For long, it has been recognised that there is a mismatch between economic and social progress in emerging market economies including in Pakistan.

Now the international community is renewing its focus to align mutually reinforcing social and economic development with a broader vision shaped by changing realities. Adopting the resolution on ‘Social Development’ on December 17, the United Nations General Assembly (UNGA), stressed the importance of removing obstacles to realising the right to self-determination. The resolution was moved by the UN Committee on Social Development which deals with social, humanitarian and cultural issues.

The UNGA resolution, co-sponsored by Pakistan, affirmed that “self-determination is a fundamental condition for the guarantee and observation of human rights.” The UNGA resolution is anchored on the unsuppressible urge of every nation’s people to exercise their sovereignty and its twin, internal autonomy, to manage their country’s external and domestic affairs respectively.

However, Pakistan’s economic sovereignty at times is compromised by heavy reliance on foreign loans and its linked conditionality. Internally also, provincial autonomy though deep-seated in the system, is not fully in the saddle.

Robust social development, an imperative for rapid economic development, suffers due to sharp disagreements among key institutions and leaders

In a confusing move, the cash-strapped PTI government has started devising a mechanism for making the federating units accountable for the choices they make on how they spend their own funds received as their legitimate share from the National Finance Commission (NFC) divisible pool.

To resolve the country’s multiple crises, the PTI government prefers to take an administrative approach, as did some past regimes, subscribing to a unitary system. For example, Punjab, the biggest and most developed province, capable of taking care of itself, is micromanaged from Islamabad. The centre also argues that the provinces have no incentive to increase their own tax revenues because they are heavily dependent on federal fiscal transfers.

Reported figures show that, on average, out of the total provincial resources, around 17 per cent comes from Punjab’s own resources and 83pc from federal transfers. For Sindh, the comparative ratio is at 23:77pc and Khyber Pakhtunkhwa at 10:90. Balochistan own collection is less than 10pc and it gets more than 90pc from federal transfers.

The provincial tax receipts in case of Punjab and Sindh have increased at a faster pace than the collection of the Federal Board of Revenue (FBR) since the sales tax on services was devolved about a decade ago.

The 7th NFC award had stipulated an increase in the tax-to-GDP ratio by 1pc per annum. By now the tax revenue should have been 20pc instead of current 9pc of GDP if the targets were met, says a financial analyst.

Despite strenuous efforts to boost FBR tax revenues, the outcome has been disappointing for the policymakers. Finance and Revenue Minister Dr Abdul Hafeez Shaikh has recently termed the country’s tax-to-GDP ratio as ‘pathetic’. So, the government is paying more attention to reducing both federal and provincial expenditure, maximise prudent spending, avoiding waste and improving service delivery efficiency.

Keeping with the spirit of fiscal federalism (though an exception), the government decided that the centre should confine itself to only undertaking those projects whose benefits were inter-provincial. The projects whose benefits were limited to a particular province should be executed by the federating unit from its own resources.

With his policy, the future of the Karachi Transformation Plan (KTP) is not clear. The centre has been unable so far to line-up resources for KTP. On December 27, the Economic Coordination Committee (ECC) of the cabinet decided to defer the approval of the KTP financial package for the second time as the finance ministry was unable to provide required funds.

On the other hand, it is also proposed that provincial governments foot 50pc of the subsidies provided to their domestic or other consumers, as the case may be, to reduce federal burden by Rs50 billion. The proposal is included in a presentation made by the Subsidy Cell headed by the special assistant to the prime minister on revenue Dr Waqar Masood Khan considered by ECC earlier this month.

Despite some cuts in expenditure, including the abolition of vacant posts and freezing of salaries of civil and military employees, the consolidated expenditure of federal and provincial governments went up to Rs1.96 trillion during July-September from Rs1.58tr in the same period of last year. Some federal departments were also transferred to the provinces.

Now the ECC has approved in principle the first phase of the subsidy rationalisation plan for annual savings of Rs488bn proposed by the Subsidy Cell. The first dose of rationalisation covers electricity, food and national savings. Instead, subsidies on electricity to the households will be provided through the Ehsaas programme, starting from Islamabad Electric Supply Company.

The ECC was informed that the cost of all existing, coming due and hidden subsidies, contingent liabilities and transfers aggregated to about Rs5.2tr. The annual subsidy was estimated at roughly Rs2tr.

The PTI leadership’s move to hold federating units accountable for their spending has, however, been severely criticised. A fiscal analyst says Islamabad has wrongly assumed that it is the centre that ‘gives money’ to the provinces under the NFC divisible pool. Chairing a meeting of a sub-committee of Public Accounts Committee on December 17, Senator Naveed Qamar from Sindh said: “under the Constitution, the federal government’s status is (that of) a unit and the provincial governments are also independent units, therefore, it (centre) can’t interfere in the utilisation of funds by the provinces.”

An observer with insight into inter-governmental relationship points out that the federal taxes are collected from the territorial jurisdiction of the autonomous federating units with their consent and their spending is subject to the approval of the provincial assemblies. Analysts also stress the need for various reforms to create more fiscal space in order to fund stepped-up social and economic development and thus make the provinces accountable to their citizens rather than Islamabad.

Centralisation that delinks autonomy from majority rule makes democracy a lame-duck, says a social scientist. Official decisions are mostly made by consensus with the nod of the chair. The consensus may or may not represent a majority view. The autonomy of institutions provided by the constitution is not respected. And robust social development, an imperative for rapid economic development, suffers due to sharp disagreements among key institutions/leaders on political fundamentals essential for good governance.

Published in Dawn, The Business and Finance Weekly, December 28th, 2020