Your SlideShare is downloading. ×

Final report 21 10 2013

560
views

Published on

Published in: Education

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
560
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
14
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. THE EUROPEAN UNION’S ASIA PROGRAMME FOR PAKISTAN Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Letter of Contract N°2013/319077 FINAL REPORT Prepared by Malik Khalid MEHMOOD Ghulam MUSTAFA Muhammad Khan NIAZI August 2013 The project is implemented by IBF International ConsultingThe project is financed by The European Union
  • 2. “The contents of this publication are the sole responsibility of the author and can in no way be taken to reflect the views of the European Union.”
  • 3. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 3 of 109 TABLE OF CONTENTS Table of Contents .................................................................................................................................... 3 Abbreviations and Acronyms................................................................................................................... 4 EXECUTIVE SUMMARY......................................................................................................................... 6 1 Objectives......................................................................................................................................... 6 2 Approach and field visits .................................................................................................................. 6 3 Assessment of General Eligibility Criteria ........................................................................................ 7 4 Scoring table of the DLIs.................................................................................................................. 9 5 Key issues in the education sector................................................................................................. 10 SECTION B. GOVERNANCE AND PFM .............................................................................................. 16 SECTION C. ACCESS, FACILITIES, QUALITY AND LEARNING OUTCOMES ................................. 28 REFERENCES ...................................................................................................................................... 35 CONSULTATIONS................................................................................................................................ 36 List of Annexures................................................................................................................................... 38 Annexure CA 1 ...................................................................................................................................... 39 Annexure CA 2 ...................................................................................................................................... 52 Annexure CA 3 ...................................................................................................................................... 73 Annexure CA 4 ...................................................................................................................................... 97
  • 4. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 4 of 109 ABBREVIATIONS AND ACRONYMS AF Action Fiche AG ASP Auditor General Assessment and Strengthening Program AUSAID Australia Aid International Department BE Budget Estimate CDP CDS Capacity Development Program Comprehensive Development Strategy CVT Capital Value Tax CM Chief Minister CDS Comprehensive Development Strategy CPI Consumer price index cif Cost, insurance and freight CSP Country Strategy Paper DFID Department for International Department DE&SE Department of Elementary and Secondary Education DAC Departmental Accounts Committee DCTE Directorate of Curriculum and Teacher Education DG Directorate-General DLI Disbursement Linked Indicator DMG District Management Group DMOs District Monitoring Officers DSP District Strategic Plan EFA Education for All EMIS Education Management Information System ESP Education Sector Plan ESR Education Sector Reform ESRU Education Sector Reform Unit E&SED Elementary and Secondary Education Department EEF Elementary Education foundation EC European Commission EU European Union EFF Extended Fund Facility FBR Federal Board of Revenue FRA Fiduciary Risk Assessment FD Finance Department FY Financial Year FP Financing Proposal FDI Foreign Direct Investment GBS General Budget Support GST General Sales Tax GIZ German International Agency for Aid GovKP Government of Khyber Pakhtunkhwa GDP Gross Domestic Product IMDCU Independent Monitoring and Data Collection Unit
  • 5. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 5 of 109 IBP International Budget Partnership IMF International Monetary Fund KP Khyber Pakhtunkhwa MTBF Medium Term Budget Framework MoU Memorandum of Understanding MDG Millennium Development Goals MDG Millennium Development Goals M&E Monitoring and Evaluation MVT Motor Vehicles Tax NFC National Finance Commission NHP Net hydel profit NGO Non-Governmental Organization NPL Non-performing loans ODA Official development assistance OECD Organization for Economic Cooperation and Development OBB Output Based Budget/budgeting Rs Pak Rupees PTC Parent Teacher Council P&DD Planning and Development Departments PC-1 Planning Commission - Performa 1 PBS Portfolio Budget Statement PRGF Poverty Reduction and Growth Facility PRS Poverty Reduction Strategy PRSP Poverty Reduction Strategy Paper PPP Private Public Partnership PMIU Project Management Implementation Unit PMS Provincial Management Services PAC Public Accounts Committee PEFA Public Expenditure and Financial Accountability PEM Public Expenditure Management PER Public Expenditure Review PFM Public Finance/Financial Management PSDP Public sector development programme RE Revised Estimate RM RSPN Roadmap Rural Support Programmes Network (Pakistan) SBS Sector Budget Support SBS Sector Budgetary Support SOP Standard Operating Procedure SBP State Bank of Pakistan TA TNA Technical Assistance Training Need Assessment UNDP United Nations Development Programme USAID United State Agency for International Department US United States of America UIPT Urban Immovable Property Tax WB World Bank
  • 6. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 6 of 109 EXECUTIVE SUMMARY A mission comprising three senior experts selected by the European Union Delegation (EUD), Dr. Malik Khalid Mehmood – Team Leader, Mr. Ghulam Mustafa - Education Expert, and Muhammad Khan Niazi - Public Finance and Procurement Expert, undertook a joint monitoring review to assess fulfilment of the criteria for tranche disbursement by providing a comprehensive assessment of the progress of the Education Sector Reform Programme (ESRP) in Khyber Pakhtunkhwa against the agreed disbursement linked indicators (DLIs) of the common policy matrix. This mission visited Islamabad, Peshawar and two districts of Abbotabad and Buner from 24th of June until the 11th of August 2013. 1 OBJECTIVES The specific objectives of this assignment are (1) to assist the EUD in its assessment of the payment trigger requirements for the fourth tranche of sector budget support through providing a comprehensive assessment of the progress of the education reforms against the agreed indicators of the common policy matrix; (2) to assist the EUD in its assessment of budget support eligibility related to the final tranche release; (3) to join DFID and AusAid in their KP Education 'light' review. This should result in a report with an assessment of the progress of the education reforms against the agreed indicators of the common policy matrix as well as of the budget support eligibility criteria, and an overview of issues and state of play in specific areas of the sector. In serving the terms of reference, the mission was guided by the provisions of European Union, Budget Support Guidelines, September 2012. Disbursements under EU’s budget support programmes are subject to four eligibility criteria: national/sector policies and reforms; stable macro-economic framework; sound public financial management; and transparency and oversight of the budget. Besides the general eligibility criteria, the monitoring of Education Sector Reform Plan (ESRP) progress is against the DFID/AusAid policy matrix of disbursement linked indicators which was agreed with the Government of Khyber Pakhtunkhwa (GovKP). As required, this assessment evaluates the relevance and credibility of the partner GovKP’s policy, strategy and performance related to each eligibility criterion. The target wise assessments are made using a dynamic approach, looking at past and recent policy performance benchmarked against reform commitments, but allowing for shocks and corrective measures and refining the objectives and targets as necessary. 2 APPROACH AND FIELD VISITS The approach consisted of a combination of desk work, meetings with GovKP officials and other stakeholders, and field study visits to districts education offices and schools with a focus on fact finding. The mission started the study with examination of the ESRP related documents, briefings by EUD staff on the budget support, and meetings with other stakeholders in Islamabad to obtain a good understanding of the context, prior data/reports, relevant variables and issues to perform the study. The experts also attended meetings relating to the DFID/AusAid’s 'light' review of their KP Education programme. Field visits focused on Peshawar, Abbottabad and Buner, where extensive consultations took place with GovKP officials, district education and concerned officials. These districts were
  • 7. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 7 of 109 selected strategically for diverse characteristics - Abbottabad is an urban district with better educational indicators, Peshawar is urban but has weak indicators, and Buner a rural district being supported with DFID conditional grants. 3 ASSESSMENT OF GENERAL ELIGIBILITY CRITERIA1 The macroeconomic outlook is stable. Pakistan’s macroeconomic growth prospects have improved slightly in recent times. The new democratic government has settled in and there is relative political calm. The country’s medium-term macroeconomic framework envisages a gross domestic product growth of 3.4% for 2013-14 gradually rising to 7% in 2015-16. The investment environment is better, stock markets are booming and foreign direct investment is coming in. The federal government is trying to address three main issues affecting the economy: high fiscal deficit, deteriorating reserves position, and power outages. It has announced a series of policy measures in the 2013-14 budget, and is negotiating a $5.3 billion Extended Fund Facility (EFF) package of further reform measures with the International Monetary Fund (IMF). 2 The economy of Khyber Pakhtunkhwa is largely agricultural and rural, and heavily depends on inputs from the rest of the country. The Government of Khyber Pakhtunkhwa has been attempting to address the main development challenges facing the province, viz. raising income per capita, improving human development and access to social services, exploiting natural resources, good governance and optimal utilization of the available resources. The GovKP is implementing a Public Finance Management (PFM) Reform Program to improve service delivery with the available resources which have faced the usual macroeconomic risks. The PFM Reform Program has progressed in recent years but only slowly. The strategic interventions consist of: strategic budget formulation by linking policies and budget priorities (Medium Term Budget Framework)(MTBF); credible, results oriented budgets for better service delivery (Output Based Budgeting)(OBB); introduction of business plans and annual action plans in six line departments and in districts with conditional grants; capacity building (audit, internal audit and Public Accounts Committee (PAC)); strengthening monitoring structures; and pre-budget consultation workshops. The overall PFM reform progress is positive, yet a number of weaknesses remain. Main strengths are: a well-defined budget process with both executive and legislative adhering to a schedule; budget documentation is fairly comprehensive; budget classification follows international standards; the external audit function is well-developed; transparency measures are in place for information sharing and pre budget workshops are held. Most weaknesses are in the budget execution: revenues are uncertain; capacities are weak; the processes, linking outputs to budgets and accounting results against budgets, are weak; records are poor; and financial reporting and internal controls are weak. The overall assessment of PFM reform progress is favourable. The reform strategy is relevant to the development objectives of the province in that it addresses key weaknesses in the PFM system hampering improvement of basic service delivery. The reform program is well sequenced with implementation strategy focusing on certain core interventions, building strategic planning/budgeting 1 This subsection gives the gist of details given in the four Compulsory Annexures below on assessments of Macroeconomic Framework, Public Financial Management, Budget Transparency and Accountability, and E&SE Sector Policy. 2 The proposed $6.6 billion loan has finally been agreed by the IMF Board on 4/9/13.
  • 8. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 8 of 109 capabilities at the province and district levels. The reform is home grown and enjoys sufficient ownership from the Cabinet, target beneficiaries and a cadre of finance and planning officials at province and in districts. Budget process is reasonably transparent, oversight structures are in place, and the GovKP has been attempting to improve the budget transparency/accountability. Budget documentation is comprehensive; its format conforms to international standards, and is presented to the provincial assembly. Information on the annual budget is available – the Finance Department publishes budget documentation on its official website, e.g. Annual Budget Statement, OBB/MTBF covering budget forecast up to three years, White Paper, etc. The external audit function is well developed and being strengthened although delays in the consideration of annual audit reports are common. Similarly, the monitoring and evaluation structures for reporting results are being strengthened. But there are problems in accessing in/end-year execution and delays in audits reports. The budget preparation process can become more transparent, open and participative through repeat pre-budget consultations and making some key budget documents like mid/in-year reports, year-end financial statements and annual audit reports available. The education sector is confronted with several short term and medium term challenges. The sector finances remain short in the face of fast growing student population and the focus on increasing access to girls schooling. The non-salary budgets have shrunk and subject to rationalization cuts which have affected negatively the provision of textbooks, teachers training, and maintenance of school facilities. The financial management in the education sector is relatively poor. Some key PFM weaknesses in the Elementary and Secondary Education Department (E&SED) are: no direct linkage with performance and budgets, despite the OBB/MTBF and monitoring and reporting are in place; lack of financial and performance reporting capability at the province and district levels; poor planning and monitoring at district level in the use of non-salary resources; lack of registry information for teachers and non-teacher personnel; poor cash planning and lack of predictability in fund releases for purchase of textbooks/supplies, construction and maintenance of infrastructure. Besides the financial management issues alluded to above, there appears to be less emphasis on qualitative depth into the sector. The E&SE sector is faced with severe issues of human resources management and monitoring learning progress. There is no registry and information system that captures whether education personnel report for work, what the quality of their teaching is, and whether they are included in the AGP payroll system. Hence absenteeism is common. And no monitoring mechanism is in place to measure teaching and learning progress at school and district levels. So that it is difficult to measure how, if at all, the increased spending is improving performance in schools. The GovKP remains committed to uplift the status of education in the province. The government policy focuses on improving access to primary schools, reducing gender gap, improving quality of education, providing adequate and suitable infrastructure, providing alternative or non-formal education, encouraging public-private partnership and community involvement, and enhancing budgetary allocation for education. To achieve all these goals, the government has prepared an Education Sector Plan (ESP) which is being implemented. The Plan's strategy is to address issues in three major areas, improving E&SED’s PFM, increasing access to formal schooling, and improving the quality of education.
  • 9. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 9 of 109 The policy measures to attract children to school include fee exemptions at secondary level for all children in government schools, free textbooks in government schools, stipends to all girl students from 6 th to 10 th grade classes in public schools, and a special focus on girls’ education by increasing the ratio of ADP share to 70:30 for girls and boys, and increasing number of girls’ secondary schools. Besides, the Government has embarked on an accelerated program for constructing new schools, additional classrooms, renovation of the existing old buildings and providing missing facilities through Parent Teacher Councils (PTCs). The improvement of quality of education is being given special attention. The Institutional Framework for Teacher Development encompasses a strategy for the improvement of teacher education and teacher professional development. Over-crowding in early childhood classes has been reduced, the curriculum has been modified, and child‐friendly teaching practices adopted. Primary schools are better supervised with designation of head teachers; quality of textbook material has been improved, and teacher management is improving. A regular year‐round system of classroom assessment of teachers and students is being introduced. Teaching and management cadres are being separated, with an appropriate share of women. Communities and parents are gradually becoming involved in school supervision and management. Overall, greater attention is being paid to outcomes at the school level. 4 S CORING TABLE OF THE DLIS The overall assessment of the DLI targets for FY 2012-13 that underpin the payment triggers is not positive, with an average achievement of 5.242 out of 12. The recapitulative table suggests that there are three DLI areas where there is no achievement at all, six DLI areas where the achievement is half or less than half of what was targeted and three DLI areas where the targets were met. Overall Assessment/Eligibility DLI No. Targets Achieved Number of Targets Average Achievement 1 1 2 0.5 2 0.5 1 0.5 3 0 3 0 4 1 1 1 5 1 3 0.333 6 1 1 1 7 0.75 2 0.375 8 0 3 0 9 2 2 1 10 0 2 0 11 0.2 1 0.2 12 1 3 0.333 Overall Assessment 5.242 Source: Section B and C. Areas where the most progress is being achieved are (1) output based budgets; (2) community level management; and (3) curriculum and implementation.
  • 10. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 10 of 109 There is no progress in the audit system, private sector programs of Elementary Education Foundation, and students learning outcomes. More details on progress are covered in the Summary Table given below. One of the reasons for poor progress may be that the general elections during Financial Year (FY) 2012-13 distracted the GovKP’s attention to governance and other ESE reforms. The government, which had designed the ESP, faced tough competition from other political parties and finally lost the government in the May 11 elections. Also the E&SE staff including teachers performs key election duties and hence they are important stakeholders in the general elections. 5 KEY ISSUES IN THE EDUCATION SECTOR There are very significant short term and medium term challenges to the education system in KP. While resources have been allocated towards enhancing the education sector horizontally, there appears to be less emphasis on introducing qualitative depth into the sector. In addition to the limited capacity to improve revenue mobilization, financial management for whatever revenue is there is sub-standard. Poor planning at district level in the use of non-salary resources contributes to inefficient allocation of resources. Financial and performance reporting capability is particularly insufficient. These reports are required to provide substantive information that allows district officials to calculate the amount of public resources planned and used and the cost of teaching per student and other costs and whether these outputs are commensurate with the results achieved. Budget resources are not linked with outcomes. Despite the introduction of output‐based budgeting, the shifts in expenditure have been volatile, in both current and development expenditures, with no direct linkage with performance. Externally funded development projects are not reported in a consolidated manner together with operating expenses and other recurrent budgets in a consolidated format and on a regular basis. Better coordination with budget authorities is required so that reporting of donor aid flows is provided prior to the budget submission to the Provincial Assembly. Procurement of supplies and services is problematic. Release of funds is unpredictable, making cash planning impossible. As a result, programming purchases of textbooks, school supplies, infrastructure construction and maintenance pose a challenge. Laws and guidelines in the field of procurement are ineffectively implemented and enforced, even though there are well drafted regulatory and legal frameworks. Another contributing but rather structural factor influencing the effectiveness of procurement reforms in KP Province is the overcrowding of government interventions: the government’s involvement in every sector as a direct market participant is estimated at 50%, obstructing private sector entry, impeding the development of competitive markets and installing poor quality regulation. Human resource management is faced with severe issues. There is no automated registry process and information system that captures whether education personnel report for work, what the quality of their teaching is, or whether they are included in the AGP payroll system. No monitoring mechanism is in place to measure teaching and learning progress at school and district level, so it is difficult to measure how, if at all, the increased spending is improving performance in schools.
  • 11. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 11 of 109 This having been said, the government of KP is determined to uplift the status of education in the province. Government policy focuses on improving access to primary schools and reducing the gender gap, improving quality of education, providing adequate and suitable infrastructure, providing alternative or non-formal education, encouraging public-private partnership and community involvement, and enhancing budgetary allocation for education. To achieve these goals, the government has prepared an education sector plan which is being implemented. The plan tries to address the main major issues. One of the main priorities is to increase access to formal schooling. The Government has taken many steps to attract children to schools like the fee exemption at secondary level for all children in Government schools, free textbooks in government schools, stipends to all girl students from 6 th to 10 th grade in public schools, and a special focus on girls’ education by increasing the ratio of ADP share as 70:30 for girls and boys and increasing the number of girls’ secondary schools. Government has embarked on an accelerated program for constructing new schools, additional class rooms, renovation of the existing old buildings and providing missing facilities. It has allocated more funds for missing facilities at the community level. Improvement in the quality of education is given special attention. The Institutional Framework for Teacher Development encompasses the strategy for the improvement of teacher education and teacher professional development in the province, including a capacity development strategy and the setting up of 300 operational local circle offices with staff, office budget and physical resources. In early childhood classes, over-crowding has been reduced, the curriculum has been modified and child friendly teaching practices adopted that are appropriate for children of this age. In primary schools, designated posts of head teachers of primary schools have been created, and hence there is better supervision, textbook and material quality has been improved, and teacher management is better now. A regular year round system of classroom assessment of teachers and students is being introduced. This includes a uniform centralized examination system at 5th and 8th grades to assess primary and middle level teachers and students, a system of regular and comprehensive classroom assessments in primary schools, and reformation of examinations towards more objective and cognitive based assessment. Overall, greater attention is being paid to outcomes at the school level. And critically (although very hard), communities and parents are gradually becoming involved in school supervision and management. Teaching and management cadres are being separated, with an appropriate share of women.
  • 12. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 12 of 109 SUMMARY OF PROGRESS AGAINST DISBURSEMENT LINKED INDICATORS (DLIs) Performance Indicators Target for FY 12012-13 Progress in FY 12012-13 DLI Progress GROUP 1: GOVERNANCE & PFM DLI 1: E&SED non-salary and development budget allocation increase both in real terms and as a percentage of total education budget is protected E&SED/ GoKP to approve PC-I for Girls stipend, summary for recurrent PTC expenditures as well as summary for Monitoring function and start judicious expenditures to ensure additionally of DFID funds. Target met. The project PC-1 Girls’ stipends in FY 2012-13 was approved and implemented. Similarly, the summary for PTC expenditures in FY 2012-13 was approved and funds were released to DDOs for onward disbursement to PTCs. The E&SED set up a much stronger monitoring arrangement during the year. 1/2 E&SED actual expenditure on Non-salary & development to be at least 75% of the budget estimates (Provincial & District level). Target not met. The E&SED actual non-salary and development expenditure in FY 2012-13 is estimated at 66.5% of the budget estimate, which remains short of the prescribed threshold of 75%. DLI 2: Organizational Development Institutional analysis of ESRU, EEF and SED with a view to develop recommendations for organizational restructuring. Target partially met. The EEF’s institutional analysis was carried out and a combined institutional analysis of ESRU, ESED and its Directorates is being carried out, which is expected to be completed soon. The organizational restructuring of EEF has been agreed but the final approval is still awaited. 0.5/1 DLI 3: Audit system Internal audit charter & cell established (organizational structure approved, posts sanctioned & appointments made) at FD & similar actions taken for establishing & operationalizing the internal Audit function at E&SED. Capacity building plan designed & implemented. Target partially met. Finance Department has created posts for Internal Audit cell at ESED. Progress on the development of IA charter is in formulation stages with the TA team of DFID for the ESED program is preparing a capacity building plan.The case for establishing internal audit charter and cell is still being studied at the Finance Department, and actions for establishing and operationalizing the internal audit function at E&SED remain on hold, and the capacity building plan for the Internal Audit Cell is not in sight as yet. 1/3Internal Audit. Target partially met. Internal Audit cell established in the budget of 2013- 14,however staff for the same not yet appointed. Internal Audit Cell in E&SED has not been established; hence, there has been no internal audit of E&SED during FY 2012-13. Annual External audit of KPESP by Auditor General's office covering the flow & utilization of DFID funds along with any irregularities found during the course of audit. Target not met. The target achievement is nil. The FY 2012-13 has just ended and the provincial AG Office has not started as yet the annual external audit of KP ESP covering the flow & utilization of DFID funds during the year.
  • 13. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 13 of 109 DLI4: Output based Budgets E&SED OBB approved with improved targets & indicators. OBB rolled out to at least 6 Districts. Target met taking a dynamic approach based on the GovKP's commitment. While the provincial level OBBs have been implemented with improving indicators and targets and are well grounded, the district level OBBs have yet not started. However, some background works, like staff training and preparation of strategic plans, at district level have been undertaken. These plans combined with staff mentoring from the provincial Departments may finally translate into district level OBBs. Thus there are weaknesses which need to be made up. The implementing of a fully functional OBB/MTBF at all levels of government is ambitious, which may be considered as a long term objective. 1/1 GROUP 2: ACCESS & FACILITIES DLI 5: Girls Stipends 100% girls who meet attendance criterion receive stipends in time according to the on-going programme. Target met. In order to attract girl students to continue their studies after primary school, a monthly stipend of Rs. 200/- per month is given to every girl student from Grade 6 to 10. This has a direct impact on the retention of girl students in the school and had helped them to complete their studies up to 10th Grade. The disbursement is made through money orders by the Pakistan Post. The parents and the children are appreciative of the stipend program. The head mistresses attribute the increase in enrolment to this facility which in some cases was about 30%. 1/3 Branchless banking pilot initiated for stipends delivery in 4 Districts Target not met. To bring more transparency and to further facilitate the students the Government has agreed with the donors to initiate the disbursement of stipends through Branchless banking. The process is yet to start. Analytical work to re-design the programme through improved targeting, benefit structure and attendance verification completed. Target not met. The work on analytical work to re-design the programme through improved targeting, benefit structure and attendance verification is yet to start DLI 6 : Community Level Management Without overlap with OBB Districts & in line with recommendations of TPV on PTCs in KP, PTCs policy, financial & procurement rules improved & notified with a continuous capacity development programme (CCDP) developed. Target met. There is a comprehensive policy on training of PTC executives, their capacity development, PTCs’ role and functions, school improvement program, planning, budgeting and procurement, PTC meeting, decisions and records, communication with stakeholders, etc. The PTC’s Continuous Capacity Development Plan, February 2013 – April 2014 has been prepared. PTC Guide has been prepared and training of PTC members has been started. A third party validation (TPV) has been conducted. The report is favourable despite some perverse indications. 1/1
  • 14. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 14 of 109 DLI 7: Low Cost Private Sector Establish a comprehensive strategy for public private partnership (PPP) in education facilitating the low cost private sector with setting out clear standards for quality. Target partially met, and GovKP is working in the right direction. A study of the low cost private school sector in KP was started in March 2013, which will decide the definition of ‘low cost private institution’ and other matters. 0.75/2Analyze (using EMIS data & through EEF) location & viability of low cost private sector primary & secondary schools & draw partnership proposal Target not met. To analyze (using EMIS data & through EEF) location & viability of low cost private sector primary & secondary schools & draw partnership proposed to the Department. No such analysis of location and viability of low cost private sector schools, both primary and secondary, for public-private partnerships have been carried out. It will be carried out in the light of the study on Low Cost Private Schools cited above. DLI 8: Elementary Education Foundation (EEF) Return to learn second chance education for children & training opportunities for women designed by EEF in conjunction with all stakeholders & clear proposals agreed with DFID. Target not met. A scheme for return to learn second chance education for children & training opportunities for women was designed by EEF in conjunction with all stakeholders and clear proposals agreed with DFID. For this purpose a case for a scheme for literacy and skills on the pattern of ‘Literacy for All’ was prepared for setting up 2000 centers and submitted to the E&SED vide EEF MD office No. 345 dated 26/3/2012. Since then, there has been no further action or follow up. 0/3Second chance return to learn opportunities provided to primary & secondary aged out of school children according to the agreed proposal & as validated by TPV Target not met. The issue of learning opportunities for the out-of-school children at the primary & secondary school ages will be covered under the above mentioned scheme for establishment of centers of literacy and skills. Literacy & skills trainings provided to illiterate women according to the agreed proposal & as validated by TPV Target not met. The literacy and skill trainings for the illiterate women will be covered under the above mentioned scheme for establishment of centers of literacy and skills. GROUP 3: QUALITY & LEARNING OUTCOMES DLI 9: Curriculum Implementation Establish joint steering committee comprising of (BISE, PEAS, KPTBB & DCTE) to execute the curriculum implementation framework. Target met. A joint steering committee, comprising BISE, PEAS, KPTBB & DCTE, to execute the curriculum implementation framework has been set up. A notification has been issued to this effect. The committee has held its first meeting. 2/2 Adapting the Punjab lesson plans to contextual realities of KP, utilize lesson plans for teaching all subjects at primary level in at least 10 Districts. Target met. Primary level lesson plans on the pattern of Punjab have been aligned with the new curriculum. The lesson plans are being printed which will be implemented in all 25 districts. In the 1st phase training of Lead Trainers have been completed.
