Category: Blog

Citizens of a country face different life choices. These choices are based on labels assigned to various groups determined by a combination of socio-economic, ethnic and religious factors. Such labels have historically determined the kind of access citizens are provided to public goods and economic opportunities.

By definition, public goods are meant to be non-excludable – that is individuals cannot be effectively excluded from using them as price doesn’t restrict access to the good. The state is obligated to ensure inclusive growth which includes providing all citizens access to public goods without any form of discrimination.

However, growth in Pakistan is not inclusive. The State has been unable to ensure such access to all, particularly for the marginalized –  people socially excluded due to multiple reasons such as age, disabilities, gender, ethnic and religious affiliations. These people also include minorities.

Attainment of inclusive growth becomes even more uncertain as Pakistan enters into another IMF agreement. Adjustment efforts under such reform packages usually demand state retrenchment and a focus on market-led, profit-generating interventions led by the private sector. The fiscal space and political inclination to focus on such issues diminishes drastically.

A recent Lahore Policy Exchange organised by the Consortium for Development Policy Research (CDPR) highlighted in detail the relationship between access to economic opportunities and the marginalization of communities with a focus on minorities. A panel of experts discussed the key reasons for state’s failure in safeguarding minority rights and put forth possible solutions.

Mr. Suneel Malik, Manager Programs at the Centre for Social Justice, a Lahore-based civil society organization working for social justice for the marginalized, highlighted how the state caters to service delivery needs of minorities that now form 3.5% of the country’s population. The state recognizes minority groups, aggregated along religion and ethnicity. However, other factors such as disability, gender, and geographical proximity to government’s priority development zones worsen a citizens’ chance of getting attention from state institutions.

Discrimination against minorities woven into the social fabric

A history of conflict surrounds access to public goods and services along socio-economic dimensions. The structure of the Pakistani state operates on patron-client linkages the beneficiaries of which usually belong to the mainstream with links to influential intermediaries to help gain access to state services. Dr. Hadia Majid, Assistant Professor at LUMS, discussed her work on how religion, ethnicity and income level impact citizen’s chances of accessing public goods such as gas, sewage and sanitation infrastructure, and common water pools like canals and how this results in reduced chances for their upward social mobility. Thus, they are often stuck with low paying, generationally passed down occupations. Minority groups, therefore, not only experience more poverty but are also more prone to getting into poverty traps.

Encouragingly, her research finds that when political incumbents/officeholders at the local level are elected into power with a miniscule vote difference with the runner up, they tend to opt for more inclusive policies in an effort to retain their vote bank. This leads to instances of breaking the cycle of clientelism and interest politics – i.e the tendency for collusionary activities between the state and powerful societal groups –  that distort the democratic objective of equitability.

How distance impacts the status of a citizen

A citizen is relegated to a minority status when governance channels do not provide public delivery in areas considered far-flung. Therefore, lack of proximity to state institutions leads to the marginalization of citizens left to fend for themselves. In circumstances when citizens are already isolated, minority religions, ethnicities, disability and gender can further aggravate poverty levels.

Dr. Faisal Bari, senior research fellow at IDEAS and moderator of the session, highlighted the high variation in public delivery/provision of power to residents within any city across Pakistan. This is because distribution companies increase load-shedding hours based on cost recoveries from particular neighbourhoods. If there is massive electricity theft in certain low-income neighborhoods, households that regularly pay their electric bills will be penalized with black-outs for the criminal actions of others. In a citizen-based state, these kind of government measures to prioritize recoveries over public delivery to its rightful citizens, is a breach of the social contract between the state and its people.

Dr. Hadia also underscored from her study that power, gas and water load-shedding occurs more frequently in localities farther away from commercial and industrial zones. However, ‘katchi abadis’ or slums located nearer to influential zones experience markedly less breakdown in public delivery. She further stressed that lack of basic amenities affects the productivity of men and women alike. It affects the revenues of home-based women workers who are unable to deliver orders on time as well as of men, who due to affected sleep and eating patterns, lose productivity at work.

Addressing inequity in Pakistan: the case of Akhuwat

Dr Amjad Saqib, founder of Akhuwat and a development practitioner, believes that public-sector institutions have not shown a strong will to reach out to citizens in areas with difficult terrain or those that are conflict-affected.

Akhuwat is a successful non-profit interest-free microfinance organization but its approach towards poverty alleviation is centered around inter-faith harmony as it recognises that financial inclusion is not possible in a divided society. Therefore, it sets up its various offices on a rotation basis across mosques, churches, and temples to bring together individuals from different faiths that are experiencing similar financial and political exclusion woes.

Mr. Amjad Saqib stated how establishing centers for social and financial intermediation in Gilgit Baltistan helped in reducing conflict among Shia, Sunni and Ismaili sectarian groups. At the end he urged researchers to conduct a more detailed analysis of this observation. To fill public delivery gaps, Akhuwat also established offices in terrorism-inflicted FATA five years ago amidst high security risks. It has disbursed 52,000 loans since then.

