Relying on provinces

December 10, 2019

IN the wake of the 18th Amendment, some profound shifts in responsibility were supposed to take place between the federal and provincial governments but they never did.

It is not only resources that were to be devolved to the provincial governments, but also many of the responsibilities for maintaining social sector spending and improving outcomes in health and education.

Sadly, only the money was ever really devolved in earnest — and for the provincial governments, money is really all that seemed to matter.

All the provincial governments have increased their spending on education in the decade since the seventh NFC award devolved 57pc of all taxes in the federal divisible pool downwards. But what they have not done is to mobilise their own revenue sources, and as a result, even 10 years on, they receive Rs612.5bn from the federal government as transfer under the NFC award, and raise Rs104.5bn in their own taxes.

This is despite the fact that some of the largest and most promising revenue lines have been in the provincial domain for years, including tax on agricultural incomes.

This failure of both the federal and provincial authorities to live up to the terms of the 18th Amendment and the attendant seventh NFC award means the debate around devolution revolves principally around the sharing and utilisation of fiscal resources.

As part of this tussle, the federal government recently gave the IMF a commitment to recover some of the largest amounts under the head of provincial cash surpluses, ie those funds that the provinces receive from the centre but are unable to utilise according to the law and as per their mandate.

The most recent fiscal data released recently shows that in the first quarter the provinces spent Rs589bn between them and returned Rs202bn to the centre as their cash surplus. On development projects, the provinces could only spend Rs70.6bn, one of the lowest sums in many years.

Aside from social sector spending, the provinces also have certain responsibilities that come under the development head. They are responsible, for example, for maintaining irrigation canals and much of the urban infrastructure, including an effective mass transit system, and proper systems for waste removal and the provision of water, among much else.

If in times of fiscal constraints, the provinces are squeezed to the enormous extent that the newly released fiscal numbers suggest, then the 18th Amendment has already been reduced to little more than a formality.

It is important that the spirit of the devolution exercise be rescued from the austerity that the implementation of IMF programmes always brings.

Part of the responsibility for this, of course, lies with the centre. But in equal measure, the provincial authorities need to take their responsibilities more seriously, rather than simply living off NFC transfers.

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