Transcript Fiscal Federalism and Decentralization

Fiscal Federalism and Decentralization:
Case of Pakistan
By
Dr. Aisha Ghaus Pasha
Director
Institute of Public Policy
Beaconhouse National University, Lahore
ALLOCATION OF FUNCTIONS AMONG DIFFERENT LEVELS OF GOVERNMENT
Contd.
Service*
According to 1973
Constitution and 1979
LGO
After 2001
Devolution Plan
After 18th
Amendment 2010
Defense
F
F
F
International Trade
F
F
F
External affairs
F
F
F
Census
F
F
F
Nationality, Citizenship
F
F
F
Posts and Telegrams
F
F
F
Telecommunications
F
F
F
Railways
F
F
F
National Highways
F
F
F
Major Ports
F
F
F
Stock Exchanges
F
F
F
Nuclear Energy
F
F
F
Oil & Gas
F
F
F
F/P
F/P
P
Population Planning
ALLOCATION OF FUNCTIONS AMONG DIFFERENT LEVELS OF GOVERNMENT
Contd.
Service*
According to 1973
Constitution and 1979
LGO
After 2001
Devolution Plan
After 18th
Amendment 2010
Electricity
F/P
F/P
P
Curriculum
F/P
F/P
P
Centers of Excellence
F/P
F/P
P
Tourism
F/P
F/P
P
Social Welfare & Zakat
F/P
F/P
P
Vocational Training
F/P
F/P
P
Labor
F/P
F/P
P
Law & Order
P
P
P
Justice
P
P
P
Sub-National Highways
P
P
P
Irrigation
P
P
P
Distribution of Inputs
P
P
P
ALLOCATION OF FUNCTIONS AMONG DIFFERENT LEVELS OF GOVERNMENT
According to 1973
Constitution and 1979
LGO
After 2001
Devolution Plan
After 18th
Amendment 2010
Agricultural Extensions
P
P/L
P/L
Higher Education
P
P/L
P/L
School Education (Secondary)
P
L
L
School Education (Primary)
P
L
L
Preventive Health
P
L
L
Curative Health
P
L
L
Farm-to-Market Roads
L
L
L
Water Supply
L
L
L
Sanitation
L
L
L
Drainage
L
L
L
Solid Waste Management
L
L
L
Fire Fighting
L
L
L
Parks & Playgrounds
L
L
L
Service*
Vertical Imbalance among Governments in Pakistan
2009-10
Revenue
Share
(%)
Expenditure
Share
(%)
Surplus (+)
/Deficit(-)
Federal Government
94
70
+24
Provincial + Local Governments
6
30
-24
Extent of Fiscal Decentralization
(Share in Public Expenditures)
(%)
2000-01
2005-06
2009-10
2010-11*
Post NFC
Federal
71.9
63.8
69.4
63.1
Provincial
23.0
23.6
30.6
36.9
Local
5.1
12.6
Total
100.0
100.0
100.0
100.0
*Budgeted
History of Intergovernmental Transfers
• Since Partition, eight revenue sharing awards
– Raisman Award of 1951
– National Finance Commission Awards of 196162,1964,1970,1974,1990 and 1996
• Transfer Takes Three forms-”Divisible Pool”
transfers, Straight Transfers and
grants/subventions
Share of Different Forms of Transfers
(% of Total Transfers)
Post
NFC 1990
(1991-92)
Post
NF 1996
(1997-98)
Post
Presidential
Order, 2006
(2008-09)
NFC 2009
(2010-11)
Divisible Pool Transfers
72.2
79.0
78.8
79.6
Straight Transfers
24.8
15.4
14.6
15.4
Grants/Subventions
3.0
5.6
6.6
5.0
Total
100
100
100
100
Evolution of Divisible Pool and Sharing
% Transferred to Provincial Governments
NFC
1974
NFC
1990
NFC
1996
Presidential
Order, 2006
NFC
2009
Income Tax
80
80
37.5
41.5-46.25
56-57
Sales Tax
80
80
37.5
41.5-46.25
56-57
Excise Dutiesa
-
-
37.5
41.5-46.25
56-57
Customs
Duties
-
-
37.5
41.5-46.25
56-57
Share of Provinces in Total Federal Transfers
%
(first year after Award)
NFC
1990
NFC
1996
Presidential
Order, 2006
NFC
2009
Punjab
55.3
47.0
47.3
42.9
Sindh
24.0
23.8
29.8
27.9
Khyber-Pakhtunkhaw
12.7
17.8
14.8
18.5
Balochistan
7.9
11.4
8.0
10.7
Total
100
100
100
100.0
Criteria of Distribution of Divisible Pool
among Provinces
%
Prior to the NFC, 2009
Post NFC, 2009
100.0
82.0
Poverty and Backwardness
-
10.3
Revenue Collection and Generation
-
5.0
Inverse Population Density
-
2.7
100
100
Population
Total
Implications of the NFC Award, 2009
in 2010-11 Budget
• Federal Government has to transfer more revenues to the
provinces which leaves net revenue receipts at last year’s
level
• To curtail the deficit, federal current and development
expenditure have also been restricted to last year’s level
• Federal fiscal deficit target of 5% of GDP
• Rapid expansion in combined provincial budgets in 2010-11
with increase of 20% in current expenditure and 50% in
development expenditure
• Provincial development activity now 53% of national public
sector development program.
• Consolidated deficit could rise to 5-6% of GDP as compared
to target of 4% of GDP
Medium term Consequences
•
•
•
•
For the medium term consequences to be favorable,
following conditions need to be fulfilled:
Provincial governments do not slacken own fiscal effort
Provincial governments avoid profligacy in expenditure
Proper planning and management of spending to
maximize impact on the level and quality of service
provision
Prioritize spending on backward regions and social
services
Implications for the Federal
Government
• Sharper Prioritization of Federal PSDP
• Transfer of Vertical Programs in transferred
Concurrent List Functions to Provinces
• Enhance Tax-to-GDP ratio (e.g. by
comprehensive VAT )
• Effective functioning of NFC secretariat
Overall Conclusion
The 7th NFC Award of 2009 will usher in a new
era of fiscal federalism in Pakistan and
improve prospects of higher investment on
the people, but could contribute to increasing
the underlying fiscal deficit and thereby
exacerbate macroeconomic imbalances.