Helping the Marginalised: Looking for Solutions

The state has failed to address the various ways in which people are discriminated against in Pakistan.

A holistic measure to counter all types of discrimination are needed. To overcome the concerns of the marginalized, especially minorities, the state must first redefine what entails a minority. The state defines minorities solely on the basis of religion, ethnicity and sectarian groups, instead of also encompassing income levels, gender, and distance.

The parliament has reserved seats for minority groups. However, individuals are not assigned any constituencies and are hand-picked by political parties. This wields nominal political influence for societal improvement. Systems for preferential treatment of minority groups at the political level needs to be improved.

There is also lack of legislation to ensure that the 5% public service job quota reserved for minorities is in fact allocated to them. Currently, only 2.5% of civil servants employed in the federal government are from minority groups.

There is a commission for the protection of minority rights, but it has several shortcomings that prevents it from playing a meaningful role in improving access to inclusive opportunities.

The state is stripping people of their right to citizenship and it must reach a heightened sensitivity to address the needs of its entire pluralistic society as promised to them in the constitution.

Relevant studies by Dr. Hadia Majid:

https://www.theigc.org/project/public-goods-provision-and-socio-economic-hierarchies-in-lahore-slums/

https://link.springer.com/article/10.1007%2Fs11205-017-1707-0

https://www.researchgate.net/publication/292983134_Women_in_Pakistan’s_Urban_Informal_Economy

Sharmin Arif is the Communications Associate at the Consortium for Development Policy Research (CDPR).

 

With a rapidly growing urban population, Pakistanis are flocking to cities faster than any other country in South Asia. Resultantly, a fifth of all Pakistanis now live in just 10 cities.

By 2017, nearly 40 percent-up from 17 percent in 1951- of the country’s population was urban. As rural residents continue to move to cities in search of better prospects, Pakistan is projected to become an urban-majority country by 2030 with more than half of its forecasted 250 million living in cities.

If done right, urbanization can be transformative for Pakistan. International experience has shown that effective cities can become economic hubs and globally competitive drivers of growth. However, if misgoverned, unplanned cities can propel countries into discontent and further economic and political instability.

Urban growth without a shift in economic patterns can become non-inclusive (in service delivery) and unsustainable (if it does not create enough productive jobs). It can also lead to rising urban poverty. Hence, the country needs to formulate and pursue a strategy that guides urbanization away from its adverse consequences. The challenges here are as great as the failures of policy.

This piece looks at what lies ahead for urban Pakistan, its impact on the economy and a suggested way forward.

Urbanization Underpinned by Pakistan’s Demographic Reality

Pakistan is set to remain one of the world’s youngest countries for the foreseeable future. Almost 64 percent of Pakistanis are under the age of 30. Even by 2050, the median age is projected to reach just 31 compared with the current median of 22.5.⁴

This ‘youth dividend’ is a major growth opportunity, as well as a monumental policy challenge, for Pakistan. In a sense, some of the economic benefits of this demographic transition have already started accruing to the domestic economy. Over the past decade, growth in communications, consumer electronics, automobiles, education and retail sectors is evidence of market expansion driven by the youth.

However, youth unemployment is higher in urban than in rural areas. Of the 50 million people in the 18-29 year age bracket, 55 percent live in urban areas, with 30 million in Lahore and Karachi alone. Exploiting this dividend requires job-rich growth and increased productivity.

Urban Economy Landscape

When urbanization works, the economy expands faster as more people inhabit cities. To a certain extent, this holds true for Pakistan as it collects 95 percent of the federal tax revenue from ten of its major cities, with Karachi contributing 55 percent, followed by Islamabad at 16 and Lahore at 15.⁵ In fact, Karachi alone contributes around 25 percent to Pakistan’s GDP.

The share of the urban service economy is also larger than the national average. Since FY08, Pakistan’s urban economy has demonstrated an annual growth rate of almost 4.5 percent, compared to less than 2.5 percent for rural.⁶

Urban Pakistan generates almost 55 percent of the country’s GDP, even though only 38 percent of Pakistanis live in cities. This, however, falls short compared to other countries. India’s urban population is almost 10 percent smaller than Pakistan’s, but the country generates 58 percent of its GDP from urban areas.⁷ Similarly, for Indonesia, with 44 percent of its population in cities, 60 percent of its GDP is urban.

Pakistani cities vary in size in terms of their economy and potential to generate employment. The average urban per capita income among the top ten cities ranges from PKR 37,000 to PKR 70,000. Urban poverty has now also become a “major and visible phenomenon” .⁸ Six out of the top ten major cities have double-digit poverty figures: Quetta, (at 46 percent) has the highest poverty rate while Islamabad (at 3 percent) has the lowest .⁹

The continuous movement of people from rural to urban is linked to a shift in the economy. Services and industry remain major employment sectors in urban Pakistan while the share of agriculture in overall employment falls. The share of agriculture was down to 41.3 percent in FY18 from half in 1994.⁰ By FY16, the urban economy consisted mainly of services and industry with a share of 73 percent and 24 percent respectively. At the same time, the share of the national value added by sector in urban areas was 6 percent in agriculture (compared to 94 percent in rural), 58 percent in industry (compared to 42 percent in rural) and 63 percent in services (compared to 37 percent in rural). The widening urban-rural divide coupled with a decline in agriculture is expected to intensify rural to urban migration.