  • 15. Monitoring of Education Sector Reform Programme in Khyber Pakhtunkhwa, Pakistan Page 15 of 109 DLI 10: Students Learning Outcomes Develop a home grown strategy for systematically measuring & improving students learning outcomes in KP. Target not met. As informed by the ASI team, this DLI target is to be revised. 0/2 Development of effective reading instruction strategies as part of GPE Reading Action Plan. Target not met. As informed by the ASI team, this DLI target is to be revised. DLI 11: Improving School Performance School report cards developed & tested in at least 25% of primary & secondary schools in 5 Districts. Target partially met. The scheme of school report cards has been piloted in 2 out of 3 sub-divisions of District Swab, Lahore and Swabi, while the third sub- division Topi has not been included. According to a DEO (F) in Swabi, about 25% of schools have been included in the scheme. The related trainings of PTCs along with the Head Teachers have been conducted in these schools. The work on the scheme is in progress. 0.2/1 DLI 12: Improving Teachers Management Minimum classroom level performance standards for teachers established. Target not met. The DFID TA Team has drafted and shared the concept note of Professional Standards for Teachers (PSTs) with E&SED. The E&SED is in the process of forming a working group who will be involved in reviewing and adapting the National Professional Standards for teachers in KP context. The TA team expects that these PSTs will be established by the end of August, 2013. 1/3 Establish a teachers professional development framework. Target not met. The DFID TA team drafted the concept note for a Continuous Professional Development Framework and shared it with the E&SED during the year. Some meetings with DCTE, PITE and DE&SE were also scheduled in May and June 2013 in Abbottabad to discuss the concept of CPD Framework and to identify capacity needs of institutions. However, the DCTE officials informed this consultant team that these meeting were not held. An exposure trip to DSD Lahore was also planned for the E&SED officials to see the Punjab model of CPD as well as some field visits to districts. This exposure trip has however not materialized. The CPD framework is expected to be developed by end Aug 2013. Strategy developed for rationalizing teaching posts at school level based on school needs including enrolment. Target met. The notified policy about teachers’ availability is that the students- teacher ratio will be 40:1, and the E&SED is in the process of ‘rationalization’ of teachers in the province with regard to students-teacher ratio. The Director E&SE informed the consultants' team that he has directed all DEOs to carryout rationalization of teachers based on the prescribed standards of students- teacher ratios in their respective districts. Furthermore, the role of PTC has been changed, and now they can hire temporary teachers out of the PTC funds on need basis. Source: Section B and C.
  • 16. 16 SECTION B. GOVERNANCE AND PFM Macroeconomy The macroeconomic outlook is stable. Pakistan’s macroeconomic growth prospects have improved slightly recently. The new democratic government has settled in and there is relative political calm. The country’s medium-term macroeconomic framework envisages a gross domestic product growth of 3.4% for 2013-14 gradually rising to 7% in 2015-16. Inflation has tapered down to 7.5% by the end of 2012-13 compared with being in double digits over the last few years. Investment environment is better, stock markets are booming and foreign direct investment is coming in. The federal government is trying to address three main issues affecting the economy; high fiscal deficit, deteriorating reserves, and power outages. It has announced a series of policy measures in the 2013-14 budget for controlling the fiscal deficit and resolving the energy crisis. In addition, negotiations are on- going with the International Monetary Fund over an Extended Fund Facility (EFF) package. This will consist of further tax revenue and expenditure control measures and a comprehensive energy policy to control electricity load shedding. If the negotiations are successful, the agreement will not only provide access to the funds (tentative figures is $6.6 billion) 3 but also send a positive signal to other donors. The KP economy is largely agricultural and rural, and heavily depends on inputs from the rest of the country. The industrial sector is small, mostly restricted to small scale and mineral based industries. The province is rich in minerals and has a vast potential for hydroelectric power generation and tourism industry. It is located at the crossroads of important international trading routes; hence trade and service sectors constitute a large part of its economy. The province’s socio-economic development has been adversely affected by the conflict that has been going on along the Afghanistan border. Presently, KP houses about 25 million people, of which about 38% live below poverty line, and the province’s social indicators are very poor, e.g. unemployment rate is over 7%, maternal mortality 275/1000 and under-five mortality 100/1000 4 The Government of Khyber Pakhtunkhwa has been attempting to address the main development challenges, viz. raising income per capita, improving human development and access to social services, exploiting natural resources, good governance and optimal utilization of the available resources. GovKP’s Expenditures - Key Focus Areas The Constitution assigns the government expenditure on education, health, law and order and municipal administration to provinces. The key focus areas of the GovKP, as presented in the 2013-2014 budget, are established so as to address the province’s socio-economic development:  Education has been declared a priority – improving participation rate at primary and secondary levels, enhancing quality of education and removing gender/ethnic disparities. 3 The proposed $6.6billion EFF package has finally been agreed by the IMF Board on 4/9/13. 4 UNICEF, Khyber Pakhtunkhwa Multiple Indicator Cluster Survey 2008.
  • 17. 17  Health: improve public access to healthcare facilities, immunization and preventive health programs, achieving Millennium Development Goals (MDGs), encourage community health programs, health insurance, etc.  Law and order: the province adjoins the western border volatile tribal areas; hence the law and order situation is very poor in the province and public order and safety affairs takes a substantial amount, 14.2%, of the revenue budget.  Urban development: plans for main cities covering public services such as water, sanitation, drainage, streets and public infrastructure to accommodate private services in transport, agriculture and trade, and a road transport network for Peshawar City. Overall, the urban sector is relatively small.  Energy and power: to take full advantage of the province’s hydro-electric, thermal and solar potential.  Infrastructure: improve and expand the road network, increase resources for road maintenance.  Economic Management of agriculture and industry o Agriculture development: to shift from conventional to high value crops, fruit and vegetables, efficient use of water, minimize environmental risks, and reform the agricultural marketing. o Industrial development: an Industrial Estate Management Company has been set up with an aim to improve the investment and business climate, facilitate private sector development, and improve technical education. Uncertainty surrounds GovPK revenues The GovKP’s revenues are highly dependent on federal transfers. These transfers accounted for 90% of the total provincial revenues in financial year 2012-2013. The 7 th National Finance Commission award has raised the provincial share of revenues in the federal divisible pool, to 57.5% from 47.5%. The divisible pool mainly consists of Federal Board of Revenue revenues, and with stagnant economic growth and mal-governance, this Board has been missing its revenue targets, e.g. the estimated shortfall in actual collections in financial year 2012-2013 was 14%. Hydro-electric profits are another significant source but its proceeds are uncertain. There have been problems in settling these profits according to the original methodology due to the differences of opinion about the computation of Hydel profits. Pending full settlement, the GovKP has:  received regularly a flat sum of Rs 6 billion per annum;  received a sum of Rs 110 billion in past arrears up to financial year 2005 in the four years, 2009- 2014;  requested payment of Rs. 101.59 billion in the outstanding arrears for the last 8 years (July 2005 - June 2013);  requested full payment of the Hydel profit every year in future. The province's own tax bases are generally weak, except for the recently devolved sales tax on services. The KP’s economy is largely agriculture and informal.Besides, the provincial economic outlook has been vulnerable due to the poor law-and order situation and stubborn energy outages. Nevertheless, the GovKP has been attempting to increase the province’s own collections with insignificant yields. In the coming years, the GovKP plans to: establish its Revenue Authority and enact a provincial Sales Tax on Services Act to administer the sales tax on services; expand the tax net and revise old tax rates; attempt better tax enforcement and simplification of tax laws; and carry out an independent survey for tax administration assessment and collection.
  • 18. 18 Foreign aid inflows are quite uncertain and have largely depended on the country relations with donor countries. GovKP PFM Reforms A sound Public Finance/Financial Management system is critical to implement government policies and deliver public services. The PFM system encompasses the full budget cycle including: revenue administration, budget preparation, budget execution with cash management, procurement systems, internal controls and internal audit, accounting and reporting, external audit and scrutiny. A sound PFM system would collect the required resources from the economy, integrate them into the budget, allocate and use them in an efficient, effective, equitable and accountable manner. The GovKP has thus been implementing a comprehensive Integrated PFM Reforms Strategy. This strategy builds on the findings of the most recent Public Expenditure and Financial Accountability (PEFA) assessment and Fiduciary Risk Assessment (FRA). The stated objectives of the PFM strategy are to: make the budget strategic by linking policies and priorities with budget allocations; make the budget credible and result oriented for better service delivery and accountability; improve budget execution and reporting; and build capacities of the work force involved. A good budget has to be strategic, encompassing a multi- year financial and operating plan that allocates resources on the basis of identified goals. 5 The main interventions of the GovKP’s PFM program are summarized below. Provincial OBB/MTBF: To ensure good budget characteristics, the GovKP has been implementing output based budgeting (OBB) and medium term budget framework (MTBF) for the past few years. The provincial OBB/MTBF for 2012-13 and 2013-14, giving the details of departmental outcomes, outputs and medium term (3 years) budget estimates for service delivery, are printed in the Finance Department publications, Budget Estimates for Service Delivery, 2012-15 and 2013-16. The formulation of FY 2013-14 OBBs has entailed elaborate processes all over the GovKP, including: preparing an MTBF 2013-16 to gauge the resource envelope and expenditure pressures; Budget Strategy Papers to the Cabinet for approval; determining the year’s recurrent budget ceilings for all departments; four pre-budget consultation workshops with stakeholders on sector priorities; steering of the budget preparation process by the senior management of administrative Departments to prepare budget estimates in the light of strategic priorities with appropriate performance indicators; and finally the pre- budget negotiations with the FD for resource allocations. These processes, which have been improving over the years, are expected to ensure aggregate fiscal discipline, efficient resource allocation according to the government’s policy priorities, and operational efficiency in public service delivery. E&SED OBBs: The E&SED OBBs has been prepared with improving targets and indicators. Details can be found in the documents cited above. More recently as a part of PFM reform, the DFID TA team has prepared a more elaborate E&SED Portfolio Budget Statement (PBS) for 2013-14. This PBS is a multi- dimensional consolidated budget statement of the E&SED initiatives and explanations of appropriations specified by outputs and programmes. It will be released soon after its ownership/approval of the GovKP. 5 See GovKP FD, White Paper 2013-14, pp 49-59 for a government narrative on PFM Reforms.
  • 19. 19 District OBBs: The GovKP has also attempted to implement OBBs in Districts but this has not progressed significantly. According to the GovKP 6 , the OBB was extended during the year 2011-12 to two Districts, D.I Khan and Buner, having access to conditional grants for improving service delivery in the E&SED and Health Department. Reportedly, the results were encouraging, hence the conditional grant program model was replicated in four more Districts during FY 2012-13, i.e. Lakki Marwat, Karrak, Haripur and Nowshera, for which the GovKP allocated a sum of Rs. 1 billion for PTCs. The expenditures against these conditional grants have entailed extensive discussions with stakeholders to improve service delivery and preparation of district business plans with a set of indicators and targets. Standard Operating Procedures (SOPs) for conditional grants include development of a business plan with performance indicators, reporting and monitoring and evaluation arrangements, audits and third party validations. The district level capacities are however extremely weak. The roll out of the OBB/MTBF is planned for six Districts of Malakand Division: Swat, Malakand, Shangla, Chitral, Dir Upper and Dir Lower. This will happen under an EU funded project. 7 Business Plans: The GovKP has piloted the concept of business plans in the six provincial departments which have prepared their business plans as part of their 2013-14 budget. A business plan makes it much easier to translate it into a strategic plan/budget. It will help the provincial government achieve aggregate fiscal discipline, allocative and operational efficiency by reducing in year adjustments, i.e. re- appropriations, supplementary/excess grants and surrenders, and will help in further reducing the budget outturn variations. The concept will be extended to other departments in the coming years based on learning in the pilot phase. Internal Audit: Internal audit contributes to effective implementation of the government policies and programs and the most economic and efficient utilization of resources. GovKP has implemented the internal audit pilot in the FD in the form of an Internal Audit Unit. Reportedly, this Unit has carried out internal audit of payroll and pensions, which resulted in the identification of greater cost efficiency. The provincial government plans to extend the internal audit functionality to other line departments with adequate institutional mechanisms to ensure high quality audit in the most economic, efficient and effective manner. In this regard, the FD has recently got completed a study on internal audit (IA) , its role, modalities, best practices, etc. (3 volumes – IA Framework and two IA Toolkits for E&SE and C&W Departments) through Assessment and Strengthening Program and Rural Support Programmes Network (Pakistan ASP/RSPN/USAID and is reviewing its recommendations. PFM Reform Issues 8 The GovKP’s PFM reforms program has progressed in recent years, but only slowly. The strategic interventions in FY 2012-13 consisted of: strategic budget formulation by linking policies and budget priorities (MTBF); credible, results oriented budgets for better service delivery (OBB); introduction of business plans and annual action plans in six line departments and in districts with conditional grants; capacity building (audit, internal audit and Public Accounts Committee (PAC)); strengthening of 6 See Finance Department, 2013-14 White Paper, pp. 49-50. 7 EU’s Technical Cooperation Assistance on Public Financial Management to Selected Districts of Khyber Pakhtunkhwa, DCI-ASIE/2012/ 295-933, For Pakistan. 8 The views in this subsection are based on PFM Eligibility Assessment given in Annexure CA 3.
  • 20. 20 monitoring structures (an Independent Monitoring and Data Collection Unit (IMDCU), Education Management Information System (EMIS) and surveys); and pre-budget consultation workshops. The PFM reform progress is positive largely because of a credible and policy-oriented budget process. Main strengths are: a well-defined budget process with both executive and legislative adhering to a schedule; budget documentation is fairly comprehensive; budget classification follows international standards; the external audit function is well-developed; transparency measures are in place for information sharing and pre budget workshops are held. Yet a number of weaknesses remain in the operating of the PFM system. Most weaknesses are in the budget execution: revenues are uncertain; capacities are weak; the processes linking outputs to budgets and accounting results against budgets are weak, records are poor; financial reporting and internal controls are weak. Other areas where improvements are required include cash management, registry, human resources, procurement, fixed asset management, inventories, revenue administration and the dichotomy in recurrent and development budgets causing operational difficulties. The overall assessment of PFM reform progress is quite favourable despite these listed shortcomings (see Annexure CA 3), because:  The PFM reform strategy is quite relevant to the development objectives of the province in that it addresses key weaknesses in the PFM system hampering improvement of basic service delivery.  The reform strategy is home-grown, and the action plan approved by the GovKP Cabinet addresses general areas of concern.  The reform program is well sequenced with reform implementation strategy focusing on certain core interventions, building strategic planning/budgeting capabilities at the province and district levels.  The reform enjoys sufficient ownership from the Cabinet, target beneficiaries and a cadre of finance and planning officials at province and districts. The overall reform is championed by the Finance Department. Education Sector PFM Issues Several issues confront the E&SED but we shall highlight here four significant ones. 1. The sector finances have fallen short in the face of fast growing student population and the focus of increasing access to girls' schooling despite the rapid growth in education expenditure and in teacher appointments over the past ten years. 2. The non-salary budgets have shrunk and affected negatively the provision of textbooks, teacher training, and maintenance of school facilities. The recurrent budgets have been subject to various forms of rationalization cuts except for wages and salaries. 3. Expenditure priority is clearly tilted towards secondary education at the expense of primary education, a clear disconnect is pointed between sector strategy and expenditure allocation. 4. Financial management in the education sector is relatively poor. Some of the cited key PFM weaknesses in the E&SED are: 1. No direct linkage with performance and budgets, despite OBB/MTBF or monitoring and reporting, is in place. 2. Lack of financial and performance reporting capability at the province and district levels.
  • 21. 21 3. Poor planning and monitoring at district level in the use of non-salary resources, e.g. inappropriate school locations, school infrastructures and supplies. 4. Lack of registry information for teachers and non-teacher personnel - absenteeism is thus common. 5. Poor cash planning and lack of predictability in fund releases for purchase of textbooks/supplies, construction and maintenance of infrastructure - all affecting negatively the quality of schooling services. 6. Problems in reporting of externally funded development projects together with operating expenses in recurrent budgets. Budget Transparency and Oversight 9 Budget transparency, defined as full disclosure of all relevant fiscal information, is a key element of good governance and a prerequisite for domestic accountability. With access to budgetary information, the general public and the control bodies like parliament, auditors, local authorities, civil society organizations and media, can scrutinize the budget and hold the decision makers accountable for collecting and using public funds effectively and efficiently, and call for policies that improve service delivery. A program to support national legislative and oversight bodies as well as internal control structures is necessary in order to address their capacity weaknesses. Domestic accountability mechanisms can also be strengthened by a participatory budget approach. Salient features of the GovKP policy measures to improve transparency/accountability of public resources are:  Budget documentation is comprehensive; its format conforms to international standards, and is presented to the provincial assembly.  Information on the approved annual budget is available – FD publishes budget documentation on its official website, e.g. Annual Budget Statement covers budget summary, OBB/MTBF covers budget forecast up to three years, White Paper summarizes the government plan.  The external audit function is well developed although delays in consideration of the annual audit reports are common.  Monitoring and evaluation structures for reporting on results are being strengthened. These include IMDCU, district level monitoring, Monitoring Directorate of Planning and Development Departments (P&DD), EMIS and surveys.  But there are problems in accessing in/end-year execution and delays in audits reports. In preparation of budget for FY 2013-14, the GovKP engaged the stakeholders in consultation to seek their guidance. The FD in collaboration with P&DD and with technical assistance of development partners organized four pre budget consultative workshops in May 2013. Some future initiatives include: preparing citizen’s budget; sharing budget strategy paper with citizens; and sharing budget execution reports with public, including the end of the year budget execution report. 10 9 This subsection is based on Transparency and Oversight Eligibility Assessment given in Annexure CA 4. 10 Reportedly, the present government is very sensitive on transparency, and has prepared a right of access to information bill which is about to be presented in the provincial assembly to improve the access.
  • 22. 22 PEFA reports have been cautious and have consistently given low scores on budget transparency and oversight. The PEFA 2011 reports the following key weaknesses. Public Expenditure and Financial Accountability (PEFA) Framework—KP Province Indicator Description Score 2007 Score 2011 PI-6 Comprehensiveness of information included in budget documentation B B PI-10 Public access to key fiscal information C C PI-23 Availability of information on resources received by service delivery units B D PI-24 Quality and timeliness of in-year budget reports C+ C+ PI-25 Quality and timeliness of annual financial statements B B+ PI-26 Scope, nature and follow-up of external audit D+ D+ PI-27 Legislative scrutiny of the annual budget law C+ D+ Overall,  Budget preparation process can become more transparent, open and participative through repeat pre-budget consultations.  Some key budget documents are not available - budget mid/in-year reports, year-end financial statements, annual audit reports are issued but with extended delays. The availability of these reports can significantly improve budget transparency. Progress on Governance and PFM DLIs Overall Assessment The overall implementation progress on the four DLIs, 1 to 4 under Governance and PFM, is 2/4. DLI 1: E&SED non-salary and development budget allocation increase both in real terms and as a percentage of total education budgets is protected. Target 1 for year 2012-13: E&SED/GovKP to approve PC-I for Girls stipend, summary for recurrent PTC expenditures as well as summary for monitoring function and start judicious expenditures to ensure additionality of DFID funds. Target met. The GovKP approved and implemented the project PC-1 Girls’ stipends in FY 2012-13, similarly, the government approved a summary for PTC expenditures in FY 2012-13 and funds were released to DDOs for onward disbursement to PTCs, and the E&SED has been setting up a much stronger monitoring arrangement during the year. The related details are given in the following paragraphs. Girls’ stipends: The disbursement of girls’ stipends is effected from the development budget in project mode; a project PC-I for the amount to be disbursed during a financial year is prepared every year. For FY 2012-13, a project PC-1 for girls’ stipends, amounting to Rs 1 billion, was prepared and approved by
  • 23. 23 the P&DD. This project was implemented during the year and the amount fully utilized by disbursing stipends, Rs 200/month and related cost Rs 36/stipend through Pakistan Post. The PC-1 is presented in Annex OA 1. Field visits to girl’s schools by this team and third party validation confirm the disbursements. For FY 2013-14, the E&SED has prepared a project PC-1 for girls’ stipends, amounting Rs 1.58 Bill 11 . This constitutes an increase in the budget allocation. However, P&DD is still awaiting the PC-1 but expected to approve the project soon. The draft PC-1 is placed below in Annex OA 2. Future plans regarding girl’s stipends include preparing a communication strategy and instituting branchless banking pilot in four districts. PTCs’ Expenditures: The disbursement of PTCs’ expenditures is from the recurrent budget. Administrative approval is sought from the Chief Minister (CM) for the amount to be disbursed during the financial year on a summary prepared by the E&SED and FD. The administrative approval for disbursement of PTCs’ expenditures in FY 2012-13 from the recurrent budget was given, but the funds were released by the Auditor General (AG) on the last day of the financial year (28 th June, 2013). This late release of funds was largely due to late and incomplete submission of the release bills to the AG by the E&SED, a capacity issue, which had caused pre-audit queries and time-consuming correspondence. Even the release on the last day, Rs 128 million, has been made provisionally to DDOs for onward credit to the PTCs’ bank accounts. The provision is that DDOs will submit the disbursement accounts with supporting documents within a month. The Accountant General letter is given in Annex OA 3. Although a bit late, the PTCs are expected to get these funds shortly in their accounts. Monitoring Function: Until FY 2012-13, the disbursements of monitoring function was from the recurrent budget requiring administrative approval of the CM for the amount to be spent during the financial year. This approval was given on a summary prepared by the E&SED and FD. The disbursements from the recurrent budget during the year have been small, consisting of salaries of the three Monitoring Officers working in the Education Sector Reform Unit (ESRU) and the related field monitoring expenditures. During FY 2012-13, the GovKP decided to shift the monitoring function to the development budget. Hence, a project costing Rs 650 million with the aim to set up an Internal Monitoring and Data Collection Unit under the E&SED was approved and its execution started (the project PC-1 is given in Annex OA 4). The initial staff strength proposed for the unit is 465 monitors including 165 women. These will visit all schools and report on indicators like teacher absenteeism, student assessment, text books availability, DEO visits, etc. every month. Districts will be ranked every two months on the basis of monitoring reports. The Unit has however not started the monitoring function as yet. Presently, the Unit is headed by an acting project director, its bank account has been opened, its hard/software is being procured, the monitoring indicators have been developed and recruitment of staff is in process. It is expected that the 11 The allocation in ADP 2013-14 is Rs 1000.01 million.
  • 24. 24 recruitment process will be completed by August 2013 and the unit will be functional by September 2013. Consequently, the three positions of the existing monitors in ESRU will be abolished. Target 2 for FY 2012-13: E&SED actual expenditure on non-salary & development to be at least 75% of the budget estimates (Provincial & District level). Target not met. As can be seen in Table 1 given below, the E&SED actual non-salary and development expenditure in FY 2012-13 is estimated at 66.5% of the budget estimate, which is short of the prescribed threshold of 75%. Table 1: Elementary and Secondary Education Budget Mill Rs S.No. Head 2012-13BE 2012-13RE Budget Utilization 1=2+10 Total Expenditure - Revenue and Development 63,821 66,628 104.4% 2=6+9 Expenditure met from Recurrent Budget 46,732 56,206 120.3% 3 O/w Non-salary 1,601 2,003 125.1% 4 Provincial 681b 945b 138.8% 5 O/w Salary 462c 600e 130.0% 6=4-5 O/w Non-salary 219 345 157.3% 7 Districts 46,051d 55,261 120.0% 8 O/w Salary 44,669c 53,603f 120.0% 9=7-8 O/w Non-salary 1,382 1,658f 120.0% 10 Expenditure from Development Budget 17,089a 10,422a 61.0% Memo 11 Non-salary and Development Expenditure 18,690 12,425 66.5% 12 As % of Total Expenditure 29.3% 18.6% Source: a. ABS 2013-14 b. Demands for grants Current expenditure 2013-14, Volume III (Part H/1) c. Finance Department d. Assuming salary part is 97% e. Assuming 30% budget overrun f. Assuming 20% budget overrun DLI 2: Organizational Development Target for FY 2012-13: Institutional analysis of ESRU, EEF and SED with a view to develop recommendations for organizational restructuring. Target partially met. The EEF’s institutional analysis has been carried out and a combined institutional analysis of ESRU, ESED and its Directorates is being carried out, which is expected to be completed soon. The organizational restructuring of EEF has been agreed but the final approval is still awaited. More details on the DLI 2 progress are given below.
