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Pakistan continues to face significant social and economic challenges. Provision of basic services such as health and education falls short of international standards, while women and the poor are often wholly excluded from accessing these services. At a time when the government is under pressure to demonstrate fiscal restraint, a strong public financial management system can help state institutions improve service delivery geared towards promoting both economic growth and poverty reduction.

A strong financial management system needs three things – aggregate fiscal discipline, strategic allocation and prioritisation, and operational efficiency in service delivery. Pakistan lacks on all three fronts. Its system of governance rests on weak financial planning and poor performance management coupled with a lack of accountability across all levels of government. This blog looks at some of these challenges and what the new government can do to fix these.

Snapshot of a typical budget: Allocation versus execution

In the case of Pakistan, public financing, especially for the social sector exhibits certain patterns that are pervasive and consistent across different levels of government. While these trends are easy to identify and understand, they may not be as easy to correct.

One such example is the case of the sectoral allocations, which largely go towards non-development spending, and overall disbursements remain dominated by salary expenditure. Development expenditure forms a minor chunk of the entire budget and is plagued by low utilisation of funds. This is in addition to the consistently low overall allocations towards the social sector as a share of the total budget. Pakistan spends less than one percent of total GDP on health and close to 2 percent on education.

Let’s take the example of the public education sector in Punjab. It employs the largest workforce (around 400,000 employees), runs more than 52,000 schools and enrols more than 12 million students in the province. Overall expenditure on education has grown by an average of 6 percent each year between 2010-11 and 2016-17 with an average spending of 17 percent of the total provincial budget. Within the same period, non-development budget remained above 90 percent. On the budget execution side, utilisation of non-development budget remained high (above 90 percent, touching 99 percent in 2012-13). However, utilization of non-salary and development budget in the same period remained low at an average of 65 and 50 percent respectively. This usually happens on account of two factors: lack of capacity to spend and/or delay in release of funds by the provincial governments.

Gaps in public financing are also aggravated by the sheer size of the sector. With over 50,000 spending units (schools), the government’s accounting system is not sophisticated enough to be linked with, or capable of monitoring, each of these units. At the same time improvements in learning outcomes are only marginal. There is often a faint link between budgetary allocations and overall development outcomes. Despite a substantial increase in the development budget for Punjab’s education sector, over 11 million children in the province still remain out of school.

The example of the education sector points to an obvious gap between what is being allocated, spent and achieved. The situation is similar in other sectors, which is why Punjab was only able to spend 65 percent of its PKR 635 billion development budget in 2018. Some of this can be attributed to the mode of service delivery. Service delivery propagated through the roadmap approach, for example, focuses on a limited set of indicators, at the cost of the bigger picture. There is thus little accountability within the system in terms of meeting the broader, more policy level sectoral objectives.

While Pakistan struggles with the scarcity of high-quality data, existing household surveys should enable policymakers to assess whether impact against certain fundamental indicators has been achieved. Why is then the budget delinked with outcomes?

Lack of sectoral strategies

Budget exercises unguided by an overarching sectoral strategy or policy lead to poor execution. Hence outcomes remain unchanged. Most interventions are ad-hoc and designed on political whims, rather than on actual demand or a sectoral plan. The use of ‘quick-win’, limited target roadmaps to implement service delivery leads to investment in areas that do not address the root cause of the sector’s underperformance. The school education roadmap focused on reducing out of school children at the primary level without allocating adequate resources to secondary education. This means an increase in drop-outs at a later stage i.e. more out of school children at the secondary level. Moreover, the budget making process is driven more by the available fiscal space and less by government priorities. Thus, the budget is invariably an incremental one.

Development overshadowed by political priorities

Elected politicians are held accountable on service delivery rather than on their ability to legislate or make new policies. They have little incentives to develop sectoral strategies, or deliver on the promises of sectoral strategies in the rare instance when they do exist. They want immediate results and hence focus on tangible development rather than softer interventions. Hence, development budgets are essentially determined by political priorities – be it recruiting 80,000 teachers or creating 2 million jobs. These priorities, regardless of whether they help achieve broader development goals or not, are met to gain political mileage. Subsequently, policy clarity is undermined as politicians end up battling with bureaucrats for space in the service delivery domain.

