Document of The World Bank Group

FOR OFFICIAL USE ONLY

Report No. 28391

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED IDA CREDIT

IN THE AMOUNT OF SDR 36.9 MILLION (US$55.0 MILLION EQUIVALENT)

TO THE

ISLAMIC REPUBLIC OF PAKISTAN

FOR A

PAKISTAN PUBLIC SECTOR CAPACITY BUILDING PROJECT

April 20,2004

Finance and Private Sector Development South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not be otherwise disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 20,2004)

Currency Unit = Pakistani Rupee (PRs) PRs57.30 = US$1

US$.O17 = PRs 1

FISCAL YEAR July 1 -- June 30

ABBREVIATIONS AND ACRONYMS

I-- ABS- Annual Budget Statement ACR- Annual Confidential Report. ADB- Asian Development Bank '

AG- Auditor General APUG- All Pakistan Unified Grades BPS- Basic Pay Scale BS- Basic Scale CAS- Country Assistance Strategy CBR- Central Board o f Revenue CCB- Citizen Community Boards CDWP- Central Development Working Party CF- Corporate Finance CFAA- Country Financial Accountability Assessment CGA- Controller General o f Accounts CSA- Civil Services Academy CSO- Civil Society Organization CSR- Civil Service Reform CSRU- Civil Service Reform Unit CSS- Central Superior Services DFIs- Development Finance Institutions DFID- Department for Intemational Development DMG- District Management Group DPCO- Debt Policy Coordination Office DPR- Development Policy Reveiw EAD- Economic Affairs Division ECNEC- Executive Committee o f the National Economic Council EDP- Executive Development Program EIP- Entity Improvement Plan FAB- Frequency Allocation Board FBS- Federal Bureau o f Statistics FD- Finance Division FMC- Financial Management Coordiantor FPSC- Federal Public Services Commission FUG- Federal Unified Grades FMR- Financial Management Reveiw GoP- Governmnet o f Pakistan

FOR OFFICIAL USE ONLY

GPN- General Porcurement Notice HEC- Higher Education Commission IBA- Institute of Business Administration ICA- Investment Climate Assessment ICB- International Competitive Bidding IDA- International Development Assistance IMF- International Monetary Fund JS- Joint Secretary KESC- Karachi Electricity Supply Corporation LDI- Long Distance and International LGO- Local Government Ordinance LL- Local Loop LRMC- Long Run Marginal Cost LTU- Large Taxpayer Unit LUMS- Lahore University o f Management Sciences MoC- Ministry of Commerce MoF- Ministry o f Finance MoW&P- Ministry o f Water and Power MP- Management Pay Scales MTBF- Medium Term Budget Framework MTU- Medium Taxpayer Uni t NAB- National Accountability Bureau NEPRA- National Electric Power RegulatoIy Authority NGO- N o n Government Organization NIPA- National Institute o f Public Administration N O W - Norwegian Agency for Development NRB- National Reconstruction Bureau NSCC- National Steering and Coordination Committee NSPP- National School o f Public Policy NUST- National University o f Science and Technology OED- Operations Evaluation Department OGRA- Oil and Gas Regulatory Authority OMG- Office Management Group PAC- Public Accounts Committee PASC- Pakistan Administrative Staff College PC- Project Coordinator PCS- Provincial C iv i l Services PCU- Project Coordination Unit PDEV- Professional Development Program PHRD- Professional Human Resource Development PIFRA- Project for Improvement in Financial Reporting and Auditing PIU- Project Implementing Unit PPER- Pakistan Public Expenditure Reveiw PPF- Project Preparation Facility PPMI- Pakistan Planning & Management Institute PPRA- Public Procurement Regulatory Authority PPSC- Provincial Public Services Commission PRSC- Poverty Reduction Structural Credit PRSP- Poverty Reduction Strategy Paper

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization.

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PSCBP- Public Sector Capacity Building Project PTA- Pakistan Telecommunications Authority PTCL- Pakistan Telecommunications Company Limited SA- Special Account SAC- Structural Adjustmnet Credit SBP- State Bank o f Pakistan SOE- Statement o f Expenditures STARR- Sales Tax Automated Refund Repository TA- Technical Assistance TFC- Taxpayer Facilitation Centres UNCTAD- United Nations Conference on Trade and Development UNDB- United Nations Development Business USAS- Universal Self Assessment Scheme USAID- United States Agency for Intemational Development USO- Universal Service Obligation USOA- Universal System o f Accounts WAPDA- Water and Power Development Authority WB- World Bank WHO- World Health Organization WTO- World Trade Organization ZTB- Zarai Traqqiati Bank

. --

Vice President: Praful C. Pate1 Country Managermirector: John W. Wal l

Sector Managermirector: Task Team LeadertTask Manager:

Joseph De l Mar Pernia Asya Akhlaquel Shabana Khawar (Co-Task Leader)

PAKISTAN PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

CONTENTS

A. Project Development Objective

1. Projsct development objective 2. Key performance indicators

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Main sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices

C. Project Description Summary

1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements

D. Project Rationale

1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies 3. Lessons learned and reflected in the project design 4. Indications o f borrower commitment and ownership 5. Value added of Bank support in this project

E. Summary Project Analysis

1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies

Page

2 2

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5 5

13

15 22 22 23

24 25 28 29 29

29 30 30 30 31 32 33

F. Sustainability and Risks

1. Sustainability 2. Critical r isks 3 . Possible controversial aspects

G. Main Loan Conditions

1. Effectiveness Condition 2. Other

H. Readipess for Implementation

I. Compliance with Bank Policies

33 3 3 35

35 35

.-- 36

37

Annexes

Annex 1: Annex 2: Annex 3: Annex 4: Annex 5: Annex 6:

Annex 7: Annex 8: Annex 9:

Project Design Summary Detailed Project Description Estimated Project Costs Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary Financial Summary for Revenue-Earning Project Entities, or Financial Summary (A) Procurement Arrangements (B) Financial Management and Disbursement Arrangements Project Processing Schedule Documents in the Project File Statement o f Loans and Credits

Annex 10: Country at a Glance Annex 1 1 : Detailed Cost Table

38 46 5 9 60 61 62 68 7 5 7 6 77 79 81

PAKISTAN PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

Project Appraisal Document South Asia Regional Office

SASFP

Date: Team Leader: Asya Akhlaque Sector ManagedDirector: Joseph Del Mar Pemia Country ManagedDirector: John W. Wall Project ID: PO83370 education (9%) Lending Instrument: Technical Assistance Loan (TAL)

Sector@): Central govemment administration (76%), Sub-national government administration (1 5%), Tertiary

Theme@): Administrative and civil service reform (PI, Regulation and competition policy (P), Debt management and fiscal substainability (S), Tax policy and administration (S), Public expenditure, financial management and procurement (S)

Project Financing Data [ ]Loan [XI Credit [ ]Grant [ ]Guarantee [ ]Other: For LoanslCreditslOthers: Amount (US$m):