  • 25. 25 EEF: DFID consultants have carried out the institutional analysis of EEF and restructuring of EEF has been approved by the EEF Board (see minutes of the Board meeting in Annex OA 5). However while approving, the EEF Board noted that additional staff of EEF will be paid from the recurrent budget, and the case for this is still pending with the FD. The restructured EEF will have a powerful 14-member Board under the CM and meet regularly every quarter. The consultants also recommended changes in organizational structure, business plan and job descriptions. They drafted EEF’s service and fund investment rules. The new EEF legislation draft is with the CM and will require approval of the PA. The restructuring changes have been agreed, but a formal approval of the FD/GovKP and subsequent notifications are required. The EEF has been operating with the endowment grant of Rs 400 million and been given an additional Rs 150 million grant in aid in the FY 2013-14 budget. ESRU: No separate institutional analysis of ESRU was carried out during FY 2012013, but that does not affect the assessment of the programme against this DLI. The ESRU had been shrinking during the year because of dwindling DFID support and shifting of the project activities into the regular E&SED activities. The existing ESRU has a Director, a Deputy Director and three Monitoring Officers. The positions of three monitors are expected to be abolished after setting up of the IMDCU in E&SED. More recently, the restructuring of ESRU is being considered along with E&SED and its Directorates for which an institutional analysis is being carried out. This study started in April 2013 and is likely to be completed by end August 2013. Although it is premature to conjecture, the ESRU is likely to be restructured along lines similar to those followed by PMIU in Punjab. The E&SED's officials want the ESRU to have flexibility and be supported outside the regular budget, to cut through government procedures and push the reforms. Donors also appreciate this idea, as it is likely to facilitate donor coordination. However, the unit should be staffed by competent people, selected on open merit from the government and private sectors. E&SED: As noted, a combined institutional analysis of ESRU, E&SED and its Directorates is being carried out to develop recommendations for organizational restructuring. The study started in April 2013 and is likely to be completed by end August 2013. DLI 3: Audit system All three given targets on audit system for FY 2012-13 were not met. The target-wise details are given in the following paragraphs. Target 1 for year 2012-13: Internal audit charter & cell established (organizational structure approved, posts sanctioned & appointments made) at FD & similar actions taken for establishing & operationalizing the internal audit function at E&SED. Capacity building plan designed & implemented. Target not met. The FD plans to initiate internal audit in all major departments for improvements in internal control and audit, leading to more reliable financial statements. Accordingly, a charter of the Internal Audit Cell in E&SED, with templates, checklists, procedures, has been approved. The Cell’s organizational structure with six posts (1 BPS-18, 2 BPS-17 and 3 Assistants) has also been sanctioned. But the appointment process has not yet started. The FD is currently thinking of an overhaul (e.g. how will
  • 26. 26 auditors perform internal audit, how will they make up the enormous skill requirements, etc.) and reviewing the recommendations of a recent study on internal audit, its role, modalities, best practices, etc. (3 volumes – IA Framework and two IA Toolkits for E&SE and C&W Departments) completed through ASP/RSPN/USAID. Thus, the actions for establishing and operationalizing the internal audit function at E&SED remain on hold for another six months approximately, and the capacity building plan for the Internal Audit Cell is not in sight as yet. Target 2 for FY 2012-13: Internal Audit Target not met. Internal Audit Cell in E&SED has not been established; hence, there was no internal audit of E&SED during FY 2012-13. Target 3 for FY 2012-13: Annual External audit of KPESP by Auditor General's office covering the flow & utilization of DFID funds along with any irregularities found during the course of audit. Target not met. The FY 2012-13 has just ended and the provincial AG Office has not started as yet the annual external audit of KP ESP covering the flow & utilization of DFID funds during the year. A Senior Planning Officer from the E&SED, referring to a clause in the DFID-GovKP agreement, had written a letter to provincial AG’s Office (see Annex OA 6), stating that the DFID funds are subject to special audit by private auditors, thereby preempting the role of the AG. This confusion has resulted in unnecessary correspondence and delay. The AG’s Office audits all projects funded by the international community, and would like to undertake immediately the audit of the use of DFID funds. Therefore, the AG’s Office has written to the Secretary E&SED for beginning the audit of DFID funds. Thus this audit may begin soon. The provincial AG’s Office has been regular in auditing the E&SED accounts. The AG’s Office has audited the E&SED accounts up to FY 2011-12. Reportedly, there are 12 audit comments in the draft FY 2011-12 E&SED Audit Report although the Departmental Accounts Committee (DAC) under the Secretary E&SED has yet to hold a meeting to resolve some of these comments. The FY 2010-11 E&SED Audit Report was prepared by the AG’s Office and discussed in DAC meeting, but still contains a few outstanding audit comments. The full provincial FY 2010-11 Audit Report will be considered by the next PAC (yet to be constituted by the new government). The audits by the provincial AG’s Office did not cover the audit of district schools which had been devolved to District Audit Offices. DLI4: Output Based Budgets Target for year 2012-13: E&SED OBB approved with improved targets & indicators. OBB rolled out to at least 6 Districts. The related details are given below. Target met taking a dynamic approach based on the GovKP's commitment. 12 While at the provincial level OBBs are well grounded, the district level OBBs have not yet started. Some background work, like staff 12 The EU Budget Support Guidelines defines dynamic approach for satisfactory progress: it should be based on a dynamic approach, looking at past and recent policy performance benchmarked against reform commitments, but
  • 27. 27 training and preparation of strategic plans at district level have been undertaken. These plans, combined with staff mentoring from the provincial departments, may finally translate into district level OBBs for managing results and more accountable governments. In sum, there are weaknesses which need to be made up. The implementing of a fully functional OBB/MTBF at all levels of government is ambitious, which may be considered as a long term objective. Provincial OBBs: The GovKP has been implementing a MTBF and OBB for the last few years. The OBB/MTBF was piloted in three departments in 2010-11 and extended to nine more in 2011-12. In FY 2012-13, the GovKP rolled out the OBB to all 32 provincial departments with improved targets and indicators. Full 2012-13 OBB/MTBF, giving details of the Departmental outcomes, outputs and medium term (3 years) budget estimates for service delivery, was printed in Budget Estimates For Service Delivery, 2012-15. The FY 2013-14 OBB has also been prepared along with MTBF which is printed in the Budget Estimates for Service Delivery, 2013-16. E&SED’s OBBs have also been prepared with improving targets and indicators. The details of E&SED’s OBBs are also printed in the abovementioned two documents; the 2012-13 OBB in Budget Estimates For Service Delivery, 2012-15 on pages 11-27 and the 2013-14 OBB in Budget Estimates For Service Delivery, 2013-16 on pages 12-29. District OBBs: According to the GovKP 13 , the OBB was piloted during the year 2011-12 in two Districts, D.I Khan and Buner, with conditional grants to improve service delivery in the E&SED and Health Department. Reportedly, the results were encouraging, and the conditional grant program model was replicated in four more districts during FY 2012-13, i.e. Lakki Marwat, Karrak, Haripur and Nowshera for which the GovKP allocated a sum of Rs. 1 billion for PTCs. These conditional grants have entailed extensive discussions with stakeholders to improve service delivery which led to the development of detailed district business plans with a set of indicators and targets. Some important SOPs for the execution of conditional grants are development of a business plan with performance measurement, reporting and M&E mechanisms, audits and third party validations. A sample of work undertaken under the conditional grants in District Buner is given in Annex OA 7. District level capacities are extremely weak. A visit to district Buner indicated that the OBB/MTBF concepts are yet not well understood by district officials, who are unable to relate outcomes/outputs with activities/inputs and costing them into budget line items of MTBF. The DFID consultants reviewed the progress on District OBB/MTBF and documented several weaknesses/risks. 14 The capacity building of districts officials in six Districts of Malakand Division, Swat, Malakand, Shangla, Chitral, Dir Upper and Dir Lower, is being supported by TA consultants under another EU funded allowing for shocks and corrective measures and refining the objectives and targets if necessary. See EU Budget Support Guidelines, Part I pp 4. 13 See Finance Department, 2013-14 White Paper, pp. 49-50. 14 ASI, Khyber Pakhtunkhwa, Pakistan: Towards a Medium-Term Program for Reform of Public Financial Management Systems with Elementary and Secondary Education Sector – A review of Conditional Grants Pilot and Output Based Budgeting and Other Systems, 31 October 2012 (see Annexure OA 14).
  • 28. 28 project. 15 During 2012-13, these consultants developed: documentation of local government decision processes; district business plans/strategies; OBB/MTBF training modules; training of district government staff; supporting the provincial Departments to buy in their support of district government reforms. They prepared materials for the 2013-14 budget documents for the FD and facilitated four pre-budget consultative workshops. With the amendment in local government law, the district level administrative setup has become a part of the provincial government with effect from July 1, 2013. This administrative change will significantly affect the plan for application of OBB/MTBF at district level. SECTION C. ACCESS, FACILITIES, QUALITY AND LEARNING OUTCOMES Background Khyber Pakhtunkhwa is one of the least developed areas of Pakistan in terms of social indicators with 50% of the adult population illiterate, 67% of women and 32% of men. These low literacy rates are largely due to limited access and poor quality of education. The net enrolment rate at primary level is 51%, 57% for boys and 45% for girls. The year-to-year overall transition rate is 77%, 74% for girls, 79% for boys, with a drop-out rate of 45%, 53% for girls, 39% for boys, up to 5th grade, meaning that nearly half the students who start school never finish the 5th grade. 16 In Pakistan, the delivery of education services is devolved to the provinces. After the 18 th Constitutional Amendment, the responsibility for curriculum, syllabus, planning, policy, centers of excellence, and standards of education have been transferred to the provincial education departments. Only the planning and policy and standards of education beyond Grade 12 are covered under Federal Legislative List. However, the capacity of existing institutions is very weak to deliver on these tasks with acceptable quality. The government of KP is determined to uplift the status of education in the province. The government policy focuses on improving access to primary schools and reduce gender gap, Improving quality of education, providing adequate and suitable infrastructure, providing alternative or non-formal education, encouraging public-private partnership and community involvement; and enhancing budgetary allocation for education. To achieve these goals, the government has prepared an education sector plan which is being implemented. The plan tries to address the following major issues. Issues and state of play Budgetary Management: A major difficulty in achieving universal primary education in Khyber Pakhtunkhwa has been due to mismatch of distribution of resources and budgetary management. The GovKP has been increasing the budget allocations for ESE sector but still has not been able to ensure 15 EU’s Technical Cooperation Assistance on Public Financial Management to Selected Districts of Khyber Pakhtunkhwa, DCI-ASIE/2012/ 295-933, For Pakistan. 16 Pakistan Social & Living Standard Measurement Survey 2010-11, as reported in the TOR.
  • 29. 29 100% schooling of all school-age children and address gender inequalities. A bulk of the expenditure is on salaries and the share of quality expenditure on non-salary and development budget is very low. Nonetheless, the situation is improving, albeit only slowly, because of the increased financial allocations, protection of non-salary expenditures, communities’ involvement and capacity development in the E&SE sector. Facilities in government schools: The government has embarked on an accelerated program for constructing new schools, additional class rooms, renovation of the existing old buildings and providing missing facilities. The government has also allocated more funds for PTCs for providing the missing facilities in a phased manner at the community level like boundary wall, drinking water, electricity and latrines. More suitable school environment would improve the access and quality of education. Strengthening of PTCs: As a matter of policy, the government is involving communities to further the educational process. The PTCs are being strengthened to play a more effective role in different ways. Their financial powers have been enhanced and their scope of work has been widened. The training programmes of PTC executives all over the province have started. The Government has also piloted a program of conditional grants for construction of classrooms through PTCs in two districts viz. Buner and Dera Ismail Khan. Initial reports about this program are very favourable. However, a fuller mobilization of communities is required with regard to the female education. Curriculum implementation and textbook development: A curriculum implementation committee has been formed to review the implementation process of the 2006 curriculum currently in place. A text book review committee has also been formed to review the books before students start using them. The Directorate of Curriculum and Teacher Education has been mandated under the 18 th Amendment of the Constitution to play a key role in all matters pertaining to curriculum and text books. The Text Book Board has adopted the policy of multiple text books (i.e. the TBB will ask through tender from the interested parties to write and publish text books according to the curriculum and then more than one books will be selected and approved for use by the students. The schools will be free to select any one of the approved books for their students) and publishers have been shortlisted. Availability of Teachers: The notified policy of the department about teacher availability is that the student-teacher ratio will be 40:1. The department is in the process of recruiting 4000 teachers to come up to the policy requirements. Furthermore, the E&SED is in the process of ‘rationalization’ of teachers in the province with regard to students-teacher ratio. The Director E&SE has asked all DEOs to carryout rationalization of teachers in their respective districts. However, it is a long process and many external forces may resist the move. Moreover, the role of PTC has also been revised, and now they can hire temporarily teachers out of PTC funds on a needs basis. Teacher Development: The government of KPK has taken important decisions in the pre-service trainings as well as in-service trainings. The department has adopted Associate Degree in Education and B.Ed (Hon) Elementary to provide graduate teachers to fulfil the requirements of National Education Policy 2009. A Teacher Development Strategy has been developed.
  • 30. 30 Education Management Information System (EMIS): EMIS is one of the main tools for planning in the province. The EMIS provides information on schools, students and teachers in the public and private schools. But it does not show any information about financial matters. Moreover, it does not provide information about teacher’s trainings. The EMIS collects data on 31 st October every year, and compiles a report on/around 31 st March. Printing is not regularly budgeted and hence is dependent on donor support. Monitoring Function: The E&SED is strengthening its monitoring function for which an Internal Monitoring and Data Collection Unit is being set up as a development project. Presently, the Unit is headed by an acting project director, its hard/software is being procured, monitoring indicators have been developed, and recruitment of staff is in process. It is expected that the staff recruitment process will be completed by August 2013 and the unit will be functional by September 2013. E&SED Capacity is very weak. There are serious issues of ‘capacity’ in the E&SED. For instance, any new initiation for development in the Department, a concept paper, proposal or Memorandum of Understanding, should come from the Department and not from the donors. But Department staff does not have the required capacity to draft these documents. Technical Assistance should have capacity development as one of its main objectives. Besides, the issue may get resolved through providing more staff and equipping them with appropriate office equipment. Thus a program of restructuring, training and strengthening in all branches of the E&SED is required. Progress on Access & Facilities DLIs Overall Assessment The overall implementation progress on the four DLIs, 5 to 8 under Access & Facilities, is 1.708/4. DLI 5: Girls Stipend Target 1 for FY 2012-13: 100% girls who meet attendance criterion receive stipends in time according to the on-going programme. Target met. The process is that a PC-1 is prepared on the basis of EMIS data (for girls’ enrolment) and submitted to the P&DD. On its approval by the competent forum, the amount is allocated by the FD to each district. The DEO office submits the claim along with copies of approved PC-1, FD sanctions and the list of students is sent to the AG KP and the District Accounts offices. On acceptance of the claim, a cheque is issued to the concerned DEO who in turn deposits the cheque in her designated account. As per students’ enrolment, she issues a cheque in the name of Post Master General along with the filled-in money orders (MO) forms and list of students. The Pakistan Post issues the MOs, students receive it, and a separate record is kept in the shape of a register duly signed by the concerned teacher and countersigned by the Head Mistress. Later on, the concerned DEO reconciles these scholarship disbursements with the Pakistan Post. The consultants visited four schools in two districts, Buner and Peshawar; the findings were that this procedure was followed and all the enrolled girls received the stipends. The attendance criterion is generally followed. The parents and the children are appreciative of the stipend program. The head mistresses attribute the increase in enrolment to this facility which in some
  • 31. 31 cases was about 30%. Target 2 for FY 2012-13: Branchless banking pilot initiated for stipends delivery in 4 districts. Target not met. The Government has agreed with the donors to initiate the disbursement of stipends through branchless banking. It has been decided to pilot the scheme in four districts viz. Peshawar, Upper Dir, Nowshera and Haripur, for which a study is being carried out to work out the details. Target 3 for FY 2012-13: Analytical work to re-design the programme through improved targeting, benefit structure and attendance verification completed Target not met. The DFID TA team of consultants is carrying out a study to re-design the programme for improved targeting, benefit structure and attendance verification. The report is yet to come. DLI 6: Community Level Management Target for FY 2012-13: Without overlap with OBB Districts & in line with recommendations of TPV on PTCs in KP, PTCs policy, financial & procurement rules improved & notified with a continuous capacity development programme (CCDP) developed. 17 Target met. There is a comprehensive policy on training of PTC executives, their capacity development, PTCs’ role and functions, school improvement program, planning, budgeting and procurement, PTC meeting, decisions and records, communication with stakeholders, etc. The PTC’s Continuous Capacity Development Plan, February 2013 – April 2014 is presented in Annexure OA - 8. In the two schools in Buner that we visited, the PTC executives confirmed that they did go through a one-day training. In one of these schools, a PTC executive had displayed some of the training material also. PTCs are supposed to have their bank accounts and government funds are directly transferred to these accounts. A PTC Guide was issued in March/April 2013 by the GovKP for the use of the members which gives the PTC policy, rules and related financial and procurement procedures. The revised PTC Guide is given Annexure OA–9. The third party validation (TPV) of PTCs conducted in 2011 is supportive overall despite some reservations. Some of the recommendations of the TPV have been implemented. A Continuous Capacity Development Plan for PTC has been developed. The training of Education Managers has started. The implementation of some other recommendations, like presence of students and teachers ought to be ensured so far PTCs have failed to control both these serious shortcomings of the system. To keep regular track of admissions and drop outs must be kept. The rest of the required actions mentioned in the TPV are being planned. The TPV done in 2011 is given in Annexure OA 10. 17 Copy of TPV annexed as Annexure ‘H’
  • 32. 32 DLI 7: Low Cost Private School Sector Target 1 for FY 2012-13: Establish a comprehensive strategy for public private partnership (PPP) in education facilitating the low cost private sector with setting out clear standards for quality Target partially met, and GovKP is working in the right direction. A study of the low cost private school sector in KP was started in March 2013 which will decide the definition of ‘low cost private institution’ and other matters. The ToR of the study on Low Cost Private Schools is given in Annexure OA 11. The final report of the study was not available at the time of writing. Target 2 for FY 2012-13: Analyse (using EMIS data & through EEF) location & viability of low cost private sector primary & secondary schools & draw partnership propos Target not met. No analysis of location and viability of low cost private sector schools, both primary and secondary, for public-private partnerships has been carried out. It will be carried out in the light of the study on Low Cost Private Schools cited above. DLI 8: Elementary Education Foundation (EEF) Target 1 for FY 2012-13: Return to learn second chance education for children & training opportunities for women designed by EEF in conjunction with all stakeholders & clear proposals agreed with DFID. Target not met. A scheme for return to learn second chance education for children and training opportunities for women was designed by EEF in conjunction with all stakeholders and clear proposals agreed with DFID. A case for a scheme for literacy and skills on the pattern of ‘Literacy for All’ was prepared for setting up 2000 centers and submitted to the E&SED (vide EEF MD office No. 345 dated 26/3/2012). Since then, there has been no further action or follow up. Target 2 for FY 2012-13: Second chance return to learn opportunities provided to primary & secondary aged out of school children according to the agreed proposal & as validated by TPV Target not met. The issue of learning opportunities for the out-of-school children at the primary & secondary school ages will be covered under the above mentioned scheme for establishment of centers of literacy and skills. Target 3 for FY 2012-13: Literacy & skills trainings provided to illiterate women according to the agreed proposal & as validated by TPV. Target not met. The literacy and skill trainings for the illiterate women will be covered under the above mentioned scheme for establishment of centers of literacy and skills. Progress on Quality & Learning Outcomes DLIs
  • 33. 33 Overall Assessment The overall implementation progress on the four DLIs, 9 to 12 under Quality & Learning Outcomes, is 1.533/4. DLI 9: Curriculum and Implementation Target 1 for FY 2012-13: Establish a joint steering committee comprising of BISE, PEAS, KPTBB & DCTE to execute the curriculum implementation framework. Target met. A joint steering committee has been set up, comprising BISE, PEAS, KPTBB & DCTE, with a mandate to execute the curriculum implementation framework (CIF). A notification for the constitution of Steering Committee for CIF and its TOR is presented in Annexure OA 12. The committee has held one meeting and the second could not be held due to the change in Government. Target 2 for FY 2012-13: Adapting the Punjab lesson plans to contextual realities of KP, utilize lesson plans for teaching all subjects at primary level in at least 10 Districts Target met. Primary level lesson plans are aligned with the new curriculum. The lesson plans are being printed and will be implemented in all 25 districts. DFID staff have carried out the 1 st phase of training of lead trainers. The 2 nd phase of training to prepare master trainers has not started as yet. The training manuals are ready but the funds for training have not been released by the FD. The DCTE has been assigned to conduct trainings in 12 districts (about 1850 teachers); training in the remaining 12 districts will be carried out by PITE. DLI 10: Students Learning Outcomes Target 1 for FY 2012-13: Develop a home grown strategy for systematically measuring & improving students learning outcomes in KP. Target not met. The ASI team informed the consultants that this DLI target is to be revised. Target for FY 2012-13: Development of effective reading instruction strategies as part of GPE Reading Action Plan Target not met. As informed by the ASI team, this DLI target is to be revised. DLI 11: Improving School Performance Target for FY 2012-13: School report cards developed & tested in at least 25% of primary & secondary schools in 5 Districts Target partially met. The scheme of school report cards has been piloted in 2 out of 3 sub-divisions of District Swab, Lahore and Swabi, while the third sub-division Topi has not been included. According to a
  • 34. 34 DEO (F) in Swabi, about 25% of schools have been included in the scheme. The related training of PTCs along with the Head Teachers has been conducted in these schools. The work on the scheme is in progress. DLI 12: Improving Teachers Management Target 1 for FY 2012-13: Minimum classroom level performance standards for teachers established Target not met. The DFID TA Team has drafted and shared the concept note of Professional Standards for Teachers (PSTs) with E&SED. The E&SED is in the process of forming a working group who will be involved in reviewing and adapting the National Professional Standards for teachers in KP context. Members of this working group will be taken from DCTE, PITE and DE&SE. The TA team expects that these PSTs will be established by the end of August, 2013. Target 2 for FY 2012-13: Establish a teachers’ professional development framework Target not met. The DFID TA team drafted the concept note for a Continuous Professional Development Framework and shared it with the E&SED during the year. Some meetings with DCTE, PITE and DE&SE were also scheduled in May and June 2013 in Abbottabad to discuss the concept of CPD Framework and to identify capacity needs of institutions. However, the DCTE officials informed this consultant team that these meeting were not held. An exposure trip to DSD Lahore was also planned for the E&SED officials to see the Punjab model of CPD as well as some field visits to districts. This exposure trip has however not materialized. The CPD framework is expected to be developed by end Aug 2013. Target 3 for FY 2012-13: Strategy developed for rationalizing teaching posts at school level based on school needs including enrolment Target met. The notified policy of the department about teachers’ availability is that the students-teacher ratio will be 40:1, and the E&SED is in the process of ‘rationalization’ of teachers in the province with regard to students-teacher ratio. The Director E&SE informed the consultants that he has directed all DEOs to carryout rationalization of teachers based on the prescribed standards of students-teacher ratios in their respective districts. Furthermore, the role of PTC has been changed, and now they can hire temporary teachers out of PTC funds on need basis. The Director E&SE has informed that instructions have issued to all districts to carryout rationalization based on the prescribed standards of students- teacher ratios in all schools.
