Electricity reforms when electricity is an entitlement: The case of Lahore, Pakistan

Contrasting electricity outage patterns in low- and high-income neighbourhoods in Lahore and Karachi suggest that political control over electricity distribution utilities makes privatisation and market-oriented reforms challenging.

Countries strive to provide affordable, reliable, and efficient supply of electricity to their citizens. Reforms are integral to reaching better standards of public utilities provision. The countries with the highest standards of electricity delivery are the ones who have successfully implemented market-oriented reforms in their energy sector.

The demand for reforms in the energy sector can come from within the country (middle-income consumers asking for better service delivery; commercial and business elite seeking patronage) or from the outside (international lenders pushing for privatisation). Despite such insistence, reforms can be difficult to administer. The concept of public goods, in this case electricity, as a right/entitlement offers insight into why reforms might be opposed by citizens as well as politicians.

Electricity provision in Lahore: politicians as a service assurance channel

Lahore, Pakistan’s second largest city, provides an important test case for whether citizens continue to make claims to the state for utility provision and if this model of state-owned service delivery restricts electricity reforms. Lahore is relatively ethnically and religiously homogenous; it is also electorally competitive and receives considerable attention from political parties hoping to control the centre.

In Lahore, people approach politicians for service-related issues, such as electricity outages or delayed repair/maintenance work. Politicians with contacts in the bureaucracy at Lahore Electricity Supply Corporation (LESCO) – a distribution company that purchases electricity from the national grid – get the issues resolved. Members of National Assembly and Provincial Assembly often hold kutcheris or open forums at their place of residence for precisely this reason – to appear approachable and open to solving voters’ needs.

The ability of politicians to redistribute public goods, by virtue of either their formal power while in office or informal and extra-legal networks, is considered an important dimension of their electoral success. Additionally, they claim credit for electricity supply at subsidised rates.

In Lahore, mid-level bureaucracies have expanded in the last decade, and control over postings has become an important source of power and leverage for parties. Political parties stand to gain electoral benefits by increasing employment for special interest groups, particularly where margins for victory are narrow.

Although, in this system of patronage, there are instances of non-partisan gains where parties stand to benefit by simply ‘being useful’ to the general public, the overall inefficiencies and problems related to public service delivery endemic in the power sector are never addressed. In fact, reforms meant for improvement are resisted.

Electricity as a ‘right’: contrasting policies in Lahore and Karachi

LESCO currently faces challenges with recovering bills from government offices; it also incurs up to 6% in commercial losses from non-payments and theft (LESCO Operational Audit Report, 2011) and has faced the threat of privatisation for decades. It is under considerable pressure to improve bill payments from the national regulator and international lenders. Despite this, the province’s dominant political parties have resisted. Given the patronage and influence of politicians in LESCO, it is not in the interest of either of the two big political parties to privatise the electricity distributor of the region.

Lahore is still sheltered from the worst of electricity outages when compared to other cities of Punjab and Pakistan. Electricity distribution in all areas across Lahore is uniform, despite the 2013 National Power Policy’s recommendation that “load-shedding” [footnote]Load shedding is synonymous with an electricity outage. During load shedding, power distribution companies deliberately reduce electricity consumption by switching off the power supply to a group of customers.[/footnote](should) be focused on areas of high theft and low collections”. This contrasts with the practices of the private distributor (K-Electric) in Karachi, which engages in higher loadshedding in the areas with lower revenue recovery.

Lahore’s indiscriminate power supply, despite revenue losses in the form of theft and non-technical losses, suggests that electricity is perceived as a ‘right’ or ‘an entitlement’. It is to be provided to everyone, regardless of bill recovery and/or paying capacity of the consumers, and not as a commodity (which is how it is treated in Karachi).

K-Electric in Karachi is more likely to aggressively pursue pay-for-use policies, where low-income communities that have more defaulters are likely to get targeted with higher outages.

    • As discovered by previous studies, very low-income neighborhoods (which are high revenue-loss neighborhoods) in Karachi experience over eight hours of outage in the summer. In Lahore, this figure is closer to five hours.

    • On the other hand, an upcoming report by Erum and Javed finds that while higher income (low revenue-loss) neighborhoods in Karachi experience 0-2 hours of outage, even in peak summer months, high income residents in Lahore regularly report 4.5 hours of outage.

    • Preliminary results of the same study suggest that at least as far as outages are concerned, LESCO does not prioritise high-income neighborhoods over low-income ones, and that outages are evenly distributed.

Figure 1: Reported electricity outages for Lahore in past week by income category, September-October 2022.

Note: Irrespective of income level, most households report 1-5 hours of outages in Lahore. Lower-income households (which tend to be in high revenue-loss areas) do not report more hours of electricity outage than more high-income ones.)

Perceptions and patronage as challenges for energy sector reforms

The construction of electricity as entitlement poses problems for reforms in the energy sector. Residents of Lahore enjoy a relatively high degree of service provision, backed by political patronage; in turn, politicians capitalise on the status quo to garner support from their electorate. Resistance to electricity reforms will come, naturally, from both stakeholders. The present subsidies for consumers in the energy sector will be another point of contention when energy sector is reformed. The roll back of subsidies and the subsequent increase in prices are likely to fuel public discontent.