Cities create Economies of Scale

A higher concentration of people in cities grows the economy and boosts innovation. Denser economic activities create economies of scale. Larger market size increases productivity and creates knowledge spill overs.

Economists use a term called ‘agglomeration’ to describe this phenomenon. As economic activity takes place in close proximity to each other, businesses begin to specialize and offer services other rms lack. This specialization lowers production costs, attracts a diverse pool of labour, facilitates exchange of knowledge and skills, and spurs entrepreneurship. When clusters of such activity begin to form, they enable higher productivity and attract investment and innovation. In 2015, 22 percent of Pakistanis were residing in urban agglomerations of more than a million inhabitants.

Agglomeration, along with fast paced rural to urban migration, can provide increased manufacturing potential.⁴ Pakistan, however, has not yet benefited from this spatial transformation. This is evident in the poor performance of the industry that has failed to create well-paying jobs for those moving to urban centres.

Moreover, ill planned cities can also reverse economic gains. Pakistan’s urbanization has been termed as ‘messy and hidden⁵’Messy from the low-density sprawl and hidden as cities grow beyond administrative boundaries to include ‘ruralopilises’, – densely populated rural areas and outskirts not officially designated as cities. Today, ruralopilises are estimated to make upto 60 percent of urban Pakistan.⁶

Such urbanization without an accompanying shift in economic patterns does not bode well and as cities expand without planning, challenges of providing effective infrastructure and transportation and of delivering services continue to mount.

Creating Jobs

The State Bank has estimated that Pakistan needs at least a 6.6 percent growth rate to create 1.3 million jobs to cater to the new entrants into the market. By FY15 Pakistan had four million unemployed youth (aged 15-24 years), expected to rise to 8.6 million by 2020.⁷

The challenge is not just about creating more jobs. Cities have to produce employment opportunities that would make migrants relatively more productive. When available, jobs are usually of low quality, especially in manufacturing and services. Around 25 percent of young workers are in unstable, low-paid jobs without any benefits, while 35 percent work as unpaid family workers, majority of them women.⁸

Pakistan also has among the lowest levels of labour productivity in the developing world. According to World Bank, labour productivity in the 1980s grew by 4.2 percent every year, but the rate fell to 1.8 percent by the 1990s and to an average of 1.3 percent during 2000-2015. Since 2007, it has been growing at just 1 percent. A key factor inhibiting labour productivity remains the low accumulation of human capital. Of the 1.7 million entering the job market each year, only 1.3 percent have vocational training. The ability of individuals to participate in the labour force is further constrained by poor health. Close to 44 percent of children under five have stunted growth.⁹

Sectoral Focus

Encourage Manufacturing

The movement of people is determined largely by the type of jobs and where they are created. Transforming the quality and quantity of jobs will require an expansion of manufacturing, especially in the value-added segment, since every job in manufacturing creates 2.2 jobs in other sectors.⁰ Hence, manufacturing remains key to reviving the economy. However, Pakistan’s value-added manufacturing as a proportion of GDP decreased by 2016 to 12.8 percent, from 18.6 percent in 2005. Manufacturing can be encouraged by pushing industries and businesses that are export-oriented, or have considerable export potential, require little capital and are labour intensive, use relatively less energy and are densely populated by Small Medium Enterprises (SMEs).

Promote SMEs

Evidence shows that economies with strong SMEs are progressive and experience robust economic growth. According to the Small and Medium Enterprises Development Authority (SMEDA), 90 percent of all enterprises in Pakistan are currently SMEs, employing around 80 percent of all non-agriculture workforce. The share of SMEs in GDP is approximately 40 percent and they contribute almost 25 percent to total export earnings. The SME sector, thus, has the potential to absorb a large and growing workforce. Yet, SMEDA’s budget spending amounts to just 1 cent per capita compared to 9 cents per capita in India, 53 cents in Turkey and USD 1.92 in Thailand.

Pakistan must invest in modern skills for its workforce in areas like start-ups, innovation and digitalisation that are now a major focus for sustainable economic development elsewhere in the world such as Sweden. Plans to strengthen SMEs should also include easing access to credit, improving access to market, simplifying business registration and adopting a national SME policy.