  • 35. 35 REFERENCES 1. Government of Pakistan, Finance Division, Advisor Wing, Pakistan Economic Survey, 2012-13. 2. Government of Pakistan, Pakistan Bureu of Statistics, Pakistan Social & Living Standard Measurement (PSLM) Survey 2011-12 Reports 3. GovKP, E&SED, Education Sector Plan 4. GovKP, E&SED, Teacher Education Strategy 5. GovKP, E&SED, EMIS Reports 6. GovKP, Finance Departments, 2013-14 White Paper 7. GovKP, Finance Departments, Budget Estimates for Service Delivery, 2012-13 8. GovKP, Finance Departments, Budget Estimates for Service Delivery (Green Book), 2013-14 9. GovKP, Finance Departments, Annual Budget Statement, 2013-14 10. GovKP, Finance Departments, Budget Strategy Paper, 2013-14 11. GovKP, Finance Departments, Demand for Grants Current Expenditure, 2013-14, Vol-III (Part-A) 12. GovKP, Planning and Development Departments, Comprehensive Development Strategy 2010- 2017 13. UNESCO Website 14. UNICEF, Khyber Pakhtunkhwa Multiple Indicator Cluster Survey 2008. 15. European Union, Budget Support Guidelines, September 2012 16. European Union, Technical Cooperation Assistance on Public Financial Management to Selected Districts of Khyber Pakhtunkhwa, DCI-ASIE/2012/ 295-933, For Pakistan, 14th-Bi-weekly-Report- 16-31-May-2013 on: http://eupfmta.org.pk/wp-content/uploads/2013/01/14th-Bi-weekly-Report- 16-31-May-2013.pdf
  • 36. 36 CONSULTATIONS In GovKP, Elementary and Secondary Education Department, Peshawar 1. Joudat Ayaz, Secretary 2. Akhundzada Riaz Behar, Additional Secretary/Director ESRU 3. Jamaluddin, Chief Planning Officer 4. Hina Saeed, Monitoring Officer 5. Fauzia, Monitoring Officer 6. Noor Alam Khan, Section Officer Budget 7. Section Officer Audit In GovKP, Elementary and Secondary Education Department, Abbotabad 8. Bashir Hussain Shah, Director DCTE 9. Zulfiqar Khan, Deputy Director DCTE 10. Farid Khan, Deputy Director DCTE 11. Miss Tahira Jabeen, Asst Director Training, DCTE In GovKP, Finance Department 12. Nadeem Bashir, Additional Secretary Development At GovKP, Planning and Development Department 13. Ali Raza Khattak, Chief Foreign Aid/Director Bureau of Statistics 14. M. Nadeem, Assistant Chief Education Section Elementary Education Foundation, Peshawar 15. Ahmed Khan, Managing Director 16. Director E&SE KP In District Buner 17. Fida Muhammad Khan, DEO 18. DDEO 19. ADEO 20. Headmistress of Girls Middle School, her staff 21. PTC Chaiperson of Girls Middle School 22. Head Teacher of Boys Primary School 23. PTC Chaiperson of Boys Primary School In District Peshawar 24. DEO (F) 25. Headmistress Gilrs Middle School Peshawar Cantt 26. PTC Chairperosn and membbers, Gilrs Middle School Peshawar Cantt 27. Headmistress Gilrs High School Khyber Colony 28. PTC Chairperosn and membbers, Gilrs High School Khyber Colony In District Sawabi 29. DEO (F) Sawabi 30. SDEO (M) Topi
  • 37. 37 Accountant General Khyber Pakhtunkhwa, Peshawar 31. Farhad Khan, Accountant General 32. Onab Gul, Deputy Accountant General Auditor General Office, Peshawar 33. Dr. Fawad Khan, Director General 34. Lal Muhammad, Director At Adam Smith International, Islamabad 35. Arshad Nafees, Coordinator 36. Rehana Sheikh, Advisor 37. Izza Farrakh, Advisor 38. Shabana Bhatti, Advisor 39. Ali Salman, Advisor PFM At Adam Smith International, Peshawar 40. Khalid, Deputy Team Leader ASI Peshawar 41. Salman Ishfaq, PFM Expert 42. Sohail Reza, Monitoring Expert 43. Saleem Khan, Roadmap Expert Oxford Policy Management (OPM) Peshawar 44. Jehanzeb Pervez, PFM Expert and Team Leader At European Union Delegation Islamabad 45. Ms. Wendy Fisher, Development Advisor (Education and HRD) 46. Muhammad Siddique Bhatti, Development Advisor (Education)
  • 38. 38 LIST OF ANNEXURES a. Compulsory Annexures CA 1: Public Policy Eligibility CA 2: Macroeconomic Assessment CA 3: Public Financial Management Assessment CA 4: Budget Transparency and Oversight Assessment b. Other Annexes as needed OA 1: Project PC-1 for Girls’ Stipends FY 2012-13 OA 2: Draft Project PC-1 for Girls’ Stipends FY 2013-14 OA 3: Accountant General letter OA 4: Project PC-1 for Internal Monitoring and Data Collection Unit OA 5: EEF Board Meeting of 8-3-2013 OA 6: ESED Letter to Auditor Geneneral of 14-12-2012 OA 7: Sample Of Works undertaken under the Conditional Grants – District Buner OA 8: Final draft of project proposal – CCDP OA 9: Revised PTC guidlelines OA 10: 3rd Party Validation Report of PTCs OA 11: ToR of Studyof LCPS OA 12: Constitution of Steering Committee for CIF OA 13: ToRs for Monitoring OA 14: ASI, Khyber Pakhtunkhwa, Pakistan: Towards a Medium-Term Program for Reform of Public Financial Management Systems with Elementary and Secondary Education Sector – A review of Conditional Grants Pilot and Output Based Budgeting and Other Systems, 31 October 2012
  • 39. 39 ANNEXURE CA 1 Assessing Public Policy Eligibility Background: 18 Pakistan like many other developing countries faces many challenges in improving its education sector. The government realizes the importance and inter-generational aspect of education on the lives of people and on the overall economy and is, therefore, committed to make not only education more accessible, affordable but also to improve the quality of education for all children, including the marginalized and children with disabilities. Despite the economic challenges and problems regarding the economy and fiscal environment, the government is increasingly giving Universal Primary Education high priority. Moreover, a National Education Policy 2009 has been framed, the purpose of which is to chart out a national strategy for guiding educational development in Pakistan. 19 The imperative of uniformity in Pakistan’s educational system flows from the Constitution of Pakistan, which entrusts the State with the responsibility of organizing an equitable and effective education system, with an aim to enhance the overall wellbeing of Pakistanis. The Eighteenth Amendment in the Constitution of the Islamic Republic of Pakistan in 2010 represents key political, legal and institutional reforms that on the whole support the KP ESP. By this amendment the responsibilities for the provision of essential basic services have been transferred from the federal government to the provincial government. This important decision to decentralize the political, administrative and financial powers and authorities was made to improve governance, democratic accountability, efficient use of resources and community participation and has large implications for the quality of education particularly in the area of service delivery. The devolution of powers created more responsibilities and legal obligations for the provinces and that too without federal financial support. 20 Many of the proposed policy actions outlined in the National Education Policy 2009 there in have already been initiated in reforms during the process, most notably in the domains of curriculum development, textbook/learning materials policy, provision of missing facilities and a number of initiatives already being implemented by the provincial governments. The National Education Policy 2009 policy takes into account these ongoing reforms and integrates them into its recommendations. The success of the policy will depend on the national commitment to sector. One of the main objectives of the MDGs is the improvement in the percentage of literate population. Unfortunately literacy rates in Pakistan are very low when compared to other SAARC countries. The primary objective of government policy in the last few years has been to improve the level and quality of education in Pakistan. Government of Pakistan is to expand public provision of primary education and this measure can be used to assess whether government schools have increased their coverage of the 18 UNESCO 19 NEP 2009 20 UNESCO
  • 40. 40 population, by increasing enrolments faster than the growth in population. Great stress has been put on the primary level education because it forms the core of the literate population. Literacy and primary school enrolment rates in Pakistan have shown improvement during last five years but they are still low when compared to the countries of the region. The problem lies with the basic infrastructure and the simultaneously multiple systems of education that prove to be a stumbling block in imparting quality education. Scarcity of resources and the provision of adequate facilities and training are retarding the proper growth of educational system in Pakistan. However the current government strategy for the sector includes improving the functioning & utilization of existing schools, improving the quality of education, increasing enrolment, improving access to education and expanding the primary education system. Under the 18th Amendment Ministry of Education has been devolved and has become a provincial subject. For this purpose changes have been made in key areas of education sector i.e. Curriculum and syllabus, Centres of Excellence, Standards of education up to Grade 12, and Islamic Education transferred to Provinces. Whereas planning and policy and standards of education beyond grade 12 are covered under Federal Legislative List. 21 PSLM data on Education is a good source to monitor the progress in education sector with detailed comparison between the data results before and after the implementation of devolution. Federal Bureau of Statistics through PSLM survey will continue to produce key indicators on education with PSLM district/provincial level indicators on education being a good source for all provinces to overview weak area of province where serious and comprehensive efforts are required. School attendance: 22 The population of ten years and older that have ever attended schools is 60 per cent in 2010-11 as compared to 59 per cent in 2008-09. This proportion is much higher in urban areas than in rural areas and much higher in men than in women. Abbottabad & Haripur (71 percent each) in Khyber Pakhtunkhwa are the top ranked districts. On the other hand Kohistan with 22% is the district at bottom in Khyber Pakhtunkhwa. As far as gender based differences are concerned, the greatest gender disparity is found in Lakki Marwat (72 percent male and 15 percent female) in Khyber Pakhtunkhwa. However, in Khyber Pakhtunkhwa the lowest female enrolment is in Kohistan (6 percent) and again the lowest female population that has ever attended school is found to be in Kohistan (2 percent). Primary Enrolment Rates: Gross Enrolment Rates (GER): 23 The GER, sometimes referred to as the participation rate, is the number of children attending primary schools divided by the number of children who ought to be attending. The GERs are presented in this report in two different ways: excluding and including the katchi class and for different age groups. The PSLM 2010-11 collected information on enrolment in all types of schools including the private and government sectors. It is calculated as the number of children enrolled in government primary schools divided by the number of children of primary school age. Mianwali with 92 percent, Umer kot with GER at 21 PSLM 2010-11 22 PSLM 2010-11 23 PSLM 2010-11
  • 41. 41 89 percent, Upper Dir district with 99 percent and Mastung district with 119 percent are the top ranked districts whereas Gujranwala with 40 percent, Karachi with 28 percent, Kohistan district with 40 percent and Musa Khel district with 22 percent each are at the bottom GER in Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan respectively. NET Enrolment Rates (NER): 24 The NER at primary level refers to the number of students enrolled in primary schools of primary school age divided by the number of children in the age group for that level of education. In other words, for Pakistan, the official primary NER is the number of children aged 5 to 9 years attending primary level divided by the number of children aged 5 to 9 years. The NER for Pakistan as a whole in 2010-11 is 56 per cent (Table given below) as compared to 57 percent in 2008-09. In Khyber Pakhtunkhwa Haripur with 72 percent is at the top ranked district, whereas Kohistan with 20% is the lowest ranked district in Khyber Pakhtunkhwa. Generally girls have a lower enrolment rate than boys and the difference is markedly larger in rural areas than in urban areas. Like the gross enrolment rate for government schools, it measures the extent to which publicly provided education is reaching its target group. This is the number of children aged 5-9 years enrolled in government primary schools divided by the total number of children aged 5-9. The government share of primary enrolment is 68 per cent in 2010-11 as compared to 70 percent in 2008-09. In Kohistan 97% NER is in the Government primary schools, whereas in Peshawar district it makes 55% of the total NER. This analysis reflects that developed districts have larger share of private education whereas less developed districts mostly depend on government educational facilities. Middle Enrolment Rates: 25 Gross Enrolment Rates (GER): The gross enrolment rate for the middle level, for Pakistan as a whole, remained almost same as 2008-09 i.e. 54 percent. The middle level enrolment in urban areas remained same as in 2008-09 i.e. 71 percent as compared to 47 percent (46 percent in 2008-09) in rural areas. In Khyber Pakhtunkhwa Chitral district with 93 percent is the best performing district while Kohistan with 16% is the worst performing district. Gender based differences are more prevalent in Kohistan with 88% boys and 12% girls middle schools. NET Enrolment Rates (NER): 26 Net enrolment rates at the middle level are much lower than gross enrolment rates. This is due to the large number of overage, children that are enrolled in these classes. The district level comparison within the provinces depicts that more or less NERs have the same patterns which are observed for GERs. Islamabad with 47 percent is at top in among all districts. Dera Bugti and Barkhan with 1 percent enrolments are at the bottom in the entire country showing that these are areas that need special attention. 24 PSLM 2010-11 25 PSLM 2010-11 26 PSLM 2010-11
  • 42. 42 Matric Enrolment Rates At matric level, gross enrolment stands at 57 percent as compared to 54 percent in 2008-09 and net enrolment rate is stable at 12 percent. In Khyber Pakhtunkhwa Haripur with 88 percent is at the peak while Kohistan with 11 percent is at the bottom. More or less same pattern is observed for NERs among districts within provinces. Literacy: 27 Almost three-quarters of the world's 775 million illiterate adults are found in only ten countries (in descending order: India, China, Pakistan, Bangladesh, Nigeria, Ethiopia, Egypt, Brazil, Indonesia, and the Democratic Republic of the Congo). Of all the illiterate adults in the world, two-thirds are women. Extremely low literacy rates are concentrated in three regions: South and West Asia and Sub-Saharan Africa. Pakistan has the second lowest country in SAARC Countries with 54.9% literate people. Literacy is an important indicator of education because its improvement is likely to have an impact, in the longer run, on other important indicators of welfare. The literacy rate for population 10 years and above at National level is 58% during 2010-11, as compared to 57 in 2008-09. Literacy remains much higher in urban areas than in rural areas and much higher in men than in women. 28 In Khyber Pakhtunkhwa it lags behind than the National level. The literacy rate for population 10 years and above at Provincial level is 50% during 2010-11. The same was reported in 2008-09 too. Literacy remains much higher in urban areas 63% (77% for Male and 50 for Female) than in rural areas which are 48% (67% for Male and 29% for Female). 29 Different Educational Indicators of Pakistan vs Khyber Pakhtunkhwa Indicators Pakistan Urban Rural Total M F T M F T M F T 106 100 103 96 75 86 99 82 91 Khyber Pakhtunkhwa M F T M F T M F T 103 93 98 99 73 87 100 76 89 Pakistan Urban Rural Total M F T M F T M F T 67 66 65 57 48 53 60 53 56 Khyber Pakhtunkhwa Urban Rural Total M F T M F T M F T 63 58 61 56 43 50 57 45 51 Pakistan Urban Rural Total M F T M F T M F T 70 73 71 55 37 47 59 48 54 Khyber Pakhtunkhwa Urban Rural Total M F T M F T M F T 86 59 73 68 37 54 71 41 57 Pakistan 27 PSLM 2010-11 28 PSLM 2010-11 29 PSLM 2010-11
  • 43. 43 Urban Rural Total M F T M F T M F T 46 49 48 34 24 29 38 32 35 Khyber Pakhtunkhwa Urban Rural Total M F T M F T M F T 50 38 44 38 22 30 40 25 33 Pakistan Urban Rural Total M F T M F T M F T 80 77 79 57 35 47 65 49 57 Khyber Pakhtunkhwa Urban Rural Total M F T M F T M F T 76 58 67 69 32 51 70 36 54 Pakistan Urban Rural Total M F T M F T M F T 16 20 18 10 8 9 12 12 12 Khyber Pakhtunkhwa Urban Rural Total M F T M F T M F T 9 12 10 7 5 6 8 6 7 Literacy Rate 10+ Pakistan Urban Rural Total M F T M F T M F T 81 67 74 63 35 49 69 46 58 Khyber Pakhtunkhwa Urban Rural Total M F T M F T M F T 77 50 63 67 29 48 68 33 50 30 In education, the major concerns of the government are focused on the issues of:  Improving access to primary schools and reduce gender gap;  Improving quality of education;  Providing adequate and suitable infrastructure  Managing risk  Providing alternative or non-formal education  Strengthening governance and supervision.  Encouraging public-private partnership and community involvement; and  Enhancing budgetary allocation for education; With the target of providing education for all children, one of the main priorities is to increase access to formal schooling, particularly for girls. The Government has taken many steps to attract children to schools like the fee exemption at secondary level for all children in Government schools, free textbooks in government schools, and a special focus on girls’ education by increasing the number of girls’ secondary schools. As a policy the teacher student ratio 1:40. Khyber Pakhtunkhwa province has much lower literacy rates than the national averages. KP houses a population of 26.6 million growing at 2.8% per annum. Its 10+ literacy rate is 50% and the gap in female literacy is 31%. However, there are pockets of high literacy in KP like Haripur and Karak districts. 30 Education Sector Plan KP
  • 44. 44 In addition to the Government efforts, many donors, like DIFD, AusAid, USAID, Germany, EU, Norway, Holland and others, are investing their money to improve the situation. The current EU's support of 35M EUR for GovKP is to ensure implementing ESP reforms in three mutually supportive areas: i) accelerating human development by improving access, equity, quality and governance of the Education system; ii) improving fiscal stability and public expenditure management; and iii) strengthening governance. GovKP has also developed a Capacity Development Strategy (June 2010) for strengthening the Elementary and Secondary Education department (ESED) to implement KP-ESP to deliver high quality educational services to children of KP. This support is provided through sector budget support and capacity building technical assistance. 1. Policy Framework Policy content and formulation In line with National Education Policy the provinces prepared provincial education plans specific to the provincial contexts and requirements. The Government of Khyber Pakhtunkhwa, Elementary & Secondary Education Department, started with the inception of the Education Sector Plan (ESP) as early as in 2006. A number of workshops were conducted to involve the wider group of stakeholders including NGOs, private schools and various scholars and educationists from the province in the process. The plan was approved in 2009. In 2012 the ESP was updated, revised and restructured with especially the support of the GIZ into the Education Sector Plan (ESP) 2010/11 to 2015/16. This ESP can be considered as the medium-term development plan for sector development. The principal objectives of the ESP are to provide guidelines for the preparation of short term plans (Annual Work Plan) to the DE&SE and the education district offices. The ESP calls for improvement in access to schooling, improving the education quality and strengthening the governance and administration of the sector. The plan is ambitious and without strategies to increase the required capacity of the Department of Elementary and Secondary Education. To enable the DE&SE to achieve its ambitious goals a Capacity Development Strategy (CDS) was designed. Based on the findings from an exhaustive capacity gap analysis conducted between March and September 2009, goals and activities for the strengthening of the E&SE’s capacity were outlined, required for implementing the Sector Plan. Monitoring and evaluation framework The ESP does not have a monitoring and evaluation framework with annual targets and indicators; however the Capacity Building Strategy has a policy matrix for measuring the 10 outcomes that includes milestones, performance indicators and specific activities. These activities are fully budgeted and planned. GIZ had provided its TA for its implementation and trainings have been conducted In addition DFID/AusAid has developed a policy matrix and a supporting Log frame with 3 impact, 3 outcome and 12 output indicators for measuring the value of their contribution the Education Sector. Efforts are underway for alignment of the main policy matrixes and for improved (joint) donor review to the new set up.
  • 45. 45 There is no system in place capable of monitoring the progress of the education sector plan. It was supposed to be done by the Provincial EMIS of the DE&SE in combination with third party evaluation. However it was reported that the existing EMIS system does not allow for structured and periodic reporting from service delivery level required for monitoring the progress of the budget support provided to the sector and to report progress on the implementation of ESP on regular basis. In addition there are gaps in timely availability of data for informed decision making. To improve monitoring, a PC 1 was signed very recently to support the Khyber Pakhtunkhwa Education Sector Programme for a period of two-and-a- half-year with an Independent Monitoring and Data Collection Unit (IMDCU) funded by the Provincial Government funded from the Sector Budget Support of DFID. This IMDCU will be an independent monitoring mechanism for ensuring and supporting improvement in access, quality and particularly governance in the Education Sector. It is expected that the unit will be producing its first monthly district report in October-November. The data will no longer be collected by the administrators, being dependent stakeholders, but by an entirely separate cadre of 467 District Monitoring Officers (DMOs) 300 Male and 167 Female who will be independent from the department at district level. This unit will be headed by District Monitoring Officer at district level who will either from Provincial Management Services (PMS) or District Management Group (DMG) and they will directly report to the concerned Deputy Commissioner of the district and Secretary Education at provincial level. Coherence with other policies The CDS (2010-17) was designed and approved in 2009 to complement the Sector Plan. While the focus of the Sector Plan is mainly on pedagogical aspects of education, the CDS was designed to complement the Sector Plan with the intention of enabling the DE&SED to become an institution capable of implementing the Sector Plan. The CDS is endorsing the indicators of the ESP and can therefore be considered as an integrated part of the sector plan. There is substantial Government and donor (AusAID, Dutch, EU, BMZ) support for the implementation of the CDS which is mainly channeled through GIZ. The ESP will be followed by separate District Strategic Plan (DSP) for all the districts to link provincial strategies with specific district issues, opportunities and challenges. It is expected that the DSP will become the essential link between the provincial ESP and the respective district. The aim of the District Strategic Plan is, while adhering to broader parameters outlined in the ESP, to ensure a more focused approach for solving the existing educational issues at district level. It also provides opportunities for developing district linkages between especially elementary education with other social sectors like water and sanitation and health sectors. One of the main objectives of the DSP’s is to develop a local strategy and action plan for sector coordination based upon active participation of the community. However to ensure the effectiveness of DSP’s the District (Education Office) does not only require additional (financial) staff but a general strengthening of the management and monitoring capacity at district, sub- divisional and circle level.
  • 46. 46 Review mechanisms and donor coordination: Despite past efforts made the management and coordination functions of the provincial DE&SE and its ESRU have not been able to build their institutional and management capacities and their coordination with the Finance and P&D Departments. In addition to the weak internal coordination within the government the role the government is playing in the attuning between the donors in their support to the education sector is limited. This does not only apply to the education sector but to all social sectors, including health, water and sanitation and governance & community development. External donors (including the WB, USAID, DFID, the Netherlands, Norway, Australia, Canada, and Germany) have assisted the KP government (both financially and technically) for many years (decades) in efforts to improve its governance structures and the performance of the provincial education system. However the coordination between the different actors responsible for the implementation of the ESP was and is weak mainly due to the lack of political will and strong leadership at Provincial level and sufficient allocation of resources. This was aggravated by the persisting bad security situation which has limited the mobility of donors needed e.g. for organizing joint monitoring visits and the short duration of the posting of international staff during the past few years in Islamabad. The last has been improved. The first multilateral Memorandum of Understanding (MoU) was signed between Government of Khyber Pakhtunkhwa (DE&SE), (FD) P&D D) and seven Development Partners in March 2009. The purpose of the MoU was to harmonize donor support to the Elementary & Secondary Education Sector in the Province so as to avoid duplication of efforts and ensure effective utilization of funds provided by the donors. Thereafter bilateral agreements with GiZ have been approved with the Federal Republic of Germany, the Netherlands, AUSAID and the EU to support the GoKP's Capacity Development Plan. Despite the support by different donors to the Education Sector Plan and its aligned CDP through the technical support of GIZ this joint support did not result in joined planning, joint reviewing etc. In addition different donors like USAID and NGOs like Save the Children, CESSD and others have signed bilateral agreements with the E&SE Department/GoKP. For an overview of the current donor support to KP. A main instrument for addressing the three priority goals and its six result areas of the ESP, known as Roadmap (RM) for educational change has been developed. The roadmap aims to draw together initiatives that are underway for accelerating implementation and ensuring the efficient usage of the funds allocated to the ESP. The RM includes a tight focus on results and has a relatively small number of eight key targets; the involvement of the political and senior The six areas of action in the Road Map are: I. Financial resources. II. Monitoring, accountability and data transparency especially on gender divide. III. Support, selection and gender-focus of EODs. IV. Text books, teachers guidance and training. V. Elementary Education Foundation initiatives to improve female access. VI. Critical supporting actions that communicate reform to the system and public, enforce objective criteria for hiring and transferring of teachers, empower PTCs by developing stronger links to districts, enforce corporal punishment bans and develop transport solution in rural areas.
  • 47. 47 administrative levels particularly through the Chief Minister and Chief Secretary; and a focus on delivery at sub-divisional and implementing unit levels. 2. Policy relevance The targets set in the ESP are in accordance with the Millennium Development Goals (MDG) and Education for All (EFA) to which Pakistan is a signatory 31 ; the National Education Policy; PRSP; and the Khyber Pakhtunkhwa Capacity Development Strategy (CDS) 2010-15 and the approved Capacity Development Plan (CDP) 2010-2015. The importance of the implementation of the CDS and the CDP is significant in the light of the 18th Amendment, but also for the substantial increase of (teacher) salaries, CSR, increased responsibilities and future financial constraints. The main focus of the Government of Khyber Pakhtunkhwa is to develop a workable Action Plan focusing on main aspects of Capacity Development Strategy (CDS). The goals set in the ESP are to: o achieve Universal Primary Education (UPE) by 2015 through ensuring that all boys and girls complete full course of primary education; o promote gender equality, achieve quality basic education for all (EFA goal); o achieve 50% improvement in the levels of adult literacy, especially for women (EFA goal); o introduce government-financed private school subsidizing for areas with low female enrolments; o reduce rural and urban disparities in education. The ESP of KP as specific sector plan for the education sector in Pakistan is the result of a collaborative and sustained effort of various stakeholders that were involved at various phases from conceptualization and inception to the actual implementation. The Education Sector Plan reflects key policy areas as well as a focus on the implementation aspects rather than on visionary aspects. Though there are improvements required, especially with regard to the planning of activities and spending of resources in line with PFM related reforms, it provides a basis for setting and prioritizing future education budgets, projects and system reforms, as well as for monitoring and evaluation of financial and non-financial performance over time. The ESP outlines a number of mutually-reinforcing strategies to tackle the issue of quality mainly based on the principles outlined in the Capacity Development Strategy. The strategies outlined in the ESP such as increased involvement of the community, teachers and parents in school management and decentralization of the education sector, aim to address issues of poor governance. These strategies are expected to have an impact on all aspects of education by increased transparency and accountability. Over the past thirty years Khyber Pakhtunkhwa has experienced regular periods of law and order. This has made risk management as part of governance particularly important. 31 In 2011 the National Ministry of Education in Islamabad was abolished. This Ministry was responsible for the monitoring and reporting on the results related to EFA, Fast track Initiative and MDG’s. Recently a new National Ministry has been established but its mandate and its role and the provincial role with regard to monitoring the targets set by the international agreements is unclear.
  • 48. 48 To improve the quality in all the schools the government has decided to give more financial and administrative authority for improving quality of education in the schools to PTCs. It is a big challenge for the government to mobilize the community for ensuring active participation by the parents in the school day to day affairs. However there is a growing realization that the community can play a vital role in improving quality of education once they are mobilized and their trust is gained. Various strategies have been developed for increasing the enrolment of children in very remote areas and particularly the enrolment of girls in school like (i) provision of free textbooks (ii) provision of teachers; (iii) improvement of physical facilities (access to water and toilets and boundary walls (iv) stipend to female students (v) capacity building of PTC to become more active for increased access and, reduce drop-outs. In addition the ESP has developed new strategies to provide further incentives to increase access and participation of girls in mainstream education through stipends for girls at secondary level, voucher scheme, scholarships, hostel facilities for female teachers etc. and facilitating female teachers’ transportation to and from school. To create access by opening small schools in inaccessible areas the government intends to provide special incentives for female teachers and the construction of cluster hostels for female teachers. Domestic accountability and national control mechanisms The mission and vision enshrined in the Education Sector Reforms are an integral part of the ESP and consistent with the EFA and MDGs and the objectives of the National Education Policy, and CDS. The achievements under the ESP show progress in meeting the challenge of the MDG to reach universal primary education by the year 2015. Khyber Pakhtunkhwa has made progress in enhancing school enrolment, as well as the ratio of female-to male in the system and literacy rates. However, much still remains to be done to achieve the MDGs. 3. Policy credibility Since independence the Pakistani government has addressed on a regular base the educational needs of the people and the aspirations of the State. This has resulted in the development of Education Policies and plans in 1947, 1951, 1959, 1966, 1969, 1970, 1972, 1979, 1992, 1998 and after the devolution the Provincial ESP’s after 2006. “Apart from the common denominator of Islam and national cohesion, the statements of vision and purpose for the national education system in Pakistan have tended to reflect the dominant political paradigm and compulsions of the day. “ 32 The frequency of the new policies implies that most of these noble assertions have to a large extent remained rhetoric. The goals were without exception too ambitious and the strategies and plans developed to achieve the policy goals were unrealistic and not supported by resources required to achieve these targets. As a consequence progress lacked uniformity across the geographical spread of the country and whatever progress made, was sporadic and often personality driven, without the umbrella of a solid formal institutional arrangement to ensure oversight and monitoring of the implementation of the policy. The changes in the Constitution guarantee the provision of free and compulsory education by the provincial governments to all children in the age bracket of 5 to 16 years, ‘The State shall provide free and compulsory education to all children of the age of five to sixteen years in such manner as may be determined by law’. The amendment and 32 White paper , 2007, page 2
  • 49. 49 insertion of Article 25-A has the potential to accelerate the pace of achievement of national and international targets towards the achievements of MDGs. Policy financing The policy financing for E&SE sector almost assured. The sector is mostly funded by the GovKP and the private sector financing almost negligible. The KP’s revenue outlook is reasonable comfortable. Like other provinces, the GovKP gets most of its revenues in federal transfers. In addition, the GovKP has claim on significant amounts in hydel profits. The average yearly revenue increases are around 20% despite the provincial own revenue increase of around 10%. 33 For FY 2013-14, the GovKP budgets an increase of 21% in its total revenues. Analysis of the composition of expenditure shows that, on average, KP Province spends about 26% of the current budget on education, compared with average of 24% for Pakistan and about the same in Punjab. Trend analysis of public expenditure in KP shows that E&SE sector expenditure has been growing at an annual average rate of 21.4% in the past seven years with a substantial portion being devoted to improving of school facilities and other development expenditure. These increases in expenditures have however not been sufficient to cover the required improvements in the school coverage, closing of gender gap, and improving quality of teaching and learning at primary and secondary education schools. Hence, there has been only modest improvement in net primary enrolment rates and in student performance in language and mathematics. Budget allocations between subsectors within education have been uneven, with 35% and 45% of the total expenditure in education being devoted to primary and secondary education, respectively - that is, primary education being far less than the national average of 44% (48% in Punjab) and secondary education being far more than the national average of 35% (36% in Punjab). As a result, KP Province per student on public primary schools is the lowest in the country, almost half of Punjab’s and conversely, KP secondary school expenditures—both current and development—are the highest in Pakistan. Similarly, the large salary expenditures have pre-empted the non-salary expenditures. Hence, primary schools in KP display severe teacher and classroom constraints - most primary schools have two classrooms and two teachers, 24% of boy schools and 18% of girl schools had only a single teacher, and a few schools had just one or no classroom at all. Nonetheless, all these issues are being considered and addressed under the ESRP – E&SE sector financing is projected to increase by 25% per annum up to 2014-15, and there will be a more balanced inter-sectoral composition and balance between salary and non-salary heads of the sector exenditures. Policy costing The GovKP is aware that the policy costs of the ESRP are obsolete and will have to be revised upward. There has been no meaningful attempt to adopt a costing methodology by district officials that would enable them to determine the annual recurrent cost of education per student and the evolving unitary 33 The provincial revenues in Pakistan have increased by about an average of 15% in the past five years up to FY 2011-12.
