Multiple criteria in critical stage of negotiations

By Nasir Jamal

THE Lahore meeting of the National Finance Commission this week will discuss the toughest part of the negotiations — determination of weight or percentage of each of the four indicators to be used as criteria for resource distribution among the provinces.

The commission had in its Karachi meeting last month reached a landmark agreement among the provinces to replace the existing fund distribution formula based on population with multiple criteria.

The new criteria will be based on population, backwardness, inverse population density  and revenue (generation or collection or a hybrid of both, depending on what decision the commission takes on it) for inter-provincial distribution of financial resources.

The smaller provinces have always resented the use of population as the sole criterion for resource sharing between them under the previous NFC awards because they consider it to be tilted in favour of Punjab, the most populated of the four federating units.

If a consensus award is finalised as is expected widely, it will be for the first time in the country’s history when the provinces will share financial resources from the divisible pool on the basis of multiple indicators.

The bonhomie created by the Punjab government’s willingness to accommodate the long-standing concerns of the minority provinces and accept multiple indicators as criteria for horizontal resource distribution has raised hopes that a consensus award will shortly be finalised, possibly before 2009 is out.

Finance Minister Shaukat Tareen, who chairs the commission, was quite upbeat after the Karachi meeting of the commission that a consensus on the inter-provincial sharing of funds would be reached. “A consensus NFC award is in sight after 19 years,” he had told a press conference on the conclusion of the meeting.

Provincial negotiators are also expressing similar views, hoping for an early breakthrough on the issue of calculation of weight or percentage of each indicator in the multiple resource distribution formula in the Lahore meeting.

“I hope that we will be able to hammer out the issue. Punjab has shown large heartedness by accepting a multiple indicator criteria. We are hopeful that it will display the same spirit when we negotiate weight/percentage of each of the four indicators,” Sindh’s private member on the commission and economist Kaiser Bengali had told Dawn last week.

But the skeptics insist that the desire for an early agreement on the weightage of each of the four indicators will ‘test the will of all the provinces to accommodate one another for the sake of the federation’.

“Just as it has shown graciousness on the demand for multiple criteria for resource sharing with the smaller provinces, Punjab will have to once again make a lot of accommodation in their views on this issue as well,” an economist, who teaches at a leading private university in Lahore, said while talking to this scribe.

The economist, who did not want to give his name, was of the view that the provinces will bargain hard on the allotment of weightage to each of the four indicators. “The negotiations will involve a lot of give-and-take, which is part of any such negotiations. Also the federal government will have to reassure the provinces that the new resource sharing arrangement between the provinces will not hurt the economic interests of any one of them, particularly Punjab, which has taken a big step by agreeing to the multiple criteria,” he added.

As the publicity-shy economist said, the role of the federal government is going to be of crucial importance in helping the provinces evolve a consensus on the weight/percentage of each of the multiple indicators.

The provinces are reported to have asked for the federal government to transfer 60 per cent tax resources to them in order to ensure more funds for their socio-economic development. Tareen too has expressed the Pakistan People’s Party government’s resolve to transfer more financial resources to the federating units.

“People live in provinces and with development of provinces, the centre will be strengthened,” he was quoted to have stated in Karachi. But the size of the provincial and federal share in the pie is yet to be decided.

He had said the provinces would get more even in terms of percentages (after they agreed to multiple indicators criteria. “A win-win situation would be ensured and the losses of the provinces (after the determination of percentage under the horizontal distribution) would be compensated through making adjustments in vertical distribution,” he had stated.

The NFC pool (tax collection) represents less than 10 per cent of the country’s gross domestic product (GDP). The government says it was trying to cut its expense and divert more resources to the provinces in addition to increasing its revenue by enhancing tax to GDP ratio to 13.9 per cent in next six years.

It may be recalled that Sindh is demanding that the two new indicators – revenue (collection or generation or a hybrid of both) and backwardness, should be allotted a weight of 10 per cent each in the inter-provincial fund distribution formula.

Balochistan is arguing that the multiple criteria will be of no use to it unless the indicator of inverse population density is allotted 10 per cent weight in the new formula. “Unless we get a fair share based on inverse population density, our problems are not going to be solved,” a Balochistan official privy to the NFC negotiations said.

Punjab, on the other hand, is unlikely to support allotment of more than 10 per cent weight to the three new indicators. “We have accommodated the other provinces’ concerns by agreeing to the multiple criteria to create goodwill and to curb anti-Punjab sentiments. But we cannot agree to a reduction in population’s weight by 30 per cent or 20 per cent because, unlike other provinces, Punjab is heavily dependent on the federal transfers from the tax pool to meet its financial needs,” a senior provincial official told Dawn.

In spite of optimism generated by the agreement in principle on the multiple criteria for inter-provincial distribution of financial resources, the negotiations on the determination of the weightage of the multiple indicators are still going to be hard and, probably, long. (Courtesy: Dawn, Karachi)