Boosting the Housing Sector

The State Bank of Pakistan has estimated that across all major cities, urban housing was approximately 4.4 million units short of demand in 2015. Construction of an additional 100,000 houses each year can lead to both growth and employment opportunities.⁴ Housing and real estate sectors are directly linked to about 42 construction materials’ industries, creating jobs at much higher rates.⁵ While easing housing pressure on cities, investing in lowcost housing may also boost SME business in Pakistan.⁶

Making Pakistan an Urban Industrial Country

Provinces have not yet designed industrial policies that look at land usage and development of new cities, even though industrial investments under the China Pakistan Economic Corridor (CPEC) have already begun. The Planning Commission has confirmed that nine industrial parks that will act as primary hubs of industrial activity in the country, are included in the CPEC framework to be built across four provinces.

Special economic zones can provide enormous opportunity for boosting employment and job creation. If these projects are launched in the vicinity of densely populated areas and urban centres, they can make a win-win scenario for the community and the industry. In such a case, these projects can also develop close integration with the local industry. These projects can further result in urban knowledge spill-overs to help develop a knowledge-based economy.

Punjab is currently identifying areas with the best potential to develop into cities and industrial estates, other provinces need to follow suit to economically align to CPEC. However, outdated land use regulation and building codes, the absence of a unified land record system and patchy data on land use continues to lead to poor urban land management.

Investing in Urban Transport for Integrating Labour Markets

A well-integrated urban public transport network contributes to economic growth by reducing transport costs and travel time, facilitating specialization of rms and workers, and decreasing the cost of economic transactions. However, Pakistan’s rapid urbanization is challenging the flimsy infrastructure of its cities, constraining economic activities and reducing potential of growth. Several transportation projects are being rolled out across cities without much understanding of their economic benefits or the local job market.

Researchers⁷ have worked on a series of three projects funded by the International Growth Center (IGC) to analyse the impact of urban transport on the labour market. These projects look at the effect of the Lahore Metrobus on employment by quantifying the causal impact of a reduction in transit cost and time due to investment in public transport infrastructure while measuring impact of mass transit on aspects of labour market integration. These projects found, a) introduction of the Metrobus in Lahore reduced time and cost of commuting for those already relying on public transport, b) substantial proportion of commuters switched to public transport, c) many commuters indicated they would use transport even if fare was increased substantially, d) commuters had higher average earning power than the population riding public buses in the past, and lastly, e) introduction of women’s-specic transport eases their integration into the labour market.

Some of the key policy messages emerging from this work suggest continued investment in, and expansion of high-quality public transport including mass transit, reduction in ticket subsidies and use of peak pricing to make mass transit financially sustainable. Pakistan’s transport sector must prepare for the rise in economic activity expected in urban centres following investments under CPEC. Introducing the right land-use policies and investing in low-cost public transport can help meet the likely increase in demand.

What can Governments do?

There are a few steps that the government can take to ensure cities are able to generate-instead of hamper-growth. Foremost is empowerment of city government in public service delivery and nancial matters and boosting local revenue generation. And last, but certainly not the least, providing a framework to guide urban planning and land-use.

A. Empowering Local Governments

The changing role of the government following devolution is impacting its ability to address urban challenges. The 18th amendment transferred scal and administrative powers for most federal subjects including urban planning, to the provinces, with further delegation to local governments. In fact, international experience shows urban development is best placed within the mandate of local governments.

However provincial authorities undermine the power of city governments to serve their residents. Provinces remain reluctant to empower local governments and have made exceptions in retaining large entities⁸ under their own control. Thus, local governments have a limited role in resolving issues such as the urban housing crisis and provinces continue to assume many responsibilities related to municipal controls, regulations and management. City governments also lack resources to fund schemes and are unable to borrow independently from international donors.

B. Empower Cities to Tax

Most urban taxes are implemented by each of Pakistan’s four provincial governments. These provincial governments have large jurisdictions, with populations ranging from 12 million to over 110 million. As managing cities is not the central function of these governments, most of them have not developed effective urban administration mechanisms.

Land and physical properties are a major source of untapped revenue for most developing countries cities’ .⁹ Punjab, for example, despite being home to nine cities with over a million people, collects about 6 percent of its total tax revenue, from property taxes.⁰ Other parts of Pakistan have not fared better. Sindh, which is home to Karachi, Pakistan’s largest city, has not had a revaluation of land and property since 2001. Yet, there is large potential to increase this. For example, an estimate from 2011 shows that Punjab could raise PKR 25 billion in property taxes if it undertook comprehensive reforms.

Taking the case of the urban property tax collection in Pakistan, researchers tested performance-based systems that consider both effort (i.e., incentivise the bureaucrat to exert the desired level of effort) and information revelation (i.e., creating the right incentives for the civil servant to truthfully disclose information to the state) dimensions. The objective of these studies was to increase tax collection. The completed studies found that performance incentives worked-tax revenues in circles where tax collectors were assigned to performance pay schemes had a 46 percent higher rate of growth. Moreover, easy to understand, transparent, ex ante, and objective incentive schemes were most effective-where tax collectors were paid a bonus directly tied to the revenue they collected above predefined benchmarks, they had a 62 percent higher growth rate in total revenue.

