Pakistan reslices revenue pie: formula for unity?

The technocratic title sounds nothing like a historic agreement.

But the 7^th National Finance Commission Award that Pakistani federal and provincial government officials hashed out this month resolves a two-decade conflict over how to share the nation’s revenue.

By redistributing wealth – even by just a few percentage points – it marks a first step toward easing the hostilities that have fueled bloody insurgencies and stalled important energy projects.

Not bad for a country in perpetual fear of breaking into its four ethnically divided provinces.

“If you are able to get across this feeling that you are getting your due share, this obviously will help in terms of national unity,” says Kemal Siddiqi, Karachi-based editor of the Express Tribune, a Pakistani newspaper. “The next challenge could be … getting them to use that money so there’s a visible change.”

Deal could build goodwill

The deal came about after months of meetings and three days of final negotiations in Lahore that ended on Dec. 11. The federal government agreed to distribute more of the overall pot to the provinces, and dominant Punjab Province agreed to share more money with the other three (it gave up 1.27 percent and will keep 51.74 percent).

“It’s not a small achievement,” says Abida Hussain, a senior member of the ruling Pakistan People’s Party, who calls the NFC deal one of the government’s greatest accomplishments so far. “The real underlying problems [of the country] are the problems between the provinces.”

Pakistan is not about to splinter into pieces, but it has always faced separatist movements – a threat made real in 1971, when East Pakistan broke away to became Bangladesh.

Decades of clashes between armed insurgents in southwestern Baluchistan Province and the Army have killed thousands. Residents of this vast region, which is poorly developed but full of natural resources, accuse Islamabad of piping out their oil and gas but not giving enough in return, and of building a free-trade zone in Gwadar but not giving jobs to locals. The province will see its portion of funds grow from 7.17 percent to 9.09 percent.

Ethnic Pashtuns in and around the North West Frontier Province (NWFP) want their territory renamed “Pakhtunkhwa,” or Land of the Pashtuns. The area has have suffered the most in Pakistan’s expanding war against the Taliban – its moneymaking tourist attraction, the Swat Valley, was devastated in a military offensive this year, and a second offensive nearby has unleashed bomb attacks and a flood of refugees into its towns. Some fear the Taliban could exploit Pashtun grievances to recruit more fighters for their war against the state. NWFP will receive 1.57 percent more funds to help its people and economy cope.

Natives of Sindh Province had sought greater autonomy since 1917, under British rule. Though those efforts have died down, distrust of Punjab remains so strong that it has thwarted cooperation on projects that could benefit both sides, such as dams to generate badly needed power. Some Sindhis see the ongoing legal efforts to unseat President Asif Ali Zardari as yet another attempt to keep one of their own out of power. Under the NFC award, Sindh Province will get a 0.27 percent increase in money.

Small percentages, big impact

These three provinces had long argued for changing the criteria of the NFC award, which since its creation in 1973 had benefited Punjab, the most populous province, by distributing revenue based solely on population. Sindh wanted a bigger share because its port in Karachi generates a significant amount of revenue. Baluchistan needed help providing services and infrastructure to its impoverished, far-flung residents.

The provinces were supposed to come together and revise the NFC every five years, but from 1990 until now had been unable to agree on new criteria to accommodate everyone’s demands.

The 2009 NFC award, however, adds three new criteria: “Backwardness,” measured by factors such as life expectancy and literacy, will be weighted at 10 percent. Revenue collection will count for 5 percent. And inverse population density – or how far people are spread out – will count for 3 percent. The agreement also addresses issues such as tax collection fees and extra compensation.

As landmark legislation goes, these carefully negotiated tenths and hundredths of percentages don’t have “a lot of bling factor,” says Cyril Almeida, assistant editor at Dawn, a Pakistani daily. But “it’s important for the future of the country.”