Overestimation of fiscal space

Pakistan does not practice aggregate fiscal discipline as its annual expenditures are seldom aligned to its revenues. Provinces forecast spending on the basis of projected revenue transfers from the federal government, which typically overestimates tax collection. Spending decisions are thus based on a fictitious number. This reduces the predictability of the budget, and leads to re-prioritisation which is both expensive and disruptive. Release of adequate funds becomes a concern and most often impacts development expenditures. Funds allocated towards infrastructure projects – the more visible and politically salient investments – are disbursed swiftly while softer interventions are put on the back-burner. There is little learning within the system and provinces continue to witness an annual budget shortfall year after year. The fiscal space for development thus keeps reducing.

What next?

The underlying mantra for improving financial planning is that it must be embedded in an understanding of the government’s key policies, priorities and capacity to deliver. It must also be forward looking and pre-emptive.

In the case of Pakistan, budgetary decisions are not informed by any sound analysis or sectoral view. Parliamentary debates on the budget turn into political tussles and seldom focus on the rationale behind stated allocations. The budget document itself is full of complex jargon, rendering it incomprehensible for parliamentarians. Moving forward, Pakistan can draw lessons from Korea, which has set up a national assembly budget office consisting of a team of chartered accountants, lawyers and economists to continuously inform parliament’s debate on the budget.

The new government appears fully empowered to take on the required restructuring of the budget by strengthening line departments that have typically left the responsibility of public financial management to the finance department. Line department must play a central role in providing direction to financial plans and setting milestones. These departments are also well placed to decide on the most efficient way to achieve these milestone, given limited capacity and resources.

Despite the fact that the new government has inherited a difficult fiscal situation, the solution does not lie in simply reducing expenditure but in fact in enhancing it at the right place. Government can and should focus on both improving public financial management practices at all tiers, and rationalising recurrent expenses without compromising drastically on development allocations.

Hina Shaikh is the Country Economist at the International Growth Centre (IGC).

Anti-corruption rhetoric was the central plank of the Pakistan Tehreek-e-Insaf’s (PTI) identity while it was in the opposition. Its leaders regularly described corruption in moral terms. Naeem-ul-Haque, a Special Assistant to the Prime Minister, for instance, exemplified this starkly, when he called the elections “A contest between the forces of good and evil.” Such language suggests that anti-corruption drives are about rooting out immoral individuals from an otherwise neutral system. As the party completes its transition from boisterous opposition to running the country’s administration, it must evolve a more nuanced approach towards tackling corruption. 

The idea that anti-corruption needs to be focused on bringing back stolen money may have energised the PTI base, but it is limited in scope. In its controversial verdict in the 2010 Citizens United case, the American Supreme Court described corruption, in that country’s legal sense, as bribery, and bribery as a narrow quid pro quo transaction. Courts must define corruption this narrowly because, in criminal cases, they must be convinced beyond doubt of a defendant’s guilt.

Yet corruption doesn’t always work in a narrow transactional way. Favours to the detriment of public interest are often bestowed in a loose system of barter. Influence is cultivated without specific or immediate needs, only to be harvested years later. And since corruption is conducted secretively, even when it involves narrow transactions, we will often fail to detect and prove it.

Jurists approach anti-corruption retrospectively and leave too many cases unchallenged. Policymakers must, in contrast, take a prospective approach, and ask how they can create an environment in the future that will make corruption less appealing across the board. To do this, policymakers must understand that people aren’t always inherently good or bad; they respond to incentives. An excellent example of this are diplomats posted at the UN headquarters in New York. At times when traffic laws were not enforced due to diplomatic immunity, even diplomats from the most law-abiding countries started breaking the law. When New York later found a loophole and started enforcing rules, even diplomats from corrupt countries – including Pakistanis – stopped breaking rules. The Urdu colloquialism that has ended countless drawing room debates, ‘Yeh qaum nahin sudhar sakti,’ (this nation cannot be set right), is simply untrue.