C. Improve City Planning

Given Pakistan’s growing population, which exerts extreme pressure on land, and dearth of nancially attractive investment opportunities, land is the most prized asset in terms of returns. This is complemented by a weak legal and administrative governance structure, which has contributed to an acute housing shortage, and cardependent sprawl.

A policy mandate to manage urbanization has been slow to emerge at the federal and provincial levels. Master plans for urban centres are usually devised to translate the city’s vision and economic goals, amongst other aspects, into tangible development and infrastructure strategies and projects. Unfortunately, in Pakistan, no comprehensive urban planning framework exists. At present, out of 150 towns and cities in Punjab, ten have crossed the one million population benchmark and only a few have updated and practical plans.

To facilitate urban planning and land management, experts are collating new data and reformatting existing data to inform policy. The focus is on spatial mapping and understanding urban economies-both of which are key for effective urban planning. A recent example is the World Bank’s report⁴ on urban agglomeration and spatial mapping, in which for the rst time in 2015, night lights data was used to measure economic growth for South Asian cities over the last ten years. Punjab is also now about to launch its urban spatial strategy.

Hina Shaikh is a Development Expert and is currently working with the Pakistan Team, International Growth Centre 

This post originally appeared in UNDP’s Development Advocate Pakistan report focusing on Sustainable Urbanisation, Volume 5, Issue 4

References:

1. Pakistan’s urban population growth has been 3.2 percent whereas the regional average was 2.6 percent as per United Nations Population Division of the UN Department for Social and Economic Affairs’ comprehensive report titled “2018 Revision of World Urbanisation Prospects”

2. With Quetta, Lahore and Faisalabad showing the largest percentage increase in population.

3. United Nations Development Programme (2017), “Pakistan National Human Development Report 2017.” Available at http://www.pk.undp.org/content/dam/pakistan/docs/HDR/PK-NHDR.pdf

4. Ibid

5. Ministry of Climate Change and UNHabitat (2018), “The State of Pakistani Cities 2018.”Report on the State of Pakistani Cities (SPC) launched by the Ministry of Climate Change with technical assistance of the United Nations Human Settlements Program (UN Habitat)

6. Business Recorder, Dr. Haz A. Pasha, “The urban-rural divide.” Available at https://epaper.brecorder.com/2018/02/21/18-page/700950-news.html

7. World Bank (2014), “Pakistan Urban Sector Assessment: Leveraging the Growth Dividend from the Urbanization Process.”

8. Launching ceremony of the “State of Pakistani Cities” report launched by the Ministry of Climate Change with technical assistance of the United Nations Human Settlements Program (UN Habitat). Available at http://unhabitat.org.pk/?p=188

9. World Bank (2015), “Leveraging Urbanization in South Asia: Managing Spatial Transformation for Prosperity and Liveability.”

10. In 2018, 23.90 percent in industry and 34.82 percent in the service sector (world bank indicators)

11. Supra 6

12. Supra 6

13. United Nations, “2018 Revision of World Urbanization Prospects.” Available at https://www.un.org/development/desa/publications/2018-revision-of-world-urbanizationprospects.html

14. Ernesto Sánchez-Triana, Dan Biller, Ijaz Nabi, Leonard Ortolano, Ghazal Dezfuli, Javaid Afzal & Santiago Enriquez, “Revitalizing Industrial Growth in Pakistan: Trade, Infrastructure, and Environmental Performance.” Available at https://books.google.com.pk/books/about/Revitalizing_Industrial_Growth_in_Pakist.html?id=2EgtBAAAQBAJ&printsec=frontcover&source=kp_read_button&redir_esc=y#v=o nepage&q&f=false

15. Ishrat Hussain, “Messy and Hidden Urbanization.” Available at https://ishrathusain.iba.edu.pk/speeches/MessyandHiddenUrbanization.pdf

16. Ijaz Nabi and Hina Shaikh (2017), “The six biggest challenges facing Pakistan’s urban future.” Available at https://blogs.lse.ac.uk/southasia/2017/02/15/the-six-biggestchallenges-facing-pakistans-urban-future/

17. Hina Shaikh, “Young blood: Pakistan’s bulging youth population needs employment opportunities.” Available at https://blogs.lse.ac.uk/southasia/2018/02/09/young-bloodpakistans-bulging-youth-population-needs-employment-opportunities/

18. Supra 3 19. Pakistan Today (2019), “Over 44 percent children in Pakistan suffering from chronic malnutrition.” Available at https://www.pakistantoday.com.pk/2019/03/08/over-44-childrenin-pakistan-suffering-from-chronic-malnutrition/

19. Pakistan Today (2019), “Over 44 percent children in Pakistan suffering from chronic malnutrition.” Available at https://www.pakistantoday.com.pk/2019/03/08/over-44-childrenin-pakistan-suffering-from-chronic-malnutrition/

20. United Nations, “Industry, Innovation and Infrastructure: Why it Matters.” Available at https://www.un.org/sustainabledevelopment/wp-content/uploads/2016/08/9_Why-itMatters_Goal-9_Industry_1p.pdf

