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Financial Implications of the 7th NFC Award and the Impact on Social Services

  • Muhammad Sabir

    (Social Policy and Development Centre (SPDC), Karachi)

One of the major developments in 2009-10 was a successfully concluded 7th NFC Award [NFC Award (2009)], which has brought about some profound changes in the resource distribution formula. Since 1973, it is the first time when the distribution of resources among provinces is based not only on the population but also on other criteria such as backwardness, inverse population density, and revenue collection/generation. This Award has also helped resolve other issues such as GDS and Hydroelectricity Profit. This paper analyses the financial implications of the NFC Award 2009 and its impact on three major social services, namely, education, health, and water supply and sanitation. The result shows that as compared to the NFC Award 1997 and Presidential Distribution Order: Distribution of Revenues and Grants-in-Aid Order 2006, the changes made in vertical distribution of resources under the NFC Award 2009 favour the provincial governments (combined) rather than the federal government. An interesting finding is that while there is a decline in vertical share of the provinces under the NFC Award 2009 as compared to the NFC Award 1991, this decline is not evenly distributed among the provinces. In relative terms, the NFC Award 2009 benefits the two relatively more backward provinces, Khyber Pakhtunkhwa and Balochistan, as compared to Sindh and Punjab. Moreover, the projected values of social sector expenditures indicate that the NFC Award 2009 has a positive impact on social sector spending. Given that Pakistan has a comparatively low spending on social services, this award is a positive move

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Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 49 (2010)
Issue (Month): 4 ()
Pages: 387–403

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Handle: RePEc:pid:journl:v:49:y:2010:i:4:p:387-403
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  1. Richard A. Musgrave, 1997. "Devolution, Grants, and Fiscal Competition," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 65-72, Fall.
  2. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Preserving Market Incentives," Working Papers 97042, Stanford University, Department of Economics.
  3. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  4. Muhammad Sabir, 2001. "Dynamic Consequences of the 1997 NFC Award: Provincial Social Sector Expenditures," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 967-984.
  5. Quigley, John M. & Rubinfeld, Daniel L., 1996. "Federalism and Reductions in the Federal Budget," Berkeley Program on Housing and Urban Policy, Working Paper Series qt28h7485r, Berkeley Program on Housing and Urban Policy.
  6. Slack, N Enid, 1980. "Local Fiscal Response to Intergovernmental Transfers," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 364-70, August.
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