  • 50. 50 costs of teaching across schools. Traditionally, the cost of teaching has been driven by the teacher and non-teacher salaries for the most part. Several new cost pressures besides inflation have emerged since the adoption of the KP ESRP. One, with the adoption of a new teaching curricula and the deployment of new teachers the cost of teaching has led to rapid growth of other budget items, such as teacher training and issuing of new textbooks and a wide range of allowances, hostels, and other incentives. Second, there have been hefty increases in teacher salaries in the last few years. Three, there is move for improving the school infrastructure. Since there is a policy shift to rather improving the school infrastructure rather than constructing a large number of new schools, it is unclear what the approximate number of skilled teachers would still be required to accommodate the teaching needs of the existing schooling system in KP Province. Budget comprehensiveness Pakistan has made major strides in improving the budget classification system with the functional and programmatic frameworks being a feature. The budget classification adopted by KP Province also includes an administrative segment which enables the DE&SE to appoint program managers and make them responsible and accountable for district and school performance within the whole Province. One major challenge in the budget accounting system remains that external aid is not published regularly and in a comprehensive manner, along with the budget execution reports through PIFRA. Reportedly, external aid is also provided in the form of off-budget support to fund a wide range of investment items in support of education reform—this includes funding the publishing of new textbooks and teacher training. Budget reports on external aid, however, do not capture the information at that level, they usually consist of aggregate amounts—evidence suggests that a large portion consists of recurrent expenditures as part of the development projects, thereby causing error and considerable amount of labour to correct such inefficiency in the recording and reporting of financial flows. The improvement in budget accounting for programmable aid would requires a country dialogue between the federal government and the prospective donors. Financial sustainability The projected expenditure is generally consistent with the macroeconomic budget constraint and finance authorities are keen to maintain fiscal discipline. However, the Finance Department and the DE&SE had not been able to carry out a full assessment on the fiscal cost of accommodating the increasing demands for new teachers, particularly in primary schools. The challenge still lies ahead on how to accomplish the goal of improving the coverage and performance of teaching and learning without incurring significant spending increases on the aggregate. Financial sustainability becomes at front of the discussions nowadays considering the pay of public teachers being higher than in the private sector and the cost implications of pension and other social benefits and recurring allowances over the years. Hence, caution is required to achieve fiscal neutrality and mitigate any major fiscal risks, and among other measures rationalization of teachers in order to prevent an unnecessary hiring of a large number of new teachers and condition the promotion of teachers and increasing the budget across schools based on performance.
  • 51. 51 Institutional capacity, ownership and data quality The ESP has full ownership of all stakeholders, the politicians, government departments, civil society and donors, although institutional capacities within the E&SE sector, particularly at the district level, are weak. The ESP fully recognizes these weaknesses and provides for a Roadmap to design a long term comprehensive action plan to make up the required capacities and improve service delivery. The ESP thus provides for baseline surveys and required socio-economic studies for design of its strategy. In the next stage, the ESP is to be translated into prioritized activities and timelines in the form of Annual Work Plans for communication between stakeholders, annual budgets to support the agreed plans, priorities, and institutional development. A Capacity Development Plan is an integral part, including institutional restructuring, TNAs, trainings, strategy development, improving planning and implementation, and strengthening monitoring and evaluation, to provide the necessary capacities for a successful implementation of the sector plan. Thus, some studies/surveys and trainings have already been conducted, studies on institutional restructuring are being implemented and an IMDCU is set to facilitate better data collection, monitoring and evaluation. The Plan also envisions merit based policy decisions, efficient management and effective community (PTAs) participations, which will improve the governance in the sector.
  • 52. 52 ANNEXURE CA 2 Supplementary Document to the Action Fiche: Macroeconomic eligibility criterion Khyber Pakhtunkhwa Education Sector Plan Support Programme (KP-ESPSP) DCI- ASIE/2013/024616 Action fiche 1. Introduction Context Pakistan economy, over the years, has failed to attain a sustainable and progressive growth rate. Decades of internal political disputes, looming shadows of terrorism and low level of foreign investment has led to this slow growth and underdevelopment in Pakistan. Agriculture accounts for more than one- fifth of output and two-fifths of employment. Textiles account for most of Pakistan's export earnings, and Pakistan's failure, to expand a viable export base for other manufactures, has left the country vulnerable to shifts in world demand. Official unemployment is 6.3%, but this fails to capture the true picture, because much of the economy is informal and underemployment remained high. Pakistan remains stagnating in at a low-income, low-growth trap, with growth averaging about 3% per year from 2008 to 2013 and making GDP per capita to increase by only 2% in real PPP terms between 2005 and 2011. According to the UN Human Development Report of 2013, Pakistan ranks 146 out of 186 reporting countries, the second lowest in South Asia only after Bangladesh. According to IMF report, Pakistan's GDP topped US$233.5 billion in 2012 with a GDP per capita of 1,288 USD 34 . In recent years, modest GDP growth and high inflation rates, led by a spurt in food prices, have increased the incidence of poverty. The UN Human Development Report estimated poverty in 2011 at almost 50% of the population. Inflation has worsened the situation, climbing from 7.7% in 2007 to average of 14% in the next four years, before declining to 7.4% in 2013. As a result of political and economic instability, the reserves level has come down to $11 billion, and Pakistani rupee has depreciated more than 40% over the past five years. Faced with a grim economic outlook due to uncertain global and regional environment, macroeconomic imbalances and structural problems, the new government is negotiating with IMF a reform program under a three-year Extended Fund Facility (EFF). Relations with the IMF The country relations with IMF are improving. Records indicate that on February 3, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation and Proposal for Post-Program Monitoring with Pakistan. The latter was agreed with Pakistani authorities and as a result, 34 World Economic Outlook Database, October 2012
  • 53. 53 the First Post-Program Monitoring Discussions and the Ex-Post Evaluation of Exceptional Access under the 2008 Stand-By Agreement with Pakistan was issued in November 29, 2012. The assessments reiterate Pakistan's geostrategic importance, and sees it a potential partner in the expansion of regional trade. The IMF Stand-By Agreement was suspended in 2011 due to the inability of the Government to comply with the agreed reforms. However, the IMF, kept a vigilant watch for a possible new IMF programme, especially once the new Government took office in June 2013. The IMF has concluded the Article IV consultations recently, with an initial agreement, for a EEF of US$5.3-7.3 billion, which can provide immediate bail out to the new Government, in the backdrop of the country’s dipping foreign reserves. 2. Key macroeconomic indicators and potential source of instability Short-term performance and outlook In recent years, Pakistan’s economy has been adversely affected by unresolved structural problems (especially in the energy sector), two major floods, menace of terrorism, difficulties in policy reforms, and a challenging global environment. GDP growth has averaged 3% in the last five years, far below the estimated 7% required to absorb the two million new labour market entrants annually. Inflation has improved recently: the 2012-13 figure is 7.4%. Unemployment is high when underemployment and unpaid employment are taken into account, while poverty incidence and measures of human development are at the lowest levels. Fiscal deficit reached 8.5% of GDP in FY 2011-12, much higher than the government’s revised target of 4%. A similar deficit is expected in the current financial year. Monetary policy has become more accommodative, with the SBP directly or indirectly (through liquidity injections via open market operations) financing fiscal deficits. The external position, until recently was a source of strength on booming exports and overseas remittances, is deteriorating due to lower cotton/textile prices and a sharp slowdown in remittances growth. This is added upon by continued difficulties in attracting external financing, and beginning of repayments to the IMF in 2012. The international reserves, declined to US$11.0 billion by 28 June 2013, as compared to US$ 17.6 billion on March 31, 2011. The rupee has been under pressure, prompting SBP exchange market intervention. The Pakistan authorities have indicated their intention to reduce the fiscal deficit, in order to preserve macroeconomic stability and reconstitute policy buffers. The IMF endorses Pakistan’s objective of further developing private sector participation in the economy, and adoption of the New Growth Strategy to guide structural and institutional reforms. Through a combination of tax, energy, business climate and other structural policy reforms, this should enable further fiscal consolidation, higher productivity, higher growth, lower unemployment, lower inflation and more robust reserve cover. In this regard, Pakistan’s 2013-2014 Budget sets out a range of revenue mobilization including the increase of 1% in GST and austerity measures, which will contain the budget within 6.3% of GDP for 2012-13.
  • 54. 54 Table 1: Key Macroeconomic Indicators 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Real GDP (% change, p.a.) 1,7 2,6 3,7 4,4 3,6 3,3 Real GDP per capita (% change, p.a.) 1,4 0,5 1,5 2,3 1,5 1,3 Population (in millions, end of period) 167,4 170,5 173,6 177,1 180,7 184,4 GDP (in billions of US$) 161,8 177,6 213,7 225,6 236,5 235,6 Gross investment (% of GDP) 18,2 15,8 14,1 14,9 14,2 14,1 · Private 15,1 12,3 11,6 11,6 10,9 10,8 · Public 3,1 3,5 2,5 3,3 3,3 3,3 Consumer price index (% change, p.a.) 17,6 10,1 13,7 11 7,4 8,2 Real effective exchange rate index (% change, p.a.) -2,1 1 6,1 … … … Sources: Pakistani authorities; and IMF staff estimates and projections. Recent macroeconomic reviews by IMF and World Bank suggest that the economic conditions in Pakistan had deteriorated over the past five years thus suggesting that the general prospects do not seem to improve under the existing conditions. The latest estimations indicate that in the past five years FY 2007- 12, GDP growth remained at a modest 3%, with a downward bias, and inflation had persisted in double digits. Hence, the macroeconomic outlook does not lead to conclude that it would change positively unless corrective measures were taken to address key structural hurdles and macroeconomic imbalances and reverse monetary financing of the fiscal deficit. IMF and World Bank have urged Pakistan to address the deep rooted problems in its energy sector, including costly subsidies and poor distribution, while boosting growth, in order to absorb the growing labour force. The Government has not been able to support structural adjustment and policy reform measures to mitigate the macroeconomic and fiscal risks adequately. Gross international reserves have fallen from 3.7 months of next year’s imports to 2.9 months (net international reserves have fallen from about 2.6 months of next year’s imports to 1.7 months). Another major concern pertains to the protracted shortfall in fiscal revenues visa-a-vis faster growing government expenditures, inter alia, due to electricity subsidies, large interest payments and non performing public corporations. The recorded deficit during 2012-13 was Rs. 2,024 billion or 8.8% of the GDP (well above the 4.7% budget target). Progress on critical structural reforms, especially in tax administration and the energy sector, has been dismal. By the turn of FY 2013-14, the economy was stabilizing and there are early sign of recovery. Growth prospects are marginally better; the target growth for 2013-14 is3.4%, compared with 3% average in last 5 years, with expectation of GDP growth gradually rising to 7% by FY 2015-16. Investment environment is a bit better and investor confidence has improved. Stock market has started rising and foreign investment, which had decreased due to issues related to governance, energy, security, and a slow-down in the global economy, is showing a positive trend. After recording a small current account surplus in FY 2010-11, Pakistan's current account was in deficit in FY 2011-12 onwards, spurred by higher prices for imported oil and lower prices for exported cotton. Other long-term challenges includes, expanding
  • 55. 55 investment in education and healthcare, and reducing dependence on foreign donors. The fiscal structure of Pakistan is generally defined by poor tax collection (one of the lowest in the region) and large demands for Government spending for subsidies and interest payments but also a very high security outlay. Large public enterprises are inefficient and represent another big burden on the budget. The energy supply is the main bottleneck for economic growth and private development aggravated by the problem of circular debt. The new government in Pakistan has reached an agreement with the IMF on a new program. The IMF’s talks with the previous government had stalled because of the authorities’ inability, during the election period, to agree on satisfactory revenue generation and expenditure control measures for fiscal consolidation. The proposed IMF reform program includes a medium-term program of fiscal consolidation anchored on an efficient and equitable tax system, sustained improvement in tax collections as well as significant broadening of the tax base. On the expenditure side, untargeted subsidies will be phased-out, while fully protecting the most vulnerable members of society through targeted assistance. The program also includes a comprehensive strategy for tackling the energy problems through measures to address the ‘circular debt’ accumulated in the sector, tariff rationalization, and promotion of investment for energy generation and modernization. Energy reforms are complemented by significant structural reforms in the areas of trade, public sector enterprises, to encourage higher investment. 3. Assessment of macroeconomic policies and stabilisation of the macroeconomic framework The assessment of macroeconomic policies is primarily drawn from recent macroeconomic reviews by IMF and World Bank 35 and supplemented by State Bank of Pakistan (SBP) quarterly reports. The latest IMF Article IV consultation provides a Medium-Term Macroeconomic Framework, 2008/09– 2015/16, which serves to assess future macroeconomic policy on the basis of a baseline policy scenario. Given the commitment made to the IMF during recent Article IV consultations and in the recent 2012-13 Budget statements, where the Government has pledged and set out a number of initiatives (including expenditure restraint, further development of the MTBF – which is the subject of an EU formulation fiche to provide support to PFM - and revenue mobilization measures), this supports a conclusion that the country has had in place the basis for a viable medium-term macroeconomic and planning framework, taking into account the reform measures outlined. Based on the above assessment, IMF recommends further policy action to contain vulnerabilities in three fronts and to promote more inclusive growth in line with the government's New Growth Strategy: (i) strengthen PFM (revenue mobilisation, improve spending efficiency, promote fiscal decentralization); (ii) reform the energy sector; (iii) reduce inflation, protect the external position and stability of the financial sector. The IMF stresses on the importance of reducing untargeted subsidies, protecting social spending, promoting higher and inclusive growth to reduce poverty and promote employment, strengthening human 35 IMF 2011 Article IV Consultation and Proposal for Post-Program Monitoring, February 2012; First Post-Program Monitoring and Ex-Post Evaluation of Exceptional Access under the 2008 Stand-By Arrangements with Pakistan, IMF, November 29, 2012; and World Bank’s Pakistan Economic Brief, April 2013.
  • 56. 56 capital and the need to maintain a robust social safety net to support vulnerable segments of the society. Regarding the devolution process to the provinces, the IMF Report highlights the importance of ensuring that provinces allocate and spend their increased resources in a way that will result in improved provision of public goods and services. In the recent past, Pakistan has faced economic challenges on both external and domestic fronts, political uncertainty and security problems, repercussions as a front line state in the war against terror. Even in such precarious circumstances Pakistan did implemented reforms like improvements in tax administration, introduction of an interest rate corridor, introduction of a market-based exchange regime, and a strengthening the role of State Bank of Pakistan's in the banking sector. These reforms did show some progress, but by and large Pakistan continued to face difficult macroeconomic challenges as growth remained insufficient, inflation on the rise, and a poor export portfolio. IMF and World Bank assessments considered that monetary and exchange rate policy needs to contain inflation and external risks. It has been noted that the achievement of lower inflation would require more prudent monetary policy, accompanied by substantial fiscal adjustment to ease the government’s funding requirement. Greater central bank independence will be important in this regard. More exchange rate flexibility is recommended to facilitate external adjustment and safeguard foreign reserves. More vigilance is suggested about risks arising from high NPLs and banks’ large and rising exposure to the sovereign debt.
  • 57. 57 3.1.1 Balance of payments IMF reports indicate an upsurge in exports and strong remittances inflow helped Pakistan rebuild its foreign exchange reserves in 2010/11. More recently, deterioration in the current account position and weak financial inflows has put pressure on the rupee, prompting foreign exchange market intervention in the spot and forward markets. Despite increased exchange rate flexibility and a 4.5% depreciation of the rupee against the US dollar, reserves have declined by nearly US$2 billion, in part reflecting SBP intervention in the spot market. The trade deficit in 2011-12 expanded mainly due to the 14.5% growth in imports and the 0.1% increase in exports; thereby widening the trade deficit by 49.2% during that period. The major factor behind the widening of the trade deficit was the sharp rise in the import bill during July-April 2011-12, which increased due to higher international prices of crude oil – an exogenous shock in which Pakistan was not the only country to experience it. Current account projections show a gradual increase over the period 2011/12 to 2013/14, from -2.0% to - 3.0% of GDP. At the same time, external debt as a percentage of GDP is projected to decrease from 25.3% to 21.9% of GDP from 2011/12 to 2013/14. The decline in the current account position is therefore related to trade and import factors (notably key factor inputs), and in this regard the unfavourable global environment – and the sombre outlook - has slowed down overall world output and trade volume during 2011 and projected world output will decelerate further due to the downside risks of deepening of the sovereign debt crisis and worsening financial stress, increase in oil prices, and geo-political risks. Even so, it is still projected that world output will grow by 3.5% and trade volume will increase by 4% during the period. 36 The current account deficit declined, by 54% during FY 2012-13, largely due to less availability of foreign financing. The available capital financing during the year was only 25% of the financing in previous year although imports had stagnated. Also, the oil imports were lower due to relatively stable oil prices. Production of exports had also suffered due to energy shortages, political instability and law and order issues; exports recorded a modest increase of 2.4% only. The difficulties of Pakistan’s limited and undiversified export base are well documented. More than 50% of exports relate to cotton and textiles, and Pakistan’s need to import petroleum and food products makes it susceptible to fluctuations in international commodity prices. This leaves the country’s exports vulnerable to world market supply and price shocks, particularly sensitive to the effects of the European crisis. The IMF also indicates that remittance inflows to Pakistan have1increased significantly, recently, and have become instrumental in financing the trade deficits and allowing Pakistan to rebuild its foreign exchange reserves. This has occurred despite a challenging global economic and financial environment. In fact, Pakistan has been one of the few large recipients of remittances to benefit from positive real 36 Pakistan Economic Survey 2011-12, http://www.finance.gov.pk/survey_1112.html
  • 58. 58 growth in remittances in recent years. In addition, remittances have had a positive impact on economic growth and in reduction of poverty. Table 2: External accounts (In millions of US$, unless otherwise indicated) 2008/09 2009/10 2010/11 2011/12 2012/13 Estimate 2013/14 Target Current balance (including grants) -9,261 -4 437 -4,658 -2,135 -2,911 Trade balance -12,627 -12 -10,287 -15,765 -15,143 -16,667 Exports, fob 19,121 19,673 25,440 24,696 25,298 26,592 Of which Textiles and textile articles 9,946 10 13,229 12,205 12,541 13,168 Imports, fob -31,747 -31,209 -35,727 40,461 40,441 43,259 Of which: Oil, cif 10,032 10,463 12,317 15,247 14,916 15,960 Balance on services and income -7,788 -4,972 -5,099 -6,437 -4,937 -5,374 Of which interest payments -2,030 -2,500 -1,665 -1,633 Balance on transfers 11,154 12,562 15,823 17,544 17,945 19,130 Of which official transfers (credit) 210 606 843 404 172 Capital and financial account 5,950 4,983 982 1,463 369 3,376 Capital account (net) 455 175 171 144 261 250 Financial account (net) 5,351 4,866 805 1,456 388 3,126 Official financing 1,922 1,467 -114 1,011 191 621 Private capital 4,502 3,464 578 810 1,095 2,070 Short term capital -1,073 -65 341 -159 461 1,358 Errors and omissions (net) 144 -58 6 -242 -280 0 Overall balance 3,311 -1,037 -1,319 -3,299 -1,766 465 Memorandum items (% of GDP, unless otherwise indicated) Current balance including official transfers -5.7 -2.2 0.2 -2.1 -0.9 -1.2 Total donor support, net (project and non-project aid) 1,223 1,567 2,204 820 700 Of which official disbursements 2,354 2,956 3,564 2,377 2,129 External debt 32.1 31.6 28.5 25.3 23.5 External debt service (% of exports of goods and services) 2.9 3.6 3.7 2.9 … Gross international reserves (millions of US$) 9,110 12,958 14,784 15,289 11,007 …
  • 59. 59 Gross international reserves (in months of next year’s imports of goods and services) 2.9 3.6 3.7 2.9 Terms of Trade (%change p.a.) 1.9 4.5 -3.2 … … Sources: State Bank of Pakistan, World Bank, and IMF staff estimates and projections. Notwithstanding the improvement in the current account, the overall balance of payments position remains stressed, according to World Bank. The reason for this is the sudden halt in financial inflows, aggravated by high scheduled debt repayments. Capital and financial accounts experienced a sharp decline, US$1,049 million, over the FY 2013-14. This was largely due to a sharp decline in the official government inflows partly due to repayment of the IMF loans. The decline in the official inflows was partly offset by rising Net FDI and portfolio inflows. Consequently, during FY 2012-13, the SBP's official foreign exchange reserves declined by US$2.8 billion to only US$6.0 billion. Official reserves adequacy as measured by the import coverage of goods and services for the next 12 months declined from 2.6 months at end-June 2012 to just 1.7 months at end-June 2013. 3.1.2. Exchange rate regime The IMF finds that Pakistan’s real effective exchange rate (REER) has been relatively stable since the end of the 1990s despite significant variations in the current account balance 37 . Three complementary approaches are used to assess the degree of Pakistan's REER misalignment: (i) Macroeconomic balance: the current account deficit “norm” is estimated at 1.3% of GDP, while the “underlying” current account deficit is estimated at 3.5% of GDP. Assuming a number of different trade balance elasticities, the difference between the “norm” and the “underlying” current account indicates an overvaluation of the REER of about 10%; (ii) Equilibrium exchange rate: a comparison of the current value of the REER and an estimate of its medium-term equilibrium value indicates that it is broadly in line with fundamentals; and (iii) External sustainability: assuming a negative net international investment position of approximately 30% of GDP, Pakistan’s current account “norm” would be roughly 3.3% of GDP, indicating that the REER is broadly in line with fundamentals. The keys to Pakistan’s external competitiveness are assessed as improving security conditions, the reliability of energy supply, and its business environment and governance. Out of 142 countries included in the World Economic Forum’s Global Competitiveness Report 2011–12, Pakistan ranked 118, with weaknesses identified in (i) macroeconomic environment, (ii) labour market efficiency, (iii) higher education and training, and (iv) infrastructure. 37 http://www.imf.org/external/pubs/ft/scr/2012/cr1235.pdf, IMF 2011 Article Iv Consultation and Proposal for Post-Program Monitoring, P. 12
  • 60. 60 3.2 Monetary sector The financial sector appears healthy based on standard indicators, according to IMF and World Bank reports, but financial stability risks exist. Banks’ nonperforming loans remain relatively high at 14.5% at end-December 2012, and capital and liquidity indicators are being boosted by large holdings of government securities. The credit quality remains a risk, but shows signs of stabilizing. Non-performing loans (NPLs) remain high, at 14.5% of loans in December 2012, and present a medium-term risk to the sector, but have declined over the past year (16.7% in September 2011 and 15.7% in December 2011— see Table 3). Vulnerability to default risk remains but has been mitigated so far by adequate provisioning requirements and strong earnings (Net NPLs to loans are at 4.6% in December 2012 compared to 5.4% in December 2011). At the same time, private sector credit growth remains subdued, with adverse consequences for growth. The government’s large financing needs, considerable commodity operations, together with risk aversion by banks, has contributed to a diversion of credit from the private sector. Thus, growth has been backed largely by increased government borrowing, with some limited private sector activity—overall budgetary borrowing from the banking system was Rs.1198 billion during fiscal year 2012, significantly higher than the Rs.590 billion borrowed during fiscal year 2011. Net investments of the banking sector grew by 31.3% between December 2011 and December 2012, backed by an increase in holdings of liquid government securities. IMF concluded that Pakistan’s monetary policy has been instrumental to accommodate fiscal deficits. Reserve money growth has moderated, reflecting a decline in central bank net foreign assets, which have fallen in part due to the SBP’s unsterilized intervention to support the rupee (See Tables 2 and 3 for decline in international reserves). Given inflation and external risks, a more cautious monetary policy is needed. IMF argued that the SBP’s decision to reduce its policy rate was overly aggressive given the still-uncertain inflation outlook and a weak external portfolio, and that through its liquidity injections it was accommodating high fiscal deficits. Despite some moderation in headline CPI inflation recently, significant inflationary risks persist, and core inflation remains high. Table 3: Financial Sector Indicator 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Monetary Aggregates (anual % change) Net domestic assets of the banking sector 30,6 14,9 13,2 13,1 20,3 20,7 Net foreign assets of the banking sector -32,2 -22,6 5,4 43,1 -32,5 -48,8 Soundnes Dec. 2008 Dec. 2009 Dec. 2010 Sep. 2011 Dec. 2012 Mar. 2013
  • 61. 61 Capital adequacy Regulatory capital to risk-weighted assets 12,2 14 13,9 15,1 15,4 15,1 Tier I capital to risk-weighted assets 10,1 11,6 11,6 13 12,8 12,7 Capital to total assets 10 10,1 9,8 9,6 9 8,9 Asset composition and quality Non-performing loans (NPLs) to gross loans 10,5 12,6 14,9 15,7 14,5 14,7 Provisions to NPLs 69,6 69,9 66,7 69,3 71,8 71,9 NPLs net of provisions to capital 19,4 20,4 26,7 23,1 19,4 19,9 Sources: Pakistani authorities, SBP, and IMF staff estimates. According to the IMF, the Central Bank lending to finance fiscal deficits has been a key driving force behind the high inflation levels observed in the last few years. Before 2008, 12-month CPI inflation had averaged about 5.5% for more than a decade. In 2008, due to global commodity price shocks and a sharp depreciation of the rupee, that led to a spike in inflation (peaking at 25% year-on-year in August 2008), which, although declining, remained much higher than in the pre- 2008 period, and higher than in neighbouring countries. Through domestic price subsidies, the global food and fuel price shocks were reflected in larger fiscal deficits. With external financial inflows dwindling, these deficits were increasingly financed through the SBP, which put upward pressure on prices through excessive growth in SBP net domestic assets and exchange rate depreciation. 3.3 Real sector The sector wise composition of GDP in Pakistan is Agriculture 21.4%, followed by Industries 20.9% , and Services at 57.7% (2013 est.). The labour force comprises of Agriculture 45%, Industries 20.1% and Services 34.9% (2010 est.). 38 While recorded unemployment is Pakistan is low, the IMF reports that a large part of the employed labour force is unpaid, works less than 35 hours a week, and works in the informal sector. The unemployment rate is 6%. The young (under 24) and the older segments (over 60) have the highest rates of unemployment (10.2%–11.9%). There are indications that a large part of the employed labour force could be available for alternative or additional employment, i.e., were underemployed. Of the employed, 28% are unpaid family helpers and 10% of the employed earned up to Rs.5, 000 per month, below the legal minimum. In terms of hours worked, around 8.3 million or 15.1% of the total employed were working less than 35 hours a week, a 1.7 percentage point increase since 2002. The prevalence of unpaid helpers, wages below the legal minimum, and people working less than 35 hours per week suggests these workers could be available for alternative or additional work. Additionally, informal employment is very high—accounting for more than seven-tenths of the non-agricultural employment in 2010/11—and has been on the rise, indicating that more jobs have been created in the informal sector. Moreover, 75% of 38 https://www.cia.gov/library/publications/the-world-factbook/geos/pk.html
