Federalism, 18th Amendment and Floundering KP

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Dr Sumera Shams

Pakistan’s ethnic-federation status, with its social and cultural diversity, has remained a major challenge to the country’s national, political, and geographical integrity. One of the most contentious issues has been the distribution of political power and economic resources among the federating units. East-west wing squabbles, civil wars, political unrest in various provinces at random times, and authoritative control from the center have all been parts of our journey since 1947. Historically, this issue and the resulting suffering have provided various regional and political groups in Pakistan with an opportunity to mobilize for political power.
The transition from military rule to democracy in 2008 paved the way for two crucial political developments. Firstly, the 7th National Finance Commission Award was announced, followed by the ratification of the 18th Amendment to the Constitution. Both these developments had major implications for the course of governance in Pakistan. The fiscal powers of the provinces were enhanced along with major institutional changes. Except for the Constitution of 1962, the other two Constitutions provided for a federal form of government in theory, but in practice, a centralized form of government prevailed in the country, previously. The Eighteenth Amendment repealed the concurrent list, thereby increasing the legislative powers of provincial assemblies on various subjects, including taxation.
The fiscal arrangements between the center and the provinces, however, did not indicate any systematic approach which encouraged the provinces to generate revenue. Resultantly, provinces are financially and administratively dependent on the center for the long term. Even though it is against the genesis of decentralization, the federal government provides funds for rural development, roads, allocations of SDGs, gender concerns, fertilizers, and programs like Ehsaas/ BISP. Responsibility and resources shall be devolved to each tier of government for better spending efficiency.
Historically, Pakistan has persistently remained a centralized federation, with the federal government having vast powers to collect revenues. This leaves provinces with exhausted avenues for revenue generation. This implies two important policy gaps. First, the provinces are always in need of financial help. The federal government provides this out of the excess funds collected at the center. Second, and more importantly, this erodes the capacity of provinces to raise revenues from potential indigenous resources.
According to a federal budget document for 2022-2023, Punjab will receive more than half of the federal divisible pool, leaving the same amount to be distributed among the three remaining provinces. In the outgoing financial year, Punjab got a lion’s share of the federal divisible pool, amounting to Rs 1.74 trillion. Sindh’s share from the divisible pool was Rs873 billion, followed by Rs. 575 billion for Khyber Pakhtunkhwa and Rs322bn for Balochistan. In the same degree, recent statistics on poverty and inequality reveal that, even after the much-debated increase in resources available to provinces on account of the 18th Amendment, the disparities that have divided this country since its inception persist. According to the Pakistan Institute of Development Economics 2021 Report on the State of Poverty in Pakistan, poverty has decreased in Punjab over time but has fluctuated in the remaining three provinces. In Punjab, poverty stood at 16.3%, Sindh at 24.6%, KP at 27% and Balochistan 40.7%.
The biggest tragedy for Pakistan is that it was prevented from becoming an actual federation by forces that supported a highly centralized state structure. The central government frequently ignored the political sensibilities of people in various provinces, whereas the provinces have been feeling that the central government does not tolerate dissent and wants to rule the province with a firm hand. Differences between the center and the provinces have also created obstacles in addressing various economic and political crises. At this crucial juncture in Pakistan’s ongoing economic crisis, there are once again a great number of points of distinction between the center and the provinces, with each blaming the other for mishandling the entire situation.
The federal cabinet’s indifferent and stepmotherly treatment of the Khyber Pakhtunkhwa government for the sake of political point-scoring has exacerbated the province’s financial situation, as the province was deprived of the timely payment of the rightful shares instead of net hydel profits (NHP) in the outgoing year. Khyber Pakhtunkhwa faced a massive financial crisis as a result of the Coalition government withholding Rs. 60 billion in the account of Net Hydel Profit (NHP) and delaying payment of another Rs. 30 billion for newly merged districts in respect of the 3% NFC award. Furthermore, the province received only Rs. 8 billion out of Rs. 17 billion for tribal area development projects, and the Khyber Pakhtunkhwa government continued to pay Sehat Card programme expenses in tribal areas from the provincial exchequer.
As of January 2023, Rs233 billion in arrears have not been paid to Khyber Pakhtunkhwa, even after constant formal requests. Up to Rs20 billion in arrears from the previous year in various sectors in the newly merged districts are still pending. Rs. 25 billion in budgetary losses and Rs. 41 billion in development funds should have been released for the current fiscal year, but only Rs. 5.5 billion has been released. The provincial government spent 10 billion rupees from the provincial exchequer on the merged districts. It is the constitutional responsibility of the federal government to spend on the merged districts as long as the NFC Award has not been announced. Furthermore, the province’s NFC share is being delayed unnecessarily with excuses of being paid later. The federal government announced that all provinces would close at 8 p.m. to save 60 billion rupees, but the economic consequences have not been considered. And contrary to their statements, shops in Islamabad remain open till 12am.
Khyber Pakhtunkhwa has been bearing the brunt of the hurdles created by the federal government for financial flows to smaller provinces. Up to Rs50 billion in development funds for newly merged districts were not released with just one stroke of the pen. Khyber Pakhtunkhwa is paying operational expenditures and salaries from its own pocket to the newly merged districts. In reality, the budget of newly merged districts is less than the Rs 37 billion approved during Imran Khan’s tenure. The populace of the newly merged districts has been left distraught due to the disbursement of administrative responsibility and budget cuts. The financial arrangements of the ex-FATA were not changed in the 25th amendment even though its area and population were handed over to Khyber Pakhtunkhwa. The financing flow remained with the federal government. Moreover, the NFC Award has become infructuous. It does not have legal status. It should be revisited, and the newly merged districts shall be updated in it. The promises made to ex-FATA during the merger shall be fulfilled by coordinating with the province. The NFC Award is still based on the 1998 Census, despite the 2017 Census being conducted in 2017, which is another major maltreatment of smaller provinces. After the disastrous floods of 2022, the federal government announced to release 10 billion rupees in funds to Khyber Pakhtunkhwa, but not a single coin was paid. If a similar pattern prevails, it will cause a jammed lock federation.
Even though federalism was the main theme behind the creation of Pakistan, it has not been implemented in essence to date. The state has not been responsive to the demands of the provinces and has only been holding together the federating units through a legal structure. With control over the administrative, economic, and legislative spheres, the center has left the provinces dissatisfied, giving rise to polarization and ethnic nationalism.
The federal government has failed to address the inequalities that stem from regional disparities in economic development. A sense of social deprivation has been instilled in the smaller provinces. The promises made under the 18th Amendment are not limited to devolution of political, administrative, and financial authority, but rather to assist provinces in building capacity to take advantage of opportunities created by increased fund availability. The divide and differences between the center and the provinces have grown so great that the provinces have no choice but to dissolve the provincial assemblies.