Proposed Terms (IDA): Standard Credit Grace period (years): 10 Commitment fee: 0.00-0.50%

Years to maturity: 35 Service charge: 0.75%

Financing Plan (US$m): Source Local Foreign Total BORROWER IDA

6.00 1 55.00 O'O0 0.00 1 55.00 Total: Borrower: GOVERNMENT OF PAKISTAN Responsible agency: FINANCE DIVISION, GOVERNMENT OF PAKISTAN Address: 424, Q Block, Pak Secretariat, Islamabad Contact Person: Mr. Ismail Qureshi, Additional Secretary (External Finance & Policy), Finance Division Tel: 0092-5 1-9206367 Fax: 0092-51- 9214629 Email: Iqminfm@Hotmail.Com Contact Person: Mr. Abdul Wajid Rana, Joint Secretary, Finance Division (External Finance & Policy), Finance Division Tel: 0092-5 1-92 1 1971 Fax: Email: Awrana@Isb.Comsats.Net.Pk

Estimated Disbursements [ Bank FYlUS$ml: -

FY 2006 1 2007 I 2008 I 2009 I 2010 I

Project implementation period: Five Years Expected effectiveness date: 07/30/2004 Expected closing date: 05/30/2009

PCIP*DF"Pa Ma- 2ma

A. Project Development Objective

1. Project development objective: (see Annex 1)

The overarching goal o f the proposed Public Sector Capacity Building Project (PSCBP) i s to improve Government o f Pakistan's (GoPs) capacity to implement i t s on-going Economic Reform program. Focusing on strategic areas, the project will have the following three distinct capacity building objectives:

(i) broad-based professional development o f public sector officers; (ii) capacity enhancement in key ministriedagencies which are in the forefront o f design, implementation and monitoring o f policy reforms; and (iii) strengthening o f regulatory agencies.

Using an incremental approach, the project also aims to strengthen government capacity to facilitate complementary broad-based civil service reforms (CSR). I t i s expected that the project initiatives will lead to improvement in the overall quality o f policy formulation, reform implementation, service delivery, and human resource management o f the public sector.

This would be achieved through (i) high quality advanced and specialized training; (ii) accessing international and local expertise and advisory services for capacity building; and (iii) procuring goods and equipment to support capacity building o f participating agencies.

2. Key performance indicators: (see Annex 1)

By their very nature, institutional and civ i l service reform outcomes and benefits are difficult to quantify and measure. Nonetheless, several input, process and output indicators have been developed to help track the success o f project interventions over the five year period. Different types o f performance indicators have been identified for each o f the components o f the project and are reflected below (and also in Annex-I).

0 Overall at an aggregate project level: 0 Approximately 250-300 civ i l servants including ex-cadre (grade 17- 19 or equivalent) acquire

Masters degrees in specific areas where capacity i s lacking by 2009 -- 50 by 2006; 150 by

Around 200 civil servants including ex-cadre (grade 20-21 or equivalent) undertake executive short-term (6 weeks) training by 2009 -- 100 by 2006; 200 by 2009; Completion o f technical studies and implementation o f capacity building programs, as per Entity Improvement Plans (EIPs).

2007; 250-300 by 2009; 0

0

0 For the first professional development component o f the project, primarily input indicators have been developed. The underlying assumption i s that increasing inputs to build capacity in some specific areas will, over time, lead to better public sector performance. These indicators would broadly focus on number o f public officials trained, hiring o f core faculty for training institutions, and number o f domestic training programs designed. Specific indicators include:

Implementation o f PDev/EDP training programs; Core faculty for National School o f Public Policy (NSPP) recruited by 2006; Twinning relationship o f NSPP with world class training institution established by 2006; Federal Public Service Commission's (FPSC) entry level CSS Competitive examination process reviewed by 2006; FPSC Restructuring Report completed by 2006.

0

0

0

0

0

0 With regard to the second component, capacity development of key agencies, predominantly process indicators have been developed for each o f the participating agencies. The underlying assumption behind using these indicators i s that changing some key processes, within the core government ministriedagencies serving cross-cutting functions, wi l l lead to better performance. Specific process indicators for each o f the participating agencies under th is component include: (a) Ministry o f Finance (MoF):

(i) DPCO: 0 Debt Policy Coordination Office functional by 2004; 0 Preparation o f Annual Debt Policy Statement by 2005, after approval o f the fiscal

responsibility bill; to be laid before the National Assembly; 0 Formulation o f an improved Fiscal Policy by 2005, after approval o f the fiscal responsibility

bill, to be laid before the National Assembly; 0 Preparation and regular updating o f an improved and comprehensive macro-economic

framework. (ii) Corporate Finance:

0 Regular monitoring o f SOEs financial position & balance sheet analysis, starting with at least 2(WAPDA/!SC), by 2005, and eventually expanding to the majority of public corporate sector by 2008.

(iii) Policy Wing: 0 Monitoring and reporting (by posting on MOF website) o f PRSP indicators on quarterly basis

starting 2004; 0 Preparation o f Public Expenditure Review starting 2005.

(b) CBR: 0 1 LTU in Lahore and 5 MTUs in Karachi, Quetta, Peshawar, Faisalabad and Rawalpindi

operational by 2004; 0 Sales Tax Automated Refund Repository (STARR), second phase implemented by 2004; 0 Customs Pilot Project, involving development & implementation o f re-engineered procedures

for clearance o f imports and exports, implemented by 2004; 0 Universal Self Assessment Scheme implemented by 2004; 0 7 Taxpayers Facilitation Centres established by 2004.

0 Legal Advisory Cell established by 2005 for expert advice and guidance to the business community;

0 Data CelVDigital Library established by 2006; 0 At least 30-40 officials shall receive specialized short-term training by 2006.

0 Improved MIS to be implemented by 2005. 0 At least 40-45 middle-level staff receive specialized training by 2007.

(e) Establishment Division (CSRU): 0 A Civil Service Reform Unit (CSRU) established within the Establishment Division and

operational by 2004; 0 A technical study on compensation issues and options completed in conjunction with MoF by

2005.

(c) Ministry o f Commerce (MoC):

(d) Economic Affairs Division (EAD):

(f) Planning & Development Division (P&DD): 0 Macro-model functional by 2005; 0

0

0

Research library digitized by 2005; First batch o f 10 case studies completed by 2005; First batch o f 39 officers receive specialized short-term training by 2005.

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(g) Pakistan Procurement Regulatory Authority (PPRA): 0

0 Public procurement rules to be finalized for notification by the Federal Government by 2004. At least 20 staff w i l l receive specialized training by 2008.

0 For the third component, focusing on strengthening capacity of the Regulatoiy Agencies, primarily output indicators have been proposed. The impact, thus, will be measured in terms o f sector-specific outputs. Some o f the output indicators for each o f the regulators include:

(a) NEPRA: 0

0

0 0

0

Cost o f capital and cost o f service identified by 2006; Performance and environmental standards notified by 2005; Congestion costs for pricing decisions identified by 2006; Framework for targetted and direct subsidies developed by 2005; Framework for direct sale by Generators to Bulk Power Consumers (Single Buyer + model) adopted from 2004.

