Planning Process for Economic Growth in Pakistan

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Dr. Vaqar AhmedSustainable Development Policy Center

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1. To increase per capita and national income2. Higher level of employment3. Price stability4. Reduction of inequalities in income distribution5. To remove BOP difficulties6. Reducing regional disparities7. Self-sufficiency in food8. Redressing imbalances in the economy9. Increase in savings10. Reducing population growth11. Reducing poverty levels12. Provision of social services13. Long term economic growth

Objectives of Economic Planning

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Planning Myths

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Myth 1: Planning is useless because policies lack consistency

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Myth 2: LDCs including Pakistan have not completed the tenure of their economic policies

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Myth 2: LDCs including Pakistan have not completed the tenure of their economic policies

The discontinuity was not in policies but projects

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Myth 3: Pakistan Vs. South Korea Model Myth

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• Aid Received

• Model Focus

Myth 3: Pakistan Vs. South Korea Model

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• Financing for Growth– Debt Funding– Equity funding

• Public Sector Funding :– PSDP– Assistance– Equity

Planning for Growth

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• Can growth & distribution be achieved simultaneously?

• Is growth necessary for distribution?

• Is it economic growth that leads to reduction in poverty or the process of distribution?

– Case of Trade Liberalization ?

Planning for Income Distribution

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• Data Collection• Analysis• Planning & Prioritizing• Implementation• Monitoring

Policy Planning & Implementation Stages

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Planning Process and Machinery in Pakistan

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• Consultation with:– Federal Ministries / Provincial Governments– Donors – Civil Society

• Formulation of National Plan– Annual Plan– Five Year Plan– Rolling Plan– Perspective Plan (15-25 Years)

• Project Management– Approval of Development Projects– Monitoring & Evaluation of Projects– Association with EAD in matters of Foreign Assistance

Functions of Planning Commission

Plan Preparation Process

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Planning Commission• Preparation of approach paper

• Formulation of technical working groups in all sectors

• Preparation of sectoral chapters by working groups

Consultations with all Federal Ministries for input

Consultations with all Provincial Govts. for input

Sent to all Fed. Ministries and Dev. Partners for comments and input

Sent to all Provincial Govts. for comments and input

Finance Division

(Resource Availability)

Economic Affairs Division

(Foreign aid availability)

Finalization of draft plan by PC and its presentation before President/Prime Minister

Submission to National Economic Council (NEC)

Circulation of approved plan to all Provincial Govts. And Federal Ministries for implementation

Transformation of plan into viable projects/programmes

Draft Five Year Plan

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Plan Periods in PakistanPlan Period

1. Colombo Plan (Six Year Plan) 1951-572. 1st Five year Plan 1955-603. 2nd Five year Plan 1960-654. 3rd Five year Plan 1965-705. 4th Five year Plan 1970-756. 5th Five year Plan 1978-837. 6th Five year Plan 1983-888. 7th Five year Plan 1988-939. 8th Five year Plan 1993-9810. 9th Five year Plan 1998-200311. 10 Year Perspective Development Plan 2001-1112. Medium Term Development Framework (MTDF) 2005-1013. Vision 203014. 10th Five year Plan (drafted twice) 2010-1515. Framework for Economic Growth 2011

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• Policies• Plans

– Perspective Plan 10-25 Years– Mid Term Plan 04-07 Years– Rolling Plan 03 Years– Annual Plan 01 Year

• Transformation of plans into projects/programmes– Policies Plan Projects

Main Instruments of National Planning

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Does Public Investment Crowd-in Private Investment?

• No strong relationship between PSDP and growth (Ghani and Din 2006)

• PSDP may kick start growth but not sufficient to sustain growth (Pasha 2011)

• PSDP contributes only 14% in TFP growth (Masood & Hyder 2007)

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• National Economic Council– Planning Document (Annual / Medium Term Plan)– Assistance and partnership strategies with donors

• Line Ministries / Public Sector Corporations– Based on their sectoral strategies / work plans

• Public Representatives/NGOs/Pressure Groups– Policy Debates

How Projects are Identified in Pakistan?