Once we accept that incentives and not personalities are the principal determinant of corruption, we must ask what creates opportunities for different types of corruption. Corruption can be divided into petty corruption, which is bribery, or theft of public resources conducted at the level of an individual or an office; and grand corruption, which is conducted on a larger scale, necessitating the cooperation and protection of senior politicians and bureaucrats, such as in the unchecked collection of protection money, or bhatta, in Karachi.

Petty corruption is the consequence of specific organisational choices and can be reduced through a change of procedures and rules. The government should consider four principles to reduce petty corruption.

It must conduct audits and regularly pick public servants at random, for wealth audits. It must also conduct surprise inspections and send undercover inspectors to audit offices. Proactive monitoring is important because citizens often fail to report corruption, either because they are colluding with the corrupt (such as when they pay bribes to decrease property tax calculations), or because they don’t expect complaints to lead to action. Auditing can be tricky, because auditors themselves can have incredibly high incentives to accept bribes. Their work must be cross-checked by independent sources, and both rewards and punishments amplified for their actions. 

Corruption unearthed in audits needs to be punished. Our system makes it too hard to fire non-performing bureaucrats, and this needs legislative reform. In the meanwhile, recent research shows that merit-based transfers improve bureaucratic incentives significantly in Pakistan.

Bottlenecks in official procedures, where only specific offices or officers can move paperwork, must be reduced. Citizens should, wherever possible, be able to approach multiple independent avenues to get their work done. The less irreplaceable a corrupt official, the lower his or her capacity to charge a bribe. This explains why NADRA offices are often less corrupt than passport offices. While a passport office is assigned to a person based on their domicile, one can get a CNIC issued at any of NADRA’s many facilitation centers – a single centre is not as important to the process.

In some contexts, restricting service providers is unavoidable. For example, we can’t let just anyone issue a license, and so we can’t reduce the inherent propensity for bribery here. In such environments, the dreaded ‘agent’ often appears, ostensibly to facilitate the completion of paperwork, but in reality to channel bribes to officials while retaining plausible deniability. Indeed, research in India suggests that driving inspectors randomly fail applicants who don’t use an agent, regardless of their driving ability, thus forcing more people to apply through that channel. Short of banning agents, the best solution is to hold the office staff responsible during undercover inspections, for any bribes accepted by agents.

Discretion should, whenever possible, be avoided in public procurement and personnel hiring. The more specialised the goods or services procured, the fewer vendors can compete to provide it, and the fewer citizens will be aware whether the prices charged are too high. This increases the risk of collusion between procurer and vendor. Similarly, bureaucrats around the world have been caught auctioning jobs that they are authorised to fill. This is a hard problem to tackle, because discretion and authority can be necessary for a government’s efficient functioning. Perhaps our best defense is to escalate the frequency of audits for senior officials, especially those who deal with postings and procurement.

The above proposals provide an accountability-based approach to anti-corruption. Creating an honest culture and providing personnel with a respectable life can also do wonders. Our best example of this comes from the Motorway Police, oft-cited as one of Pakistan’s least corrupt organisations. This force was constituted of personnel deputed by provincial police forces, which were notoriously corrupt. However, since they were well-paid, made to feel part of a team and monitored by an effective and honest leadership, they transformed. Corruption isn’t necessarily an immutable part of people’s identities: we just have to fix incentives and circumstances.

As anti-corruption efforts are embarked upon, there will be resistance. This has to be predicted and either defanged or borne. Corruption has concentrated beneficiaries and dilutes its burden over a large victim class. Thus, resistance to reform is, typically, fiercer than support. To find the path of least resistance, the government must understand that there are gradations of corruption: when citizens pay bribes, they are either being opportunistic, or forced into a corner. An honest owner of a firm might feel compelled to evade taxes if his competitors are doing so. Someone who has stood in line at the passport office for six hours might feel compelled to pay an agent with repugnance. Such individuals are the least culpable, and will resist change the least. 

Those who are part of the class of bribe-takers, such as agents, should be issued warnings and punished gradually. He who is the latest in a long line of agents hasn’t failed society as much as society has failed him. He is set in his ways, but needs time to turn his life around. Finally, no leniency must be showed to those whose corruption clearly emanates from greed. If the previous categories are well-dealt with, this final class can be relatively isolated.