(b) OGRA: 0 Framework for performance standards, competition, optimizing production and other

operational aspects o f the o i l & gas sector developed, by 2006; e Technical/financial and other performance standards for the oi l and gas sector developed and

notified, by 2005; 0 Framework and Rules for open access and common carrier regime in Pakistan prepared by

2005. (c) PTA:

0 Award one LDI and at least three LL (fixed telephony licenses) by 2004; 0 Framework formulation for US0 will be devised by 2005; 0 Formulation o f Quality o f Service parameters for telecom services by 2005; 0 Framework for determination o f interconnection charges on cost-based convention by 2005; 0 At least 45 staff w i l l receive specialized training by 2008.

To further strengthen the linkage between the overall reform program and the agency/entity reform agenda, concerted efforts have been made to align the above indicators with key PRSP indicators, through consultation with the PRSC team. The performance indicators w i l l be regularly monitored by the government, and assessed by the Bank team during supervision. Over the long haul, provided broad based civ i l service reforms and professional skil ls development are continued, progress in these indicators are expected to lead to the following CAS level outcomes:

improved quality o f public sector reflected in better design and implementation o f policies; improved public expenditure management practices;

timely and effective monitoring and evaluation o f public expenditure and reform program etc.; Increased competition and private sector participation;

0 0

e improved regulatory functions; 0

0 0 Improved public service delivery; 0 More accountable public service.

B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 24399-PAK Date of latest CAS discussion: June 24,2002

The proposed project i s h l l y consistent and well-aligned with the overall CAS objectives. O f the three main pillars o f CAS, it specifically supports "strengthening macroeconomic stability and government

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effectiveness". The goal o f improving government effectiveness at federal, provincial, district levels, 'remains at the heart o f the Bank's assistance strategy' and program priority. The project will support key aspects o f c iv i l service reform, focusing primarily on professional training o f c iv i l servants.

The conceptualization and design o f the project has benefitted from the considerable amount o f analytical work undertaken on the public sector, governance and CS reforms in Pakistan and globally. Most recent work, undertaken by the GoP and the Bank, includes the following:

Pakistan Public Expenditure Review (PPER): Strengthening the Civ i l Service, World Bank 2003a Pakistan Investment Climate Assessment (ICA), World Bank, 2003b Pakistan Development Policy Review: A New Dawn? (DPR),World Bank 2002 Report of the Committee on Restructuring and Rightsizing of the Federal Ministries/Divisions (chaired by Dr. Shahid Amjad Chaudhry), Government o f Pakistan, April 2001 Civi l Service Reform, A Review of World Bank Assistance, OED, World Bank, Aug 1999 Report of the Commission on Administrative Restructuring on Re-engineering of the Federal Government Organizations (chaired by Dr. Hafiz Pasha), Government o f Pakistan, February 1999 A Framework for Civ i l Service Reform in Pakistan, World Bank, 1998 The State in A Changing World, WDR, 1997

The CSR related work on Pakistan clearly acknowledges the deterioration o f the country's c iv i l service over time, hampering government's policymaking capacity, operational efficiency and public service responsiveness. In the proposed project design, lessons have been incorporated from the latest OED review o f Bank assistance in the area o f CSRs over the 1980-97 period. Based on i t s support for CSR in 32 client countries, the Bank has identified three stylized forms o f 'bureaucratic dysfunction' which attempt to 'unbundle' the complex rubric o f civil service reforms; they include: (i) endemic overstaffing accompanied by unsustainable wage bills; (ii) a combination o f misaligned organizational structures, poor human resources, and weakened administrative capacity to carry out core government functions; and (iii) credibility and accountability o f state institutions because o f cumbersome rules, political interference and cultures o f nonperformance (World Bank 1999).

As part o f GoP's evolving overall c iv i l service reform vision, the proposed project supports the strategy o f improving government effectiveness, through increased professional human resource development and enhanced capacity in key ministries and regulatory agencies. Using an incremental approach, the project also aims to strengthen government capacity to facilitate other complementary institutional and broad-based civil service reforms mentioned above. I t i s expected that the project will lead to substantial improvement in the overall quality o f policy formulation, reform implementation, and human resource management.

2. M a i n sector issues and Government strategy:

In Pakistan, the capacity and quality o f public institutions has been declining over time. Although the civil service has pockets of excellence, collectively i t s performance leaves a lot to be desired. A quantum leap in efficiency and management culture o f the government i s needed if Pakistan has to accelerate and sustain growth, reduce poverty, anticipate the opportunities and challenges o f the future, and enable i t s enterprising citizens and private sector to realize their full potential and compete in a fiercely competitive global market. Successful implementation o f GOP's on-going reform program - both at federal and provincial levels - i s inseparably linked with the capacity o f government institutions and the quality o f c iv i l service (ICA, World Bank 2003b).

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I a) Structure: Total public sector employment i s about 2.6 million, which i s around 2 percent o f Pakistan’s population. Federal employment i s about 32 percent o f total public employment reflecting the federal character o f the government. Public sector employees are drawn from central superior services (CSS), provincial c iv i l services (PCS), professions (ex-cadre group), and administrative and support staff. The distribution i s as follows:

(i) The Central Superior Services (CSS): CSS officers (Grade 17-22) occupy the bulk o f positions responsible for implementation, policy making and policy analysis in the government machinery at the federal, provincial and district levels. Drawn from the 14 occupational groups o f the CSS, they serve across different ministries and attached departments at both federal and provincial levels. The 14 occupational groups include: District Management (DMG); Office Management (OMG); Police; Secretariat; Customs & Excise; Income Tax; Commerce & Trade; Audits & Accounts; Foreign Service; Information; Economists; Military Land and Cantonment; Postal; and Railways. DMG, Police and the Secretariat Group comprise the All Pakistan Unified Grades (APUG), whilst a l l other groups make up the Federal Unified Grades (FUG).

K e y Aspects of Civil Service in Pakistan

CSS officers occupying middle to senior level positions in economic and policy making ministries in grades 17-22 are around 5,000 (excluding ex-cadre officers); o f these around 800 are serving in the provinces. Grade 17 i s the entry level officer grade, and by the t ime the officer reaches grade 21, he/she s t i l l has, on average, about 6-7 years o f service left.

(ii) Provincial Civ i l Services (PCS): PCS officers (Grade 17-22) occupy positions at the provincial and district level, largely in administrative and field implementation. Grade 17 i s also the entry level grade for PCS officers but promotions above grade 20 are less common compared to CSS officers.