An understanding of perceptions – whether a given public good or service is perceived as a right or as a commodity — is critical to energy reforms in Pakistan. However, these understandings should be coupled with commitments to environmental justice and equitable access. For example, the dual findings of relatively good provision to low-income groups, and a highly mobilised sense of entitlement in Lahore, might pave the way for more diverse forms of energy provisions – decentralised grids and investments in renewable energy to support the demands of the citizens.

Efforts should be made to close the national gap in access to energy across cities, and to continue to shield the most vulnerable citizens from inevitable climate and environmental shocks, that could lead to social unrest and negative impacts on income and livelihoods.

Numair Liaqat is a Country Economist for the International Growth Centre (IGC) in Pakistan.

This blog originally appeared on the International Growth Centre’s (IGC) website here.

Climate Priorities: Lessons for flood risk mitigation in Pakistan

For millions of devastated people, the response to Pakistan’s unprecedented flooding came too late. Learning from this is essential to averting and mitigating future crises.

Pakistan is all too familiar with floods and droughts. The country, however, has recently been facing increasingly devastating climate disasters. Unprecedented floods in between June and September 2022, left a third of the country underwater, and displaced close to 33 million people. There was also considerable damage to infrastructure, livestock, and agriculture. Several weeks after the rains had halted, and fields began to dry, large segments of agricultural land still remain waterlogged while infectious diseases continued to spread, with a growing risk of food shortages. So far the current economic loss is estimated at close to 2% of Pakistan’s GDP.

The scale of the flooding has foregrounded climate justice and reparations in local and international policy discourse. It has also highlighted the urgency to treat water sustainability as not just a climate change concern but also a management and governance issue. Moreover, the extent of the losses incurred due to the floods has further exposed Pakistan’s underlying vulnerabilities perpetuated by poverty, colonial legacy, and poor overall governance.

The risks, costs, and impacts of global climate change in Pakistan

The floods have come as a stark reminder to the global community that consequences of climate change are no longer a problem of the future, and the impacts are disproportionately felt by the most vulnerable communities which are not only the least culpable for climate change but also the least capable of withstanding impact.

Fast changing weather patterns have resulted in increased variability of monsoons, repeated occurrence of heatwaves and rapidly melting glaciers that threaten water inflows into river systems causing floods. The Global Climate Risk Index (2021) shows that between 2000 and 2019, climate change induced catastrophes and recurrent floods cost Pakistan US$ 3.8 billion in economic losses and 30 lives per 100,000.

The unprecedented rainfall experienced in Pakistan this year did not only last much longer than usual, but it was also more intense. Instead of the usual four cycles of rain, this monsoon saw more than eight with average rainfall in some places reaching 500% more than the 30-year average. Ironically, these events were preceded by a period of the hottest temperatures ever experienced in Pakistan, reaching almost 52°C in some places. In May 2022, Sindh was declared drought-hit as the agricultural land became completely barren. These anomalous trends are extremely worrisome for a country that is underprepared and call for critical analysis of these annually worsening patterns.

Climate justice in the context of foreign debt

Pakistan’s contribution to global emissions is under 1% compared to over 50% by China, the US, the EU, and India, yet Pakistan is ranked amongst the ten most vulnerable countries to climate change. Two months since the floods, Pakistan is still waiting for the majority of the funds pledged by wealthy nations to arrive. Of the promised US$ 160 million so far only US$ 51 million has been received.

Pakistan’s flood crisis has brought renewed attention to the concept of ‘loss and damage.’ Recognising this would mean countries that gain the most from non-renewable energy and therefore contribute the most to climate change should compensate those adversely affected. A recent study estimated for the first time how much developing countries lose in terms of GDP resulting from burning fossil fuels. In dollar figures the largest emitters, the US and China, cost US$ 60 billion worth of economic losses in Pakistan.

There is now a growing voice within Pakistani policy space, calling for restructuring of Pakistan’s debt and direct climate reparations. Many low-income countries spend on average five times more on paying debt than they do on climate mitigation and adaptation. Pakistan’s floods have mainstreamed policy discussions around debt forgiveness for climate change. There is precedent for this with the US$ 70 billion worth of debt wiped out under the Heavily Indebted Poor Countries Initiative across 37 countries.  Pakistan currently owes US$ 22 billion as foreign debt payments over the fiscal year to international money lenders including IMF, China, and World Bank but so far, there are no plans to freeze Pakistan’s billions of dollars in debt obligations.

