ISLAMABAD – The rising fiscal deficit poses a serious threat to the autonomy and transfer of more resources to provinces under the 18th Amendment and the National Finance Commission (NFC) Award.
This was stated by economists at the 26th Annual General Meeting and Conference of Pakistan Society of Development Economists – that focused on Fiscal Decentralization: Empowering the Provinces, Strengthening the Federation -on Tuesday.
Speaking at the three-day conference, Hafiz Pasha said the 7th NFC Award was a historic achievement, as the federal and provincial governments agreed on fiscal decentralization in the country. He said the federal government was pushing for a strong fiscal adjustment by reducing the target for the consolidated fiscal deficit from 6.3 percent of the GDP in 2009-10 to four percent in 2010-11, as part of the agreement in the on-going programme with the IMF.
He said the basic factors contributing to the rise in fiscal deficit were the decline in the fiscal effort of provincial governments and a major increase in expenditure in the anticipation of larger transfers mandated by the NFC Award.
Pasha said the federal government had given more share to the provinces, but its own revenue collection had declined. He said that situation could be mitigated by providing incentives to provincial governments to share a matching grant equal to the increase in self-financing of expenditure. Senior Visiting Fellow of London School of Economics, Ehtisham Ahmad, said if the current macroeconomic crisis was not controlled and more revenue was not generated, it could take away all the benefits of the 18th Amendment and the NFC Award.
Aisha Ghaus Pasha said nobody had foreseen current crisis at the time of the NFC Award. She said the problem had emerged not because of the NFC Award, but failure to generate more revenue. Planning Commission Deputy Chairman Dr Nadeemul Haq stressed on governance and market reforms for sustainable macroeconomic growth.