(iii) Professional level Ex-Cadre: Ex-Cadre group includes technical staff (e.g. statisticians, engineers and doctors etc.) working predominantly in attached departments (such as the Federal Bureau o f Statistics (FBS), and autonomous bodies (Regulatory agencies such as the National Electric Power Regulatory Authority (NEPRA) and O i l & Gas Regulatory Authority (OGRA)). There are approximately 19,000 ex-cadre officers working within the Federal Government.

iv) Administrative and Support Staff (Grade 1-16): These staff work at administrative and support positions at the Federal and Provincial level. Staff in grades 1-1 1 are primarily support level; whereas those in grades 12-16 occupy technical positions in departments o f education, health, irrigation, etc. (such as teachers, health workers, etc.).

b) Recruitment: The CSS selection procedure i s overseen by the Federal Public Services Commission (FPSC), and comprises a written examination, a psychological test and an interview. The process i s highly competitive; around 8000-10,000 applications are received for a batch o f 170-175 positions every year. The PCS selection procedure for each province i s overseen by i t s Provincial Public Services Commission (PPSC). I t also comprises a competitive examination and interview process similar to the one used by the FPSC. Ex-cadre officers (grade 17-22) are selected by the FPSC at the federal level and by the PPSC at the provincial level. Since ex-cadre positions are more area-specific, specialized degree holders are encouraged to apply and the tests taken are geared to the requirements o f the position advertised. As for the administrative and support group (grades 1 - 16), respective ministries, departments and autonomous bodies are given the power by the government to recruit people when required. They generally advertise posts or call for nominations. In most cases, officers in grades 11-16 are selected after conducting written tests and interviews o f applicants.

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c) Career Management: Once recruited, the Establishment Division thereafter manages and monitors the progress o f CSS officers throughout their service, including their placements, transfers, promotions and career management. The Services & General Administration Departments in each province are the managing agencies for PCS officers. Most officers usually stay in their stream for their entire career, but may also rotate starting mid-career.

d) Training: Pre-Service: Each CSS occupational stream receives pre-service training - ranging from 1-2 years - divided into (a) general/ common training, at the Civil Services Academy (CSA), and later (b) specialized training in their area o f expertise, at specialized training institutes (DMG; Police; Accounts; Customs etc.). PCS officers are provided a one year pre-service training in their provincial training institutes. PCS Executive officers, who serve at the district level, also receive specialized training at the Rural Development Academy in Peshawar.

In-Service: This includes training at: (a) the four National Institutes of Public Administration (NIPA)- one each in the four provincial capitals (Karachi, Lahore, Peshawar and Quetta); and (b) the Pakistan Administrative Staff College (PASC) in Lahore, for both Federal (CSS) and Provincial (PCS) officers. The thrust o f in-service training i s broad spectrum as a c iv i l service officer i s expected to get rotated across different ministries at the federal/provincial level and serve in wide-ranging areas o f specialization. Training at N IPA i s mandatory for promotion from grade 19 to 20; and at PASC for promotion from grade 20 to 21.

I1 Key Issues in the Civil Service

Based on the analytical work undertaken on civ i l service reform (CSR) in Pakistan, along with stakeholder consultations, the following key issues have been identified that constrain the government from assuming new and more complex roles needed in the context o f broader structural reforms that are currently being implemented:

(i) Weak Technical and Managerial Skills: The technical competence o f civil servants has been declining over the past couple o f decades. Human resource development in the public sector has not been given adequate resources, leading to a steady erosion in capacity and technical ski l ls o f c iv i l servants. Estimates made by the Committee on Civi l Service Reforms indicate that during the last two decades annual expenditures on civil service training have been less than 0.5 percent o f the compensation o f c iv i l servants. At the same time, the quality o f Pakistan’s higher education institutions has declined significantly, resulting in an overall deterioration in quality o f entry level civ i l servants. Mirroring the trend o f underinvestment in civil service training, the higher education (in public sector) expenditure as a percentage o f total education expenditure has declined from nearly 17% in 1987/88 to around 12% in 2001/02. This introduces the burden o f redressing these inadequacies during pre-service and in-service training. Over time, the quality o f the civ i l service training institutions - l ike the public sector universities - has deteriorated. Most o f the training programs within the civ i l service institutions are routine training on government procedures and have become inappropriate for the task o f building a new development management culture and a changed role o f the government as a facilitator and regulator. Majority o f c iv i l servants entering the service do not have advanced professional degrees; this, together with routine in-service training, has led to poor professional s k i l l s capacity. At the same time, access to foreign training has been very limited; the percentage o f officers in Grades 17-19 who have obtained foreign Masters degrees (and above) varies from 2% to 8%, depending on the occupational group (many acquired this under the USAID overseas training program during the 1980s). Challenges in the present system o f higher

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education and training in Pakistan range from weak faculty capacity to out-dated syllabi. Hence, the successful transformation o f the public service, requires a paradigm shift in public service training programs.

As a result o f these weaknesses: (i) capacity for policy work and management i s generally limited; (ii) there i s excessive reliance on foreigdlocal consultants for routine policy and implementation work, and even in these situations, consultants’ output i s generally not effectively utilized either because o f inability to understand andor ineffective management o f the work; and (iii) approach to problem solving i s narrow and outdated as officers are unable to bring in cross-country experience and best-practice knowledge to development challenges facing the country. The bulk o f officers are simply not trained for managing Pakistan in a globalized world o f tomorrow or effectively administering the country’s finite resources in the face o f increasing scarcity. Most o f the officers end up focusing on routine work only.

(ii) Recruitment, Promotion, Placements and Transfers Process Recruitment: As noted above, the recruitment in the civil service i s overseen by the FederaWrovincial Public Service Commission (FPSC/PPSC). Although the examination process i s rigorous and competitive, there are wide ranging issues/challenges in the system, such as outdated exam curriculdsyllabi, and inappropriate criteria for applying (for instance, minimum qualification for initial recruitment requires a Bachelors degree, equivalent to 14 years o f education). This, along with declining standards o f higher education, has directly affected the quality o f entry level civil servants. Promotion: Promotion policies depend on performance evaluation, seniority, performance during training, and the quality o f work experience. These criteria, nonetheless, are often perceived not to be fully adhered. According to some analysts, promotions are becoming more subjective, particularly, as the Central Selection Board reserves judgment o f what constitutes ‘merit’ in different scenarios and in this way exercises considerable authority and autonomy in promotion matters. Additionally, promotions predominantly occur in vacancies in an occupational group, rather than vacancies in the departments officers are working in - which highlights the vertically separated nature o f occupational groups. Placements and Transfers: There are no systematic policies or mechanisms for placements and transfers. In many cases, the process o f placements/transfers lacks professional and technical basis, leading to a mismatch between ski l ls and placement. An important issue in the context o f placements i s the de facto reservation o f certain posts for officers from the APUG (Le. DMG, Police and the Secretariat Groups). The distribution o f working positions in BS-17 to BS-22, in terms o f the total number o f civil servants belonging to the FUG and the APUG i s skewed significantly in favour o f the APUG. The most striking feature o f the distribution i s that as the number o f posts shrink with the upward movement o f pay scale, so does the proportion o f FUG. This de facto reservation emphasizes the fact that the occupational group an officer belongs to influences hidher career growth prospects, to a great extent.