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• History– Introduced in September 1952– Revised by Group of Experts 1995 including World

Bank.– 14 Forms of Various Sectoral Projects

• Present– Only 3 sectoral PC-I Performa (Infrastructure,

Social Sector and Production Sector)

Project Preparation – PC I Performa

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• Need for Feasibility Studies– Projects costing Rs. 300 million and above

• Financing the Cost of Feasibility Studies– Provision under PSDP– Proposal to be submitted in the form of PC II

Performa

• Highly Technical Projects– Request donor for Technical Assistance Grant

Project Preparation – PC II Performa

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• PC III, PC IV, PC V• PC-III: Designed to furnish information on the

programme of on-going projects on quarterly basis–Any Changes in Scope of Design–Any Revisions–Any Changes in Management of Project

• PC-IV: Project History (Physical Completion of Project)

–Accounts Closed/amount unaccounted–Employment generated by the project–Suggestions for future planning–Name of the operating agency

Project Approval & Appraisal

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• PC III, PC IV, PC V

• PC-V form is to be furnished on annual basis for a period of five years by operating agency

– Review of costs– Review of financial results– Arrangements for maintenance of project– Difficulties experienced in operation, marketing etc. – Repercussion of scheme– General observation of Federal Ministry

Project Approval & Appraisal

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• Approving Authority

– Departmental Development Working Party (DDWP) Up to Rs. 60 million

– Central Development Working Party (CDWP) Up to Rs. 1000 million

– Executive Committee of National Economic Council (ECNEC) More than Rs. 1000 million

– Provincial Development Working Party (PDWP) Up to Rs. _____ million

– Corporations and Autonomous Bodies No Limit

Project Approval & Appraisal

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Sectoral Distribution of PSDP 2011-12

Sector Rs. Billion % Share

Infrastructure 165 57

Social Sectors 122 42

Production 3 1

Total 290 100

ERRA 10 -

Total Federal 300

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Why is PSDP Falling?

Share of PSDP in Overall ExpenditureSize of PSDP [Federal + Provincial]

Current Expenditure Crowding out Development Expenditure

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Efforts to lower fiscal deficit (IMF

program)

Low and stagnant tax to

GDP ratio

Rapid growth of current

expenditure

Reasons for Contraction in PSDP Size

Reduction in PSDP has disrupted development process

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How much PSDP reaches the Poor?

Estimate in Rs.

High Low Overhead Costs of Projects Execution 8.1 8.1 Contingency & Miscellaneous (Potential

Savings)5.0 2.5

Duties on Machinery and Equipment 1.4 1.4 Commissions on Machinery and Equipment 1.3 - Taxes and IDC on Civil Works 11.6 11.6 Corruption Payments 4.6 - Transfer Payments for Land Acquisition, etc. 5.5 5.5

Total Leakage 37.5 29.1Amount for Service Provision 62.5 70.9

Source: P&D Division

For every Rs. 100 allocated, Rs. 38 does not reach beneficiaries

Entire planning system is understaffed

Inadequate compliance to project manuals

Weak and repetitive inhouse technical analysis

Requirements of financial and economic analysis not fulfilled

Staff not aware of risk analysis, shadow pricing, and estimating rates of returns

Very short time given to process the projects

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Issues in Feasibility, Appraisal and Approval Process

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What is the consequence of 18th Amendment and 7th NFC award on federal PSDP?

How to address near Rs. 3 trillion throw forward?

Can PSDP finance mega infrastructure projects?

How to manage costs/time overruns due to cuts in PSDP?

Project cash flows and benefits are vague

Most Critical Issues

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Rationalization of PSDP Portfolio

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Escalation of Cost between 2004-11

Escalation is due to design change, upscaling, inflation effect

Project % Cost Escalation

Islamabad-Peshawar Motorway 47

Lowari Tunnel 193

Widening & Improvement of N-85 49

Rehabilitation of Karakoram Highway 67

National Program for Family Planning & Primary Health Care

415

Expanded Programme for immunization 392

Raising the Mangla Dam (including resettlement) 62

Lower Indus Right Bank Irrigation & Drainage 235

Right Bank Out fall Drain from Sehwan to Sea 109

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Projects nearing completion be fully protected

Contractual bindings in projects with foreign donors

Development Packages be protected

Only new approved projects falling in government’s priorities

Projects with 30% expenditure may be deferred unless very critical

Criteria for Slashing PSDP

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Analysis of Projects in PSDP

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Sectoral Priorities in Federal PSDP (%)

