In the Budget for the fiscal year 2023-24, the estimated Tax Revenue (FBR) allocated to the Federal Consolidated Fund stands at Rs9,415 billion. Notably, on March 18, 2010, the 7th NFC Award, introduced under the administration of Yousaf Raza Gillani, was announced. This award heralded an increase in the share of Provinces in vertical distribution from 49% to 56% during the fiscal year 2010-11, and further to 57.5% for the subsequent years of the Award. Consequently, out of the total Tax Revenue of Rs9,415 billion, an allocation of Rs5,367 billion is designated to the Provinces, leaving the Federal Government with Rs4,048 billion for its own operations.
In the Budget for 2023-24, the estimated ‘Non-Tax Revenue’ of the Federal Government stands at Rs2,963 billion, bringing the total pool to Rs7,011 billion. However, the projection for ‘Interest Payments’ in the same budget year is Rs7,303 billion. This indicates that the Federal Government will be left with a deficit after fulfilling its ‘Interest Payments’ obligation.
Behold, the Federal Government finds itself devoid of funds for critical allocations such as ‘Defense Affairs and Services’ amounting to Rs1,804 billion, ‘Public Services Development Fund’ totaling Rs950 billion, ‘Running of the Civil Government’ with an estimated requirement of Rs714 billion, ‘Pensions’ standing at Rs801 billion, ‘Grants and Transfers to Provinces & Others’ amounting to Rs1,408 billion, and ‘Subsidies’ reaching Rs1,064 billion.
The Federal Government must borrow to pay for ‘Defense Affairs and Services’. The Federal Government must borrow to pay for the ‘Public Services Development Fund’. The Federal Government must borrow to pay for the ‘Running of the Civil Government’. The Federal Government must borrow to fund ‘Pensions’. The Federal Government must borrow to pay for ‘Grants’. And, the Federal Government must borrow to fund ‘Subsidies’.
Upon closer inspection, a significant trend emerges: the Federal Government is distributing revenue to the Provinces while retaining the bulk of responsibilities for itself. Conversely, the Provinces are amassing revenue without shouldering commensurate responsibilities. This lopsided dynamic creates a disconcerting imbalance, where one entity bears the weight of obligations while the other reaps the benefits of revenue without proportional accountability. This asymmetry in the distribution of fiscal burdens and benefits warrants careful scrutiny and, perhaps, a recalibration of the fiscal framework to ensure equitable distribution of both revenue and responsibilities among all stakeholders.
The history of the National Finance Commission Awards is marked by a series of successes and setbacks. Under Zulfikar Ali Bhutto’s administration in 1974, the 1st NFC Award was successfully concluded. However, subsequent awards faced challenges. Both the 2nd and 3rd NFC Awards under Zia-ul-Haq’s regime in 1979 were inconclusive.
The 4th NFC Award under Nawaz Sharif’s leadership in 1991 managed to reach a conclusive agreement. However, the 5th NFC Award in 1995 faced difficulties and remained inconclusive. Similarly, the 6th NFC Award under Pervez Musharraf’s tenure in 2002 encountered challenges and ended inconclusively. The 8th NFC Award under Nawaz Sharif also remained inconclusive. The 9th National Finance Commision also failed to conclude.
Certainly, it’s crucial to note that the Rs7,303 billion designated for ‘Interest Payments’ are shouldered by the Federal Government to service debts incurred by the entire State of Pakistan, not solely Islamabad. These debt proceeds were utilized for the benefit of the entire nation, not confined to the capital. Similarly, the allocation of Rs1,804 billion for ‘Defense Affairs and Services’ is aimed at safeguarding the entirety of Pakistan, not just Islamabad. Additionally, it’s worth emphasizing that the vast majority, more than 99%, of the beneficiaries of the Rs466 billion allocated by the Federal Government for the Benazir Income Support Fund (BISP) reside outside the boundaries of Islamabad.
How long can we afford to remain on this unsustainable path? The current scenario forces the Federal Government to borrow for fundamental national needs, hindering progress and jeopardizing Pakistan’s financial future. It’s time for a national dialogue – a collaborative effort between the Federal Government and the Provinces – to establish a system that fosters shared responsibility alongside equitable revenue distribution. Only through a balanced approach can we ensure a prosperous economic future for all stakeholders in Pakistan.