(iii) ‘Bottom Heavy’ Employment: While public sector employment in Pakistan may not be exceptionally large in the inter-country comparison, it i s certainly excessive in relation to i t s productivity and service delivery performance (PPER, World Bank, 2003a). In addition, employment i s heavily skewed towards lower grades (about 85 % o f the total public employees are in support level grades 1-11), reflecting the productivity levels; around 10 % are in grades 12-16 which occupy the bulk o f positions as teachers, health workers etc; and only about 5% occupy grades 17-22 (i.e. middle-senior level policy analysts, and decision makers).

(iv) Mismatch Between Skills & Compensation has become increasingly insufficient to attract managerial and technical talent at the higher levels but may be too generous at lower levels. The salary compression

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ratio i s 1: lO. There i s substantial evidence that the real compensation gap between public and private salaries and emoluments has steadily increased. As an illustration, for the highest grade (BPS-22), the nominal salary and monetav allowances have increased from Rs.3,000 per month in 1950 to Rs.38,000 per month at present, while consumer prices have risen thirty-fold over the period. Real total compensation for the highest c iv i l servants probably decreased over the last half century by at least one-third. Meanwhile, real incomes in the private sector have at least doubled reflecting the general increase in per capita incomes. Lateral induction on fixed term contracts has recently been introduced (MP Grade System) to attract talent from the private sector and academia (of the current batch o f 42 APUG, BS-22 officers, 19 were lateral entrants at different levels). The increasing use o f M P grades, originally meant for top managerial positions in the public corporations and approximating more closely to private sector pay, to attract managerial and technical ski l ls to government indicates the inadequacy o f present levels o f compensation at higher levels. Finally, the fact that there has been a historical decline o f the pay compression estimated at 1 :46 in 1962, also indicates that lower level compensation has increased significantly over time while i t has increased slowly at the higher levels (PPER, World Bank, 2003a).

(v) Structural Rigidities: There are structural rigidities in the federal and provincial administrations due to strong vertical orientation o f the occupational groups. Lateral movement within cadres i s rare. Inter-cadre rivalries significantly determine the shape o f federal divisions and attached departments, as structures are created to meet the needs o f the various groups and cadres for promotion opportunities - rather than on the basis o f policy priorities or operational needs (PPER, World Bank, 2003a).

(vi) Devolution: To help redress the problems resulting from an unresponsive and unaccountable c iv i l service, the government completed i t s f irst phase o f the devolution initiative by holding elections in August 2001. If the difficult step from political to fiscal decentralization can be made, and the requisite implementation and monitoring capacity developed, the system has the potential to deliver better local services (DPR, World Bank 2002).

I11 Government's Evolving Civil Service Reform Strategy

The overall aim o f GoP's civil service reform i s to create a more qualified, innovative and efficient civil service which i s responsive to the needs o f the public, and professionally trained to adapt to changing global and national challenges.

The Civil Service reform process was started in 1999 and has been going on under the overall supervision o f the Cabinet Committee on Civil Service Reforms. Devolution, Police, Judicial, Tax Administration, Public Financial Management and Procurement reforms have been launched. Several important policy decisions on recruitment, promotion, posting, compensation and professional development have been taken. To ensure meaningful implementation and deepen the reforms, follow up activities are under review.

While several key structural reforms are on-going, given the complexity and political economy issues, implementation w i l l take time. The key initiated reforms are in the following areas:

(i) Professional development To address the weak technical and managerial ski l ls gap in the civ i l service, the government's strategy revolves around

Supporting a broad based professional development program o f the civil service to upgrade their ski l l levels through advanced training. This program i s already underway in a number o f key economic management institutions, such as the SBP, the CBR, the AG, and the CGA. The government now intends to extend this further across the entire civil service (federal/provincial);

0

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0 Reforms o f domestic public sector training institutions. The government has recently embarked upon major reforms to revitalize and upgrade Pakistan’s c iv i l service training by: strengthening capacity of the training institutions; revising curricula; improving teaching methodology; building staff capacity; and improving connectivity within and among training institutes. The broad set o f initiatives that are currently underway include: (a) faculty upgrade through training o f key faculty (this includes sending a select group at leading intemational institutions, such as Harvard etc.), as well as hiring o f new faculty from the local and intemational market; (b) improving/ revising curricula o f the existing training institutions (PASC, NIPAs, etc.) and introducing case study methodologies; and (c) facility upgrade o f PASC and other training institutions including IT connectivitity. In addition, the Government has recently announced establishment o f a National School o f Public Policy (NSPP). The ordinance for NSPP has already been passed and formal notification i s expected soon. This new institution would merge the Pakistan Administrative Staff College and National Institute o f Public Administration Lahore. The school would would serve as the premier training institution for civil servants. I t would work to improve curricula and content o f short courses offered to public officials and will become a degree-awarding institution in the medium to long term.

(ii) Recruitment reforms In order to institutionalize merit based and transparent appointments ensuring de-politicization o f c iv i l service, the Government has amended the Federal Public Service Commission (FPSC) Ordinance so as to enhance FPSC’s independence, increase i t s financial autonomy, extend i t s role in the recruitment o f public servants, and limit and define the posts which are outside i ts purview. The enhanced role o f the FPSC has been protected under law, rather than in rules. FPSC has reduced the maximum age limit for entry into the govemment service from 30 to 28 years. The FPSC (Amendment) Ordinance 2000 which, inter-alia, provides security o f tenure to FPSC members with no provision o f an extension ensures that the members of the Commission exercise their judgement without fear or favour.

(iii) Promotion reforms Following key measures have been undertaken:

0 To make evaluation o f officers more objective, the Performance Evaluation System has been revised. Under this system, the evaluation i s made job specific, against pre-determined targets while grading i s comparative; In order to improve career management o f officers, a system o f monitoring, appraisal and evaluation and computerization o f PERs has been developed in the Establishment Division; An exercise for formulating job descriptions o f posts in the Federal Secretariat has been initiated to ensure posting o f officers on posts matching their experience, qualification and training; To ensure transparency in promotion o f officers against selection posts (BS-19 and above), the Central Selection Board has been made broad-based and more representative, and i s now chaired by the Chairman FPSC; Successful completion o f mandatory 12 days concept/skill mix training o f the c iv i l servants in BS-17, 18 and 19, at various civil service training institutions, i s linked to promotion to higher grades in BS-18,19 and 20.

0

0

0

0

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(iv) Accountability and Client focus In order to enforce accountability within due process o f law and rules, a legal framework has been developed to undertake an exercise to weed out in-efficient and corrupt government servants. A key enactment includes Removal from Service (Special Powers) Ordinance, 2000. The exercise to review the cases o f government officers who have ceased to be efficient and have completed 20 years o f service has been initiated and 2165 cases have been recommended for compulsory retirement by the Review Committee.

