Provinces miffed at IMF’s proposal to cut NFC share

Pakistani labourers sits on a roadside at a market in Rawalpindi on Oct. 9, 2018. (AFP)
Updated 12 October 2018

Provinces miffed at IMF’s proposal to cut NFC share

  • Move could impact health, education and welfare sectors, officials say
  • Governments say current distribution is fine and should not be reversed

KARACHI: Taking umbrage at the suggestion that they reduce their share from the federal pool of reserves, the four provincial governments of Pakistan said on Thursday that they would strongly resist the move.

The idea was proposed by the International Monetary Fund (IMF) as part of measures to strengthen Pakistan’s federal fiscal framework. And if the plan is brought to fruition, it would require the provincial governments to reduce their share in the National Finance Commission (NFC) Award.  

The NFC Award ensures financial resources are divided among the four provinces according to the 18th amendment, which dictates that the provinces have the autonomy to manage their budgets and expenditure. The constitutional framework demands that all four provinces have to mutually agree to any change made in the NFC Award. However, the president has the final authority to revise the provinces’ shares through an executive order if they fail to reach a consensus.

“The current distribution of resources under the NFC award is fine as once the power devolution has taken place and provinces are managing their finances themselves the distribution should not be reversed,” Taimor Saleem Khan Jhagra, Finance Minister of the Khyber Pakhtunkhwa (KP) province, told Arab News on Thursday. 

At present, the four provinces get 57.5 per cent of the resources from the divisible pool of taxes under the seventh NFC Award distribution, whereas the federal share stands at 42.5 per cent. Among the four, the Punjab province gets the lion share at 51.74 per cent, followed by Sindh at 24.55 per cent, Khyber Pakhtunkhwa at 14.62 per cent and Balochistan at 9.09 per cent. 

Reacting to the proposal, Spokesman of Chief Minister Sindh, Rasheed Channa, Rasheed Channa, told Arab News that “any move to curtail the funds would be resisted”, adding that: “Sindh is demanding that its share in NFC be increased  because of the large spending in the province in the backdrop of a large inflow of people coming in from other provinces as well”. 

Demanding a revision in the distribution of the NFC Award finances, Balochistan Finance Minister, Muhammad Arif Hasni, said: “We are suggesting that the government should also enhance our share by considering the factor of area of the province other than population and poverty.” 

Reasoning that the IMF’s aim was “to consolidate federal fiscalism” to ensure that the “federal governments are more empowered”, Dr Farrukh Saleem, Government’s spokesperson on Economy and Energy Issues, told Arab News that the proposal would be in the interest of the federation because “big expenditure including debt servicing is being incurred by the federal government”. 

Balochistan continued to raise alarm at the suggestion, adding that it had always been at the receiving end of such measures. “The successive government have misused the fund they received under the NFC award. The provincial government is in a rush position to get the funds from federal government as it is running out of funds to pay salaries to government employees,” Shaukat Populzai, president of the Baluchistan Economic Forum, said. 

He added that any cut in the federal government would not impact the province’s position towards Chinese investment – particularly in the China Pakistan Economic Corridor project – as that is being made under the federal government. “If China makes investment at the micro level such as in agriculture, mining and other social economic sectors then there will be trouble,” he added.  

Instead of curtailing the shares of the provinces, Jhagra said better engagement and coordination among provinces and the federal government could be the solution to the problem. “The center needs to enhance revenue generation by scaling up tax collections by the FBR [Federal Board of Revenue] and that is a daunting task for the government,” he said. 

Responding to a question about the financial health of the KP province, he said: “We are healthier than other provinces and we do not need to go into deficit. Our budget is higher than last year, but we do not have a comfortable fiscal space for the development in the province.”  

Pakistan on Thursday formally requested the IMF to provide financial assistance to tackle its depleting foreign exchange reserves. Confirming the news, IMF’s managing director, Christine Lagarde, said that a decision on the matter will be taken after more talks next week. 

As the country gears up for talks leading to a bailout, many at home fear that the IMF could force Pakistan to implement its proposal and ensure a provincial cut in the NFC Award share.

Pakistan to link Middle East with Karachi, Gwadar soon through ferry service

Updated 23 min 54 sec ago

Pakistan to link Middle East with Karachi, Gwadar soon through ferry service

  • Saudi Arabia, Singapore, and Malaysia are interested in shipping lines with Pakistani carriers, Maritime Ministry official says
  • A $1.8 billion bridge would link Karachi Port with Port Bin Qasim under CPEC

KARACHI: Pakistan is in the final stages of starting ferry service linking Middle Eastern ports with Karachi and Gwadar deep-water port as the go-ahead is expected next week, says Mahmood Moulvi, Adviser to Ministry of Maritime Affairs.

“Ferry service will be launched from Karachi port to Dubai, Oman and Bandar Abbas (Iran). We want to facilitate pilgrims by providing them alternate routes,” Moulvi said in an exclusive interview with Arab News.

He added that “the service will be completely in the private sector and the role of government would be of facilitator.”

Pakistan is currently in the process of amending its shipping policy of 2002 to accommodate more players with the aim to make it business friendly. “The amendment process is in final stages and will be approved, hopefully, in a month as the progress is at the advance stage,” Moulvi informed.

The confidence of foreign investors is being restored with growing interest of Saudis, Singaporean and Malaysian investors in shipping lines, he said. 

“Singaporean investors are coming in April to finalize the details for starting vessels. We are asking them to come up with Pakistani flag carriers,”, he added.

“Roughly, we estimate that around $8-10 million per ship investment would be made. We initially expect two ships to come up to test the waters,” Moulvi said adding that “Pakistan will be in position to minimize around $4.5 billion freight cost that is being paid to foreign shipping companies.”

Recently Khalid A. Al-Falih, Minister of Energy, Industry and Mineral Resources for Saudi Arabia and Chairman of the Board of Saudi Aramco, during his visit to Gwadar, expressed kingdom’s interest in investing in logistics. 

“It was our proposal to have joint venture in the oil transportation. We asked them to transport oil in their own tankers because after the completion of oil refinery they would need it on permanent basis,” Moulvi, who was accompanied by the Saudi delegation, said.

Apart from crude oil, Pakistan is one of the major importers of palm oil mainly from Malaysia. During the 8 months of current fiscal year Pakistan has imported 2,052,681 metric tons of palm oil worth $1.24 billion. “We are also proposing Malaysians to come up with palm oil carriers with Pakistani flags. We would pay them in Pak Rupee instead of paying in US Dollar which would reduce the burden on foreign exchange,” Moulvi said.

Pakistan government is also planning to link its two major ports with the help of China under the China Pakistan Economic Corridor (CPEC). “The exact cost of the bridge would be $1.8 billion with $30 million per mile. China wants to bring the project under CPEC otherwise it would be on Built Operate Transfer (BOT) basis. The bridge would consist of a railway track and oil pipeline,” the official said.

China is also interested in building a shipyard in Gwadar while another one is proposed in Karachi, apart from the one already operating. The completion of these shipyards would multiply the shipbuilding activities in the county.