Budgetary Consequences of the 7th NFC Award

Hafiz A. Pasha, Aisha G. Pasha and Muhammad Imran ()
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Hafiz A. Pasha: School of Social Sciences Beaconhouse National University, Lahore.
Aisha G. Pasha: School of Social Sciences Beaconhouse National University, Lahore.

The Pakistan Development Review, 2010, vol. 49, issue 4, 375–385

Abstract: The paper analyses the impact of the 7th NFC Award on the size of the consolidated fiscal deficit of the federal and provincial Pakistan governments in 2010-11, the first year of implementation of the Award. A behavioural asymmetry is observed, whereby the federal current expenditure is inflexible downwards in the face of a decline in resources while provincial current expenditures show a big and rapid response to larger transfers. This asymmetry is the basic cause of any increase in the fiscal deficit, although this is partially mitigated by enhanced fiscal effort by the federal government and some lag in the rise in development spending by the provinces. Overall, it is estimated that the consolidated fiscal deficit will be higher by about 0.3 percent of the GDP due to the behavioural responses associated with the Award. The paper proposes an incentive scheme to reduce the negative effects arising from an Award.

Date: 2010
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