ISLAMABAD: A new World Bank policy paper says the 18th Amendment of the Constitution has failed to institutionalise constraints on barriers to mobility of goods and factors of production across the nation and instead opened up potential for such barriers by recognising the provincial authority to discriminate against non-residents.
By delegating most regulatory functions to the provincial domain, the amendment has created potential for a ‘jungle of confusion’, exacting high transaction costs from citizens and businesses, says the paper titled “Making Federalism Work — the Eighteenth Constitutional Amendment”.
The paper concludes that the amendment is aimed to bring clarity in roles and responsibilities of various orders of government and to ensure greater provincial autonomy to reduce incentives for military interventions in the political system.
It must, however, be seen as only the first, incomplete step towards reforming governance in the country. To complete the process, fundamental reforms are needed to ensure that the public sector serves public interest and secures a political and economic union.
The paper says the amendment poses considerable challenges to multi-order governance in the country. The foremost challenge arises in the realm of peace and order.
As the country has only got a handful of unbalanced federating units, the potential for conflicts between the federation and provinces and between the units themselves are significant. Moreover, the empowered provinces and the Council of Common Interests (CCI) may not be in a position to deal effectively with such ‘hot button’ issues.
The amendment has circumscribed the role of the federation in the ‘war on terror’ as law and order are now primarily the functions of the provinces.
The potential risks on the economic and service delivery fronts are even greater, with the provinces following “beggar-thy-neighbour” policies and creating barriers to mobility of trade and factors of production.
The provincial ownership of financial institutions creates soft budget constraints, and in the absence of a legal framework for fiscal responsibility, poses significant risks for macro stability.
The amendment represented a golden opportunity for reforming multi-order governance, but the country failed to address some difficult issues involved, including realigning roles and responsibilities of the federal, provincial and local governments in the interest of peace, order and growth.
The provincial ownership of natural resources also works against a political and economic union. The provincial powers to tax agriculture income, capital gains and services present a significant roadblock to tax reforms.
The structure of the federal organisation is not aligned with the new mandate and the federal government continues to retain redundant institutions and employees. The provincial ownership of financial institutions, the report says, poses significant challenges to fiscal discipline and macro stability.
Important first steps in this direction should include devolution to local governments and a framework for fiscal responsibility and fiscal discipline for all orders of government. There is an enormous unfinished agenda for reform that needs to be undertaken over the coming years.
A beginning must be made now by recognising the need for reforms and developing a strategy to develop national consensus on the directions for reform, says the World Bank paper.
The study urged the federal government to develop a framework for tax base harmonisation and income/sales attribution and allocation rules, and to establish an autonomous tax collection agency supervised by a board of governors comprising all orders of government and the private sector.
The federal government should carry out an overarching reform to realign structures with new responsibilities and work out a separation programme for redundant employees and closing or restructuring of redundant institutions, such as the Planning Commission, Higher Education Commission and National Centre for Human Development, and to carry out fast-track privatisation and closing of ministry of privatisation.
The provincial governments should conduct a strategic review of provincial government finances and operations to ensure that the provinces may meet challenges in service delivery associated with the new empowerment.
The provinces should introduce civil service reforms to reward task specialisation and accountability for results, and establish service standards and introduce incentives for competitive provisions and citizen-based accountability mechanisms.
In the long run, provinces should rethink the role of local government as the primary agent for service delivery, local economic development and improving economic and social outcomes.
They should also consider contracting out capital value taxation, agriculture income tax and introducing legislation to make that role possible.