21. Government of Pakistan, SMEDA, “State of SME’s in Pakistan.” Available at https://smeda.org/index.php?option=com_content&view=article&id=7:state-of-smes-inpakistan&catid=15

22. The ExpressTribune (2018), “Pakistan needs to become urban industrial society.” Available at https://tribune.com.pk/story/1858885/1-pakistan-needs-become-urban-industrialsociety/

23. Supra 15

24. Karandaaz Pakistan (2018), “Enhancing Builder Finance in Pakistan.” Available at https://karandaaz.com.pk/media-center/news-events/new-study-highlights-massive-economicbenets-low-income-housing/

25. Ibid

26. If current trends continue, Pakistan’s ve largest cities will account for 78 percent of the total housing shortage by 2035.

27. From Duke, Urban Institute and Lahore University of Management Sciences.

28. Such as the Karachi Water and Sewerage Board, Sindh Building Control Authority, Lahore Development Authority (LDA), and Lahore Waste Management Committee.

29. Research conducted by the IGC’s ‘Cities that Work’ initiative.

30. DAWN (2018), “Punjab property tax collection remains far behind.” Available at https://www.dawn.com/news/1397466 27. From Duke, Urban Institute and Lahore University of Management Sciences.

31. International Growth Centre (2011), “Policy Brief: Reforming the Urban Property Tax in Pakistan’s Punjab.” Available at https://www.theigc.org/wpcontent/uploads/2014/09/Nabi-2011-Policy-Brief.pdf

32. Ibid

33. From Harvard, London School of Economics and Massachusetts Institute of Technology.

34. World Bank, “Leveraging urbanization in South-Asia.” Available at http://www.worldbank.org/en/region/sar/publication/urbanization-south-asia-cities

There are approximately 144 million individuals in Pakistan who reside in either completely off-grid areas – areas that are too far away to connect to the grid – or in ‘bad’-grid areas where load shedding exceeds 12 hours per day (IFC, 2015). Households and businesses in off-grid and bad-grid areas spend an average of 14% of their monthly disposable income on kerosene oil, candles, and others alternative sources of energy.

Access to renewable energy

Recent evidence from Rwanda and Bangladesh has shown small, solar-powered kits can have significant positive effects on household welfare and energy expenditures. Pakistan is relatively well endowed with renewable energy sources; yet access to clean, renewable energy is rare. For instance, solar energy is consumed by approximately 3.8% of households nationwide and is nearly non-existent in Punjab, Sindh and Balochistan.
According to the IFC report, cost remains one of the biggest barriers in the take-up of alternative energy sources, such as solar electricity, in Pakistan. Consumers prefer to make small, incremental purchases to meet their energy needs and are reluctant to make large upfront investments, such as those typically required for solar systems.

Pay-as-you-go energy solutions

One energy provider in rural Sindh, EcoEnergy (EE), aims to meet these needs by providing Pay-As-You-Go (PAYG) solar solutions, allowing individuals to pay only for what they need and can afford. Monthly payments are typically comparable to what villagers spend on energy. The PAYG product has a strong enforcement feature: The solar kit is remotely disconnected when credit expires. Since there are no financial penalties for late payments, disconnections represent a pure loss for the provider.

The study: Behavioural innovations to improve the sustainability of PAYG solutions

We first test if increasing the flexibility afforded by PAYG leads to improved payment performance. We do this by varying whether payment is explained as a minimum monthly amount or as an equivalent total amount that can be paid more frequently: Weekly, bi-weekly, or at other frequencies for the solar kit to remain functional.
Second, we test the individual constraints to repayment such as inattention, forgetfulness, and lack of self-control. We use another soft-touch intervention similar to the ones that were effective in improving medical screening rates and voter turnout in the United States (US). Specifically, we ask customers to formulate a plan for the subsequent payments and to circle the payment dates on a calendar that can be displayed at the clients’ home or place of work. In formulating this plan, clients need to think about possible issues in repayment and the strategies to overcome them.

Our study involved randomly varying the terms of the product to 727 new EE clients in rural Sindh between March and December 2018. Nearly a quarter of the sample had no access to electric power. The remaining had access but experienced more than ten hours of load-shedding a day. An average customer experienced approximately five instances of inactivity (disconnection) in this period, with each instance lasting an average of five days a month.

Results: The benefits of flexibility and payment implementation plans

We find that providing information on flexible payment options to this sample improved repayment behaviour: Clients are likely to pay on time and experience one fewer instance of inactivity. On the other hand, implementation plans do not improve repayment behaviour on average (see figure 1).

Figure 1 – The number of inactive periods experienced by intervention type

These overall results mask interesting variation. Consistent with the fact that almost 40% of the sample believes forgetfulness is the main challenge to timely payments, we find that the implementation plans significantly reduce the number of inactive periods in the sub-sample of clients who reported difficulty in remembering to make payments on time. It is entirely likely that intention plans increase saliency of payments by enabling clients, who typically face difficulty in remembering to pay, to operationalise their intentions to make top-up payments on time (see Figure 2).