Most recent estimates place the economic costs of the floods at close to US$ 30 billion, much higher than initial projection of US$ 10 billion. These losses far exceed the US$ 1·5 billion emergency relief that Pakistan negotiated with the IMF over the past year. International aid has also been slow to come in amidst post-pandemic challenges and Ukraine-Russia war.

recent IGC piece looks at the role of climate finance in addressing Pakistan’s vulnerability to such climate change incidents and underscores the need for leveraging climate finance and Pakistan’s low contribution to global emissions to improve its fiscal situation

The disproportionate impacts of climate change

These floods’ devastating human and economic costs are disproportionately borne by the poorest and most marginalised. People’s vulnerability to extreme weather and disasters is further exacerbated by underlying power relations, unstable livelihoods, and weak social and personal protection systems. More than 70% of Pakistan’s labour force is employed in the informal sector while the country has one of the lowest spending on social protection as a percentage of GDP across the world.

Slow economic growth: Economic growth for FY23 has fallen from projected 5% to between 1.8% and 2.3%, in line with estimates of lenders like the World Bank. The trade deficit could widen to 3.5% of GDP from 2.4% currently due to the damage in the agriculture sector with economic activity in other sectors such as industry and services expected to slow down.

Lives and livelihoods: Around 9 to 12 million Pakistanis are expected to fall into poverty and 2 million may lose their jobs. Water-borne diseases like—malaria, dengue, typhoid, cholera—are hitting areas where there are no social safety nets. The World Bank estimates more than 8 million displaced people are now facing a health crisis. A recent report by the Population Council  highlights high vulnerability among flood victims. Of those under five, 5.1 million children are in need of immunisation and nutrition care; 940,000 are senior citizens with special needs; and 610,000 are pregnant women who require antenatal, delivery, and postnatal services.

Access to services: Almost 27,000 schools have been destroyed with severe damage to the road network and bridges, causing disruption in the schooling of an estimated 3.5 million children. With the damage to infrastructure, access to energy has also been affected and is concerning given that 60% of the rural population is already without electricity.

Food security: Agriculture makes up nearly a quarter of the country’s economy. The disruption of global food supply chains as a result of Russia-Ukraine War further exacerbated inflationary pressures on food prices. Over 70% of the onion, rice, and corn harvest is feared to have been lost to the floods with almost 3.6 million acres of crops destroyed and a million livestock animals perished. Growth in all major crops like cotton, rice, maize, and sugarcane is expected to remain negative.

A series of analytical pieces by IGC researchers looks at how building resilience to climate change of the most vulnerable is not just an important outcome in itself but also critical to ensure success of large-scale development programmes.

Poor governance and planning exacerbated flooding crisis

Notwithstanding the scale of the floods, recent climate related events have demonstrated federal and provincial governments’ lack of preparedness in mitigating effects of such disasters. A joint study by the World Bank and Asian Development Bank (2021) revealed that Pakistan has high exposure to flooding (ranked eighth). Yet there is a big gap between early warnings and early response. The National Disaster Management Authority (NDMA), Meteorological Department and Flood Control System issued an early warning in June about more than usual rainfall, glacier melts, and the likelihood of super floods in Pakistan. However, the NDMA and Provincial Disaster Management Authority’s (PDMA) all failed to take precautionary measures in time.

Moreover, the water management structure is unable to meet the demands of the population and is hazardous in the face of intensified weather patterns. Over the past decades, donors have funded the construction of many dams, barrages, and irrigation channels which have severely hampered the natural flow of water to the River Indus. These projects have curbed high frequency low-intensity flood events crucial to the ecosystem resulting in less frequent but high intensity events like the 2010 and super floods, worsened of course by climate change.

Climate change impacts have also been exacerbated by lack of governance and weak regulatory policies. Structures along rivers and other water bodies constructed by communities with insecure access to land are extremely vulnerable to flooding and cannot withstand shocks of extreme weather. The absence of comprehensive flood plans leaves entire villages and communities exposed to the risks amplified by climate change. 

Disaster management receives no funding from the national budget, as it’s a provincial subject where provinces are mandated to address these disasters from their own budget. In Pakistan, the 18th Constitutional Amendment devolved key responsibilities for environment, climate change, disaster management, health and education to provinces. However, many years later the process remains in transition, and financial autonomy is a particular concern.

Improving preparedness for future  

Learning from others: Amongst the South Asian Association for Regional Cooperation (SAARC) member states, Bangladesh has taken the lead for both climate change adaptation and investments in disaster risk reduction. Their related sector-wise projects accordingly present a successful case of improving disaster management. In 2019, Bangladesh had a total of 54 such projects while Pakistan’s share remains the lowest with just eight projects. Bangladesh has created a robust institutional mechanism under its Ministry of Disaster and Relief whereby the government has identified priorities that include strengthening existing networks, along with investing in development and research institutes, and provision of accurate assessment of risks through comprehensive hazard mapping for informed planning.

Strengthening social protection: Pakistan at the forefront of climate change, needs shock-responsive social protection systems to address core vulnerabilities to build their resilience. The Ehsaas programme in Pakistan is the largest cash transfer programme in South Asia with a socioeconomic registry spanning 38 million households with only women eligible for the stipend. It is best placed to make decisions about which households need to be targeted for vulnerability to climate change. This has been tried and tested during the COVID-19 pandemic, where emergency cash transfers were immediately provided to 15 million additional families through the information in the registry. This can also be used for shock-response to climate disasters.

