The new government is set to constitute a new National Finance Commission (NFC) award, by the looks of Finance Minister Asad Umar’s statement calling for provinces to reconfirm their existing members or make fresh nominations for non-statutory members for the NFC. The NFC award, as per the constitution, determines the revenue share of provinces and the federal government from taxes identified in the divisible pool every five years.
To constitute an NFC award approved by all provinces will be the first real test for Asad Umar as Finance Minister, and it is indeed a very difficult challenge. Past NFC awards have been seen several conflicts and tensions between provinces, resulting in ordinate delays in negotiating a subsequent award. It has been 68 years since negotiations for NFC awards to be constituted every five years began, yet there have been only eight awards up till now, indicating the sheer difficulty of reaching an agreement. Indeed, the previous Pakistan Muslim League-Nawaz (PML-N) government was set to constitute a new award in January of this year, yet deferred the task to the next government upon failure to reach a consensus.
Indeed, there are a variety of problems that Asad Umar will have to consider before negotiating. With a massive deficit that it needs to reduce, the federal government will have to allocate funds away from the provinces to the federal budget, yet not only will it be legally difficult but getting an approval from the provinces on that task will also prove challenging, even with their own government in KPK and Punjab. Already Pakistan People’s Party (PPP) has started objecting any possible move of reducing share of provinces, terming it unconstitutional. A bigger hurdle lies with KPK; the merger with FATA has yet to be inducted into allocated budgets for each province, but should invariably result in an increase in KPK’s budget.
Defence budget is another complication that the government will find hard to reach a consensus on. The armed forces have indicated they require more funds based on the security situation this year- yet an increase in the defence budget, which is already a heavy weight on the state treasury, will draw criticism from civil society against the government, which already has to deal with taunts that it is too establishment friendly.
All in all, constituting the NFC award is a daunting task, one where it is almost impossible not to attract criticism. The government needs to keep its political will and tread lightly.