Under the new setup, the National Accountability Bureau (NAB), and other anti-corruption agencies in the federal and provincial governments, have become active. The federal, provincial and district Ombudsman’s Office, Police Complaint Authority and District Public Safety Commissions are playing an active role towards redressal o f public grievances.

(v) Pay and Pension Reforms In 2000 the government established a Committee to review Pay and Benefits Reforms. The f i rst phase o f the pay and pension reform scheme for the federal government’s civil and military personnel was implemented in late 2000 through (a) the revised pay scale; (b) the rationalization o f pension benefits. All federal civil services including the military have been provided the option o f accessing a new pay scale in conjunction with revisions in pension benefits. The revised pay-scales restore about 75 % o f the lost purchasing power of wages (which had not been increased since 1994), decompress the salary scale for every grade and subsume all ad-hoc salary increases obtained by some services between 1994-2000.

This pay and pension reform was complemented by a program to right-size the federal work-force which was approved by the Cabinet in June, 2001. As part o f the second phase o f the pay and pension reforms, a Special Relief Allowance @ 15% o f the basic pay p.m. to all the civilian employees in BS-1 to BS-22 o f the Federal Government as well as the civilians paid from Defence Estimates, and to all the Armed Forces Personnel/Civil Armed Forces Personnel, has been sanctioned and i s effective from July 1, 2003. This has improved compensation somewhat, but the wage structure remains severely compressed. The compression ratio (from top to bottom salaries) i s 1 : 10. I t was 1 :46 in the 1960’s. The higher echelons o f public servants have significantly lower compensation than their comparators in the private sector. This in an important issue under review.

(vi) Devolution Devolution was launched in August 200 1, through promulgation o f the comprehensive Local Government Ordinance (LGO) in each o f the four provinces. Prior to the introduction o f the Devolution plan, Pakistan had a highly centralized political and fiscal system dominated with elements o f patronage. The L G O clearly defines the role o f three different tiers o f local government and spells out a fiscal framework, including taxing authority. Drawing from the experience o f other countries, the LGO sets up a system o f financial controls based on hard budget constraints and extends to the local government level the public financial management and accountability systems that operate at the federal and provincial levels. The LGO also prescribes additional systems o f checks and balances to prevent capture o f the local governments by elites. Local service delivery has been set to depend on the interplay between the District Councils and grass-root Citizen Community Boards (CCBs) who w i l l determine the allocations o f 50 percent o f total development expenditure at the district level and below. On the political side, significant steps have been taken to ensure broad representation. Seats are not only reserved for women but the quota system also extends to peasants, workers and religious minorities.

With more than one hundred thousand new councilors at different levels o f local government, training programs for their new role are essential and form part of the k tu re agenda. With political decentralization

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launched, the next and more time-intensive step o f fiscal decentralization i s under development. The provinces, districts and NRB are jointly designing a system o f intergovemmental fiscal relations with a view to secure transparency, to maintain hard local budget constraints and to give local governments the opportunity to raise additional resources. A next key area o f reform wi l l be the effective devolution o f the c iv i l service to District cadres. This i s also under discussion. Finally, for effective devolution, the districts soon need to do their own budget preparation and management with appropriate mechanisms for provincial monitoring starting with the next fiscal year 2004 budgets. Capacity build-up for this i s underway.

(vii) Governance reforms in key instititions The Tax Administration Reform i s the comerstone o f the economic reform program. In the absence o f improved tax administsation leading to substantial increase in revenue, it will be impossible to exit the debt trap and implement the poverty reduction strategy. It i s envisioned that a modern tax system and broad based taxes with improved tax collections through a modem and honest tax administration agency, will reduce collection costs and the burden o f poor govemance on taxpayers. After a process o f consultations, fundamental restructuring o f CBR has been launched aimed at significant changes in human resource management, business processes and use o f technology.

Comprehensive reforms are also being implemented to have a modem public accounting and integrated financial management system at the federal, provincial and district levels, to modemize the public audit function and to establish more effective external oversight through Public Accounts Committees and public access to information. The public accounting and audit functions have been separated and the Office o f the Controller General o f Accounts (CGA) was established. External oversight has been significantly strengthened through the combined work o f the Auditor General and the functioning o f the federal Public Accounts Committee (PAC). For the f i rst time in years, the PAC i s now reviewing the actions o f a government in office and i s open to press.

To manage the implementation o f on-going reforms, and help catalyze the GoP’s comprehensive civil service reform strategy, a Civ i l Service Reform Unit (CSRU) i s being established within the Establishment Division. The CSRU w i l l report to the Establishment Secretary, although the implementation and on-going evolution o f the strategy wi l l be under the overall guidance o f the Cabinet Committee for Civ i l Service Reform. Specifically, the CSRU will support the following areas o f c iv i l service reform:

Devolution: including completion o f devolution, developing consensus on additional reforms and maintaining an active dialouge with counterparts; Recruitment and Promotion Reforms: focusing on modemizing the cadre system, reforming the system of occupational groups and merit protection; Pay and Pension Reforms: providing support for deepening the pay and pension reforms; Professional Development: improving the quality o f training and professional development available to serving staff; c

Monitoring and Evaluation: monitoring implementation o f already initiated reforms, evaluating reforms, preparing reports and conducting tracer studies; and Coordination: serving as Secretariat for the Cabinet Committee on Civi l Service Reform.

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3. Sector issues to be addressed by the project and strategic choices:

Pakistan's c iv i l service, l ike that o f many other low-income countries, manifests the different forms o f 'bureaucratic dysfunction.' Indeed, the problems o f poor human resources, weakened administrative capacity, compressed pay scales, the excess o f unskilled lower level employees relative to senior staff, are found in many settings. However, some o f Pakistan's administrative reform challenges as discussed above are distinct - as are the opportunities that are available for addressing them. The government finds i tse l f in the fortuitous position o f having: some consensus on restructuring o f civil service; the fiscal space to afford pay reforms; and a well developed but incomplete devolution agenda. By seizing the 'low-hanging fruits' that these provide, government can set in motion some movement towards a longer-term reform agenda. Other steps can be taken that will achieve short-term efficiency gains and send significant signals at no political cost.

This project notes that there i s little advantage in the elaborate specification, ex ante, o f an ambitious set o f c iv i l service reform proposals. Efforts are s t i l l on-going to develop an overall vision o f civil service although selective changes in key areas are occurring on the ground. Part o f the CSR program - particularly devolution agenda and restructuring o f occupational groups - i s s t i l l in flux, and requires much more preparatory work. Before these elements o f the CSR program can be finalized, consensus building within the different levels o f the government (federal, provincial and districts) and across different stakeholders in civil society i s needed.

The project's main strategic focus is on professional development and capacity building. Successful implementation o f GOP's on-going reform program - both at federal and provincial levels - i s highly dependent on the capacity and quality o f civil service. Lack o f ski l ls and capacity in government has been a key recurring constraint that the Bank has identified in i t s structural adjustment support programs at both federal and provincial levels (Sindh and NWFP). The project w i l l also support - through analytical work and stakeholder consensus-building - the overall civil service reform, harnessing these opportunities pragmatically.

