Pakistan's Governance Crisis: Unpacking the National Finance Commission (NFC) Award and its Failure to Reach Local Bodies

Strategic Insights -

Pakistan's efforts to address its governance crisis have been hindered by corruption, mismanagement, and a flawed system of resource distribution. The National Finance Commission (NFC) Award, a constitutional mechanism aimed at ensuring a fair distribution of financial resources, has failed to deliver. Despite its flaws, the NFC Award has been a stepping stone towards provincial autonomy, with the 7th NFC Award of 2009 introducing a multi-criteria formula to distribute funds among provinces. However, the real challenge lies at the provincial-local government level, where local bodies are deprived of funds and resources, resulting in poor delivery of essential services. To address this, Pakistan must strengthen local governments, increase direct federal transfers to local bodies, and ensure accountability and transparency in resource allocation.

Key Takeaways:

  • Pakistan's basic infrastructure, including education, health facilities, and clean drinking water, is deteriorating due to inadequate resource allocation and corruption.
  • Corruption and mismanagement have become systemic, with funds siphoned off for politically motivated projects and kickbacks in contracts.
  • The federal government collects most of the taxes, while provinces depend heavily on the NFC Award for their share, leading to a centralized control that prevents development at the grassroots level.
  • Provincial governments have failed to empower local bodies, depriving them of power and resources, resulting in poor delivery of services and lack of accountability at the local level.
  • The 7th NFC Award of 2009 introduced a multi-criteria formula to distribute funds among provinces, reducing Punjab's share and increasing allocations for Balochistan, Sindh, and Khyber Pakhtunkhwa.
  • The NFC Award has failed to address the real challenge of resource allocation at the provincial-local government level, where local bodies are deprived of funds and resources.
  • Recommendations for reform include strengthening local governments by empowering them with powers over education, health, and local policing, implementing Provincial Finance Commissions with strict timelines, and introducing direct federal transfers to metropolitan cities and large districts.

Statistics:

  • Pakistan's annual budget allocation for education has increased to 15.9% of the total budget in 2020-2021, but the outcomes remain poor.
  • Corruption is estimated to cost Pakistan around 30% of its GDP annually.
  • The federal government collects approximately 56% of the total taxes, while the provinces collectively receive 44%.
  • According to the 7th NFC Award formula, the share of each province is calculated based on population (82%), poverty/backwardness (10.3%), revenue collection/generation (5%), and inverse population density (2.7%).
  • Direct federal transfers to local bodies could allocate around 5-10% of the divisible pool to metropolitan cities and large districts.

Sources:

  • Pakistan's Constitution, Article 160
  • 7th National Finance Commission (NFC) Award, 2009
  • Pakistan's Ministry of Finance
  • World Bank reports on Pakistan's governance and corruption
  • Pakistan's Ministry of Local Government and Rural Development
  • Pakistan's Ministry of Education