In contrast to the relatively tractable problem of petty corruption, grand corruption, or corruption shielded from action by a political elite, will be harder to solve for the PTI government, given its well-known internal contradictions. The prime minister will have to walk a tight-rope between delivering on anti-corruption for his rank-and-file supporter, many of whom see justice as the party’s raison d’etre, and the electables who carried him to office, who are often beneficiaries of the status quo.

One solution would be for the government to consider a high-profile national initiative that will be hard for individual electables to resist. For example, it can replicate Brazil’s successful Federal Audit program. That country regularly conducts a monthly public lottery, attended by the press, politicians, and civil society. Sixty municipalities – roughly the size of our tehsils – are selected per lottery. A team of highly skilled and highly paid federal auditors are then sent to the municipalities to examine accounts and documents and collect citizen complaints, in a ten-day audit. A report is prepared and submitted to federal and local legislators, and made public. This system has led to citizens rewarding cleaner politicians and punishing the more corrupt ones in subsequent elections.

It is critical here that the entire process be seen as fair, targeting ruling party constituencies as frequently as constituencies won by other parties. The prime minister has talked a good game, claiming that accountability will begin with him, but actions need to match words. Equal treatment will ensure that politicians proven to be corrupt cannot allege political victimisation, or at least ensure that any such allegations don’t gain traction.

Any such audits will have to circumnavigate the problems that have befallen our investigative agencies in the past. First, the Musharraf dictatorship famously balked when the National Accountability Bureau (NAB) opened cases that were politically inexpedient. How the prime minister responds when faced with such a situation, may come to define his administration. As described above, auditors have incredibly high incentives to become corrupt themselves. One only has to leaf through the list of National Reconciliation Order (NRO) beneficiaries to learn that the Federal Investigation Agency (FIA) – to name just one premier institution – has a history of politicised and compromised officers. If anti-corruption is to be successful, it must be done by clean investigation agencies, and this is where the prime minister must start.

While highly attractive, programmes like the audit system described above can be rolled back through an executive order by a successor government as easily as they are enacted. Work must be done on longer-term social processes as well, such as creating citizen awareness. One way to do this is to bolster the Right to Information (RTI) system, which allows citizens to request copies of government documents. RTI was nominally created many years ago, but has been allowed to remain dysfunctional in practice. Delivering transparency, and habituating citizens and reporters to rely on RTI can create a cultural shift that will be harder to roll back, similar to the difficulty now being faced in rolling back press freedom.

Finally, anti-corruption must be recognised as only one element in establishing the rule of law. We need to protect life and establish a robust writ, create sound property rights and enforce contracts better. Much of this rests with judicial reform, for which the prime minister can only facilitate the actions of the judiciary, but not lead the charge.

It will require decades of struggle to create well-governed institutions. That struggle will be carried out by an informed people when enough of us consider corruption as an existential crisis. The new prime minister can play an important role in this journey, but we as citizens should remember that the buck stops firmly with us.

Dr. Ali Hasanain is a CDPR Fellow.

This article was first published in Newsline Magazine here.

Well into its second ever democratic transfer of power, and facing a looming balance of payments crisis just two years after the completion of a USD 6.6 billion IMF program, it is still uncertain whether Pakistan will seek another IMF loan to meet high-pressure external financing needs. The Economic Advisory Council suggested last week that the government must be prepared to take some tough economic decisions. It is not clear if these decisions include opting for another bailout. Given the health of the external sector, several experts believe that not going to the IMF may be far more economically and politically riskier than any alternative. The range of other options available will each have to be timed, pursued and implemented immaculately to cover the financing gap – a move which may not be realistic even if is probable.

The Economic landscape – The facts

The on-going balance of payments crisis has its roots in the current account deficit that quadrupled in the past two years touching USD 18 billion by the end FY18, up by 42.5 percent over the previous fiscal year. The State Bank of Pakistan has just around USD 10 billion worth of foreign exchange reserves – barely enough to fund imports for more than two months. Pakistan’s overall trade deficit in FY18 stood at USD 37.7 billion with imports standing at a record USD 60.9 billion. Government’s budget deficit is also well over 7 percent of its GDP. Foreign direct investment has only marginally improved since FY15, when it hit a record low. Pakistan will not be able to sustain its current growth at 5.8 percent for much longer.