  • 62. 62 informal workers were either in unskilled occupations (18%) or low skilled occupations (57%), suggesting Pakistan’s economy needs major investments in human capital and technology. The World Bank Doing Business Report 2013, in which Pakistan ranked 107th out of 185 countries, indicates that the cost of doing business in Pakistan could be reduced in the following areas: (i) getting electricity, (ii) paying taxes; (iii) enforcing contracts; and (iv) registering property. Based on the latest Country Policy and Institutional Assessment (CPIA) of the World Bank, Pakistan ranked 57th out of 77 low income countries with the following areas of improvement: (i) macroeconomic management; (ii) fiscal policy; and (iii) transparency, accountability and corruption in the public sector. Fiscal Analysis: current situation, sustainability and fiscal policy 3.3.1 Fiscal balance and fiscal policy The general government deficit (excluding grants) shot up to 8.8% of GDP in 2011/12 and is estimated to stay around that figure in 2012/13, the highest levels since the 2008 crisis (Table 4). Tax revenue collections declined slightly as a percentage of GDP, as tax reforms foundered due to insufficient political support. At the same time, although total spending declined by 1% of GDP, high spending on subsidies, security, and interest, as well as hefty salary increases, crowded out more productive spending. A number of public sector enterprises (PSEs), especially in the power, transportation, and agriculture sectors, operate without hard budget constraints and incur huge losses. In 2010/11, subsidies to cover these losses, which amounted to nearly 2% of GDP, divert resources from more productive spending. The government continues its program of management reform in this area, with the aim of developing efficient and service oriented enterprises that do not require ongoing subsidization. The IMF considers reducing the fiscal deficit is central to safeguarding macroeconomic stability and setting the foundations for higher growth. It has cautioned that the deficit target has been unusually high in recent years. Pakistan’s tax revenue-to-GDP ratio, at 9.7 percent of GDP% in 2012/13 (see Table 4) remains among the lowest, and the number of taxpayers filing income tax returns is very small, 1.2 million in a population of 180 million. The first-best option to raise tax revenue implementation of a full VAT remains, but this remains politically unfeasible. Other taxation measures could be reduction in exemptions and concessions, incorporating services into the tax net, integrating income from all sources for the purposes of income tax. The IMF is cautious that the efforts to raise additional revenue by means of stronger compliance and enforcement have so far not yielded adequate results. Hence, the authorities need to develop and implement a strategy to strengthen tax administration, stepping-up FBR’s enforcement activities and improving its legal authority. The 2013/14 federal budget represents an important initial step towards, the much needed, fiscal consolidation. The budget targets a deficit of 6.3 per cent of GDP. The tax package included in the budget is expected to raise revenues by about ¾ per cent of GDP. However, it makes only limited progress towards a more efficient and equitable tax system, and further efforts will be needed to reach the medium term targets envisaged by the government. Tax revenues are likely fall short of the budget target, but the
  • 63. 63 authorities are willing to take action to compensate. Likewise, the reduction in subsidies envisaged in the budget will not fully materialize despite the authorities’ strong plan to reduce the subsidies. The new government feels strongly that the previous fiscal path was unsustainable and is committed to a process of fiscal consolidation. The authorities view the FY2013/14 budget, approved by parliament on June 27, 2013, as a significant step in that direction. The government is more optimistic about the potential for short-term revenue gains via improvements in tax administration. While agreeing on the need to eliminate many SROs to reduce tax loopholes, it is less enthusiastic about eliminating the ability to issue new SROs, which is seen as a flexible and quick-response tool for addressing tax policy needs. On fiscal federalism reforms, it is noted that significant constitutional and political barriers exist to a wholesale overhaul of the system. Table 4: Fiscal policy indicators (% of GDP) Item Estimat e Budget 2007/0 8 2008/0 9 2009/1 0 2010/1 1 2011/1 2 2012/13 2013/1 4 Total revenue and grants 14,9 14,7 14,3 12,6 13,1 13,2 14,1 Revenue 14,6 14,5 14 12,4 12,8 13 13,9 Oil revenue 0 0 0 0 0 0 0 Nonoil revenue 14,6 14,5 14 12,4 12,8 13 13,9 Tax revenue 10,5 10,5 10,1 9,5 10,3 9,7 10,8 Federal 10,1 10,2 9,7 9,1 9,8 9,1 10,1 Direct taxes 3,8 3,5 3,6 3,3 3,6 3,2 3,8 Indirect taxes 1/ 4,8 5,5 5 4,8 5,1 4,9 5,2 Customs duties 1,5 1,2 1,1 1 1,1 1 1,1 Provincial 0,4 0,4 0,4 0,4 0,5 0,7 0,7 Nontax revenue 4 4,1 3,9 2,9 2,4 3,2 3,1 Federal 3,3 3,4 3,4 2,5 2,2 3 2,9 Provincial 0,7 0,7 0,5 0,3 0,2 0,3 0,3 Grants 0,3 0,2 0,3 0,2 0,4 0,3 0,2 Total expenditure 22,2 19,9 20,2 19,5 21,5 21,7 20,4 Current expenditure 18,1 16,4 16,7 16,5 17,8 17 15,9 Current Non-interest expenditure 13,4 11,4 12,4 12,7 13,4 12,4 11,5 Wages and salaries … … … … … … Goods and services … … … … … … Other … … … … … … Interest payments 4,8 5 4,3 3,8 4,4 4,6 4,4 Domestic … 4,4 3,9 3,4 4,1 4,3 4,1 Foreign … 0,6 0,4 0,4 0,3 0,3 0,3 Capital expenditure (total) 4,1 3,2 Domestic … … … … … … …
  • 64. 64 Foreign … … … … … … … Arrears clearance (clearance -) … … … … … … … Primary balance, including grants -2,5 -0,4 -1,6 -3,1 -4 -3,9 -1,8 Primary balance, excluding grants -0,6 -1,9 -3,3 -4,3 -4,2 -2 Overall balance (including grants) -7,3 -5,2 -5,9 -6,9 -8,4 -8,5 -6,2 Overall balance (excluding grants) -5,3 -6,2 -7,1 -8,8 -8,8 -6,5 Memorandum items: Total poverty spending (social welfare, health, and education) … 4,6 … … … … … Tax exemptions … … … … … … … Outstanding domestic payments arrears … … … … … … … Total government debt 58,4 61,3 56,8 55,3 60,4 64,2 64 Domestic debt 31,8 34,1 31,3 32,9 38 41,9 41,3 External debt 26,7 27,1 25,5 22,4 22,4 22,3 22,7 1/ Includes petroleum surcharge/carbon tax and gas surcharges. Sources: Ministry of Finance and IMF staff estimates and projections. 3.3.2 Expenditure The budget for the year 2013-14 was tagged as an austerity marked budget. The total expenditure for 2013-14 is budgeted at Rs.3,591 billion compared to the revised estimates of Rs.3,577 billion for 2012- 13, showing a negligible increase. The current budget is estimated at Rs.2,829 billion for 2013-14 against a revised estimate of Rs.2,720 billion for 2012-13, showing an increase of 4%. The government has been implementing the Medium-Term Budgetary Framework (MTBF). Over the past 4 years the Federal Government has made significant progress in the implementation of the reforms arising through the Medium Term Budgetary Framework (MTBF). This has included the establishment of the framework for medium term budgeting (the Medium Term Fiscal Framework) and the adoption of the practice of preparation and submission for approval by Cabinet of an analytical Budget Strategy Paper, which is also shared with Parliamentary Standing Committees on Finance and Revenue and political parties. Equally significant, a system of results-oriented budget preparation has been successfully implemented across the Federal Government, and this is presented to Parliament in the form of the "Green Book" which accompanies the budget submission. The Green Book sets out in detail the results, which each and every line ministry is expected to achieve through the use of public funds, and defines indicators for measurement of those results. See Table 5 a summary of the Medium Term Budgetary Statement. Table 5: Medium-Term Budgetary Statement Estimate Budget Projections 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Real GDP growth (%) 3,7 4,4 3,6 2,5 3,5 3,7
  • 65. 65 Inflation (%) 13,7 11 7,4 7,9 9 7 Total Revenue 12,6 13,1 13,2 14,4 14,8 15,3 Tax revenue 9,5 10,3 9,7 10,8 11,8 12,4 Of which: FBR tax revenue 8,5 9,4 8,5 9,3 10,2 10,8 Non tax revenue 2,9 2,4 3,2 3,4 2,7 2,6 Grants 0,2 0,4 0,3 0,25 0,31 0,29 Total expenditure 19,5 21,5 21,7 19,9 19,2 18,9 Current expenditure 16,5 17,8 17 16,6 16,1 15,7 Development expenditure 2,5 3,3 3,3 3,3 3,1 3,2 Net-lending 0 0,1 1,4 0 0 0 Fiscal balance 1/ -6,9 -8,4 -8,5 -5,5 -4,4 -3,6 Revenue balance 1/ -3,9 -4,7 -3,8 -2,2 -1,3 -0,4 Total Public debt (including IMF) 59,5 63,8 66,2 66,6 63,5 60,5 GDP at market prices (billions of Rs.) 18.285 20.091 22.909 25.351 28.600 31.738 Sources: Pakistani authorities, and IMF staff estimates. 1/ Including revenue grants 3.3.3 Public investment For the year 2013-14 the National Economic Council (NEC) has approved an overall size of Public Sector Development Programme (PSDP) at Rs. 1155/834 billion, which is equal to 4.4/3.3% of GDP compared to 3.3% of GDP in the Revised Estimates 2012-13.Federal PSDP for the year 2013-14 has been kept at Rs. 540 billion, which is higher by 46% than revised estimates 2012-13.The share of Federal Ministries / Divisions in 2013-14 PSDP is Rs. 295 billion indicating an increase of 54.4% over revised estimates 2012-13. he Corporations' PSDP 2013-14 has been placed at Rs. 115 billion indicating an increase of 42% over revised estimates 2012-13. An amount of Rs. 120 billion has been provided in the budget 2013- 14 for Special Programmes as compared with Rs. 75 billion in revised estimates 2012-13. The provincial development programme for 2013-14 has been estimated at Rs. 615 billion as against Rs. 513 billion in revised estimates 2012-13, showing an increase of 19.9%. Foreign aid as a percentage of the total PSDP program is calculated at some 16.2% (noting that not all aid is allocated to the PSDP). The greater proportion foreign aid recorded in the budget documents comprises loans for projects. Foreign Aid is normally tied to donor specific procurement requirements and procedures for probity and integrity. Country procedures integrally incorporate the recurrent costs of capital projects within PSDP limits allocated to government agencies, and an assessment of the efficiency, effectiveness, sustainability and impacts of development proposals. 3.3.4 Debt
  • 66. 66 Public debt has climbed above 60 percent of GDP with very short average maturity of domestic public debt, and increased vulnerability of external debt service to currency depreciation. Hence, there is a need for immediate measures to contain the deficit, perhaps at 6.5% of GDP (6.2% including grants). The fiscal stance is not sustainable and requires significant consolidation to ensure sustainability. The debt level is high, making Pakistan vulnerable to interest rate or exchange rate shocks. Domestic financing of the fiscal deficit has produced severe crowding-out of private sector credit, and a reliance on negative real interest and direct financing from the SBP. Given the financing constraints, lower deficits would reduce crowding-out and make more bank credit available for private-sector investment. Pakistan has become more vulnerable to oil price shocks in recent years. Growing oil demand for electricity production, coupled with rises in the international oil price, have increased Pakistan’s vulnerability to oil price shocks. Oil now accounts for about one-third of electricity generation in Pakistan, a significant increase from the 2004 level of 16 percent. As a result, the oil price vulnerability index has risen steadily since 2004 and reached its highest level in recent years. 3.3.5 Intergovernmental fiscal relations The Government has introduced in recent years a series of measures of which the most far-reaching were the 7th National Finance Commission award and the adoption of the 18th Amendment to the Constitution by the Parliament. As from the financial year 2011–12, eighteen ministries have been devolved to provinces and the provincial share of the federal budget has grown to 57.5 % as against 47.5 % in 2009–10. Provincial taxation shares have been enhanced and provinces have the authority to raise domestic and foreign loans albeit with federal consent. The wider implications and success of this unparalleled devolution of federal power are yet to be seen as the provinces continue to build up their administrative capacity and understanding of the opportunities for more direct political oversight of the budgetary process through the provincial assemblies. In Pakistan, about 94% resources are generated as federal level whereas, only 6% resources are generated by the provinces. Therefore, provinces rely on the Federal Government for meeting their expenditure requirements. In order to maintain inter-governmental fiscal relationship, Article 160 of the Constitution provides for setting up of National Finance Commission (NFC) at intervals not exceeding five years. The mandate of NFC is to recommend to the President for the distribution of resources between the Federal and Provincial Governments. The President, through Presidential Order, gives legal cover to the recommendations of the NFC. The 5th NFC gave the Award in 1996. The 6th NFC was constituted in 2000 but it could not give the Award and its life expired in July 2005. Accordingly, 7th NFC was constituted in July 2005, which gave the Award in the year 2010. Government of Khyber Pakhtunkhwa’s Revenues: The federal transfers to Government of Khyber Pakhtunkhwa (GovKP), at 93% of provincial revenues, are subject to usual macro risks. In addition to its NFC share, GovKP receives form the federal government its share in profits on account of hydel power generation in the province. There have been problems in settling these profits according to the original methodology due to the differences of opinion about the computation of hydel profit. Pending full settlement, the GovKP has continued to get regularly a flat sum of Rs 6 billion per annum and some agreed amounts of arrears.
  • 67. 67 The issue of hydel profits arrears still linger on between KP and the federal government. The federal government had decided on 16th November 2009, after protracted negotiations in a technical committee, to pay the GovKP Rs. 110 billion for arrears on hydel profit up to 2005. Out of which Rs. 10 billion were paid immediately and balance amount of Rs. 100 billion in four equal instalments of Rs. 25 billion each on 1st July every year. In this regard, the federal government has released Rs. 85 billion up to June 2013 and the last instalment of Rs 25 billion would be paid during FY 2013-14. GovKP has also been agitating for full payment of NHP every year in future. The system of intergovernmental fiscal arrangements is stable, rule based and transparent, and the provincial share of GovKP in federal revenues is predictable, except for hydel profits, and the PEFA rating received for “Transparency of inter-governmental fiscal relations (PI-8)” was A in the last Federal PEFA assessment carried out in 2009. 3.3.6 Fiscal risks The IMF’s latest Article IV consultation report outlines the following risks based on the then available information and policy settings: Public sector gross financing requirements are projected to be large (30% of GDP in 2011/12), thus resulting in rollover risk for domestic debt. However, the projections show a decline to 27.1% over the medium term and recent budget initiatives for revenue mobilization and austerity will reduce the pressure for public debt further; There are risks to inflation, especially from possible supply shocks, pass–through from exchange rate depreciation, fiscal policy, and continued accommodative monetary policy. These have been addressed by reduction in loans from the SBP and fiscal consolidation pleasures planned for the medium term. On the external side, inward real sector spill-overs are a risk. Financial contagion risks from the turbulence currently centred on Europe are limited, but Pakistan is exposed to negative trade and remittances spill-overs. Given Pakistan’s heavy reliance on textile exports, a further significant fall in cotton prices could lead to external pressures There are growing financial stability risks. The overall banking system is reasonably well capitalized (nearly 15% of risk-weighted assets); relatively liquid due to large holdings of government securities; and profitable on account of wide banking sector spreads. However, banks’ balance sheets are becoming increasingly exposed to deteriorating private assets as evidenced by rising NPLs (gross NPLs were 16.7%, of total loans at end-September 2011) and to sovereign risk. High NPLs are an issue especially for public sector and specialized banks that lend to the agriculture and manufacturing sectors. One large public bank and two specialized banks are being restructured but delays in returning problem banks to minimum capital requirements pose a risk for the system. In short, the policy prescriptions for prudent fiscal and monetary policies and structural reforms have been reflected in the 2012-2013 budget, which will envisage a lower fiscal deficit, less bank financing of the fiscal deficit and less crowding out of private credit. Implementation of the policies is the key question, and the IMF staff assessment contends that these policies and reforms would produce higher growth, lower unemployment and inflation, and a more robust reserve cover. 4. Domestic revenue mobilisation
  • 68. 68 Revenue mobilisation is poor across federal and provincial governments as a result of historical weaknesses in revenue administration and revenue policy development. The tax-to-GDP ratio is low as 9%-10%, and in a country of 180 million. Pakistan’s tax base is historically structurally lop-sided. Some sectors remain under-taxed and some are not taxed at all. Agriculture and services account for approximately 75% of national income, but their contribution is about 10% of GDP – the petroleum sector accounts for 27% of tax revenue (Economic Survey 2011). The uneven distribution of tax provides incentives for evasion and explains the low tax-to-GDP ratio. The low level of taxation needs to be brought into line with international levels and increased to about 15%, which will require a major overhaul of the taxation system and administration. The 2011-12 budget listed a range of measures to address tax policy and administration and mentions that after the passage of the 7th NFC award and the 18th Constitutional amendment much of the potential for growth in tax revenue has shifted to the Provincial Governments and that they should take the lead in ensuring an equitable tax structure and to effectively bring in areas such as agriculture income, services and property into the tax net. A proper mechanism for distributing tax revenues in an equitable manner across Provinces exists through the NFC awards system, which takes into consideration the per capita income level and the development needs of the country, and which prevents any discretion from the Federal Government on the distribution of resources. Hence, the issue remains whether the Federal Government and the Provinces will be able to collect more of domestic resources to fill the gaps in funding. The provincial tax base is generally weak, although the Government of Khyber Pakhtunkhwa has been trying to increase the provincial own revenues. Khyber Pakhtunkhwa is highly dependent on federal transfers and the provincial own revenues constitute a small percentage of its total revenues. To raise the provincial own revenues in the coming years, the provincial Government of Khyber Pakhtunkhwa has established its Revenue Authority and enacted a provincial Sales Tax on Services Act to administer the sales tax on services which is now a provincial subject. The officials in the Khyber Pakhtunkhwa have been discussing with recent EU Missions the need for improvements in tax administration in provincial governments, particularly following the 18 th amendment. Revenue mobilisation within government is impeded by the absence of supporting frameworks for developing revenue policies and a challenging environment. International agencies have described the linkages of ineffective tax reforms with corruption and compares with other comparable countries in the region—Transparency International comes out strong against corruption and tax evasion as well as weak auditing and budgeting procedures in Pakistan thus ranking the country 139 out of 176 reporting countries. The report notes that for the past decade, tax in Pakistan as a proportion of GDP has remained at or around 10%. This compares with tax collection rates of around 14% to 15% of GDP in countries with similar per capita incomes. Pakistan's VAT efficiency is 25%, the lowest in the world (Sri Lanka's is 45%).
  • 69. 69 Recent independent studies also concur that the efforts to broaden the tax base and raising more tax revenue did not materialize 39 . These studies support the view that serious efforts are needed to almost double the tax to GDP ratio for achieving an optimal level of public spending. Since 1990s the share of tax revenue in total revenue has declined gradually from 80% to almost 70% whilst the share of non-tax revenues has increased from 20% to almost 30%. One of the objectives of tax reforms was to improve tax structure by reducing the reliance on indirect taxes like import duties and central excise duties and increase the share of direct taxes. Ahmed and Sheikh (2011) show that the share of indirect taxes in total tax revenue was above 80% in 1990 and has declined continuously to a level of 60% in the FY 2010. On the other hand, the share of direct tax has more than doubled over the past twenty years from18% in 1990 to 40% in the FY 2010. This clearly shows that efforts to improve tax structure have succeeded to some extent. The efforts to reform GST and gradually moving from GST to VAT, however, have not succeeded. The efforts to broaden the personal income tax base have also not materialized and reliance on indirect taxes has further increased. The new federal Government is looking for all avenues of raising revenues and plans to raise the tax ratio of 15% and reduce the fiscal deficit to 4% by 2015-16. It has already announced a series of revenue measures in the 2013-14 budget and is engaged in negotiating a reform program with IMF for an EFF arrangement, including measures for raising revenues. The new Government is serious about fiscal stability and has committed itself to fiscal discipline by announcing revenue and austerity measures in the budget. 5. Assess vulnerability to external shocks and efforts to strengthen resilience The vulnerability of Pakistan to external shocks is assessed in Table 6. The external position has weakened significantly, central bank reserves have declined to critical levels, and the Rupee has fast depreciated. While the current account deficit in 2012/13 is estimated at less than 1 percent of GDP, largely due to lower imports and strong revenues from remittances and coalition support fund inflows, severe financial account shortfalls have produced the deterioration in reserves. The financial inflows have collapsed at a time when debt service obligations (including to the Fund) have increased sharply. Foreign direct investment has been meager and portfolio inflows have sunk. As a result, SBP gross reserves dropped to US$6 billion (under 1½ months of imports) as of end-June 2013. Net reserves have become negative, as gross reserves include over US$7½ billion in borrowed resources. The IMF staff argued that the chief short-run challenge facing the SBP is to rebuild the reserves position. The first step in decreasing the risk of a crisis is for the central bank to accumulate reserves through net purchases in the foreign exchange market. In the medium term, a fiscal consolidation should be planned which would help boost national saving, catalyze international support, and lead to an improvement of the financial account. Prudent monetary and exchange rate policies are needed to address declining reserves and contain projected rebound in inflation. The SBP should signal a clear policy shift to market participants through purchasing foreign exchange in the interbank market to bolster reserves. It is desirable that the SBP should refrain from further direct lending to the government and limit open market liquidity injections to the economy. Inflation reduction should be a top priority of the SBP, as inflationary pressures will likely 39 See, for instance, Ahmed, Saeed and Sheikh, Saeed Ahmed (2011), “Tax Reforms in Pakistan 1990-2010”, International Journal of Business and Social Science, Vol. 2, No. 20, November 2011.
  • 70. 70 materialize in the coming 12–18 months. The SBP’s policy rate should be set prudently to contain expected inflationary pressures, to maintain positive real interest rates to attract deposits; and to help rebuild reserves.
  • 71. 71 Table 6: Indicators of vulnerability in the external sector Indicator Estimat e Projections 2009/1 0 2010/1 1 2011/1 2 2012/13 2013/1 4 2014/1 5 2015/1 6 Current account balance (percent of GDP) -2,2 0,1 -2,1 -1 -0,6 -0,7 -1,1 Net FDI inflows (percent of GDP) 1,2 0,7 0,3 0,5 1 1,3 1,6 Exports (percentage change of U.S. dollar value; GNFS) 7,2 25 -4,5 5,5 12,3 1,5 5,1 Gross international reserves (GIR) in billions of U.S. dollars 13 14,8 10,8 6 9,6 13,4 18,5 GIR in percent of ST debt at remaining maturity (RM) 1/ 236 332,8 250,8 131,5 199,3 273,5 407,1 GIR in percent of ST debt at RM and banks' foreign exchange (FX) deposits 1/ 135,9 167,8 120,3 62,6 89,6 122,8 169,5 Total gross external debt (ED) in percent of GDP, of which: 34,7 31,1 29,1 27 27 25,2 23,4 ST external debt (original maturity, in percent of total ED) 1,4 1 0,6 1,6 2 1,8 1,8 ED of domestic private sector (in percent of total ED) 1,4 1 0,6 1,6 2 1,8 1,8 ED to foreign official sector (in percent of total ED) 98,6 99 99,4 98,4 98 98,2 98,2 Total gross external debt in percent of exports 247,2 213,2 220,5 203,9 176 166,9 155,9 Gross external financing requirement (in billions of U.S. dollars) 2/ 7,4 2,2 6,7 5,4 4 4,7 6,2 Source: IMF staff estimates and projections. 1/ Debt at remaining maturity is defined as maturing short-, medium-, and long-term external official debt. 2/ Refers to current account deficit plus amortization of external debt. According to recent research studies 40 , inflows of migrant remittances to Pakistan have become a relatively stable source of external finance, compared with ODA and FDI inflows, thus serving to steady the country in times of economic downturns. The Government must ensure that economic and political conditions are improving in the country in order to attract more remittances and be able to utilize as a major force of resilience against external shocks. 4040 Ahmed, Junaid and Martinez-Zarnoso, Inmaculada (2013), “Blessing or Curse: The Stabilizing Role of Remittance, Foreign Aid and FDI to Pakistan”, Institute for the Study of Labour, Bonn. Germany.
  • 72. 72 6. Conclusions of the analysis The macroeconomic outlook has become optimistic in the recent past. The Government announced a series of policies in the 2013-14 budget, for raising investment for growth, controlling fiscal deficit by tax and expenditure economy measures, resolving the energy crisis, reforming public sector corporations, arresting inflationary pressures, and protecting the poor. The country’s medium-term macroeconomic framework, spanning 2013-14 to 2015-16, envisages: GDP growth gradually rising to 7%, raising investment to GDP ratio 20%, decreasing fiscal deficit to 4% of GDP, and increasing foreign exchange reserves to more than $20 billion by the end of medium term. The framework targets inflation in single digit throughout the medium term. The Government is negotiating an EFF arrangement with the IMF and may implement further reform measures. However some fundamentals remain weak as discussed above in this assessment. Certainly the macroeconomic framework and openness to dialogue provides a platform for further entry points for discussion and review of macroeconomic policy approaches. Without the fundamentals of macroeconomic policy being addressed, as set out earlier, it will be difficult for Pakistan to maintain macroeconomic stability, raise quality of living, and aptly reduce poverty. The measures contained in the 2013-14 budget supports such a policy response. Based on the analysis above, in particular the policy measures of the new Government, the last IMF review dated February 2012 and preliminary reports regarding the proposed IMF EFF arrangement, it is concluded that the authorities are pursuing a credible and relevant stability oriented macroeconomic policy aiming at restoring fiscal or external stability and sustainability.
  • 73. 73 ANNEXURE CA 3 [Part II of the PFM Annex] ANNUAL MONITORING REPORT PUBLIC FINANCE MANAGEMENT ELIGIBILITY ASSESSMENT 1. Key features Financial year: 1 st July to 30 th June Last PEFA/ Diagnostic Study: January 2011 PEFA update for FY 2009-10 Last Annual accounts submitted to Auditor General Annual accounts for financial year 2010-11 Last annual audit report: Audit report for FY 2010-11 was laid in the provincial assembly on 7 May 2012 but not discharged yet. Basis/Forum of PFM dialogue The last high level meeting involving the Head of Operation of the Delegation and Secretaries of Provincial Departments was 12 June 2012. Reform Programme The key PFM reform strategy document is the Province’s Integrated Public Financial Management Reforms Strategy presented in 2011-12, which articulates short, medium and long-term PFM reform targets and actions up to five years. 2. Main Highlights in Developments over the Past Year 1. Main developments in the implementation of the PFM reforms: 1.1. Key quantitative progress in addressing PFM weaknesses (against annual targets) - GovKP Budgets have become policy based and their comprehensiveness has increased with MTBF framework/OBBs, sector strategies, performance indicators and 3-year functional allocations. - Public access to information on policy direction, sector strategies and program/activity budget allocations has increased with institution of MTBF/OBB. - GovKP has engaged public in pre-budget consultations and making available all budget documents in print form and online. - Legislators are being taken on board through hearings of Finance and sector committees occasionally for MTBF/OBB/budget planning and implementation. - GovKP has integrated the recurrent and investment expenditures, particularly in the ESE sector. 1.2. Negative developments - Continued operation of donor funded projects outside government systems. - The within-year budget adjustments by the executive are common. - No progress has been made on in-year execution reports, availability of external audit reports, information on contract awards, etc. - Public procurement law is enacted but an operational Procurement Regulatory Authority is not yet on the ground. - The GovKP continues with the ineffective and inefficient tax regime.