Improving land use regulations: With the extent of the damage observed, it is imperative that illegal human encroachment along river corridors/banks should be checked by enforcing land-use regulations.

Encouraging eco-based adaptation: Governments around the world, with support from development partners, are implementing nature-based solutions to the climate crisis referred to as ecosystem-based adaptation. Restoring forests can increase the resilience of ecosystems, prevent soil erosion and reduce the risk of flash floods. The Pakistan government has already launched the Ten Billion Tree Tsunami project, a tree-planting initiative to revive forests and wildlife resources in the country. For example, planting and cultivating mangrove forests has been found to help prevent coastal erosion. Such programmes also create green jobs, and help communities come together.  Other initiatives like Recharge Pakistan look to reduce flood risk and enhance water storage and recharge through wetlands, floodplains and hill-torrents management at six initial sites across the Indus Basin. Lessons emerging from such initiatives should inform scale up.

Evidence and research to inform preparedness

A key challenge governments continue to face in developing and implementing effective adaptation and disaster risk reduction policies is collating accurate data on risks and vulnerabilities to guide policy interventions. To do that granular level data is required and hydro-meteorological observations and remote sensing technologies can be invaluable. Mapping vulnerabilities across different regions can also strengthen the backbone of disaster management in Pakistan. Flood vulnerability mapping as a non-structural strategy can be a precursor to more structural measures in the management of flood risks.

Regional perspective will also help. The trends observed in Pakistan are not unique to the country and have been experienced across Asia. These trends can trigger floods and there is an opportunity for the scientific community to explore links between these events and improve long-term flood forecasting and develop early warning systems at a regional scale so countries can prepare better.

Indeed, the path to recovery is long and uncertain. Pakistan is not a major emitter of greenhouse gases, yet it incurs a huge cost related to climate disasters. Greater investments are needed to enhance capacity and leadership of local governments and communities to respond.

Hina Shaikh is a Country Economist for the International Growth Centre (IGC) in Pakistan.

This blog originally appeared on the International Growth Centre’s (IGC) website here.

Stubble burning in Pakistan: Why it continues and how can it be curtailed?

Many farmers consider stubble burning as the most effective and cost-efficient way to clear land for the next planting season. However, the environmental and health costs of agricultural stubble burning far outweigh the short-term economic benefits for farmers. This necessitates policy actions that offer environmentally friendly and affordable alternatives for farmers.

Despite the risks and safety concerns, burning of crop residue is an extremely common and widely acceptable practice in Pakistan especially in the rice-wheat belt of the country. Agriculture accounts for a fifth of Pakistan’s GDP and is largely concentrated in the Punjab province. Between October and January every year, out of 8.5 million tonnes of rice residue produced, at least 3.6 to 5 million tons is burnt to clear the fields for sowing wheat. Burning stubble remains the fastest and most affordable way to prepare fields for subsequent planting seasons.

Environmental impact of stubble burning

Around this time, Punjab witnesses a significant deterioration in air quality, while Pakistan’s largest urban centres, Lahore and Karachi already rank amongst the most polluted cities of the world. The sharp increase in air pollution is caused by crop burning fires along with thermal inversion – a meteorological phenomenon in which particulate matter and other pollutants trapped in air, mix with condensed water vapour to form smog. This amplifies and prolongs the smog phenomenon in winters. In fact, Pakistan’s only comprehensive source apportionment study by the Food and Agriculture Organisation (FAO) in 2018 attributes 20% of the air pollutant emissions in Pakistan to crop burning.

Figure 1: Pollution sources in different studies across Pakistan

Note: This graph illustrates the underlying sources of smog in Pakistan as identified by geographic information system – R-SMOG (Source).

Air pollution has many direct and indirect costs; it can cause premature death, reduce work productivity and educational attainment, and can be particularly damaging for pregnant mothers and children. All of this is estimated to cost Pakistan up to 6.5% of its annual GDP. An improvement in Pakistan’s air quality on a scale similar to China’s can lead to an increase in average life expectancy of its residents by 1.2 years. Some of the measures by the Chinese included prohibition of coal-fired power plants in the most polluted regions, restricting the number of cars on the road, and introducing all-electric buses. China also shut down many of its coal mines. Crop burning not only contributes to air pollution but over time it also leads to nutrient loss, depletion of soil organic matter, reduction in beneficial soil biota and soil fertility by 25% to 30%, and it also undermines the soil’s capacity for water retention.

A consequence of market failure?

The excessive reliance on crop burning stems from a market failure around externalities where the true social cost of crop burning is not recognised and exceeds the private costs incurred by farmers while burning stubble. Globally, crop burning remains the largest contributor to black carbon – formed by the incomplete combustion of fossil fuels, wood and other fuels – which disappears after a few weeks but its impact on global warming is several thousand times more than carbon dioxide (found in vehicular emissions). Information asymmetries lead farmers to think they are cost saving by burning stubble and they are often unaware of the adverse long-term implications on the environment, crop productivity and farming costs. If farmers understood the social costs (cost to the health and environment), they may be more willing to adopt alternative methods of residue management with much lower social costs.