Senior economists have estimated an external financing requirement of 26 bn for Pakistan which compares well with the IMF estimates of USD 27 bn and the Ministry of Finance’s calculation of USD 23 bn. According to a report by the interim Finance Minister, Pakistan would require USD 9.3 bn to meet its debt-related obligations in FY19 that includes repayments to the IMF[1].

Understanding the causes

The fiscal irresponsibility demonstrated by the previous government must be understood and acknowledged as a major contributor to Pakistan’s current financial crisis. To state simply, the government spent more than it collected. It incurred enormous expenditures in the form of large investments in infrastructure, energy, CPEC-related projects without increasing the revenue inflow. Secondly, it continued to import far more than it exported while export-led industrialization was pushed to the back-burner.

When governments are faced with a fiscal crisis they usually have three main levers to push the economy back on its feet. The first is to devalue the currency as an effective fall in the exchange rates can help the economy become more competitive. The State Bank has already devalued the rupee four times since December 2017 thus further devaluation may not be an option.

The second option is to curtail public expenditure under a tight fiscal policy. With a limited fiscal space, this can be done by managing demand – placing cuts in development spending, placing more taxes and reducing reliance on imports. Regardless of an IMF bailout, Pakistan will seriously need to slash down government expenditure.

The third option is to draw on temporary funds to help address immediate liquidity shortages and financing gaps. This is usually a last resort and works best as a means to give the country more time to deal with the deficit while making room for it to address the structural deficiencies. In the case of Pakistan, this option would most likely manifest itself as yet another IMF loan.

What will an IMF bailout look like?

Although IMF has not made any promise to bail out Pakistan, nor has Pakistan formally asked for one, the finance minister has clearly stated that if Pakistan does decide to go to the IMF, it will not be the first but the thirteenth time it will be doing so[2]. Experts anticipate a final word on it by end of this year. Pakistan may seek USD 10 to 15 billion in what could be its largest IMF package till date[3].

An adverse reaction from the US, IMF’s biggest shareholder, can complicate and extend negotiations. The US has clearly urged IMF not to promise any funding to Pakistan until it publishes full details of the loans it has taken from China to pay for CPEC. Currently the net transfers (i.e. disbursement minus debt-servicing) from China are positive. Re-payments don’t feature in the current financing gap. Thus the fear that IMF support will be used to bail out Chinese bondholders is unfounded.

Any successful IMF program requires government’s commitment to the policies outlined in the program. While the IMF is unlikely to refuse funding to any country its assistance will come with the standard neoliberal policy conditions that will include further devaluation of the rupee, privatisation of loss-making state owned enterprises, a rise in power tariffs and reduction in subsidies on agriculture. Associated with a new potential loan will also be extensive pressure to reduce aggregate demand of which the largest burden will be on the fiscal side. This will be critical for reducing the deficit from 7 to 5 percent of the GDP in the first year.

This could hamper Khan’s efforts to substantially enhance public spending and also hit economic growth. The last time Pakistan entered the IMF program, growth rate stood at under four percent. This poses a challenge to the new government, voted in with high expectations to set up an Islamic welfare state. As part of PTI’s 100-day agenda, its electorate will expect initiatives for social uplift and job creation. The PTI has promised to create 10 million jobs and build five million low-cost housing units in the next five years.

Exploring alternatives

While steps have been taken, such as multiple currency adjustments, to address economic imbalances, avoiding an imminent default on international payments requires much more. Going to the IMF will most likely lead to the imposition of inflexible and untimely policies for the new government, thus it is actively considering several alternatives. However, none of these options are sufficient to meet the financing needs on their own.

Government is considering placing regulatory duty on or curtailing certain imports to reduce the financing gap. However only imports from formal channels can be taxed. Most luxury goods are under-invoiced or smuggled so unless their true value is declared the benefits of such a scheme will be limited and this may encourage further under-invoicing.