2005 2007 2009 20110

10

20

30

40

50

60

Social Development Infrastructure Productive Activities Special Areas

Special Programmes

% S

hare

Physical Infrastructure 32.8%Social Development 18.9%Productive Activities 4.6%Special Areas 13.8%Special Programmes 15.3%Other 14.6%

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Share of Infrastructure by Type (%)

2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

5

10

15

20

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Water Power CommunicationPorts Railways

PSDP Allocation for Infrastructure: 2003 Rs. 90 billion2008 Rs. 335 billion2012 Rs. 290 billion

Pakistan over-invested in Roads (Pasha 2011)

%

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Cost Components of Projects 2010-11

Largest share goes to civil works, machinery procurement, and land acquisition and resettlement

Main Cost Components Delivery Cost Total

Land & Resettlement

Civil Works

Machinery Equipment

Salary & Admin

Vehicles UtilitiesContingency

& Misc

220 2350 558 268 17.5 22 582.5 4018

5.5% 58.4% 14% 7.2% 0.4% 0.5% 14% 100%

78% 22% 100%

Source: Planning and Development Division

Rs. billion

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Monitoring Mode• Physical: site visit, meeting with PD and project teams• Desk Monitoring: data collection / updating

Reporting• Submission of Monitoring Report by concerned monitoring Officer through respective

DG

Approvals

• Member (I&M), Secretary (P&D), Deputy Chairman (Planning Commission)

Corrective Measures• Reports forwarded to the Project director and concerned Federal secretary for

necessary corrective measures

Feed back • Necessary corrective measures initiated at line Ministry level – intimation to Planning

Commission• Confirmatory Monitoring

Project Monitoring Methodology

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How Many Projects are Monitored?

YearPSDP

Allocation(BN Rs.)

Number of ProjectsNo. of Min / Div Electronically

Connected with(PMES)

Cumulative

PSDP (Nos)

Monitoring(Targets)

Monitored(Achievement)

Ex-Post Evaluated

2005-06 204 1530 170 156 - -

2007-08 335 2119 720 766 20 4

2008-09 219 1894 587 587 31 11

2009-10 300 2243 611 618 26 22

2010-11*280

(180)~1846 654 578 12

28(pre-

devolution scenario)

*Upto end-June 2011, ~ Rationalized, @ Target (33 Ministries)

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Issues in Project Implementation# Issues / Problems 2008-09 2009-10 2010-11*

1 Management Capacity 252 (43%) 212 (34%) 124 (23%)

2 Inadequate Releases 179 (30%) 183 (30%) 216 (40%)

3 Delay in Civil Works 44 (8%) 68 (11%) 75 (14%)

4 Consultant Related Issues 7 (1%) 20 (3%) 22 (4%)

5 Lack of Coordination Between Fed/Prov. Govt.

22 (4%) 9 (2%) 22 (4%)

6 Delay in Procurement 0 (0%) 7 (1%) 16 (3%)

7 Others (Security and Sector Specific Issues etc.)

58 (10%) 58 (9%) 54 (10%)

8 Projects having no major issue/problem

25 (4%) 61 (10%) 11 (2%)

  TOTAL 587 618 539

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82% aid on projects related to infrastructure and only 13% on social development

Within infrastructure, the sectors with highest share are: power, atomic energy, railways and communications

Analysis of Aid by Division

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Top 10 Foreign Aided Projects 2010-11Sr. Division Scheme Allocation (Rs. Million)No Aid Rupee Total

1 Atomic Energy Chashma Power Project (C3 and C4) 7,510 2,816 10,341

2 Atomic Energy Chashma Nuclear Power Project C-II 2,212 554 2,766

3 NHA Faisalabad – Khanewal Expressway 1,646 247 1,893

4 RailwaysProcurement/Manufacture of 75 New D.E. Locos

1,359 800 2,159

5 HealthHealth System Strengthening and Policy Programme

1,340 70 1,410

6 HealthNational Maternal, Neo Natal and Child Health Programme

1,235 1,046 2,281

7 Kashmir Affairs 43.5 Jagan Hydro Power Project 1,235 0 1,235

8 Railways Replacement of Khanewal Section 1,200 617 1,817

9 WAPDA Neelum Jhelum Hydropower Project 1,103 13,597 14,700

10 States & Frontier FATA Special Programme 1,096 7,135 8,231

Total (Top 10 Projects)* 19,936 26,882 46,833Total PSDP 37,584 242,415 280,000

% Share Top 10 Projects 53%

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7th NFC Award & 18th Amendment

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Share of Federal & Provinces in PSDP

Development Planning Shifting to Provinces

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• Federal govt will continue to fund higher education & provide for vertical programs of health and population

• What will be the mechanism of funding of projects which are neither location specific nor vertical program?