However, many farmers lack the tools, knowledge or resources to adopt more environmental-friendly alternatives which include both in-situ and ex-situ mechanisms. Ex-situ residue management methods include biomass power plants and biofuel projects whereas in-situ management of crop residue is through the use of appropriate equipment such as Happy Seeders (discussed below). Often farmers are not fully aware of the alternatives and its harmful effects. Evidence shows farmers aware of negative effects of crop burning are less likely to burn residue. Farmers also lack knowledge about how crop residues can be incorporated back into the soil and the kind nutrients needed for the crops. However, any awareness raising campaign should be run parallel to implementing practical solutions that empower farmers both technically and economically.

The current policy approaches

In 2019, the Government of Punjab introduced a ban on crop burning for one month starting in October each year. The district government, with support from the Agriculture Department can fine up to PKR 50,000 (US$ 300) per acre if a farmer is caught burning stubble. However, enforcement and compliance remain weak especially in the absence of feasible alternatives and agricultural fires continue to occur. Farmers do not find the fine prohibitive, and without access to affordable alternatives, crop burning is likely to persist. Penalising farmers in this situation is not politically viable either and these bans can only be effective if alternatives and information about them is available and accessible.

In 2020, the Punjab Agriculture Department launched a programme to subsidise a bundle of equipment, Rice Straw Shredders and Happy Seeders. They make the rice stubble more manageable and then incorporate it back into the soil, eliminating the need to burn. In 2021, the government decided to pay 80% of the costs (around US$ 2100) to 500 farmers out of 2300 selected through a lottery system. The Happy Seeder equipment can potentially reduce greenhouse gas emissions by 78% per hectare.

Leveraging this random assignment of machinery, a group of researchers based at the IGC1 are planning to evaluate the hypothesised impacts. They will in particular assess whether in the short term, subsidising green technology reduces pollution by shifting farmers away from crop burning. Their on-going study also intends to measure impacts of the technology itself while also investigating factors that influence uptake in the context of heavy government subsidies. Complete residue removal is around 34% costlier for farmers than complete burning and costs approximately US$ 55. The average subsidy required to incentivise farmers to move towards alternatives is anywhere between US$ 11 and US$ 30 per acre. Incidentally, this was the amount that Punjab and Haryana states had planned to pay farmers in 2019. Thus for an approximate 4.6 million acres, it would cost between US$ 50 to US$ 138 million per year.

Exploring other options?

Payments for ecosystem services (PES)

One policy option for reducing stubble burning can be providing payments for ecosystem services (PES), made to farmers who agree to manage land/activities by adopting environmentally and ecologically friendly practices. Such a system can potentially be executed through a conditional cash transfer (CCT) programme via Pakistan’s umbrella social protection platform Ehsaas with support from the Department of Agriculture. Ehsaas manages Pakistan’s flagship and one of South Asia’s largest cash transfer programmes called the Benazir Income Support Programme (BISP).

CCTs have often been used to restore efficiency where externalities exist and/or improve equity by targeting the poor. CCTs that offer PES to reduce crop burning have shown success in India. CCTs can also make alternatives more economically viable and incentivise their adoption by farmers.

The government can use existing infrastructure to roll out this programme. It has in place a Kissan (farmer) card through which eligible farmers can register for and avail such payments digitally. Applications can be verified by local staff and targeting can rely on the socio-economic registry maintained by BISP and the database at the department. Some payment can be made upfront to help build trust and give farmers a financial cushion to purchase/rent Happy Seeders or other equipment. Farmers could then call relevant teams to check compliance before sowing wheat and receive the remaining amount. Overall payments should be large enough to cover the cost of stubble removal.

Boosting demand for bioenergy

About 25% to 40% of any crop has value as food while the rest which is often wasted can be a low-cost source of raw material for bioenergy. However, commercial markets for biomass-energy in Pakistan are not well developed. The total rice and wheat potential available for energy generation in Pakistan is more than 600,000 terajoules with an annual production of approximately 40 million tons. Government intervention can activate these markets and provide farmers an alternative use for crop residue and an opportunity to earn additional income by selling residue. This can also encourage the production of renewable/alternative energy.

For this, the government needs to establish a practical business model and a bio-waste supply chain system that connects farmers to these markets. Government could also setup storage facilities for crop residue in areas with a high incidence of crop burning or rice production. It would also be important to take steps to boost demand for bioenergy that would encourage private sector participation in supply chain operations. This could include estimates of how much residue could potentially be used up, and accordingly create markets for briquettes made from crop-residue; introducing policies mandating neighbouring thermal power plants to co-fire crop residue with coal; initiating minimum usage ratios of crop residue biomass in industrial boilers and biomass electricity generation projects (the Central Electricity Authority of India (CEA) recommends a blend of 5 to 10 % of biomass). In return, farmers can receive compensation through direct deposits into their banks or through their Kissan cards.