  • 74. 74 1.3. Overall direction of change (including processes, plans and commitments) The PFM reform program has progressed well in comprehensiveness, transparency and policy based allocations, but only slowly. The reform program is quite relevant to the achievement of social- economic development objectives 1.4. Availability and key findings of latest supreme audit institution report The KP’s PAC had cleared the backlog of audit reports in 2012, but implementation on its decision is still a challenge. 2. Assessment of relevance of government's PFM reform strategy Overall, the GovKP PFM program sufficiently relevant, reasonably well sequenced, and has sufficient ownership. 2.1. Main outstanding challenges faced by the PFM system - Short term (next 12 months) – Setting up an operational procurement authority – Control teachers’ absenteeism through better use of M&E, IT and EMIS – AG to prepare FY 2011-12 and FY 2012-13 audits reports for consideration of the Public Accounts Committee - Medium to long term – Serious efforts are needed on KP’s own revenue mobilization – Publish in-year budget execution reports and give public access – Aid budgeting and reporting, and accounting and reporting – Controlling corruption 2.2. Adjustments of the strategy if any - None 3. Assessment of credibility of government's PFM reform strategy (including efforts to tackle corruption) Overall, GovKP PFM reform strategy is sufficiently credible. 4. Delegation's conclusion on PFM eligibility PFM reform is considered eligible. 5. Quality of the dialogue in PFM (substance and process) The gaps/challenges identified in the PFM reform program form the basis to a dialogue with the government and other donors. Some of these gaps are: revenue mobilization, tax administration and treasury management; procurement law and authority; better human resource management; aid budgeting and reporting, better M&E, etc. The GovKP PFM reforms has progressed favorably since the adoption of a PFM reform strategy in KP Province and as a result the existence of a more credible, policy-oriented, comprehensive and transparent budget processes. A number of weaknesses still prevail in the functions of the PFM system. The main weaknesses are separate recording of the recurrent and development budget operations thereby causing difficulties in reconciling unexplained differences in bank account statements and others treasury management related matters, inefficient revenue administration system, poor registry/management of manpower, stores and fixed assets. Annex 1 gives a summary of PFM performance assessed through quantitative information on PFM outputs taking the baseline provided by the last PEFA assessment of January 2011. The table provides a comparison of expectations with progress interpolated from the available data. The table also sets out
  • 75. 75 progress in implementing the programme of measures/strategies to address the identified weaknesses, and areas where further attention is needed. The PFM reform strategy is quite relevant to the development objectives of the Province, in that it addresses key weaknesses in the PFM system hampering the improvement of basic service delivery. It is based on the principles of promoting efficiency, accountability and transparency within the KP government system. It is a sufficiently credible program as it identifies the key weaknesses with adequate remedies.The reform strategy is an indigenous document, and the GovKP Cabinet approved its integrated action plan in late 2011. It is aimed towards the achievement of five general objectives: a) Making budget formulation more strategic by linking policies and priorities with budgeting (MTBF); b) Making the budget credible and results oriented for better service delivery (OBB); c) Improving budget execution and reporting – PIFRA and payroll and pensions systems; d) Capacity Building of the workforce of KP – audit, internal audit, strengthened PAC; and e) Accountability for results (M&E). The reform has a well sequenced implementation strategy focusing on certain core PFM reforms and interventions, aimed primarily at building the strategic planning and budgeting capabilities at the province and district levels financial management. It has gained the championship of the Finance Department and sufficient ownership from the Cabinet, target beneficiaries, as well as from cadres of finance and planning officials at province and district levels. Institutional links exist between the identified PFM weaknesses and reform priorities but these are generally weak, not linked adequately to issues of policy reform, i.e., pay and performance management. PFM reform is considered eligible for budget support, because: a. The PFM reform strategy is considered sufficiently relevant to the development objectives of the KP Province. b. The PFM reform strategy is considered sufficiently credible because it identifies key weaknesses in public financial management adequately and narrows down its approach of interventions into specific priority areas. c. The reform is reasonably well sequenced and it has gained the championship of the Finance Department with sufficient ownership of provincial authorities. The gaps identified in the PFM reform program summarized above form the basis to a dialogue agenda and improved donor coordination in the elementary and secondary education sector. These gaps include those in revenue mobilization, treasury management, human resource management, procurement, monitoring and evaluation, aid budgeting and reporting, and accounting and reporting. 3. Progress in Improving Public Financial Management Summary and analysis of quantifiable progress GovKP has been pursuing an integrated public financial management reforms programme. The reform expectations were set in the light of recent diagnostic works on the KP province, i.e. PEFA 2011, PEFA 2007 and the DFID’s FRA 2011. The results of the repeat PEFA 2011 diagnosis reflected a mixed picture of progress between 2007 and 2011. Out of the 31 indicators that could be scored almost a third were
  • 76. 76 rated good-to-fair by international standards, with just over a third rated fair-to-poor and another third were where risks are considered to be high. Strengths pertain to transparency and comprehensive budget documentation, a well-defined budget process with both executive and legislative adhering to the schedule, a classification, which complies with international standards and a strengthened external audit function. Key weaknesses were identified across various dimensions of the budget execution such as cash management, management of human resources and procurement, financial reporting and internal controls. The federal government and GovKP have been improving its budgetary processes documentation for the past many years. The government improved its OBI score significantly to 58/100 in 2012 from 38/100 in 2010 and 2008. The Open Budget Survey 2012 done by International Budget Partnership’s (IBP) ranked Pakistan at 29 th position among 100 countries that were compared. The 53% improvement in 2012 OBI score is largely due to publishing of the Green Book which has significantly increased the budget comprehensiveness. The Green Book, a supporting document to the executive’s budget proposal, gives the departmental policy priorities, performance definitions, and budget allocations by services to be delivered over the budget year and next 2-years. Likewise, the KP province’s budget format is quite comprehensive and it publishes the booklet for service delivery, based on the OBB/MTBF format, fin respect of all provincial departments. The GovKP PFM reform program has progressed slowly as the government has been bringing in improvements in its budget documents and processes. The Annex 1 below sets out the PFM weaknesses identified at the reform entry point, reform expectations along with a brief narrative of progress in implementing the reform measures to address the identified weaknesses, and highlights areas where further assistance is needed. The emphasis of the Government’s interventions for deepening of PFM reforms have consisted of: strategic budget formulation by linking policies and budget priorities (MTBF) and credible, results oriented budgets for better service delivery (OBB); introduction of 3-year business plans/annual action plans in six line departments and, business plans/OBBs in districts with conditional grants; capacity building (audit, internal audit and PAC); improving monitoring structures (IMDCU, EMIS and surveys); and pre-budget consultation workshops. More details are given below. Policy Based Budgeting Under this head, the two important areas of reform expectations were: a more elaborate MTFF framework, and sector strategies with multi-year costing of recurrent and investment expenditures. The reform in these areas has progressed well. The 3-year fiscal forecast and functional allocations are prepared and published in the Federal MTBF/Green Book and KP's OBB document. In FY 2012-13, the GovKP had rolled out the MTBF/OBB to all 32 provincial departments with improved targets and indicators. The KP’s 2012-13 OBB/MTBF, giving details of the Departmental outcomes, outputs and medium term (3 years) budget estimates for service delivery, was printed in Budget Estimates for Service Delivery, 2012-15. Although, reform expectations are fulfilled with the publishing of MTBF framework and publishing of MTB/Green Book/OBB, these processes are nascent and the MTFF processes and preparing of 3-year fiscal forecast need to be strengthened in line with international best practices.
  • 77. 77 The GovKP is also trying to extend the MTBF/OBB framework to Districts but the District level OBBs appear ambitious and may be considered as a long term objective. The capacities at District level are extremely weak. A visit by this team to district Bunker, where OBB was implemented with conditional grants program, indicated that the OBB/MTBF concepts are yet not well understood by district officials, who are unable to relate outcomes/outputs with activities/inputs and costing them into budget line items of MTBF. Hence, the capacity building of Districts officials is being undertaken with the donors’ support including from the EU. Regarding scope and frequency of debt sustainability analysis, the reform recommended that the government undertake a comprehensive debt sustainability analysis for external and domestic debt since no such exercise has been undertaken since early 2011. High debt is a federal issue - the provincial borrowing is regulated by the federal government; hence the provincial debts are not high. The IMF has carried out a comprehensive sustainability analysis for Pakistan’s external and domestic debts recently. 41 The Pakistan’s public debt has climbed above 60 percent of GDP in FY 2013 with very short average maturity of domestic public debt, and increased vulnerability of external debt service to currency depreciation. According to this Debt Sustainability Analysis, “moderate shocks to the interest rate, growth, or the primary balance will result to debt levels above 65 percent - albeit stable, which highlights the need for reducing the debt ratio to well below the 60 percent of GDP envisaged in the Fiscal Responsibility Law”. Hence, the reform recommendation remains valid that the federal government compiles annual statistics on and carries out a comprehensive sustainability analysis of external and domestic debt regularly. Comprehensiveness and Transparency Public access to key fiscal information is relatively poor with PEFA score at C, and the recommended reform to improve public access to fiscal information. The GovKP has taken important steps under the PFM reform strategy to improve transparency and accountability in utilisation of public resources. The annual budget documentation (Budget Strategy Paper, Budget Speech, White Paper, Annual Budget Statement Demand for Grants Development, and OBB/MTBF) as presented to the provincial assembly is available to public, both in hard copy and electronic versions on-line. The GovKP has its budget formulation process more transparent and participative, with a series of pre-budget consultative workshops with different segment of the society. In May 2013, the FD and P&DD, with the EU’s technical assistance, held four pre-budget consultative workshops of the stakeholders and selected citizens’ to seek their inputs for FY 2013-14 budget. This is certainly a good move to make the budget preparation process more transparent, open, participative and responsive. However, as noted in the PEFA diagnostic work, the progress to improve public access to key fiscal information is mixed with difficulties of access in other areas. Several key fiscal documents are not available to the general public. These documents are either incomplete or not issued on timely basis - such as budget execution reports, contracts awarded, and annual audit reports which are issued with 41 IMF, Pakistan: Staff Report for the 2013 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility, September 2013, http://www.imf.org/external/pubs/ft/scr/2013/cr13287.pdf.
  • 78. 78 extended delays. As suggested, improving public access to the aforementioned public documents would substantially increase budget transparency and accountability and raise the PEFA score. Credibility, Predictability and Control in Budget Execution With regard to predictability and availability of funds, cash flow forecasts and information to commit expenditures are well organised, within-year adjustments are common although these occur with some transparency under the law, with the approval of Prime/Chief Minister. Constitutional/legal provisions provide the executive with the needed authority to reallocate expenditure and increase overall expenditure over the year without prior reference to the legislature. This issue, which also adversely affects the credibility of the budget, is pervasive and affects all levels of PFM. The reform recommendation, that remain, is a legislation requiring ex-ante approval by Cabinet for supplementary funds, and a similar action will need to be taken first at both at the federal and provincial levels. The GovKP has not been able to improve mobilization of domestic resources, which remains largely weak, arguably due to factors beyond the provincial control. The GovKP derives some 90% of its revenue including hydel profits is from the Federal transfers, which not only makes the provincial revenue receipts uncertain but also leaves few incentives to reform the provincial revenue system. The provincial dependence on federal transfers increased with the 18th Constitutional Amendment and the 7th NFC award. Concurrently, a number of subjects previously dealt at the federal level were devolved to provinces under the 18th Constitutional Amendment. The revenue mobilisation in provincial and local governments is impeded by the absence of supporting frameworks for developing revenue policies. Besides, the Province has experienced difficulties due to poor law and order situation and the after effects of natural catastrophe, conditions that adversely affected the KP’s own receipts. The Finance Department thus targets a modest 5% growth in provincial taxes in FY 2013-14. The GovKP is trying to improve its own tax regime, which remained ineffective and inefficient – the taxpayer registration is mostly manual, tax statutes and penal provisions for non-compliers are weak, and there is no effective tax audit/inspection system. The reform expectation has been to improve the clarity of tax legislation, operating procedures and the discretionary powers to improve the PEFA score from the current low of D+. The GovKP has just recently established its Revenue Authority and enacted a provincial Sales Tax on Services Act, to administer the sales tax on services; expand the tax net and revise old tax rates; attempt better tax enforcement and simplification of tax laws; and carry out an independent survey for tax administration assessment and collection. The continued operation of donor-funded projects, outside government systems, remains a weakness in consolidation of financial accounts. But this is not solely within the ability of the Government of Khyber Pakhtunkhwa to control. Hence, the GovKP accounts for only those donor-funded projects, which are budgeted and financed through Khyber Pakhtunkhwa Account No. I (Non-Food). The reform expectation on instituting internal audit function consistent with international and professional standards in GovKP Departments has just been initiated in four pilot departments, and ESED is one of it. An IA unit is already operational in FD, and the FD is coordinating establishment of the same
  • 79. 79 in the four pilot departments. The Procurement Regulatory Authority stand notified, after enactment of the Procurement Act, and now its up to the government to make it a robust functional body.. Presently, the public procurement remains highly risky, and a more open competitive procurement under a sound procurement law would raise the very low PEFA score on competition, value for money and controls in procurement. Accounting, Recording and Reporting The quality and timelines of in-year budget execution reports remain weak in KP. In principle, the present GFMIS/SAP-3 software is capable of producing all kinds of required reports on financial resources received by service delivery units. In practice, in-year budget execution reports do not appear to be compiled. Good in-year budget execution reports would substantially improve the PEFA scores. Recent Annual Audit Reports, Implications and Follow Up Timing and Availability of Audit Reports The Auditor General (AG) of Pakistan, who submits them to the President and the provincial Governors, prepares the audit reports of the Federal and Provincial Governments. The President and the provincial Governors cause these audit reports to be laid before the Public Accounts Committees (PAC) of National and Provincial assemblies for external scrutiny. The Auditor General also produces the audit reports of the districts for consideration of the (defunct) District Councils. As per existing inter-institutional arrangement between the Controller General of Accounts and the Auditor General of Pakistan, the Controller General of Accounts submits accounts to the AG two months after the closure of the financial year. The financial year in Pakistan ends on 30 th of June. The Auditor General of Pakistan has committed to present the full annual audit reports to the President/PACs eight months after the closure of the financial year. The timing and availability of annual GovKP audit reports, in line with statutory timings, is given in Appendix 2. As of July 2013, the AG was engaged with Departmental Accounts Committees and had not compiled the full provincial FY 2010-11 Audit Report to be considered by the next PAC (yet to be constituted by the new government). Key findings The major issues with external audit pertain to the limited coverage, a sample of government entities representing only 33% of total expenditure, and the timeliness of submission of audit reports to the legislature. The timeliness of audit reports had improved and the follow up action on PAC recommendations was often quite rapid. Hence, PEFA 2011 has shown substantial improvement in the llegislative scrutiny of external audit reports D+ to B+. The AG has introduced a risk-based audit methodology and the GovKP is supporting the AG in its efforts to embed risk-based audits and
  • 80. 80 performance audits. Besides, the risk of misappropriation can be avoided by introduction of ex-ante internal audit system functioning on international standards. An important reform would be to give public access to audit reports, which is not covered by the PEFA assessment and was mentioned in the last AMR. Public access to audit reports is one of the elements of the IMF’s code of good practice on fiscal transparency. The audit reports are not published and cannot be become available to public until the PAC scrutinizes it. The existing law does not require publishing audit reports, although the law does not prohibit from doing so. Moreover, in the last few years, the Public Accounts Committees has been open to the press, and media has been reporting on discussions of and cases scrutinized by the National Assembly. More recently, the GovKP has also passed the Right to Information (RTI) Act for a more open and transparent financial governance. Under the RTI Act, “every citizen shall have the right to any information held a public body…detailed budget…including proposed and actual expenditures” … with some exceptions. The legislature get inadequate time to debate the executive’s budget proposals for both detailed estimates and, where applicable, for proposals on macro-fiscal aggregates. The time for debate in the Provincial Assembly for the Budget proposals is restricted to around 10 to 14 days. More time would certainly allow more informed consideration of budgets by the legislature. The federal budget is presented in the first week of June, which is followed by the provincial budgets, and these budgets are passed before end June. However, legislators are being taken on board occasionally for MTBF/OBB/budget planning and implementation through hearings of Finance and sector committees. Elementary and Secondary Education Sector Issues Despite rapid growth in education expenditure over the past ten years, the KP Province remains confronted with serious challenges to achieve improved coverage and quality of education services. The ES&ED is the largest employer, accounting for 47% of total GovKP staff in FY 2011/12 compared with 37% in FY 2004/05. In spite of the rapid growth in expenditure and teacher appointments, the public resources continue to fall short of accommodating the fastest growing student population and increasing the access to girls schooling within primary education - whilst the majority of primary schools have only two classrooms and two teachers, and about 24% of boys’ schools and 18% of girls’ schools have only one teacher on average. The recurrent budgets have been subject to various forms of rationalization and adjusting measures, except for items pertaining to wages and salaries. Spending restraint also affected negatively the provision of textbooks, teachers training, maintenance of school facilities and other operating expenses often addressed through the creation of donor-led fiscal space. Reportedly, the expenditure reality is also tilted towards secondary education at the expense of primary education, a clear disconnect is pointed between sector strategy and expenditure allocations. Thus the les attention to the primary education needs to be corrected but not at the expense of secondary education. The annual audit reports testify gross financial management in the education sector and point at the lack of compliance in financial regulations and failure to provide full documentation of certain purchases and
  • 81. 81 other financial transactions. And yet the follow up and corrections made by the E&SE Department to the actions recommended in the audit reports as far as improving the management of financial records and monitoring and sanctioning teacher absenteeism, are rudimentary or practically, non-existent. Key Weaknesses in Financial Management Affecting Provision of Education Services Poor planning and monitoring at district level in the use of non-salary resources are contributing to inefficient allocations of resources in public education, and this needs to be prioritized in the PFM reform program. GIS analysis of school locations in Swabi district, for example, shows that a substantial percentage of schools are located relatively close to each other and a consolidation may be needed. Moreover, while resources have been allocated towards enhancing the education sector horizontally, there is relatively less emphasis on introducing qualitative depth into the sector. Another major weakness is in linking budget resources with outcomes in the KP Province. Despite the introduction of output‐based budgeting, the shifts in expenditure have been volatile, in both current and development expenditures, with no direct linkage with performance. KP has no monitoring mechanism in place to measure teaching and learning progress at school and district level, as other Provinces do (i.e., the Punjab’s Examination Commission), so it is difficult to measure how, if at all, the increased spending is improving performance in schools. In addition to weakness areas identified above, other major PFM weakness in regards to the education system relates to the lack of automated registry processes and information systems comprising teachers and non-teachers personnel as well as contract-based employees not captured adequately by the existing HRMIS capabilities and the AGP payroll system at the district level. This is severely hampering monitoring of teachers registering at work and quality of teaching. 4. Assessment of continued relevance of the strategy Recent Diagnostic Work: Key Issues The PFM reform program has progressed slowly. The reform program is quite relevant to the achievement of social-economic development objectives and the reform needs of the public finance management institutions and primary service delivery units for the KP Province. It is based on the recent PEFA/FRA diagnostic analysis. The program identifies key weaknesses in the PFM system adequately and provides remedy actions to offset the deficiencies in technical capacities and skills. Implications for the Reform Programme Sequencing The reform program is addressing the “basics first” principle to solving of core weaknesses in the PFM system. On top of agenda is strengthening of the financial planning and monitoring function as well as the MTBF strategic guidance role within the Finance Department while narrowing the focus on primary service delivery through OBB in line Departments. This sequencing is designed to assist the GovKP in
  • 82. 82 deepening the MTBF process in FD and improving the economic planning and budgeting capacities at line Departments. The PFM reform program also emphasizes parliamentary scrutiny and internal audit function. However, some fundamental reform measures are not addressed, such as those pertaining to aid, treasury management and reporting through PIFRA, and mostly relate to coordination at federal level. Political buy-in The PFM reform strategy is home grown and has full ownership of all stakeholders, including the unwavering lead of Chief Minister and continued support of Finance Minister. The GovKP began the public sector reform programme from 2006 which has survived through successive provincial governments. The FD leads the reform strategy, in full consultation with other stakeholders like P&DD, Establishment Department, etc. The PFM reform strategy has gained further ground in KP in recent years, and discussions between GovKP authorities and DFID have intensified towards agreeing on an extended action plan for PFM reform within the E&SED. A newly launched EU funded support program aims to strengthen the functioning of Standing Committees of the Senate and National/Provincial Assemblies including the PA in the KP’s Provincial Assembly. This program would afford an opportunity for elected representatives to gain knowledge on PFM reforms and achieve a consensus view in favor of deepening the PFM reforms. 5. Assessment of continued credibility of the strategy Corruption, fraud and PFM Procurement regulations have remained a weak area in PFM reforms at KP. This has resulted in low quality of goods and public works procured and sub-standard provision of basic services. By the same token, public workers take the opportunity to evade their workplace because of failed staff registry and poor work attendance and monitoring systems. The recently established Procurement Authority has daunting task in front of it in respect of the above mentioned weaknesses. Another contributing factor influencing the effectiveness of procurement reforms in KP Province is the overcrowding of government interventions affecting the delivery of key services such as health, education, water and power. The government’s involvement in every sector as a direct market participant, estimated at 50%, is obstructing private sector entry, impeding the development of competitive markets and installing poor quality regulation. Coordination, Capacity Building and Coherence The GovKP PFM reform program has sound institutional arrangement having representation of all stakeholders who meet periodically to steer and monitor the program. The FD leads the reform strategy in consultation with P&DD and other stakeholders such as the DG Audit KP, Establishment Department, etc.
  • 83. 83 The PFM reform program is designed more on the basis of PEFA. The priorities identified are to improve budget credibility and transparency, in the first place, which will allow the government to stress the need for increased compliance with proper regulations and laws and create the necessary technical capabilities within FD, and the line Departments. The reform program strategy focuses on three levels - aggregate fiscal discipline, improved allocation of the available resources in accordance with the province development objectives and sector strategies, achieving greater efficiency and probity in the use of funds leading to improved service delivery. Donor coordination The PFM reform strategy establishes a platform for dialogue, donor assistance and a framework for coordination and coherence with regard to actions to enable improved performance of the PFM system. It demonstrates the desire to push forward with PFM reforms with impact anticipated in specific areas. Based on this, the strategy is critically relevant to addressing the identified challenges and narrow to the education sector—presently, DFID is assisting the FD and E&SED drafting a PFM reform strategy specific to the E&SE sector, at the request of GovKP authorities. Capacity building An examination of donor interventions relevant to education has been made (Appendix 5) to identify the contributions to the PFM reform above and it concludes that various institutional weaknesses had surfaced since its approval. Institutional weaknesses prevail in the dialogue agenda within those areas of PFM reform controlled directly under World Bank-funded PIFRA. These pertain to accounting and reporting, and external audit; the former is a critical component that forms the backbone of PFM reforms. Others institutional weaknesses and lack of proper donor coordination had emerged in regards to strategic planning and budgeting, internal audit, and monitoring and evaluation, where EU, DFID, GIZ and USAID are overlapping. Other revealing weaknesses appear in areas not covered directly by donors in KP Province, those relate to human resource management and procurement. Coherence in supporting PFM weaknesses The PFM reforms had been unproductive in areas that are federal subjects like government accounting and transparency, internal controls and internal audit, and scrutiny of public accounts. All these PFM areas are to be tackled at the Federal level. This includes issues pertaining to development projects and aid reporting under the competency of the Economic Affairs Department (EAD) as well as cash management and financial recording and reporting and others relating to budget execution and internal controls under the competencies of the Auditor General of Pakistan (AGP) and the Comptroller General of Accounts (CGA). Other areas of PFM reform being politically sensitive and not being too productive in recent years include the reform of the tax structure and tax administration as well as the financial reform of the power sector both severely hampering the overall fiscal position of the Government of KP Province.
  • 84. 84 6. Conclusions on eligibility On the basis of the analysis presented above, it is concluded that eligibility criterion is fulfilled because:  The PFM reform strategy is considered sufficiently relevant to the development objectives of the KP Province.  The PFM reform strategy is considered sufficiently credible because it identifies key weaknesses in public financial management adequately and narrows its approach of interventions into specific priority sectors.  The reform program is reasonably well sequenced and has gained the championship of the Finance Department with sufficient ownership of provincial authorities. 7. Quality of the dialogue The foregoing analysis has identified several gaps in the PFM reform program, which form the basis to a dialogue agenda and improved coordination with the GovKP and donors. These gaps are:  Revenue mobilization, tax administration and treasury management – With inefficient revenue mobilization and weak internal controls on expenditures, predictability and control in budget execution remains frail. Improved budgeting of program resources is thus required for improving service delivery.  Procurement - Purchases of goods and services for service delivery should be competitive and planned well ahead – a robust public procurement authority is required.  Human resource management – Some areas for improvement in service delivery are strict internal controls for improving human resource management, updating job descriptions and performance indicators for civil servants, linking PFM, M&E and Planning and Coordination in setting out annual targets and performance indicators for staff, and better use of IT, PIFRA has an HRMIS. EU and other donors may support of the extension of an existing performance based job descriptions pilot.  Aid budgeting and reporting, and accounting and reporting, under the direct control of Ministry of Economic Affairs and AGP – e.g. donors may help in sharing info on aid flows, commitment, disbursement and forecast, in accordance with government budget practices.  Monitoring and evaluation - e.g. the reforms in monitoring and internal audit could help on teacher absenteeism, certification of teachers, alignment of teachers pay to performance, verifying of textbooks and other teacher materials, and learning outcomes - requiring changes in internal controls as well as appropriate e-government and information systems.