The government's strategy for public sector professional development i s anchored on the following beliefs: (i) Creating 'champions o f change', at the senior levels, who would engender reforms, lead the process o f policy formulation and implementation, and provide a nurturing environment for high quality work and highly trained people. (ii) Developing a 'critical mass' o f internationally trained policy analysts, decision-makers and implementors across key government ministries and departments through high quality training programs, thus improving policy formulation and implementation. With several hundred highly trained people in key policy and managerial positions, there will be a paradigm shift in the way the country i s governed and managed. At present, well-trained officers are too few in number and far too dispersed, thereby preventing the formation o f the 'critical mass' necessary to bring about sustained change. This program i s essentially a deferred, long overdue investment, and would represent a 'catching up' process to address the backlog in training. The government realizes that this 'big bang' approach i s necessary for changing the exisiting public sector systems and quality o f service. The government intends to pursue the above strategy as follows:

0 Focusing on predominantly overseas training, in the short-medium term, and developing in-country training capacity, in the medium to long run. The rationale for overseas training i s that at present, domestic public and most private sector education and training institutions do not meet the international standards for advanced degrees, and are not geared towards filling the needed skil ls gap, such as infusion o f new ideas, cutting edge knowledge and cross country experiences. The government recognizes that, generally those who have received quality training and education are

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more supportive o f reforms. The proposed overseas training i s expected to gradually reduce, in 5-7 years, as the public universities and in-service training institutions are strengthened (as explained below). This training program differs from past initiatives which were largely ad-hoc in nature, and so thinly spread out that the idea o f developing the critical mass o f change champions never materialized. The present program i s expected to yield the desired results since it i s part o f the overall civil service reform program and it focuses on creating the "critical mass" to engender change and sustain quality. Ensuring merit-based selection in the overseas training program. As this will be a large public sector investment, the government's criteria for selection i s very rigorous and only those officers will be eligible who are:

0

0 in the top quantile;

0 below 37 years o f age and occupy middle level policy and managerial positions; able to obtain minimum scores on GRE/GMAT screening (prior to final selection); once selected by meeting the above requirements, are able to get admission in one o f the top 20, pre-selected, international universities, from USA, UK, Australia, Europe and Singapore. (Admittance to the pre-selected top universities, by itself, would act as a high quality filter); and willing to serve the govemment for at least five years upon return (through the signing o f a bond).

Strengthening the 'bond' system to ensure return and retention o f trained officers. The government's existing system, whereby public officials going on overseas degree training are bound to serve for at least a minimum o f 5 years upon their return or pay the full cost o f the training, i s quite effective in ensuring that 'leakage' o f trained officers i s minimum. Recent examples o f overseas training undertaken by some o f the key institutions (CBR, Auditor General, State Bank) indicate that most o f these officers (almost 90 %) have retumed and are serving in their respective departments. Nevertheless, the government i s aiming to strengthen i ts "bond" system, over the short to medium term, by addressing loopholes in i t s implementation, such as deletion o f discretionary clauses and waivers, increasing the minimum serving period, and enhancing penalties for non-compliance. Over the long run, as the broader civil service reforms take hold, providing a more competitive public sector compensation and environment, the bond system could be made flexible to allow well trained, productive c iv i l servants, the flexibility to move out (and also come back).

0

(iii) Strengthening domestic education and training institutions in the medium to long run for producing professionally trained and technically competent public officials. This i s envisaged to be achieved through:

Reforms o f in-service and pre-service training capacity by restructuring o f existing training institutions, improving faculty and curricula, enhancing infrastructure and IT connectivity, as well as twinning with international institutions. This program i s already underway in all o f the c iv i l service training institutions, with an aim to establish the National School o f Public Policy (NSPP) in the medium to long term; and Higher education reforms to f ix the public sector education system-- the govemment has already embarked upon this program. The Higher Education Commission (HEC) has been set up as an autonomous body, through an ordinance, with the charter to facilitate development o f Pakistani universities to be world class centers o f education, research and development. The government has stimulated a national reform dialogue in higher education, combining representative views o f the public sector, private sector, civil society and academia in extensive consultations over several years. The reforms proposed for fixing the higher education system include: strengthening the governance and management capacity o f individual public institutions so that these institutions become more autonomous, transparent and accountable; and improving quality through enhancing faculty capacity, institutional capacity and encouraging a shift to performance based funding and

0

0

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tenure.

The sequencing o f the above strategy i s critical. The broader civil service reforms will take time, so will the reforms o f higher education and in-country training. Until that time, a 'big push' i s required to address the backlog, as well as building the critical mass o f well educated and reform-minded public officials who are critically placed in the civil service to make a significant change in the existing system.

C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

A: Proiect D e s i m In support o f the government's CSR strategy, the focus o f the proposed capacity building project will be on the following three strategic areas : (i) Broad-based professional development; (ii) Strengthening capacity o f key ministries/agencies that are in the vanguard o f policy reforms and implementation; (iii) Strengthening the regulatory agencies.

Specifically, the project w i l l have the following three components :

(i) Professional Development This component will address the capacity and technical ski l ls gap in the civ i l service, and will largely focus on the professional development o f federal and provincial civil service and ex-cadre officers. I t will be undertaken through the following:

(al) Professional training program (degree and non-degree) for middle to senior level officers: Under th is sub-component, the Establishment Division w i l l manage and implement two training programs for civil servants:

e

an Executive Development Program (EDP) for senior (grade 20 and 21) c iv i l servants to create a community o f reform champions in the upper echelons o f the civil service; a Professional Development Program (PDev) for younger (grade 17- 19) c iv i l servants to significantly enhance their technical capabilities as policy analysts and implementors. This program w i l l be open to all federal, provincial, and ex-cadre officers.

Total cost o f the above two programs i s around US$ 17 million. Criteria for selection o f officers under the two programs i s outlined in Annex 2.

(a2) Professional training program (degree and non-degree)for middle to senior level staff o f regulatory agencies. Under th is component, the regulators w i l l manage professional training programs for their officers. Staff will be sent on two types o f training programs:

0 Degree-level programs 0 Short-term trainings

Criteria and process o f selection o f officers, courses and programs will be in accordance with the EIPs o f the respective regulatory agencies.

(b) Strengthening in-country training capacity through support o f training institutions (CSA, NIPAs, PASC/ NSPP): This sub-component comprises up-gradation o f c iv i l service training institutions including: building faculty capacity; improvinglrevising curricula; enhancing infrastructure and IT connectivity; twinning with international institutions; and support for establishment o f a National School o f Public Policy (NSPP). Total cost i s around US$ 5 million.