To change the well-established habit of crop burning, a lot of effort will be required to provide education, raise awareness, and build capacity of farmers. While it may be a tall order, its impact can be considerable and far-reaching towards a more sustainable future.

Hina Shaikh is a Country Economist for the International Growth Centre (IGC) in Pakistan.

This blog originally appeared on the International Growth Centre’s (IGC) website here.

Creating Fiscal Space for Sustainable Tourism in KPK

By Emun Hafeez

This blog draws upon findings from the policy note, prepared by Consortium for Development Policy Research (CDPR) in collaboration with UK Aid-funded Sustainable Energy and Economic Development (SEED) Programme, titled “Financing Sustainable Tourism in Khyber Pakhtunkhwa: Mobilizing Local Resources” and explores the opportunities and challenges of creating a self-sustaining system of tourism development in the province of Khyber Pakhtunkhwa (KPK). 

Pakistan boasts a myriad of natural marvels and a rich cultural heritage. With mighty mountains and lush green hills in the North to rolling deserts in the South and a plethora of religious and cultural landmarks scattered all over, the country offers much in the way of tourist destinations. Unfortunately, the country had been afflicted with poor internal security for the past two decades but now as the security situation improves, both domestic and international interest n in visiting these picturesque sights has grown, so much so that Pakistan was named the top tourist destination in 2020 by Forbes and Conde Naste Traveler. However, as with any diamond in the rough, it is imperative to invest  time and resources under good governance to reap the full benefits of what nature and history has to offer.

The province of Khyber Pakhtunkhwa has seen an unprecedented increase in tourists in recent years. While this growth has resulted in the creation of economic opportunities and bolstered the hospitality and tourism service sector in the region,  dearth of adequate resources and infrastructure has made it difficult to cater to this massive influx of tourists especially during peak season[1]. This lack of capacity creates adverse economic and environmental impacts which are preventable. The biggest challenge impeding capacity building and infrastructure development in the region remains lack of revenue and resources available for the development, upgradation, and  maintenance of tourism sites.

Learning from Global Experiences

Global experience demonstrates that the best way to promote tourism development is by embedding a self-sustaining system of revenue generation and expenditure within the region. International best practices further indicate that the most transparent and efficient way of achieving this is through local governments. Local governments have the capacity to ring-fence  revenuesi.e.  guarantee that funds allocated for a particular purpose will not be spent on anything else. Revenue collected via hospitality and tourism activities as well as through user fees, tolls and charges can be invested in tourism development in the region. Studies have shown that local tax collection earmarked for specific purposes and uses, in accordance with the preference of consumers, creates better incentives to pay that otherwise may be weak or absent in a centralized tax and expenditure system.

However, hypothecation (or ring fencing) of taxes comes with a caveat; complete reliance on locally generated revenues to fund tourism development can be counterproductive given the procyclicality of tax revenues. This can result in a shortage of funds and consequently impede provision of tourism products (goods and services) during economic downturns. Hence, a hybrid model or what is known as weak hypothecation is preferred world over. This is when a portion of revenue from the central pool also goes towards tourism development in addition to what is generated through earmarked taxation.  

An important benefit of taxing certain tourism related activities is that it helps mitigate the effect of negative externalities associated with tourism such as degradation of environment and natural resources. Moreover, money generated through such taxes can be used to build resilient systems of tourism which are better equipped to absorb shocks resulting from climate change and pandemics[2].

Potential for Ring Fencing Taxes for Tourism in KPK

In Pakistan, tourism is a provincial subject and hence budgetary decisions are made at the provincial level. All revenue collected in KPK goes into a provincial consolidated fund and the provincial government then makes expenditure decisions for various sectors specified in the annual budget. Furthermore, constitutional provisions do not allow for ring-fencing at the broader, provincial level. However, there is potential for ring-fencing through  various authorities operating within the province as these authorities[3] have the mandate to decide how to use revenue generated through several tools at their disposal.

This prospective avenue for ring-fencing is constrained by its own set of issues. There is significant overlap in administrative jurisdictions across these authorities and local bodies resulting in an administrative spaghetti bowl with multiple departments, overlapping jurisdictions, regulations, and numerous taxes/levies making tourism administration and management exceedingly complex.

Local Challenges for Investing in Sustainable Tourism

Lack of Tax Compliance: The most prevalent issue in KPK is the lack of tax compliance within the tourism industry. Due to seasonality of revenues business owners and service providers attempt to maximize revenues during peak season to tide them over during dry spells. Without a steady stream of tax revenue, the entire case for hypothecation falls flat as there are no funds to apportion. In recent years successful efforts have been made to increase compliance but more  needs to be done to reach a self-sustaining level of revenue.

Ecological and Environmental Threats: Unchecked flow of tourists poses serious threats to the environmental integrity of the region. Pigouvian taxes[4] can be used to regulate the flow of tourists and to mitigate negative externalities caused by commercial activities such as deforestation, pollution, solid waste disposal etc. The provision of a public good or a service can be connected directly to a fee or a charge to create willingness to pay.

