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Local councils to get Rs391bn in current fiscal year

The Interim Provincial Finance Commission (IPFC) Award of 2016 approved by the Punjab cabinet on Friday has committed 44 percent of the Net Provincial Consolidated Fund (NPCF) to local governments besides devising a multi-factor formula for a horizontal distribution of resources – to strengthen local governments.

The share of local governments for the current fiscal stands at Rs391 billion.

Unlike previous budget distribution formula of allocating 91 percent of resources on the basis of population, the IPFC has reduced its ratio to 75 percent and the remaining 25 percent funds will be distributed considering poverty, expenditure needs and cost of service delivery.

“Inclusion of indicators of poverty, expenditure needs and cost of service delivery will help increase the share of South Punjab districts,” Punjab Finance Minister Dr Aisha Pasha told Dawn. At the same time, through transfer of a higher vertical share, the needs of people of remaining districts of Punjab had also been taken care of, she added.

The government will also transfer adequate share to district councils for the improvement of rural areas. Also, equal monthly transfers will be provided to urban and rural union councils in day to day issues of citizens.

Multi-factor formula for horizontal distribution of resources

It is learnt the resources for local governments will have two components – formula-based component (37.5 percent of the NPFC) and grants for special purposes (6.5 percent of the NPCF).

Officials say that Rs391 billion has been earmarked for local government functions with “formula based transfers” amounting to Rs337.5 billion. The formula based transfers are 23.1 percent higher than current year allocation (based on the PFC 2006) of Rs274 billion. The grants amounting to Rs54 billion have been added to help augment service delivery by local governments.

They assert that higher transfers are being made to local governments despite the provincialisation of functions such as agriculture, livestock, roads and buildings.

Officials say the interim PFC-2016 proposes to establish three types of grants i.e. General Purpose Grant (82 percent), Transition Grant (seven percent) and Development Grant (11 percent). Size of each grant and shares of local governments in each grant are determined on the basis of their historical expenditure and fiscal need.

Officials say the shares of local governments will be: 66.9 percent for district education authorities, 16.3 percent for health authorities, 12.8 percent for local councils and four percent for union councils.

The interim PFC Award proposes an overall increase of 164 percent for local councils translating into increase from Rs17 billion to Rs43.2 billion.

District health authorities would get an increase of 37 percent over their estimated expenditure from Rs40.2 billion to Rs55.1 billion this year.

The functional district education authorities would also get an increase of 19 per cent (Rs37.5 billion) over their estimated expenditure during financial year 2016-17. The transfers would increase from Rs190.4 billion to Rs226 billion.

Horizontal distribution of ‘General Purpose Grant’ and ‘Development Grant’ would be done on the basis of a multi-factor formula, with weight of ‘population’ determined to be 75 percent. The remaining 25 per cent weight will be distributed between poverty, expenditure needs and cost of service delivery.

The factors considered for horizontal distribution among education authorities, in addition to population, are population density, poverty, school going-age population, girls middle school enrollment and out of school children. Similarly, in case of health authorities, the factors will be population density, poverty, women population of child bearing age and population of above 65 years elderly people and children (less than 9 years) in addition to population.

In case of local councils, the factors considered in horizontal distribution are population density, poverty and lack of access to improved water sources in addition to population.

Horizontal distribution on the basis of variables determining fiscal need and cost of service delivery would ensure that each local government has sufficient resources for salary, non-salary and development purposes.

Each Urban and rural union councils will receive an annual transfer of Rs3.6 million.

In order to incentivize performance and to build capacity of local governments, the award also proposes to establish a competitive challenge fund for capacity building and innovation in service delivery.

The finance minister says the government is also devising an audit mechanism and establishing an `internal audit authority’ for audits of local government through third party validation.

Citation: Malik,Mansoor. Local councils to get Rs391bn in current fiscal year. Dawn, December 31, 2016.

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