Published in The News International on June 22, 2009:

The Finance Bill 2009, which gives effect to the financial proposals of the federal government for a year, is the government’s key instrument of fiscal policy and in many ways, a reflection of its policy stance to achieve stated endpoints in many state domains. Within that remit, the purpose of this comment is to bring to the fore some considerations relevant to equity, social justice and the social sector, with a view to generating a debate on the subject, within the context of the forthcoming parliamentary sessions that will now convene to deliberate on the Finance Bill. Three points are being articulated in this connection.

First, it is important to recognise the value of budgetary empirics; within that ambit, a paradox is evident straight away. Last year, we had the largest-ever cuts in public-sector development expenditure (PSDP). This year we have the largest-ever PSDP allocations. From the information in the public domain, it can be deciphered that last year’s PSDP scale-back, though partly the result of unforeseen crises could also be attributed to overestimated projections of foreign assistance; this time round, development appears to be financed through foreign assistance to a large extent and there appear to be no guarantees in place to ensure that the budgetary outlay will not be met with the same fate, as the year before.

By and large, some level of attempt to target welfare is evident in this budget. Technical limitations notwithstanding, this is manifest in the following: a) social security to another segment of the population—haris and the internally displaced—and health security envisaged through the recently announced health insurance scheme; b) income support to low-income households through a scale-up of the Benazir Income Support Programme, broadening the numeric base of microfinance and launching of the one-person-per-household-trained scheme; and c) the emphasis on infrastructure through the public works programme. A careful analysis is needed to examine if the impact of indirect taxes—for example, the carbon levy—outweigh the envisaged benefits of these interventions. In many ways, it is the social impact of policies in other domains that are more important in determining social outcomes.

Within the ambit of empirics, the budget is—and has always been—oblivious to improving returns on spending; the quality of expenditures, equity in utilisation and effectiveness of targeting are equally, if not more important considerations compared to aggregate allocations. The allocation-disbursement-expenditure anomalies, which negatively impact the ability to expend and the quality of expenditures—decision-making delays and lack of accountability thereof, centralisation of decision-making, onerous finance and administrative procedures—deeply impact performance of the social sectors; in addition, graft and systemic pilferages compromise public expenditures in a highly-constrained environment. Unless there is a system of gaining insights from an ongoing process of astute impartial analysis of the fiscal policy cycle, factors that undermine the impact of fiscal inputs cannot be appreciated.

Secondly, the potential within a Finance Bill to promote equitable allocation of resources cannot be fully harnessed, given that the country does not have a consolidated all-encompassing Social Policy Framework. This points merits further elaboration.

Pakistan has a range of policy guidelines, which constitute the individual elements of a social policy; these include respective policies on housing, labour protection, environment, health and education. However, Pakistan does not have a consolidated social policy embodied within a social justice framework, which addresses the range of dimensions sets forth and mitigates against the impact of policies in other sectors on social outcomes. Those in the establishment can argue against the aforementioned argument, “Pakistan does not have a social policy,” by referring to the Social Protection Strategy of the ministry of social welfare, stating that the government’s obligation to chart a social policy has been fulfilled or by referring to social sector programs and the delivery of services.

A social policy is much more overarching and all-embracing than each of these. Programmes in the social sector and services are just one component of the framework. Social protection is a concept embodied within a social policy, but it is not a substitute for it and the latter is clearly more overarching. Pakistan’s Social Protection Strategy, is focused on “supporting vulnerable households in managing hazards and risks.” Although it is true that the original motivation for the expansion of welfare services should be to help the poor, welfare does not have to be restricted to the poor. It is now well established that anti-poverty policies have their limitations in reducing unjust social disparities and therefore action beyond the poor is needed to deliver social services as a public good. An all encompassing social policy, overall responsibility for implementing the policy and clarity in relation to several normative parameters—range of services and their coverage; the choices concerning those services, the means of their provision and mechanisms of their financing are therefore a prerequisite before the potential within a budget statement can be leveraged to target equity through expenditures. One expects these points to be raised on the floor of the Parliament instead of the deeply polarised, politicised and charged discussions, which usually characterise parliamentary debates.