Complicated Regulatory Landscape: As highlighted above the overlapping administrative jurisdictions make tourism management exceedingly difficult. To overcome this, it is imperative to improve interdepartmental and inter-authority communication and cooperation with a clear delineation of mandate and jurisdiction of each department/authority.

Lack of Private-Sector Engagement: The private sector has limited engagement with the authorities which dampers its ability to influence decisions which affect the region. This acts as a disincentive to pay taxes/levies or fees to these authorities even if the money is being spent locally on improving public services and infrastructure. Formalization of private sector engagement with the authorities is essential to garner their support and increase compliance.

Revenue Leakages and lack of skills: Much of the investment in tourism products in KPK comes from outside the province which means revenues generated leak out to wherever the holding companies are based. Additionally, low levels of economic activity and development and lack of a skilled workforce in the region constrain local involvement in the tourism and hospitality industry. Hence, there is an urgent need to focus on the capacity building and skills training of locals. 

Lack of Data on Tourism: The dearth of data on tourism in terms of tourism flows, grading of restaurants and hotels limits the capacity for evidence-based policy design for the tourism sector.

Key Policy Message

The premise of a self-sustaining tourism development system is contingent upon the province’s ability to extract a steady stream of tax revenue from its tourism industry and the exercise of taxing tourism related activities can only be successful if the money collected translates into tangible infrastructure and improvement in systems as this reinforces incentive to pay such taxes. Moreover, local support for the tax regime is essential for its success and can only be achieved when there is sufficient pay-off for locals of the region in terms of job creation and increased economic prosperity. Investment in enhancing the skills of locals is essential to increase the value of contribution of locals to the tourism sector which will in turn increase the portion of revenue generated and retained in the region.

Emun Hafeez is a Research Associate at the Consortium for Development Policy Research.

[1] Turab (2022)Financing Sustainable Tourism in Khyber Pakhtunkhwa: Mobilizing Local Resources

[2] Turab (2022)Financing Sustainable Tourism in Khyber Pakhtunkhwa: Mobilizing Local Resources

[3] Khyber Pakhtunkhwa Tourism Development Authority, Galiyat Development Authority, Kaghan Development Authority and the upcoming Upper Swat Development Authority.

[4] A Pigouvian tax is a tax on a market transaction that creates a negative externality, or an additional cost, borne by individuals not directly involved in the transaction. Examples include tobacco taxes, sugar taxes, and carbon taxes

Resilience and Inclusion in Education – Bridging the Learning Gap

Since March 2020, schools across the world have either been completely closed, or  operated under strict COVID-related restrictions. This has affected 1.6 billion learners globally, resulting in substantial learning losses and plummeting enrollment rates (World Bank, UNESCO, UNICEF 2021). The lockdowns left almost 50 million children in Pakistan and 12 million children in the province of Punjab out of school (Zakaria 2020). By the third school reopenings (September–October 2021), 21% of adolescent boys and 8% of adolescent girls in Punjab had dropped out of school. Those who remained within the schooling system incurred major learning losses. A study by the Punjab Examination Council indicates a decrease in the academic performance of Grade 5 children in Punjab in 2020. With an increase in dropouts and substantial learning losses, there is a need to chart future steps to recovery. This webinar aims to outline how dropouts can be reintegrated into the schooling system and how learning losses can be overcome with an underlying focus on technological and innovative solutions.

Why have so many children dropped out of school?

There are several reasons for the increase in dropouts.

  1.  First, income losses incurred during the pandemic left families financially vulnerable, due to which many children were forced out of school. Many students, particularly boys, also had to enter the labour force prematurely to make up for income losses, resulting in a higher dropout rate for boys (21%) as compared to girls (8%) in Punjab.
  2.  Second, lockdown measures kept families housebound, increasing the gendered burden of work; girls spent more time doing household chores instead of studying. This can encourage parents to keep their daughters at home even after school reopenings, particularly in a cultural milieu which puts a lower value on girls’ education.
  3. Third, many students were not able to continue learning through remote learning programs (TeleSchool and TaleemGhar) due to a lack of access to technology and the absence of conducive learning environments at home. This has made catching up difficult, resulting in many families opting not to send their children back to school (Geven et al., 2022).
  4. Fourth, many families have also opted to engage their children in religious education, which many consider an alternative to formal schooling in Pakistan.

Has remote learning worked to reduce learning losses?

