districts are now part of the KP, funds for their needs have to come from the province’s share.

However, the KP’s share was fixed, among other factors, on account of its population which before the merger stood at 11.33 percent of the country’s total population. After the merger, the share rose to 14.16 percent based on the 2017 census. Also, the poverty indicator rose from 2.87 percent to 4.71 percent based on MPI Survey of 2019. Inverse population density rose from 0.17 percent to 0.52 percent based on Inverse Population Density report of 2020. Meanwhile, the revenue collection indicator remained unchanged, i.e., 0.25 percent.

Based on these figures, KP was now entitled to a 19.64 percent share of the federal resources. However, the province is currently receiving only 14.62 percent of the divisible pool besides the federal grants (Rs 123 billion in 2023-24). There is need for a recalculation of the horizontal resource sharing.

The numbers tell a compelling story. The new districts are left with a substantial deficit of Rs 338 billion accumulated over four years. The deficit for the current year is approximately Rs 140 billion. The per capita government expenditure in the new districts is thus less than the rest of the country.

The Tribal Decade Strategy 2020-30, approved in 2019, had envisioned allocations exceeding Rs 100 billion per annum for a decade to meet the development needs. However, only Rs 103 billion was provided between 2018-19 and 2023-24: 21 percent of the projection.

Currently, the federal government disburses Rs 122 billion for the new districts from its share. This represents a shortfall of Rs 140 billion. Once completed, the financial merger is meant to shift the entire financial responsibility to the province.

The new districts have the highest poverty incidence in the country (73.5 percent), significantly surpassing the national average (38.8 percent). The literacy rate is 28 percent, notably lower than the national average of 57 percent. The female literacy is a mere 7.8 percent.

Among other factors, the disparity stems from a historical gap in per capita government expenditure in the region, compared to other areas. The NMDs and Balochistan both face high poverty and low literacy challenges but the per capita expenditure for NMDs is notably less than half in comparison to Balochistan.

A committee of federal secretaries has been constituted recently to investigate the matter and seek guidance from the Law Division on the way forward.

As we examine the financial arrangements following the FATA’s integration into KP, the need for bridging the gap grows clearer. The hope is that these efforts will lead to positive outcomes.

The writer is a public financial management expert. He can be reached at waqas_paracha@hotmail.com