An accountant's approach to NFC?

A lot has been written recently about the need to revisit and reduce the share of the provinces in the 7th National Finance Commission Award, but sadly most of it is informed by assumptions that are misplaced, or worse, absent any hard evidence at all. In a public discourse coarsened and contaminated by the constant insertion of inorganic political narratives by "non-political actors", a reliance on arguments lacking relevant data is not surprising.

The arguments in favour of a revision of the NFC are, on the aggregate, about the fiscal difficulties that the federal government faces. The anti-NFC crowd argues that if the formula in the 7th NFC were to be revised, the federal government’s economic difficulties would be ameliorated. There is a wide range of scholars that have tackled this line of argument. Indeed, even the grand vizier of the anti-NFC crowd, former finance minister and the genuinely pro-reform Dr Miftah Ismail, admits that the solution to fiscal difficulties is fiscal measures (more and better taxation) — but then he puts the onus of this taxation on the supposedly inefficient provincial governments — a decidedly politics and service delivery solution to what he himself frames as an accounting problem.

This, in a nutshell, is the problem with the fiscal argument for revisiting the NFC. It adopts an accountant’s argument to solve a politics and service delivery problem. The 7th NFC Award was a politics and service delivery solution to a politics and delivery problem. It never sought to be, was never intended to be, and will never be an accounting solution.

Dr Ismail knows the perils of letting accountants have their way with Pakistan’s economy — so his anti-NFC position is especially troubling. Since he is now among the prime movers of the economic discourse in the country, the wider debate around the NFC suffers from focusing on the wrong thing. Arguments for or against the current formula of the 7th NFC need to be about politics and delivery.

Let’s take the example of education — an issue on which many in the anti-NFC ranks have the right instincts. First, some context. For decades, one of the most vexing problems in Pakistan’s education sector was the quality of teachers in the public sector or government schools. This problem was so severe by the late 1990s that a large cohort of Pakistani families had already exited the public sector education system, birthing a tsunami of private schools that now dominate the education discourse.

At the heart of the large-scale migration of parents and families away from government schools (and toward private schools, including low-cost and low-quality private schools) was the low quality of government schoolteachers — especially at the primary school level. This low quality was baked into government, and government schools across the entire country thanks to something called the PTC.

The PTC stands for Primary Teaching Certificate. It was the instrument through which political patrons (including the military regime of General Ziaul Haq and General Pervez Musharraf) distributed jobs to those "matric-pass" candidates that had the eyes, ears or wallets of local political and administrative bosses (MNAs, MPAs, commissioners, DCs etc). To become a primary school teacher, you had to prove that you had passed ‘matric’ and would one day complete the PTC. Many did, many did not — but the institutionalisation of "matric-pass" primary schoolteachers essentially stripped government schools of any kind of quality education.

The government later added a CT (Certificate of Teaching, for
"inter-pass" candidates to be able to teach middle and high school students). Not surprisingly, the market responded with en-masse migration (for those who could afford it) away from government schools. As government schools became the last refuge for only the very poorest families, learning outcomes at government schools kept plummeting. This happened throughout the 1970s, 1980s, 1990s and 2000s. And then, in 2010, came the 7th NFC Award and the 18th Amendment.

Many Pakistanis forget that in 2009, just a couple of years before the most recent wave of the coarsening and contamination of the public discourse by "non-political actors" (that began in earnest in October 2011), political parties had learnt to come together for meaningful reform. The parliamentary committee that delivered the 18th Amendment drew from the full spectrum of politics, including Pakistan Muslim League-Nawaz (PML-N), Pakistan Muslim League-Quaid (PML-Q), Pakistan Muslim League-Functional (PML-F), Awami National Party (ANP), Muttahi Qaumi Movement-Pakistan (MQM-P), Jamiat Ulema-e-Islam-Fazl (JUI-F), Jamaat-e-Islami (JI), Pakistan Peoples Peoples Party Shaheed group (PPP-S), Jamhoori Wattan Party (JWP),National Peoples Party (NPP), Pashtoonkhwa Milli Awami Party( PkMAP), Balochistan National Party- Awami (BNP-A). This committee was trying to solve a wide array of politics and service delivery problems — and the solution they devised was the 18th Amendment (and in parallel, and consonant to it, the 7th NFC Award). One of the most divisive and lively debates this committee had was on education.