In addition to the issue of dropouts, COVID-19 has also resulted in learning losses for those that remain within the schooling system. While the government launched a distance learning program early in the pandemic, its uptake has been limited. In Punjab, by the time schools reopened in September–October 2021, only 8%  of girls and 2%  of boys were engaged in distance learning (Geven et al., 2022). There are multiple reasons for the resistance to remote learning uptake. Some of them are listed below:

  1. Access to technology is severely limited in Pakistan, especially in remote regions, and within disadvantaged groups. According to the Pakistan Demographic and Health Survey (DHS) 2017, only about 15% of households of the poorest quintile owned a television. Comparatively, within the wealthiest quintile, around 96% owned televisions. Access to the internet and smartphones is even more unequal; only 12% of Pakistani households have access to the internet.
  2. Even where households have access to technology, devices may have to be shared between family members. Additionally, most houses lack spaces which are conducive to learning which make it difficult to keep students engaged with distractions around.
  3. Most curricular content is scripted in Urdu, which can make it inaccessible to families fluent only in regional languages.
  4. Due to COVID-related income shocks, many boys may be prematurely pushed into the labour force, which can limit the amount of time dedicated to learning.
  5. Girls are expected to do household chores. Since school reopenings in September 2021, girls spent about twice as much time as boys on family care (Geven et al., 2022).
  6. Societal attitudes towards watching television have also impacted uptake. A recent study noted that television in Pakistan is considered to be a medium to access entertainment, which adds to the hesitation in its use for education. Some fathers also prohibit their daughters from accessing television (Malik et al., 2022).
  7. Alternatives like private tutoring are costly, and can only be accessed by relatively advantaged groups.

As a result of these factors, students have undergone learning losses amounting to around 0.6 years of learning-adjusted schooling, according to early estimates (Geven and Hasan 2020).

Percentage of people who had watched the TeleSchool transmission
Source: Gallup Pakistan, 2020

How have other countries re-integrated students into the school system and mitigated learning losses?

Following are some models of recovery adopted in other developing countries.

Tackling Dropouts: To address the issue of increasing drop-outs, several countries have initiated back-to-school campaigns to re-integrate children into the schooling system. In Kenya, community-based household mobilizations led to 96 percent of learners eventually re-enrolling. Additionally, in Mexico and Brazil, governments have adopted conditional cash transfers, tying cash support to families to school enrollment.

Overcoming Learning Losses: Similarly, to overcome learning losses, many countries have adopted some form of remedial learning.  In 2020, the Philippines government established summer schooling for students who had received a grade lower than 75 percent in the previous school year. While evidence on the effectiveness of such programs is still limited, interventions that focus on targeted instruction, with extended instruction time and condensed curricula are potential options to be explored for learning recovery (World Bank, 2021).

Building Resilience: School closures are not unique to COVID-19 and are likely to occur in the future as a result of climate-related disasters, conflicts, and public health emergencies. Remote and hybrid education is expected to continue after the pandemic (World Bank 2021). In case of repeated closures, strengthening remote learning systems is key. Many developing countries have employed multimodal strategies to ensure widespread access. In Peru, for example, the authorities have deployed a multi-modal strategy based on an assessment of the availability of different modes of technology and have used multiple channels like radio, television and the internet to stream educational content. Additionally, educational content has been created in nine native languages, making it more widely accessible . Moreover, telecommunication operators agreed to zero-rate the program’s core digital site so that students can access all available educational resources without paying for the bandwidth. This was combined with regular communication of weekly schedules for learning sessions, frequent teacher-student follow-up, and a strong monitoring system to understand the program’s coverage and engagement.

How can these strategies be implemented in Pakistan?

While cross-country examples can shed light on innovative strategies, Pakistan’s recovery strategy needs to be anchored in evidence, with considerations for capacity, budget constraints and other relevant factors.

There are no neat solutions to the losses faced by the education sector in Pakistan during COVID-19 but there are a few areas which require greater focus from policymakers. Some questions to be explored for future interventions are:

  • What strategies can be employed to re-integrate drop-outs into the formal schooling system?
  • What can an effective strategy for remedial learning look like in Pakistan?
  • How can we improve the current system of remote learning to build resilient systems by establishing learning continuity between the home and school environments?
  • How can government initiatives address gender-related inequalities in re-integration and learning loss?
  • How can stakeholders in the wider ecosystem be leveraged to provide learning solutions to address learning loss?


  • “The State of the Global Education Crisis: A Path to Recovery”. World Bank, UNESCO, and UNICEF, 2021.
  • “Brief on Learning Continuity Amidst COVID-19”. UNICEF, 2020.
  • Geven and Hasan, “Learning Losses in Pakistan Due to COVID-19 Closures: A Technical Note on Simulation Results”. World Bank, 2020.
  • Geven et al. “SMS Girl Data Insights”. World Bank, 2022.
  • Malik et al. “Girls’ Lived Experiences of School Closures: Insights From Interviews With Girls and Mothers in Punjab, Pakistan” South Asia Gender Innovation Lab, World Bank, 2022.
  • Muñoz-Najar et al. “Remote Learning During COVID-19: Lessons from Today, Principles for Tomorrow”. World Bank, 2021.
  • Zacharia, Sharon, “Pakistan: TeleSchool and Taleem Ghar (Educational TV at home)”. World Bank, OECD, Global Education Innovation Fund, 2020.
  • “Remediating Learning Loss”, World Bank, 2021.
  • “Assessment of Students’ Learning Loss: COVID-19 in Punjab”, Punjab Examination Council, 2020.