In the third place, and most importantly, the success of a fiscal policy implemented through a budget instrument is deeply dependent on the quality of governance and institutional ability to effectively and transparently implement policies in their stated spirit. This is where the biggest gap lies in Pakistan. Exceptions notwithstanding, issues of capacity and performance are widely recognised in Pakistan’s public management process; years of under-funding of state institutions and the culture of patronage and collusion have eroded the technical capacity of our ministries. Limited accountability, poor governance and mismanagement have led to the institutionalisation of a number of behaviours detrimental to equitable deployment of resources. As a result, evidence-guided choices are bypassed, motivations other than welfare of the people dominate decisions and considerations other than equity and social justice become the cornerstones of institutional performance.

These considerations can impact the performance of any program—the Benazir Income Support Programme is not structurally immune from political patronage, even through a well-designed scoring and evaluation system appears to be in the pipeline for deployment; the envisaged health insurance scheme will be serviced by a crumbling state health machinery; the public works scheme will be implemented by agencies where graft is common and though fiscal measures have been promoted for agriculture in the current budget, they are likely to get increasingly skewed towards the elite, if measures are not taken to build conscious safeguards.

In sum, therefore, we need to be pragmatic with our expectations with respect to what the Finance Bill can achieve by way of improving the social outcomes. Though there have been aggregate increases earmarked, they aren’t sustainable and guaranteed revenue sources. Moreover the policy and institutional parameters, which enable the translation of fiscal policy commitments into outcomes, suffer from many gaps particularly in the present environment of governance. Unless these change, major strides cannot be made in the social sectors.

In the run-up to its adoption, the Finance Bill will undergo many changes, particularly as they relate to prerogatives, permissions, tariffs, subsidies, etc. Those that have the ability and access to voice their opinion in the corridors of power are likely to get their interests protected. However, majority of those who need direly to benefit from Pakistan’s fiscal policy are neither aware of its existence nor have the means of voicing their concerns. The barest minimum we can do for this segment of the population is to protect the social sector budget from a scale back, which usually transpires during the course of the year as a result of fiscal deficit constraints.

The author is founding president of the NGO think tank, Heartfile. Email: sania@heartfile.org

World Health Organization Maximizing Positive Synergies Collaborative Group, Samb B, Evans T, Dybul M, Atun R, Moatti JP, Nishtar S, Wright A, Celletti F, Hsu J, Kim JY, Brugha R, Russell A, Etienne C. An assessment of interactions between global health initiatives and country health systems. Lancet 2009;20(373):2137-69

Published in The News International on June 11, 2009:

The government has decided to increase spending in the development sector in the coming year as is evidenced by the expansionary fiscal policy adopted in the forthcoming budget for the year 2009-10. Approval of the highest ever Public Sector Development Program by the National Economic Council comes at a time when many fiscal space constraints are evident—decline in revenues, competing priorities particularly in the wake of the ongoing security situation and efforts to curtail the fiscal deficit in order to keep it within stipulated limits. The rationale for the approach has fueled a debate amongst subject experts—a positive development indeed given the potential within constructive and substantive technical dialogue to shape policy decisions in national interest.

The purpose of this comment is not to dwell on that debate but to draw attention to a related issue of strengthening the public-private interface as a policy option to assist the government in achieving the development objectives envisaged in the budget. Two areas appear important in this regard.

The first area is infrastructure development. In today’s environment, investments in infrastructure are critically needed, as they can generate economic activity and create employment. In the 1930’s, one of the factors responsible for United States’ recovery from the Great Depression related to Roosevelt’s policies of investment in huge public work schemes, which enabled the generation of employment. Efficient infrastructure can also boost economic recovery through promotion of local and foreign investment and business productivity and expansion—all of which are needed in today’s context.

The currently prevailing power shortage—though attributable to some extent to the issue of circular debt, the decades-long intransigency to invest in water reservoirs and the crumbling state of public transport and social infrastructure in the country also reiterate the need to invest in infrastructure. Pakistan’s overall infrastructure needs have been estimated at US$500-600 billion. However, as opposed to this, last year’s PSDP allocations (2008/09) for infrastructure development approximately stood US$4-5 billion, and this year’s PSDP allocation through increased will also fall short. In view of resource limitations, the government has decided that many infrastructure projects, particularly those related to the transport sector, should be developed and implemented through public-private partnership under the umbrella of the Infrastructure Project Development Facility (IPDF) with support from PPP Infrastructure Cell of the Planning Commission. If appropriately structured, this approach can save Rs. 200-300 billion in PSDP expenditures.