Figure 2 – The number of inactive periods experienced by individual characteristics (with intention plans)

In line with this reasoning, clients with a history of missing other payments experience a higher number of inactive cycles under the flexible payment treatment than under the discipline of a fixed contract treatment (see Figure 3).

Figure 3 – The number of inactive periods experienced by individual characteristics (with payment type)

Implications: Innovating for improved energy access

These results speak to an important, broader question in the literature on optimal contract design in developing countries and the need to pay attention to the characteristics of people when designing them. The interventions tested in this study are soft-touch and non-intrusive in that they make a desired payment schedule salient but non-binding. However, our findings point towards the promising role that these easily scalable behavioural interventions can play in improving the repayment performance of clients with particular characteristics.

The authors are IGC Researchers.

The government of Pakistan continues to negotiate a new program with the International Monetary Fund. While all signs indicate a program is likely, Professor Ali Hasanain of the Lahore University of Management Sciences explains why the IMF can’t fix Pakistan.

Pakistan is hoping to soon conclude negotiations with the International Monetary Fund (IMF) to receive a loan of approximately $10 to $12 Billion in what will be its thirteenth IMF bailout. Of the past twelve programs, only one was completed satisfactorily. This loan will add to approximately $10 Billion in bilateral loans that Pakistan raised recently from China, the UAE, and Saudi Arabia.

Much has been written about why Pakistan needs the IMF’s help, including foreign exchange reserves in sharp decline, substantial debt servicing obligations coming due this year, and difficulties in raising money due to deteriorating credit ratings. Most commentators have however ignored Von Clausewitz’s caution to ‘beware the vividness of transient events’ and focused on tactical points, such as the merits of taking loans from friendly countries before seeking the Fund’s help. With a handful of notable exceptions, few have asked why Pakistan remains in perpetual need of the IMF’s support.

Pakistan’s Economic Problems Aren’t New

The basic contours of Pakistan’s fiscal problems are not new nor do they come as a surprise to the government. First, budget deficits have become perpetual: Pakistan has an extremely low tax net, with only 1.7 Million tax filers in a country of 210 Million. Yet despite this, expenditures are substantial: the government substantially subsidizes a large number of public sector enterprises, including the railways, the national airline, and the Pakistan Steel Mills. It also subsidizes electricity, gas, water, major agricultural products, and many other sectors. In some years an overvalued currency has added to these woes, and in others significant external aid has masked them, but the underlying fundamentals have not changed substantially in more than half a century.

Second, beyond financial worries, the barriers to economic growth are also not new. Two decades ago, Pakistani Prime Minister Nawaz Sharif met with Singaporean Prime Minister Lee Kuan Yew and asked him to assess Pakistan’s economic troubles. Prime Minister Lee identified obvious problems such as poor land title documentation; extremely high defense and debt servicing costs; rampant corruption; crime and violence that frightened away foreign investments; and resource allocations done not through commercial imperatives but connections. Nothing is strikingly different today.

Government Must Better Articulate Reform Strategies

One pattern that has emerged since then is that political regimes typically inherit a crisis, seek an IMF bailout, and use the financial space created to claim victory without embarking on the sort of painful, fundamental reforms that the economy needs. Some commentators have argued that the Fund is complicit in entrenching the country’s woes because it has continued to lend, repeatedly and over decades, in the knowledge that true reform is unlikely. There may be a kernel of truth in this argument, but Pakistan is ultimately responsible for charting its own path.

Greater leadership and an articulation of a long-term plan beyond the IMF is required for any genuine economic reform to take place. For example, while the government took the brave step of removing the Hajj subsidy earlier this year, it failed to clearly articulate why this was economically necessary. Similarly, it has drawn down subsidies on electricity and gas, but failed to describe to the public why this will benefit the economy in the longer-term. Instead, Prime Minister Imran Khan has spent hours in his speeches talking about the austerity of his immediate office operations, even though the Prime Minister and President Houses combined only spend 0.03 percent of the Federal Budget. The government must focus on sensitizing the public to the need to undertake painful cuts in public sector enterprises and educating people on the fundamentals of economic reform.

Reform Depends on Political Change

The IMF can help Pakistan avoid insolvency, but a new program will do little to spur the comprehensive set of economic reforms that the country needs. Reform depends on internal voices questioning why each loan taken is not accompanied by a well-monitored plan for repayment. It also depends on political change. It is no great insight that Pakistan’s economic woes emanate primarily from its political problems. Political contests seldom compete on public service delivery and instead thrive on entrenched special interests and the prioritization of private local benefits over public development.

What then will drive political change? Two key changes in recent years emerge: one, Pakistan’s demographics make it among the youngest populations in the world, and the relative voice of the youth is getting louder; two, Pakistan is urbanizing, and a decrease in the importance of rural politics may over time reduce the role of patronage politics in society. An IMF program will resuscitate the economy in the short term, but it will ultimately be changes in Pakistan’s politics that create lasting reform.

