Economic Policy in a Federation: A Way forward for Pakistan

Economic Policy in a Federation Lessons and the Way Forward for Pakistan

1. Economic Policy in a Federation Lessons and the Way Forward for Pakistan (Division of Resources and Responsibilities) This module explores the complexities of economic policymaking within a federal framework, focusing on Pakistan's experience with NFC awards, the 18th Amendment, and the role of CCI.

2. Federalism in Pakistan 1947 to 1962 By virtue of its ethnic diversity and strong tribal culture, the land now Pakistan has always been governed by some variant of a federal structure. There has, historically, been no other way to win over the powerful landed classes except by granting their constituencies some degree of autonomy.

3. NFC Award Article 160 of the Constitution of Pakistan 1973, called for the constitution of a National Finance Commission. The Commission was to have representation from both the center and provinces and was to meet at regular intervals not exceeding five years. Between 1973 and 2009 – the year of the 7th NFC – the NFC issued three awards under the framework provided by the constitution. These are summarized below. The criterion for resource distribution was the population for all three awards

4. Implications of NFC Award NFC award has strengthened the federation by giving more share to provinces in the resources. There are capacity issues as provinces, particularly Balochistan and KPK, lack the necessary capacity (knowledge, skill, and experience) to effectively utilize the increased allocations under the new system. The award also turned a blind eye to the requirements of the centre ; especially related to debt servicing and defence . Provinces are granted more resources and power, but there are concerns about weak financial management and a lack of accountability in the public sector.

5. 18 th Amendment Overview of the 18th Amendment: The 18th Amendment, passed in 2010, was a significant change in Pakistan's federal structure (and NFC) Devolution of Powers: The amendment transferred control of several subjects, including education, health, and social welfare, from the federal government to the provinces. Challenges and Opportunities: While the 18th Amendment created opportunities for localized decision-making and resource allocation, it also posed challenges of implementation and revenue collection.

6. The Council of Common Interests Objective & function of CCI The CCI resolves the disputes of power sharing between the federation and its provinces. The Council works under Ministry of Inter Provincial Coordination and is responsible to both houses of Parliament, the Senate of Pakistan and the National Assembly of Pakistan.

7. Council of Common Interest (CCI): Key Decisions and Impacts 18 th Amendment has empowered CCI and thus, it has resolved a number of issues such as: Hydel Power Royalty Issue National Mineral Policy and Water Distribution Census Management Electricity and Natural Resources Management Regulatory Authorities and Federal Ministries China Pakistan Economic Corridor (CPEC)

8. Fiscal Policy and Resource Allocation

9. Balancing Fiscal Policy and Resource Allocation Fiscal Policy Implications: Pakistan must strike a balance between local autonomy and national interests in its fiscal policies Resource Allocation and Budgetary Processes: Collaborative efforts between the federal government and provinces are essential to allocate resources effectively and ensure transparent and participatory budgetary processes Balancing Local Autonomy: Striking the right balance between local autonomy and national interests is crucial for maintaining Pakistan's economic stability and ensuring equitable development

10. Way Forward: Fiscal Policy and Resource Allocation in Pakistan Fiscal Policy Implications in a Federal Context: Pakistan's fiscal policy should take into account the unique federal structure of the country. It should be designed to ensure a fair distribution of financial responsibilities between the central government and the provinces. Fiscal policies should align with the principles of fiscal federalism, aiming at welfare maximization, fiscal equalization, and market preservation. The federal government should collaborate with provincial governments to strike a balance between local autonomy and national interests in fiscal matters.

11. Resource Allocation and Budgetary Processes Collaborative efforts between the federal government and provincial governments are essential for effective resource allocation. Transparent and participatory budgetary processes should be established. The National Finance Commission (NFC) should play a crucial role in facilitating resource allocation discussions and decisions. It should address the revenue matters of both Provinces and the Federal

12. Resource Allocation Balancing Local Autonomy with National Interests: Striking the right balance between local autonomy and national interests is crucial for economic stability and equitable development. Devolution of powers should be accompanied by the necessary resources to execute those powers, preventing fiscal indiscipline. The 18th Amendment has expanded the provinces' domain, allowing them to raise additional revenues from various sources, contributing to their autonomy.