President Asif Ali Zardari has approved a change in the formation of the 11th National Finance Commission (NFC) after Balochistan sought a revision in its nomination, Radio Pakistan reported on Saturday.
The Balochistan government recommended Mahfooz Ali Khan as its non-ex officio member in the commission. The president approved this nomination, superseding his earlier approval.
Last week, President Zardari constituted the 11th NFC to finalise a new resource distribution award, paving the way for a fresh showdown as the Centre seeks to reclaim lost fiscal space while the provinces prepare to defend their share.
The five-year term of the 10th commission expired last month. It had held only a few meetings before losing momentum, as the provinces saw little incentive to negotiate due to the likelihood of ceding fiscal space to the Centre.
Under the 7th NFC Award of 2010, the provincial share rose from 47.5% to 57.5% of the total federal divisible pool, without the provinces taking on additional responsibilities. This contributed to a massive increase in public debt due to the unsustainable budget deficit the federal government has been running since 2010.
Successive central governments also retained some expenditures to pursue political objectives in the provinces. Under the constitution of the 11th NFC, approved by the president, Finance Minister Muhammad Aurangzeb will serve as chairman of the nine-member commission.
The four provincial finance ministers will be permanent members, while each province has the right to nominate one technical member. Former secretary and World Bank executive director Nasir Mahmood Khosa will represent Punjab, Sindh has retained Dr Asad Sayeed, and Dr Musharraf Rasool Cyan will again represent Khyber Pakhtunkhwa (K-P).
Balochistan had initially nominated Farman Ullah as its technical member but later revised its choice, recommending Mahfooz Ali Khan as its new nominee.
According to the terms of reference of the 11th NFC, the commission will make recommendations to the president on the distribution of the net proceeds of taxes between the federation and the provinces under Article 160(3) of the Constitution.
The commission will also recommend grants-in-aid by the federal government to the provinces, examine borrowing powers exercised by both tiers of government, and decide issues relating to the sharing of financial expenditures incurred by the federation and/or provinces, including trans-provincial matters.
A key concern is that the Centre has been incurring expenses unrelated to trans-provincial matters, thereby burdening the exchequer. The federal government has funded roads in Punjab, Sindh, and Balochistan that should have been financed by the respective provinces.
The federal government may also ask the provinces to allocate a portion of the divisible pool for building large dams, which are now deemed matters of national security.
Interestingly, days before the maiden session of the 11th NFC, K-P has demanded changes to the resource distribution formula by drastically reducing the weight of population and including forestation and prosperity as key benchmarks.
Currently, 82% of resources are distributed on the basis of population and 10.6% on backwardness, a formula that needs revision, K-P Finance Minister Muzzammil Aslam argued. Speaking at a seminar organised by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), he said the provincial government would press for reducing the population share and including forestation as an important benchmark at the NFC forum.