Ali Hasanain is an Assistant Professor of Economics at LUMS and a CDPR Fellow.

This article was originally published by John Hopkins School of Advanced International Studies here.

 

Agriculture remains the backbone of Pakistan’s economy. This sector employs almost 42 percent of the labor force, and provides a livelihood (including via ancillary services) to almost 62 percent of the population. The agriculture sector also contributes 18.9 percent to the country’s GDP. However, the sector has consistently underperformed for many years and displays some of the lowest levels of productivity in the world.

A recent seminar organized by the Consortium for Development Policy Research (CDPR) and the International Growth Center (IGC) in collaboration with the Punjab Government “Development in Punjab: Setting New Priorities in Agriculture and Industries” presented studies on the potential of using technology to overcome barriers to growth in agriculture.

While the share of agriculture in the GDP of an industrializing country typically goes down with time, increases in productivity due to technological advancements often ensure the sector does not stagnate. This has not happened in Pakistan. Over the past twenty years, the share of agriculture in GDP has gone down from 27 percent to 18.9 percent. Agricultural productivity also lags significantly behind the rest of the world. For example, Pakistan produces 3.1 tonnes of wheat per hectare compared to 8.1 in France, 2.5 tonnes of cotton compared to 4.8 in China, and 63.4 tonnes of sugarcane compared to 125.2 tonnes in China. Low yields have economy wide impacts; they result in lower incomes for farmers, lower export earnings, and also inhibit the growth of agricultural byproducts.

Reasons behind low productivity are multiple and varied. These include unpredictable and declining availability of water, the lack of cold storage solutions, inefficient logistics networks, declining investments in the agriculture sector, and poor extension services for farmers. As a result, it is estimated that nearly half of the agricultural output is wasted. The 3.81 percent growth observed in fiscal year 2017-18 was due to government policies in the form of subsidies and friendly procurement prices, which are at best short-term fixes.

Many of the problems hindering agriculture sector’s performance are systemic and hence pervasive across almost all economic sectors. Most issues will continue to affect productivity till major reforms are undertaken. However, improving extension services to farmers does not require any structural reform. Use of modern technology to enhance outreach to farmers and impact farming methods can result in significant improvements in productivity and yields.

Government of Punjab remains committed to improving service delivery in agriculture through the use of technology. Two ways in which the government is transforming agriculture in Punjab were discussed at the seminar and are presented below.

The innovative use of technology can greatly enhance the quality of agriculture extension services. One way is to propagate the use of precision farming – i.e. the practice of using information technology to make farming more efficient. Typically it involves the use of a wide variety of tools – such as GPS guidance, control systems, sensors, robotics, drones, autonomous vehicles, variable rate technology, GPS-based soil sampling, automated hardware, and telematics – to help farmers make better decisions about planting and growing crops. Based on these tools, farmers are given advice on soil quality, weather forecasts, fertilizer application, and a host of other factors. Precision agriculture is aimed at making farming activities more accurate and controlled to ensure profitability, sustainability, and efficiency.

Adeel Shafqat, researcher at the Center of Economic Research Pakistan, and project manager for Precision Agriculture for Development (PAD) discussed the objectives of this project and its contribution to easing provision of advisory services to farmers based in Punjab. PAD provides customized agricultural advice to farmers through mobile phones. The project has been developed in response to the recognition of the increasing availability of high quality agricultural data in developing countries such as Pakistan, but with poor access by farmers.

PAD uses a combination of phone calls, text messages and an application to build profiles of farmers, encompassing location, crop variety, water management, soil type, rainfall, and other variables to provide customized input and management advice. The most common areas in which farmers need advice include seed selection, fertilizer application, and pest and disease management. However, a major obstacle faced by PAD, and one that severely affects farm productivity, remains low literacy levels amongst farmers. The impact of ICT is constrained by its usability, leaving considerable scope for the efficacy of current extension workers.

Another way technology can be used is to incentivize extension workers to work more efficiently. Agriculture extension services continue to be plagued by capacity constraints impacting both the quality of information and outreach. In an-ongoing study, IGC researchers have partnered with the Agriculture Department in Punjab to help improve existing systems to monitor the performance of extension staff. Zahra Mansoor, a researcher at World Bank and working on the project, presented early findings from the study, testing interventions that best incentivize field staff. The project builds on AgriSmart, an application already in use by the department to track key performance indicators, manage human resource and obtain farmer feedback on quality of extension service. Early results of AgriSmart show substantial increases in individual farmer visits, time spent on extension services, and the total number of village visits.

The story that emerges from these two projects is that use of technology can make agriculture more efficient and profitable by providing accurate data to farmers and extension workers, and by improving the performance of extension workers themselves. While structural reforms are essential, there is no reason why poor extension services should continue to negatively affect productivity in the digital age. 

Bakhtiar Iqbal is a Research Assistant at the Consortium for Development Policy Research