Relying on the goodwill of some countries – Saudi Arabia’s help in deferring oil payments and rescheduling of some of the repayments under CPEC – can ease off some of the pressure. Other fiscal measures to reduce public expenditure, manage demand and control capital may help.

Government also plans to launch investment (Sukuk) bonds for overseas Pakistanis. This would be similar to the Central Directorate of National Savings (CDNS) – a dollar-denominated bond. However, borrowing from the capital market may be restricted following Pakistan’s altered credit ratings from stable to negative.

The government has also promised a massive privatisation drive by making a special wealth fund where all SOEs will be transferred to obtain necessary funds that may help with IMF negotiations for a more favourable deal.

Possibility of bilateral financial assistance also expands Pakistan’s menu of choices. China has assured Pakistan it can be counted on and its funding would not come with IMF-like conditions. However, Pakistan is becoming increasingly dependent on external financing from China’s state-backed banks since the last financial year, having secured loans worth more than USD 5 billion. It already lent Pakistan USD 2 billion in June this year – just ahead of the elections to boost its foreign reserves, and further loans from China will significantly add to a higher debt burden. In early August, Saudi-backed Islamic Development Bank (IDB) also agreed in principle to lend Pakistan more than USD 4 bn. Borrowing from friendly countries provides a low quantum at a much higher interest compared to IMF.

Sustaining growth – a long-term view

Whether we seek another IMF loan or not, the critical question to ask is if our government has a home-grown plan to make the economy stand on its own feet. A bailout will only provide breathing space and postpone the current fiscal crisis. Policymakers will have to take concrete measures to address the underlying causes of macroeconomic crises that repeats itself every few years.

The fundamental imbalances stem from a disparity between public sector spending and income, and an underdeveloped export base. An IMF loan will not address these structural shortcomings nor will it re-distribute the means of production to fix this. The sooner this is realised the better it will be for generating a plan for stable, inclusive and sustainable economic growth.

At the same time the government should also think through the design and associated conditionality of any stabilisation program. The conditions should not only be realistic but also speak to the structural deficiencies. Revenue inflow must be expanded by enhancing the tax base rather than tax rates. Subsidies should be targeted instead of being removed altogether. Privatisation of state-run-enterprises while necessary should be planned with a longer time horizon. At the same time a fundamental revisiting of the public policy and business environment is needed to encourage exports. Reforms also need to be introduced to leverage the potential of its youth and the private sector. Any further stalemate in policy direction to address these structural concerns will only lead to more macroeconomic instability in the future.

Hina Shaikh is the Country Economist at the International Growth Centre (IGC).

[1] “Stabilisation and economic growth policy recommendation paper”, prepared by the former interim finance minister Dr Shamshad Akhtar-led finance ministry.

[2] Technically it would be the seventh time excluding individual loans that were often combined or led to larger programme loans.

[3] 7.6 billion in 2008 is the largest IMF bailout package

With Pakistan Tehreek-i-Insaf (PTI) winning six out of twelve national assembly seats, the 2018 general elections mark the first time since the 2002 polls that any political party has won more seats in the Federally Administered Tribal Areas (FATA), than independently-elected candidates. With a majority mandate in the area, and control of the federal government as well as Khyber-Pakhtunkhwa (KP) provincial government, PTI is now promising a prioritization of FATA’s mainstreaming and merger with KP. To do so it has formed a high level committee for this very purpose. However, while the political mandate remains firmly in place, the difficulty of forming a blueprint for implementation of the merger is becoming clear as all previous reports have only left an extended wish list rather than a realistic plan of how this might be accomplished.

For starters, even now large segments of FATA still feel that they were not adequately consulted before the decision to merge their region with KP was taken. Many fear that they risk becoming a backwater territory of KP and might struggle to get their fair share in public funds. Being part of tribal society offered some advantages that many fear they stand to lose and are skeptical that the benefits of being part of the country’s mainstream setup would reach them any time soon. For example, locals are use to quick justice, very low crime rates compared to adjacent districts of KP, a social safety net system provided by the tribe, (and in some parts by the political administration), and in some manner a more egalitarian system. To create greater buy-in and to try and keep in place positives from the tribal system in place, as the region goes through this historic transition, it is imperative that the merger process and its planning be inclusive. With that in mind it doesn’t bode well that the newly formed committee to look at the merger of FATA, has no representation from FATA. This is especially worrying since the merger basically means rewriting the social contract between FATA residents and the state. Presumption of knowing better than the locals about what’s good for the people of the area on part of the ruling party may prove to be a costly misstep.