  • 85. 85 Appendix 1: Summary table of PFM performance and reform programme monitoring Dimensions of PFM system where key weaknesse s have been identified Baseline: Key specific weaknesses identified in diagnostic work (PEFA etc.) Short term reform expectations (one year) as set out at formulation stage. (To be updated successively by subsequent annual reports from previous year's column 5) Progress to be monitored during the lifetime of the current programme. Evolution since formulation or last Annual Monitoring Report: Summa ry of policy dialogu e Revised objectives to be monitored for the next year (Becoming next year's column 3) Medium term targets of the PFM reform programme a) Performance b) Reform process Source of verification (1) (2) (3) (4) (4 bis) (5) (6) Policy based budgeting Multi-year fiscal forecasts and functional allocations: the MTFF was in embryonic form in 2010- 11. MTFF is more in the form of an ad-hoc procedure until a more elaborate framework is developed and the necessary capabilities are established. Development of more elaborate MTFF framework. MTBF framework has been strengthened and 3- year fiscal forecast and functional allocations are indicated in the Federal MTBF/Green Book and KP's OBB. See OBB document. As in (6) Strengthen MTFF processes in line with best practice.
  • 86. 86 Scope and frequency of debt sustainability analysis: A debt sustainability analysis for external and domestic debt or other similar exercises have not been undertaken in the last three years in early 2011. Undertake debt sustainability analysis The Federal debt sustainability analysis for external and domestic debts has been carried out by the IMF; the IMF considers the debt level as stable. See report on recent Article IV Consultations. As in (6) The federal government compiles annual statistics on and carries out a comprehensive sustainability analysis of external and domestic debt regularly. 1/ Existence of sector strategies with multi-year costing of recurrent and investment expenditure: A Health Sector Strategy, along with multi-year costing of recurrent expenditures and corresponding linkage to investment projects, is still missing. Development of health sector strategy and other sector strategies Sector strategies are being published in the federal Green Book and KP's OBB document. Strengthen strategy development processes in line with best practice. Development of sector strategies for all Provincial agencies. MTBF established, but weak because KP heavily depends on federal transfers. As in (6) Fully functional MTBF throughout the province. GovKP plans to extend MTBF/OBB to Districts for which some preliminary work on has been carried out. As in (6) Extension of OBB to Districts, established at provincial Department level.
  • 87. 87 Linkages between investment budgets and forward expenditure estimates. Budgeting for investment and recurrent expenditure remain separate processes without considering medium-term recurrent cost implications. Development of improved linkages between budgets and forward estimates and consideration of medium cost implications of development budget expenditures. As a part of OBB, the GovKP trying to integrate recurrent and investment expenditures, particularly in the ESE sector. As in (6) Integration of recurrent and investment budgets. Comprehen siveness and transparenc y The continued operation of donor funded projects outside government systems. The issue has the following dimensions: No change As in (6) Monthly budget execution reports released by Accountant General cover 100% of development projects financed by external loans and grants and donor funded projects are reflected in government accounts. (1) lack of timely information being provided for reconciliation purposes; (2) use of project accounts which are effectively off-budget in terms of their operations and upon which the AG is dependent on program administrators for information on expenditures;
  • 88. 88 (3) The continued operation of donor funded projects outside government systems. Monthly budget execution reports released by Accountant General cover 80% of development projects financed by external loans but omit about half of those funded by donor grants Public access to key fiscal information is relatively poor The PEFA assessment indicates the following information should be included in budget documentation: more complete information on macroeconomic assumptions; a statement of dividends and profit is published in the financial statements annually; more detail on actual and revenue and With the institution of MTBF/OBB, information on these areas is improving. As in (6) The PEFA indicator for public access to fiscal information improves from its current score of C.
  • 89. 89 expenditure out turn for previous years presented in the same format as the budget; more detailed explanation of new policy; in-year budget execution reports; regular publicly available external audit reports; information on contract awards; and information on resources available to primary service units. Predictabilit y and control in budget execution Predictability and availability of funds for commitment. Cash flow forecasts and information to commit expenditures are well organised, but within-year adjustments are common, even though these occur with some transparency No proposals were made in the 2011 FRA/PEFA to address this problem. The issue is tied to a Constitutional/legal provision that provides the executive with the authority to reallocate expenditure and increase overall expenditure over the year without prior No change As in (6) Passage and assent at the Federal level of legislation to require ex- ante approval by Cabinet for supplementary funds. Adoption of the same legislative approach by the government of Khyber Pakhtunkhwa.
  • 90. 90 reference to the legislature. Ineffective and inefficient tax regime. The province’s taxpayer registration system is mostly manual; there are no administrative procedures from any of the provincial tax departments that would outline penalties and sanctions to taxpayers not complying with registration guidelines, and no effective tax audit/inspection system. Improvement in the clarity of legislation and operating procedures and the discretionary powers of government entities involved. GovKP plans to: establish its Revenue Authority, enact a provincial Sales Tax on Services Act to administer the sales tax on services, expand the tax net and revise old tax rates; attempt better tax enforcement and simplification of tax laws; and carry out an independent survey for tax administration assessment and collection. As in (6) The transparency and effectiveness of the tax regime (PEFA indicators PIs-13 and 14) improve significantly from their current scores of D+. Insufficient audit of payroll. Improvement in coverage and audit of payroll records consistent with modern internal audit precepts. Efforts on to control absenteeism through better use of registry, IT (PIFRA and HRMIS), M&E systems and internal audits. As in (6) Implementation of a comprehensive and modern IT based audit system.
  • 91. 91 Lack of an internal audit function. At the time of the base line assessment the internal audit function within the Government of Khyber Pakhtunkhwa was not yet in force. Partial progress. An IA unit is already operational in FD, and the previous cabinet has approved setting up of IA functions in four pilot departmets, for which post also stand created in the BE 2013-14 As in (6) Progress towards establishment of an internal audit system consistent with international and professional standards, including strategy, regulation, methodology and instructional material. Key aspects of public procurement remain relatively high risk, partly because of the absence of records that demonstrate that open competitive procurement is the norm and partly through a lack of justification being provided when open competitive tendering is not used. Passage of a Procurement Bill submitted by the Government of Khyber Pakhtunkhwa to the Provincial Assembly during 2010 to address the risks with procurement and broader public procurement reforms. Procurment Act passed and an autonomous authority notified. As in (6) The overall score for PEFA indicator PI-19 Competition, value for money, and controls in procurement, improves substantially from the current score of D+. Credibility of the budget Constitutional/legal provision that provides the executive with the authority to reallocate expenditure and increase overall expenditure over No proposals were made in the 2011 FRA/PEFA to address this problem. No change. … As in (6) Passage and assent at the Federal level of legislation to require ex- ante approval by Cabinet for supplementary funds.
  • 92. 92 the year without prior reference to the legislature. The issue is pervasive affecting all levels of PFM across Pakistan. Action will need to be taken first at the Federal Level given its central role in government accounting and reporting influencing heavily GovKP accounting and reporting. Adoption of the same legislative approach by the government of Khyber Pakhtunkhwa. Accounting , recording and reporting The quality and timelines of in-year budget execution reports remain relatively weak in Khyber Pakhtunkhwa. In principle, the GFMIS and SAP-3 should be capable of producing information on financial resources received by service delivery units. In practice, this information (and information on in-kind resources received by health care providers) does not appear to be compiled into reports at the provincial government level. No change. As in (6) PEFA indicator 23 (Information on resources received by service delivery units) and Indicator 24 (quality and timeliness of in- year budget reports) improve from their current scores of D and C respectively. No comprehensive data has been collected (through independent audits, surveys or otherwise) on the intermediation and availability of resources to health care and other .service delivery units.
  • 93. 93 External scrutiny and audit The scope of audit only covers government entities representing 33% of total expenditure. Coverage should increase and the risk of misappropriation can be avoided by introduction of ex- ante controls and functioning internal audit systems. No progress; the audits of FY 2011-12 remain outstanding. As in (6) Scope of audit complies with international standards for risk based coverage. PI-26 Scope, nature and follow-up of external audits improves from the current score of D+. Inadequate time is allowed for the legislature to provide a response to budget proposals for both detailed estimates and, where applicable, for proposals on macro-fiscal aggregates earlier in the budget preparation cycle (time allowed in practice for all stages combined). The time for debate in the Provincial Assembly representatives of the Budget proposals is restricted to around 10 to 14 days from start of deliberations. Improvement in timing submission of budget proposals to allow for more informed consideration by the legislature. Legislators are being taken on board occasionally for MTBF/OBB/budget planning and implementation through hearings of Finance and sector committees. It is difficult to increase significantly the time for budget debates since the federal budget is presented in the first week of June which are followed the provincial budgets and the these budgets are passed before end June. As in (6) Schedule of budget hearings and National/Provincial Assembly Orders provide adequate time for consideration and analysis of budget proposals by the legislature. 1/ Debt is a federal issue; the provincial borrowing is regulated by the provincial government debts
  • 94. 94 are not high.
  • 95. 95 Appendix 2: Timing and Availability of Annual External Audit Reports Latest year for which audit report is available (FY 2010-2011) FY 2009-2010 FY 2008-2009 Annual accounts Audit report Annual accounts Audit report Annual accounts Audit report Due date* Date of sub- mission to SAI* Due date Date of sub- mission to Parliament Due date* Date of sub- mission to SAI Due date Date of sub- mission to Parliament (1) Due date* Date of sub- mission to SAI Due date* Date of sub- mission to Parliament 31-Aug- 11 31-Aug- 11 30-Jun- 12 7-May-12 31-Aug- 10 31-Aug- 10 30- Jun-11 9-Sep-11 31-Aug- 09 31-Aug- 09 30-Jun- 10 27-Sep-10 (1) Actual date of submission to Parliament *There is an inter-institutional arrangement between the Controller General of Accounts and the Auditor General of Pakistan so that the submission of the accounts by the Controller General of Accounts takes place 2 months after the closure of the financial year. The financial year in Pakistan ends 30st June. The Auditor General of Pakistan has also committed to present the audit reports to the President and the assemblies 8 months after the closure of the financial year. Over the last three years, the Auditor General of Pakistan has been able to produce the audit reports of the Federal and the Provinces within 12 months and from FY 2009-10, it is also producing the audit reports of the districts. However, audit reports do not become public until they are scrutinized by the PAC and the PAC reports of the latest financial years have not been approved yet. The actual dates of submission, the audit reports as well as the internal arrangement setting deadlines for submission are not available to the Delegation so it cannot verify information or contents of audit reports.
  • 96. 96 Appendix 3: List of background documents consulted 1. European Union, Budget Support Guidelines, September 2012 2. European Union, Supplementary Document to the Action Fiche: PFM eligibility criterion, Khyber Pakhtunkhwa Education Sector Plan Support Programme (KP-ESPSP) DCI-ASIE/2013/024616 3. GovKP, Finance Departments, 2013-14 White Paper 4. GovKP, Finance Departments, Budget Estimates for Service Delivery, 2012-13 5. GovKP, Finance Departments, Budget Estimates for Service Delivery (Green Book), 2013-14 6. GovKP, Finance Departments, Annual Budget Statement, 2013-14 7. GovKP, Planning & Development Department, Government of KP Economic Growth Strategy (2011). 8. Government of NWFP Comprehensive Development Strategy, 2009 – 2015 Draft Final Report (May 2009) 9. GovKP, Finance Departments, Post Crisis Needs Assessment for Khyber Pakhtunkhwa and FATA (PCNA) 10. IMF, Pakistan: Staff Report for the 2013 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility, September 2013, http://www.imf.org/external/pubs/ft/scr/2013/cr13287.pdf 11. PEFA, 2011 Public Expenditure and Financial Accountability Assessment (PEFA) and the Fiduciary Risk Assessment (FRA) and addresses the areas assessed as being most in need of reform.
  • 97. 97 ANNEXURE CA 4 Assessing eligibility on Transparency and Oversight of the Budget Template B: Payment file for the programme Khyber Pakhtunkhwa Education Sector Plan Support Programme (KP-ESPSP) DCI- ASIE/2013/024616 Fiscal transparency is a key aspect of good governance which is important for achieving and sustaining macroeconomic stability, high-quality growth and sound fiscal management. The fiscal transparency allows for better-informed debate by both policymakers and the public about the design and results of fiscal policy and establishes accountability for its implementation. As required by EU Budget Guidelines, Part 2, Annex 6, Template B, this Annex addresses two basic questions about budget transparency and oversight for the disbursement decision by EUD for KP- ESPSP: one, whether the entry point is met; and two, whether GovKP shows satisfactory progress with regard to the baseline and objectives on budget transparency identified during the formulation phase. As most of these reforms take time, our assessment will focus on medium term reform process and expectations rather than show annual progress. 1. Assessing the entry point The GovKP has been implementing a series of measures to improve transparency and accountability on the utilisation of public resources. The GovKP follows a regular budget cycle, preparation, presentation to the provincial assembly and approval, implementation and audit. Budget documents are prepared every year and presented to the provincial assembly for approval. The budget documents are printed and made available to the members of provincial assembly for a short debate in the assembly. The approved changes are normally few; the Chief Minister signs the schedule of approved expenditure and the approval is through a notification rather than a reprint of budget document. The budget documents are also put on the website of the Finance Department and are available to the general public online and also in hard copy format. The budget information is fairly detailed and GovKP has been trying to improve the budget presentation. The budget format, Annual Budget Statement, is generally uniform and compatible with national and international standards thus enabling comparison of the provincial government financial performance over time and space. The Budget Strategy Paper provides preliminary proposals, and the White Paper gives the government’s plans towards its upcoming budget. The OBB/MTBF document gives departmental policy priorities, performance definition, and budget allocation by services to be delivered over the budget and next 2-years. The Finance Act of the year gives the changes in tax laws. The end-year estimates of financial expenditures are usually presented alongside the budget figures. An Assessment Grid for Key Budget Documents is given in Annex A.
  • 98. 98 For the FY 2013/14 Budget, the Finance Department put the following documents on its website, http://www.financekpp.gov.pk/FD/80-fd-kpk/budget-speech-a-white-paper/236 (see website image below). 1. Salient Features of Budget 2013-14 (English) 2. Salient Features of Budget 2013-14 (Urdu) 3. Budget Speech 2013-14 4. Budget Strategy Paper 2013-14 5. White Paper Budget 2013-14 6. Annual Budget Statement 2013-14 7. Khyber Pakhtunkhwa Finance Act, 2013 8. Demand for Grants 2013-14 (Development) 9. Output Based Budgeting 2013-14 Website Image: Publication of budget documents for FY 2013-14. The new Government highly values the transparency and accountability and the authorities have continued to support budget transparency and promote public participation. Before the 2013-14 Budget, the GovKP arranged four pre budget consultative workshops of stakeholder and selected citizens. The Government has got enacted the Right to Information Act (RIA) for citizen’s access to information, and is in the process of preparing a provincial Accountability Bill. The RIA is a major step forward for improving the budget oversight, foster public accountability, combat corruption and judicious use of public funds. Some weaknesses however remain despite the foregoing favourable assessment. No significant progress has been made by GovKP for timely publishing of full budget execution reports, thus resulting in partial levels of transparency to the general public (see Annex A). Similarly, the 2013 general elections and
  • 99. 99 formation of new Government have slowed down the consideration of audit reports for FY 2010-11 and FY 2011-12 by the PAC. We however consider this as an aberration. The entry point is thus considered to be met, as the GovKP/Executive's budget proposals / the enacted budgets were available in detail in print form as well as on the Finance Department’s website. 2. Assessing progress Pakistan improved its OBI score significantly to 58/100 in 2012 from 38/100 in 2010 and 2008. The federal government has been improving its budgetary processes documentation for the past many years. The Open Budget Survey 2012 done by International Budget Partnership’s (IBP) ranked Pakistan at 29 th position among 100 countries that were compared. The 53% improvement in OBI score in 2012 is largely due to the publication of the Green Book, which has significantly increased the budget comprehensiveness. The Green Book, a supporting document to the executive’s budget proposal, gives the departmental policy priorities, performance definition, and budget allocations by services to be delivered over the budget year and next 2-years. Similarly, the GovKP has been bringing in improvements in its budget processes and documents as noted above. The province’s budget format is quite comprehensive and almost comparable with the federal budget, including the OBB service delivery book, which can be compared with the federal Green Book. However, the PEFA reports are more cautious, issued at the Federal and KP Province levels in 2012 and 2011, respectively. The latest KP PEFA of January 2011 presented an elaborate diagnosis showing the ratings improving only moderately, or not improving at all (see table below). This latest report showed an unchanged overview of comprehensiveness in budget information (B rating) and in fiscal transparency overall (C rating). Although old, these PEFA reports do raise questions on the budget transparency in GovKP. Public Expenditure and Financial Accountability (PEFA) Framework—KP Province Indicator Description Score 2007 Score 2011 PI-6 Comprehensiveness of information included in budget documentation B B PI-10 Public access to key fiscal information C C PI-23 Availability of information on resources received by service delivery units B D PI-24 Quality and timeliness of in-year budget reports C+ C+ PI-25 Quality and timeliness of annual financial statements B B+ PI-26 Scope, nature and follow-up of external audit D+ D+ PI-27 Legislative scrutiny of the annual budget law C+ D+ We believe that: As for the availability of key budget documents to the public is concerned, the access to fundamental budget documents, i.e. the executive’s budget proposal detailed by service delivery, budget enacted by the provincial assembly and the year-end estimates of expenditures, are available to the public, both in hard copy and electronic versions. The documents that are lacking to the public are the in-year budget
  • 100. 100 executions reports, mid-year budget report, annual audit reports and year-end appropriation accounts and finance accounts. As for the timeliness and comprehensive of budget information, the timely public access is solely to the annual budget documents enacted by the provincial assembly. These documents gives comprehensive details on fiscal and debt accounts, but lack the macro-economic assumptions, prior year’s budget outturn, and summarized budget data for revenue and expenditure. In contrast, the in-year budget execution reports, contract awards, annual audit and other special audit reports, and district reports on resources made available to primary service delivery units are not published through website or other media. As far as the quality, integrity and accuracy of budgetary information, several weaknesses may be noted, as in other governments. The budget estimates are of low quality/integrity and often change over the year partly because they are not well considered and/or the government priorities may change. The public engagement in the budget process is rudimentary and weak including the legislative approval and oversight compared with the executive’s discretion, which is quite high. 42 The in-year budget execution reports, prepared on monthly/quarterly/half-yearly basis contain inconsistencies in the information without any meaningful resolution. This is quite relevant for the purposes of budget oversight as the IFMIS facility is not able to record and report all relevant financial transactions on a real time basis, e.g. commitments and payments on externally-funded development projects. More specifically, the progress on the identified medium term reform expectations with regard to the baseline weaknesses is given below. 42 The provincial assembly not involved in the budget process prior to the submission of the budget proposal, the MPAs get very short time (about two weeks) to discuss the budget, they have little research and analytic capacity, and have no power to influence the budget allocations during implementation. In contrast, the Executive has huge powers – it can transform the budget approved by the legislature during execution by redistributing resources from Department to Department or from item to item, or by allocating additional revenues and contingency funds, all without seeking legislative approval. This leads to executed budgets that look very different from those originally approved, undermining transparency and accountability. Similarly the processed of engagement of public are rudimentary and not based on the best practice.
  • 101. 101 Key budgetary document Baseline: Key specific weaknesses identified in diagnostic work Medium-term reform expectation Means Evolutions since last assessment Executive’ s budget proposal The budget proposal submitted to KP Provincial Assembly is not published to the public. Update the Rules of Business of GOKP so as to allow the Finance Department to publish the annual appropriation bill through website or other appropriate means. Verify the status of compliance through the issuing of official documentatio n supporting approval of GOKP Rules of Business Preparation of provincial budget docs and laying these before the provincial assembly is a Constitutional mandate (see Article 120), and as per GOKP Rules of Business, FD prepares these budget docs. A Financial Management Information Unit exists within FD to upload the budget docs on FD’s website. In-year budget reports Persisting flaws in the monthly budget reports in that a significant portion of donor- funded projects do not present accurate figures. This is attributed to these projects operating outside government systems which represents a weakness – but this is not solely within the ability of the GOKP to control. The GOKP has emphasised that it accounts for Reforms under the scope of Federal Government progressed more favourably to the extent that aid coordination and management (under the responsibility of the Ministry of Economic Affairs) integrated to the national systems. Thus, aid projects are registered in the budget system and financial transactions recorded on a daily basis through PIFRA Verify the status of compliance through World Bank’s PIFRA progress reports and donor coordination meetings (PFM Working Group). No change. Under PIFRA arrangements, the monthly reports are shared internally within the government, the line Departments, Finance Department and AG. But the information on donors’ commitment does remain weak.
  • 102. 102 only those donor funded projects which are budgeted and financed through KP Account No. I (Non-Food). thus enabling in- year reports to consolidate all GOKP operations in accordance to best practice. Mid-year report A mid-year budget review is not issued at GOKP level Update the Rules of Business of GOKP thus requiring the FD to produce and publish a mid- year budget review to monitor the implementation of the budget during the first half of the year and its performance with respect to previous semesters and years. Verify the status of compliance through the approval of GOKP Rules of Business. No change. The mid-year budget reviews are held although reviews are not published. Under PIFRA arrangements, all public finance accounts data are kept electronically and reports can be generated if required. Besides, enacting of RIA is a major step forward for improving the citizen’s access to information and budget transparency. Year-end report Appropriation accounts and finance accounts are produced by the Government and submitted to the Provincial Assembly. Appropriation accounts and finance accounts should also be published. Verify publication of documents in websites. No change. The appropriation accounts and finance accounts are not published although estimated outturn of the last year is given along with the budget figures. Under PIFRA arrangements, all public finance accounts data are kept electronically and reports can be generated if required. However, these accounts are not published annually as in the past. However, enacting of RIA is a major step forward for improving the citizen’s access to information and budget transparency.
  • 103. 103 3. Conclusion Satisfactory progress is made despite some usual weaknesses because:  The GovKP is strongly committed to budget transparency and accountability.  The Right to Information Act has been enacted which will prove a major step forward for improving the citizen’s access to information and budget transparency.  For the 2013-14 Budget, the GovKP engaged stakeholder and selected citizens in four pre budget consultative workshops.  The OBB/MTBF has been extended to all provincial Departments and being extended to Districts; hence the budget comprehensiveness has been increasing.  Under the PIFRA arrangements, all public finance accounts data are kept electronically and the required reports can be generated fairly quickly.
  • 104. 104 Appendix A: Assessment Grid for Key Budget Documents 43 Key Budget Document Description Produced (yes/no) Published (date; website) Timelines of Publication (yes/no) Comprehensiveness & Quality (narrative on key issues) Executive' s budget proposal The executive's budget proposal is the government's draft budget that should be submitted to the legislature. As a Constitutional requirement (See Articles 120-122), the GovKP’s budget proposal consists of the following docs: Vol I: Annual Budget Statement Vol II: Estimates of Receipts Vol III: Demands for Grants Vol IV: Schedule of new expenditure Vol VI: Budget Memorandum Budget speech Supplementary budget statement Annual Development Plan (prepared by P&DD). Additionally, the GovKP also publishes the following: White paper Budget estimates for service Yes Early June The whole set except for volume Vol III: Demands for Grants is available Finance department website, http://www.finan cekpp.gov.pk/ Annual Development Plan published by P&DD is available on the P&DD’s website: http://www.khyb erpakhtunkhwa. gov.pk/Departm ents/PnD/Downl oads.php Yes Fairly comprehensive. 43 The benchmarks are based on the Open Budget Survey / Index, the Public Expenditure and Financial Accountability Framework, the IMF Code of Good Practices on Fiscal Transparency, and the OECD Best Practices for Budget Transparency
  • 105. 105 delivery (OBB) Enacted Budget The enacted budget refers to the budget that has been passed by the legislature. The budget passed by the legislature is contained in a Schedule of Authorised Expenditure which has to be signed by the Chief Minister. See Article 123 of the Constitution. Yes No. The enacted budget is almost same as the budget proposal as the Provincial Assembly makes little change in the budget proposal. Annual Development Plan is also same and available on the P&DD’s website. In-year report In-year reports (also Monthly Reports or Quarterly Reports) show progress in implementing the budget. These reports can be issued for the entire government or issued by different agencies. The Controller General of Accounts must prepare and submit statements and summaries of monthly and quarterly accounts (Article 7 of CGA Ordinance Yes. No Should show the executive's progress in implementing the budget. Yes, they do but are not made available. Also, they often have inconsistent data difficult to resolve.
  • 106. 106 2001). Under PIFRA arrangements, all public finance accounts data are kept electronically and reports can be generated if required. See also consolidated monthly and quarterly accounts in point (See Section 3 Financial Reporting Manual.) Mid-year report The mid-year report provides a more Comprehensive update on the implementation of the budget. The CGA has to prepare Half Yearly Financial Statements which includes a statement of revenue and expenditure (point 3.2 of Financial Reporting Manual). However, this is not really a mid- year report on the implementation of the budget as it does not compare implementation of budget with allocations, and it does not contain a review of economic assumptions or an updated forecast. No No Should include an update on the implementation of the budget, a review of economic assumptions, and an updated forecast of the budget outcome for the current fiscal year. Year-end report The year-end report is one of the key accountability documents. It shows compliance with the level of revenue and expenditures Yes. No. Should include the reconciliation with the approved budget and compliance with the revenue and expenditures authorised by the
  • 107. 107 authorised by the legislature. The Controller General of Accounts must prepare and submit appropriation and finance accounts (Article 7 of CGA Ordinance 2001). According to point 3.2 of Financial Reporting Manual, the CGA must prepare Annual Financial Statements which include among others: Summary of Appropriation Accounts by Grants and Appropriations Appropriation Accounts by Economic Functions and Department / Division Appropriation Accounts by Grant Analysis of Revenues by Division/Department Parliament. Audit report This report covers the year-end report audited by an independent Supreme Audit Institution. The reports of the Auditor General relating to the accounts shall be submitted to the Governor who shall cause them to be laid before the Provincial Assembly (Article 171 of Constitution). (See also the Yes No. Audit reports are scrutinised by the Provincial Assembly but they are never published. However, PAC reports are being published Should cover all activities undertaken by the executive following the adherence to appropriate auditing standards, and to the principle of interdependence of the external audit institution. Should focus on significant and systematic PFM issues and on performance such as reliability of financial statements, regularity of transactions, functioning of internal
  • 108. 108 AGP Ordinance 2001.) now. The audit report of 2010-11 is still not scrutinized by PAC and the report of 2011- 12 has still not been prepared. control and procurement systems. The report covers mainly financial aspects of GovKP, not addressing systemic PFM issues pertaining to performance and reliability of financial statements, internal control and procurement.
  • 109. 109

×