Federal PSDP 2010-11 Transferred to Provinces

Throw forward(July 1, 2010)

(Rs Billion)

Allocation for 2010-11

(Rs Billion)

Federal 1,117 208

Transferred to Provinces 344 57

Total 1,461 265

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Examples of Projects with Unclear Responsibility for Funding

Sector Project

EducationEstablishment & Operation of Basic Education Community Schools in the Country

EnvironmentConversion and Rehabilitation of Indus Delta Mangroves for Sustainable Management

Environment Establishment of Environmental Monitoring System in Pakistan

Health National Plan for Disease Surveillance

Health Health System Strengthening and Policy Programme

LGRD Model Village Development in Pakistan

Food and Agriculture

National Program for Improvement of Watercourses in Pakistan

Food and Agriculture

Water Conservation & Productivity Enhancement through High Efficiency Irrigation System

Food and Agriculture

National Project for Enhancing Existing Capacity of Grain Storage

Special Initiatives

Clean Drinking Water for All

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Reforms Agenda for PSDP

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Results Based Management

Key Performance Indicators Strong M & E

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Portfolio, Program, and Project Management

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Projects which are politically driven do not provide economic justification

Several projects represent a duplication

New and ongoing projects for which expenditure incurred is less than 25% should be considered for closure

How Provinces should Rationalize Throwforward?

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Project management costs should be minimized (including corruption)

Dedicated Project Directors Required [current incentives distorted]

Consultancy charges should be rationalized

Contingencies should be reduced

Public sector projects should be exempted from GST

Minimizing the Leakages

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17 projects involve setting up training facilities in different divisions

Training efforts of the government are fragmented

Such projects should be rationalized

Centralize all training efforts under National School of Public Policy, National Management Colleges and Civil Service Academy

Capacity Building Projects

• Strong financial and technical appraisal should be put in place – may be outsource this

• Social analysis should reflect beneficiary population, dislocation, resettlement, livelihoods

• Economic analysis should estimate EIRR, B/C ratio, NPV and domestic resource cost

• Risk analysis should include time delays, cost variations, design and content modifications

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Improving Feasibility, Appraisal and Approval Processes

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• Rationalize Projects further and maintain priority-based completion

• Reduce throw forward through financing modes such as: – Public private partnerships– Built to operate & transfer– Built to operate & own

• Discourage brick and mortar projects• Assure full release of PSDP budget without cuts• Carefully re-estimate cash flows and benefits

Way Forward

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www.sdpi.org vaqar@sdpi.org

Thank You

Chronology of Planning Machinery

1. Development Board established in 1948 in the EAD

2. Planning Board set up in 1953. First 5 year plan prepared for 1955-60

3. National Planning Board established in 1957

4. Planning Commission setup under the Chairmanship of President in 1959

5. Second five year plan prepared for 1960-65 followed by the third five year plan for 1965-70

6. Fourth Five Year Plan (1970-75) prepared but remained dormant due to separation of East Pakistan

7. 1970-77 non plan period: Development on basis of Annual Plans

8. Fifth Five Year Plan 1978-83 55

Chronology of Planning Machinery

9. Sixth Five Year Plan 1983-88

10. Seventh Five Year Plan 1988-93

11. Eighth Five Year Plan 1993-98

12. Ninth Five Year Plan (halted due to changed in government)

13. 10 Years Perspective Development Plan 2001-11

14. MTDF 2005-10 July, 2005.

15. Planning Commission restructured on 20 April 2006 with P.M. as Chairman.

16. Vision 2030 launched in August, 200756

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• Reactive Past oriented

• Inactive Present oriented

• Preactive Predicting the future

• Proactive Create the future

Approaches to Planning

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• Realistic goals of the plan• Appropriate policies and instruments• Adequate information• Rational institutions• Suitable administrative and technical

apparatus• Public cooperation

Conditions of Successful Planning

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• Identification and Formulation• Appraisal and Approval• Implementation• Completion and Closure• Ex-post Evaluation

Project Management Lifecycle