In terms of mainstreaming FATA, it is crucial for the government to strike the right balance between developing new institutional infrastructure and reconstruction of homes, basic necessities and other economic infrastructure. For example the Peshawar High Court has estimated that it would require a little under PKR 14 billion to construct judicial complexes in each agency at the district and tehsil level. To put this in context, last year FATA’s total annual development budget was about PKR 24 billion. To further elaborate what this amount means for FATA, consider the fact that the FATA Disaster Management Authority (FDMA) has estimated that over 80,000 homes have either been partially or completely damaged across FATA. According to the government’s policy PKR 160,000 is given to partially damaged homes and PKR 400,000 to completely damaged ones. Disregarding the fact that this amount isn’t even enough to remove the rubble left behind let alone reconstruct compounds housing multiple families, this means that even if each home was partially damaged, the government would need about PKR 13 billion to fund this program. However, so far the government has only been able to commit PKR 5 billion, which goes a long way in explaining its slow implementation.

Some mystifying and ill-thought out specifications for infrastructure development also help explain the large outlay required. For example, in Orakzai Agency where according to the most recent census in 2017, the population is about 250,000, the government is looking to acquire 100 acres of land for making the judicial complex. Why such a large chunk of flat land, in a mountainous area like Orakzai with such a scarce population is needed is incomprehensible. Even judicial complexes in major cities catering to millions of people are nowhere near this size. Similar decisions have been made in other parts of FATA as well.

Spending funds in the right place is one part of the equation, but the reality is that current fund levels in FATA are not enough to reconstruct and develop this war-torn region. Although the previous government of Pakistan Muslim League-Nawaz (PML-N) talked a lot about development funds for FATA, a concrete commitment was never actualized in the end. Initially it was suggested that FATA be given its share in the NFC award which would seem like the logical thing to do but with the provinces not being able to agree to where the share would come from, it was later decided to just earmark PKR 100 billion a year directly by the federal government. However, as mentioned earlier, that too hasn’t come to fruition either.

After a long time one political party i.e. PTI has formed the government at the center as well as in KP and Punjab and as a coalition partner in Balochistan. In Sindh the PPP remains a strong advocate for merging FATA and prioritizing its development needs. In this scenario there is no excuse why FATA won’t be able to get 3 percent in the NFC award for its development needs.

In conclusion, the government needs to be smart in the development decisions they make. For this it’s important for them to do the following:

i) Insure inclusivity and bring on board development and regional experts.

ii) Resist its impulse to acquire large pieces of real estate and develop colonial era   institutional compounds that are larger than most towns in FATA, all in the name of developing basic institutional infrastructure.

iii) Commit the funds needed by giving FATA its 3 percent share in the NFC award.

iv) Learn from global examples of leapfrogging stages of development through modern technology. For example, countries like Ghana, caught up with the rest of the world by developing cell phone infrastructure and through it promoted branchless banking directly rather than first developing expensive and outdated traditional phone lines and bank branches.

Ghazan Jamal is the In-country economist at the International Growth Centre (IGC).

Pakistan is not a wealthy country, but more than 1% of its Gross Domestic Product (GDP) is allocated for philanthropic purposes, which is surprisingly close to trends in developed countries. While the country’s philanthropic gains have not been particularly sustainable, according to the Stanford Social Innovation Review, almost 98% of citizens in Pakistan are generating some form of private social capital. In part, this has contributed to Pakistanis being ranked as the happiest nation in the region, even compared to some of its more prosperous neighbors. Happiness, it seems, stems from generosity of spirit and social support among other indicators, as identified by the UN Sustainable Development Solutions Network’s annual survey. According to the Centre for Asian Philanthropy and Society’s (CAPs) Doing Good Index, it is not the level of economic development that fosters an environment of philanthropic giving, but the specific policies that incentivize people to donate their money and time for humanitarian purposes.