While it is critically important to undertake projects in the PPP mode, it must be appreciated that this has implications for government’s capacity. Infrastructure projects have traditionally been funded by the public sector in Pakistan in the past. The government has some level of experience with PPPs through engagement in this mode with Independent Power Producers (IPPs) in the 1990s; PPPs have also been used in the past in the transport sector using the Build Operate Own, Build Operate Transfer, Rehabilitate Operate Own and Rehabilitate Operate Transfer modalities of engagement. However, in order to undertake major infrastructure projects in the PPP financing mode, transformation of the government’s capabilities and governance capacities is needed to plan, execute and implement.

The government must therefore plan to enhance its institutional competencies in the area.
Fortunately, some arrangements are already in place but need critical inputs, consolidation and or transformation. A PPP policy is in place at the federal level but legislation needs to be enacted. A draft PPP law has been pending action in Punjab for over five years and needs to be built upon further to develop a national legislative framework. Steps have been taken to develop transaction advisory capacity—IPDF has been created as a statuary entity under the Companies Ordinance (as a Section 42 Company) to provide technical oversight, help state agencies procure transaction advisors and technically support government agencies in processing and developing projects through the PPP route. It is important to ensure support to the organization from the highest level of government to enable it to serve its role. In order to ensure availability of long-term financing for PPPs, various financing arrangements—Viability Gap Fund, the Guarantee Fund, Infrastructure Project Finance Facility and Project Development—have been designed for some time now but have not been fully established. The PPP infrastructure Cell in the Planning Commission also needs to be supported and strengthened to plan and procure infrastructure with private sector investment. This arrangement with appropriate linkages and technical inputs from IPDF can be mandated to review all infrastructure projects for their viability regarding being channeled for private sector funding before going down the CDWP/ECNEC route in the Planning Commission. In many countries of the world, it actually has to be proved that infrastructure cannot be built with private sector investment before soliciting support for public financing such as is the case in South Africa and the highway sector in India.

An important caveat relates to capacity of the government to regulate. Infrastructure PPP’s are complex arrangements involving a range of stakeholders—public companies with official relationships with public institutions, transaction advisors that are procured by public agencies (IPDF in Pakistan’s case), operators, service purchasers, sponsors and contractors; there are various sources of cash flows and revenues and organizational objectives that have to be handled. In view of this diversity and complexity, the success of these arrangements depends upon fiscal and legal prudence of governments and their ability and transparency to build safeguards and share risk in a manner that is mutually beneficial, both to the public and private sectors—most importantly, to the population at large.

The other reason why the government needs to engage with the private sector is to enhance its capacity to deliver social services—health and education in particular. Pakistan has traditionally engaged in service delivery in a ‘welfare mode’ assuming that it bears the responsibility, both of financing as well as providing services but has under-resourced its infrastructure and service delivery arrangements; on the other hand, the regulatory environment has allowed burgeoning of the private sector in these areas with minimal—in some cases no—regulatory controls. As a result of this and the disparity in incentives in the public vis-à-vis the private sector, a characteristic abnormality has emerged; this manifests itself in public functionaries working in the private sector, and closed and underperforming health facilities and schools. This limits the ability of the government to target welfare to its citizens.

In order to address these challenges, action is required at several levels—in each, the role of the private sector is critical. In order to better manage public facilities, the government can rely on the private sector’s entrepreneurial talent either by contracting out management or applying private sector management principles and incentivize public sector delivery and in order to expand the outreach of services, the government can involve non-state providers of services. The decision by governments to act as payers for welfare services and only partly have responsibility for direct delivery of services has important consequences for shaping a social policy. However, the government will have to develop a new set of institutional norms and regulatory frameworks and change the way they have been doing business in the past in order to achieve this important goal.

The discussion on infrastructure development and sustainable macroeconomic growth and effective targeting of welfare service becomes more important and challenging today than it has ever been in the past in view of the unique pattern of conflict and violence that has emerged in our deeply polarized environment. The need to maximize synergies between the public and private sectors has therefore become an imperative. However, the results of such actions will only be as good as governments can make them. Governments with limited capacities cannot remedy their deficiencies by seeking to yoke the private sector on their own uncertain cart.

The author is the founding president of the NGO thinktank, Heartfile. E mail sania@heartfile.org

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