The final consensus of the group insisted on the delivery of education being unambiguously devolved to the provinces (codified through the deletion of the concurrent list in the fourth schedule of the constitution), and the establishment of education as a right for every child in Pakistan between the ages of five and 16 (codified through the insertion of Article 25-A to the constitution). Naturally, the increased share of the provinces in the 7th NFC was aligned to help service the new responsibilities of the provinces.

The generic education report card for Pakistan is an F-for failure. But the anti-NFC crowd really don’t want a deeper assessment of what lies beneath such generic declarations. To be clear: Pakistan is suffering from a severe crisis in learning and education. But where was the country in 2010-2011 — the last fiscal year prior to the 7th NFC Award (and the 18th Amendment) — and where is it today?

The total enrolment of students from Class I to Class X in 2010-2011 was 25,039,395. The corresponding number for 2020-2021 was: 31,181,896. This translates to a net increase of 25%.

In 2010-2011, there were 679,829 government schoolteachers in Pakistan. 50% of these teachers were either PTC (266,592 matric pass) or CT (72,078 inter pass). Only 20 % had a Bachelors (91,899) or a Masters (39,501).

In 2020-2021, there were 746,733 government schoolteachers in Pakistan. 85% of them have a Bachelors (182,113), Masters (449,447) or a PhD (6,238). The system still has the good old PTC and CT folks – but they now make up a mere 12% of the entire cohort of government schoolteachers.

On the quality of teachers in the public sector alone, provinces have completely transformed the realm of the possible. This happened in large part due to one province taking the lead and setting an example, and the rest of the provinces learning from it and following suit. The instrument of change in this case was the elimination of a patronage-based system of teacher recruitment and the introduction of a merit-based hiring process through something that has come to be known as the National Testing Service. Matric and inter-pass candidates simply cannot pass the NTS test. The dramatically higher quality of government schoolteachers — pioneered by Punjab in 2009 under the then chief minister Shehbaz Sharif — has not yet translated into dramatically improved learning outcomes. But it has come at a substantial financial cost.

In the Basic Pay Scale of 2011, the salary of a BPS-14 government employee (the level at which middle school teachers are paid) ranged from Rs8,000 to Rs26,300. In the Basic Pay Scale of 2022, the salary of that same BPS-14 government employee ranges from Rs22,530 to Rs74,730. The upper limit (high end of BPS-16) for a high school teacher has risen from Rs34,000 in 2011 to Rs95,870 in 2022. This essentially represents a 3x salary escalation across the board, since the 7th NFC Award.

Worst of all, there is a substantial teacher shortage in all provinces. 63%of all government primary schools in 2010-2011 had two or fewer teachers. In 2021-22, this had fallen to 43%. It needs to fall much, much farther. That too will have a financial cost.

When the anti-NFC crowd uses generic narratives about the failures of the public education (or other service delivery) systems in Pakistan, they are often dealing not with any detailed understanding of how dramatically the 7th NFC and 18th Amendment have helped alter the fabric of public delivery capability nor of how much more challenging serving 240 million Pakistanis is in 2024, than serving 198 million Pakistanis was in 2011.

Fiscal problems merit fiscal solutions. The 7th NFC and 18th Amendment were not a solution to the fiscal crisis of 2009-2010. They were a solution to a complex network of politics and service delivery problems. There is a lot that still needs fixing — in education, social protection, public health and routine immunisation, and especially in local governance. None of this will be achieved by slashing the provincial shares of the NFC.

Pakistan already has a surplus of trigger-happy accountants who understand neither the purpose of reform nor the impact of getting it wrong. Genuine reformers must identify solutions that are fit for purpose — not fit for accounting.

The writer is an analyst and commentator. He posts at mosharrafzaidi

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