This index identifies the outcomes of philanthropic progress in Pakistan and other Asian economies. Pakistan’s current status in philanthropic advancement has been derived from the index as explained subsequently.

Why haven’t there been sustainable gains from all that philanthropic giving in Pakistan?

Asian societies are guided by their cultural norms to do good for others, regardless of existing government incentives or regulations. However, government oversight of charitable transactions could ensure that private social investment is redirected to official channels of social delivery, rather than to individuals alone, thereby generating predictable and higher returns to society. On the other hand, philanthropists struggle to overcome their trust deficit in the social sector because it is perceived to be largely unregulated. Once trust in these organisations is formed, the government, Social Delivery Organisations (SDOs), donors and the public, can synergize for inclusively shaping social policy. In particular, governments can collaborate with SDOs through grants and service contracts to deliver specific social services.

Why don’t philanthropists trust fund-raising organisations?

When the government does not levy strict measures for misappropriation of donor funds and formulate easy-to-follow rules for charitable organisations, mechanisms of how the social sector functions remain murky, not only to SDO administration, but also the general public. This creates and perpetuates mistrust. A lack of belief in the government’s capacity to ensure effective regulation, transparency, and accountability of SDOs also damages donor confidence. For example, the procedure for registering an SDO should be simple and quick. In Pakistan, the procedure of registering an SDO takes about 6 months, thereby discouraging new entrants.

The social sector continues to rely on both domestic and foreign donations as critical sources of revenue. Pakistan significantly relies on foreign donors. According to Dr. Faisal Sultan, CEO of Shaukat Khanum Memorial Hospital, the world’s first and largest nonprofit cancer hospital and research center, the UK, US and Gulf countries are the biggest contributors to fund raising at Shaukat Khanum. For this purpose, Pakistan requires registered nonprofits to seek special permissions for receipt of foreign funds.

The government of Pakistan places a monetary limit on sending donations abroad to prevent illegitimate usage of funds. However, in a recent visit to Pakistan by the Financial Action Task Force’s (FATF) Asia Pacific Group (APG) accused Pakistan of having a weak legal framework around non-profit-making and charitable organisations. They contended that there are groups in Pakistan which are masquerading as non-profit charity organisations, but have been termed as terrorist outfits by the United Nations.

Though foreign grant making is seen as suspicious by many governments, it should not be stopped. Through imposing additional permissions on philanthropists for funding global causes, it can avert the risk of terrorist financing and money laundering. Additionally, legal reporting requirements should be clearly articulated, while demarcating circumstances that would make SDO board members liable to criminal prosecution.

How fiscal incentives intensify philanthropic efforts in society

Monitoring and regulating the activity of the social sector is crucial for preserving the integrity of social service delivery, but fiscal and tax incentives go a step further by propelling philanthropy in society.

Fiscal incentives are given to both donors and recipients of philanthropic funds – the SDOs. Public-sector support to donors in the form of tax deductions allow donors to retain more of their disposable income. This creates the right conditions for greater individual and corporate level philanthropy in society. Pakistan offers individual tax deduction rates in the range of 15–50%, and corporate rates of 10–50%, which could ideally be higher. Some countries place limits on the share of income that is eligible for tax deductions, but Pakistan has even gone so far as to allow 100% of individual income to be tax deductible.

Further reinforcing elements for cementing a sustained philanthropic inclination in Pakistan

The cultural impetus to give, combined with an incentivizing regulatory and fiscal framework, is the cornerstone for bolstering philanthropic giving in society. However, there is an added element of recognizing and rewarding worthy contributions of individuals and corporations towards societal improvement.

Further, the availability and nurturing of human infrastructure comprising talented and skilled contributors to the social sector is key for the proliferation of SDOs. In Pakistan, the experience of recruiting general and skilled staff has been relatively positive, as compared to many other Asian countries.

Finally, the government will be ineffective in the creation of an enabling philanthropic environment if SDOs do not possess professional board members. It would be useful if SDOs can directly collaborate with private corporations for learning to use business tools for financial forecasting, setting targets and evaluating them accurately.

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