BALOCHISTAN is fully prepared to present its case in the first meeting of the National Finance Commission (NFC) due this month, say offcials.

It has prepared tentative proposals for resource distribution based on population, human development index (HDI), backwardness, fiscal effort, inverse population density (IPD), and revenue generation.

In faulty fiscal federalism, imbalances arise from disparities in capacities and needs of provinces and in the relative cost of development and provision of public services. Punjab insists on retaining the existing population-based formula for inter-provincial distribution of resources, while Balochistan calls for a formula based on multiple factors. With the largest population, Punjab has remained the major beneficiary of all the NFC awards. On the other hand, Balochistan has suffered the most for being the least populous province.

“We are focusing on multiple factors for distribution of resources from the federal divisible pool, said Mahfooz Ali Khan, the Balochistan Finance Secretary. He said: “We are duly focusing the factors including IPD, poverty, HDI, backwardness and revenue collection for presenting our case in the NFC meeting in order to reach a broad-based horizontal distribution formula. Punjab also agrees now to take factors other than population into account for distribution of resources among the provinces. “Balochistan is going to be the major beneficiary on poverty factor. We will also raise the issue of privatisation proceeds of the state assets at the NFC meeting and its impact on the province”, he added.

Pakistan is the most centralised federation in revenue collection where approximately 90 per cent of total expenditure by provinces is financed through federal transfers (straight transfers, share of divisible pool taxes, and grants and subventions). Vertical imbalance arises from centralisation of revenue collection and excessive dependence of provincial governments on federal transfers.

Mr Khan said: “We are going to take up the issue of vertical transfer on 50/50 per cent basis. We are against the collection charge of five per cent deducted by the federal government from the divisible pool and we want it reduced to actual”.

The interim award, given by former president Pervez Musharraf in 2006, retained population as the sole basis for horizontal distribution and the federal subvention.

“The subvention for backwardness is not the right answer to the development of a province. We do not want subvention but rule-based transfers. We oppose the deduction of two per cent by the federal government in straight transfers to the province, particularly on royalty”. “The royalty in cash for gas produced from Sui field should be based on fair market value”, he added.

The province has been demanding that the IPD be made a permanent criterion and proposes due IPD weightage in the distribution of resources among the federating units. The ratio of area and population is called IPD, which is an economic parameter for equalisation of provision of public services and development per capita. As the area increases, the per capita cost of development and providing public services also increases. As the population decreases (or is dispersed), per capita cost of development and providing public services also increases. Low population density and vast area multiply the per capita cost of development and provision of public services in Balochistan.

“The province will get 90 per cent out of the IPD”, hoped Khan. He said, “Balochistan is the least populous and the country’s largest province in respect to area. Per capita cost of providing public services in the province is about three times higher than that in other provinces. The basis for distribution of divisible revenues should be cost of per capita of providing public services and not cash per capita. With an area that constitute almost 44 per cent of whole the country and having a population of about 7.5 million which is merely 5.11 per cent, the Balochistan’s rate of delivery of public services is calculated at 18.8 if Punjab’s rate is taken as one, NWFP 1.5 and Sindh 1.6,” he explained.

Local experts argue that the existing population criterion does nothing for reducing poverty, illiteracy and population growth in the country where population growth rate at 2.7 per cent, according to one estimate, is one of the highest in the world and where 33 per cent of the population lives below the poverty line. How will the most populous province discourage population growth when population provides it with the basis to secure additional funds?

It would have been better if more incentive would have been provided to the provinces decelerating population growth and sponsoring population welfare programmes.

The federal government’s poverty reduction statistics shows 32 per cent backwardness for NWFP and 24.9 for Balochistan. The parametric ratios indicate Balochistan’s share in population as 5.11 per cent, IPD 82.9 per cent and revenue collection 2.4 per cent. Provincial finance secretary told this scribe that the provincial government had challenged the federal government’s poverty reduction statistics, showing NWFP as the country’s most backward and poorest province.

He said, “Balochistan is the most backward and the least developed province. Out of the 30 districts of the province, 27 are the poorest among the poor with inadequate infrastructure of public utilities and services due to underdevelopment. “Backwardness and prevailing sense of deprivation in the province is the outcome of using the equality of rupees per capita instead of provision of public services per capita for distribution of divisible pool among the provinces”, he added.

The province badly needs resources to pull out of the under-development trap. The UNDP’s Pakistan National Human Development Report 2003 has found that out of Pakistan’s top 20 most backward districts, 50 per cent are located in Balochistan. The report also indicated 0.499 HDI for the province with HDI distance of 45 per cent. The experts ask, “will almost half of Pakistan area be left backward and not provided sufficient funds only for the reason of being smallest province with respect to population?

With a fragile fiscal and narrow revenue base, Balochistan frequently faces shortfall of funds to meet its fiscal needs and obligations. The interim NFC award does not address the longstanding issue of Gas Development Surcharge (GDS), which is the only major source of income for the province. The present division of revenue from GDS is unjust and unfair. Balochistan’s position is that investment at Sui in the Bugti tribal area was made in 1952 when the investment was not as high as it is in Sindh and Punjab. The differences between the average wellhead cost and average sale price of Sui gas should be the highest. Similarly, the province’s share in the gas revenue should also be highest.

In the 1991 NFC award it was decided to divide the income from GDS among the provinces on the basis of the gas produced from the concerned province. Unfortunately there was little increase in gas production in the province while the over all system was on gradual expansion. Therefore, the income constantly decreased over the years.

Finance secretary said the long standing issue of wellhead price of Sui gas had now been taken care of to a great extent. He said, “there has now been a systematic increase of wellhead price of Sui field every six months and the royalty of the gas has been improving steadily.”

Former Balochistan government had proposed another formula to the federal government for resolving the sixth NFC award issue. According to the proposal, 50 per cent of the NFC of a province may be based on scattered population, 10 per cent on land share, 10 per cent on backwardness, 10 per cent on revenue collection and 10 per cent on an equal basis.

The proposal had demanded a fiscal distribution formula based on socio-economic indicators which is in consonance with real spirit of the1973 Constitution that provides for bringing the undeveloped or least developed regions at par with the developed regions.

In other words, the constitution disallows and rejects any discrimination, injustice or negligence vis-à-vis development of the whole country. The proposed basis for the NFC Award, according to some experts, should allow the more developed to receive less and least developed to get more till such time the inequalities are wiped out.