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(c) Improving the civil service recruitment process through support o f the Federal Public Service Commission (FPSC): Some key areas o f support would include strengthening the entry level examination process including improving syllabi and system o f competitive examination, sk i l ls enhancement, and upgradation o f FPSC to an automated computerized environment. Total cost i s around US$ 1 million.

ii) Strengthening Economic Policy and Management: The second project component will focus on capacity building o f key federal and provincial ministries and divisions that are in the vanguard o f design and implementation o f GOP’s reform agenda. This w i l l include Finance, Central Board o f Revenue, Establishment Division, Commerce, etc.

(a) Ministry o f Finance (MoF): The Project aims at building the capacity o f various wings and agencies o f the Ministry o f Finance dealing with policy formulation, budget, expenditure, financial and cash management. This i s expected to help these wings and agencies o f M o F to better discharge their functions, which will result in better formulation, coordination, implementation and evaluation o f economic and fiscal policies o f the Government. The Project w i l l support an integrated medium-term program comprising: professional training o f staff (through degree - to be covered under PDev - and non-degree programs, short-term specialized training in areas such as pension reforms, debt management, public expenditure management, etc.); providing short- and medium-term consultants not only for undertaking specialized analytical work and policy reform programs, but also to provide hands-on training to M o F staff in these critical areas; and to finance infrastructure and I T facilities. Individual wings and agencies o f the M o F have prepared an integrated proposal, totaling around U S $ 4 million. These include:

Debt Management: Strengthening the newly established Debt Policy Coordination Office (DPCO) to monitor the country’s debt situation and develop debt strategy in consultation with other agencies in order to bring it to a sustainable path and contribute to sustaining fiscal and financial discipline. Corporate Finance (CF), Banking and Investment Wings: Strengthening their monitoring capacity to evaluate the performance and progress o f the key public sector enterprises; privatization process, especially o f the state owned commercial banks; banking sector and capital markets; and facilitate private sector participation in key areas. Effective management o f financial aspects o f state owned enterprises i s expected to lead to financial discipline, reduction in subsidy and improved utilization o f resources. External Finance Wing: Strengthening capacity in key areas o f extemal finance, external debt management, balance o f payment, trade, and monetary policy. Policy Wing: Strengthening capacity in policy-related areas related to fiscal analysis; building expertise in development o f a macroeconomic framework and in the formulation o f a human development strategy, undertake Public Expenditure Reviews, formulate, update and monitor Poverty Reduction Strategy including Poverty Reduction Support Credit, assist the MoF in policy formulation and analysis in key areas, and overall monitoring o f broad-based structural reforms.

0

(b) Central Board o f Revenue: This sub-component i s part o f CBR’s overall tax administration reform strategy, to be supported under a larger Tax Administration Reform Project, that i s currently under preparation with Bank assistance through a Project Preparation Facility (PPF). In addition to preparation o f a comprehensive reform plan, CBR has also undertaken a few reform initiatives under the PPF including, establishment o f LargeMedium Tax Payers Units, sales tax

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STARR project, a customs pilot project and others. The PPF funds are already committed, and the larger program support may not be effective before the next 6-8 months. As it i s critical to continue with the short-term initiatives without delay so that the reform program does not lose i t s gained momentum, it has been agreed to include some immediate reform initiatives under this project, and bridge the financing gap while the larger program i s being prepared. The initiatives proposed to be supported under this sub-component include: extension o f the Large Taxpayer Unit (LTU) and the Medium Taxpayer Unit (MTU), customs reform initiative, a central database for the automated sales tax refund program, support for implementation o f the universal self assessment scheme, human resource management and associated training and staff development, and setting up dispute resolution centers. Total cost o f US$6 mill ion i s estimated.

(c) Ministry o f Commerce: to strengthen capacity o f the ministry to play an increased role in trade promotion, coordination, facilitation and policy analysis in the emerging global environment. The initiatives proposed include specialized training on trade and WTO related areas, analytical and technical studies, and infrastructure and IT support. Total cost i s around US$2 million.

(d) Establishment Division: to strengthen the capacity to manage the broader CSR program, a Civil Service Reform Unit (CSRU) will be established. I t s charter will be to oversee GOP’s comprehensive c iv i l service reform program. Specifically, it will support the following areas o f civil service reform:

Devolution: completion o f devolution, with responsibilities and staff assignments moved from the federal to the provincial level, and from the provincial to the district levels, with less cross management o f staff between levels o f government; organizing seminars/workshops o f provincial and national level stakeholders to develop consensus on additional reforms regarding restructuring, compensation issues and investment in professional development; maintaining an active dialogue with counterparts. Recruitment and Promotion Reforms: modernizing the cadre system and reforming the system o f occupational groups so that internal mobility within the public sector i s increased, and lateral entry from the private sector for skilled staff i s encouraged, including the creation o f a national executive service or equivalent broad-based staff grouping at senior levels and strengthening o f merit protection. Pay and Pension Reforms: providing support for deepening the Pay and Pension reforms (including monetization o f benefits) which provide for more attractive and more transparent packages o f total compensation at senior levels, within fiscal constraints. Professional Development: improving the quality o f training and professional development available to serving staff. This w i l l include managing the Executive Development program (EDP) and Professional Development program (PDev). Monitoring and Evaluation: monitoring implementation o f already initiated governance, structural and policy reforms; maintaining updated databases o f civil service employment totals at a l l levels o f government; developing appropriate human resource management information systems so that the federal, provincial and district governments are able to plan their human resource management on the basis o f actual staff and identified skills, and not just sanctioned positions; carrying out evaluation o f reforms; generating periodic reports for submission to the Secretary, Establishment Division and the Cabinet Committee on Civi l Services Reforms; and canyng out tracer studies for the returnees o f the EDP and PDev Programs Coordination: serving as Secretariat work for the Cabinet Committee on Civil Service Reform; maintaining a close liaison with CSR units established in other MinistriesDivisions; making concrete proposals for aligning donor initiatives -

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particularly between the ADB, WB and DfID. A total o f US$2 mill ion would be allocated to the CSRU.

(e) Planning & Development Division (P&DD): Strengthening P&DD’s capacity in areas o f economic planning. This involves capacity building to plan, design, appraise, implement, monitor and evaluate development plans, programs and projects. The allocated sum will also be used to strengthen project management practices besides preparing overall sectoral policies and planning framework over the medium and long term. Total cost o f U S $ 5.4 mill ion i s estimated.

( f ) Economic Affairs Division (EAD): to strengthen capacity in coordination and monitoring o f relationship with donors and donor funded projects. This entails development o f technical and managerial capacity o f the Division in the management o f loan portfolios, streamlining o f i t s procedures and operations and effective monitoring o f the donor funded projects.Tota1 estimated cost i s U S $ 1 million.

(g) Public Procurement Regulatory Authority (PPRA): strengthening the PPRA to monitor and regulate public procurement in the country through developing a modem transparent and cost effective public procurement system and putting in place an effective monitoring system. Total estimated cost i s U S $ 1 mill ion

Note: Entities (h) to 0) mentioned below are in the process ofpreparing their EIPs; funds will be allocated once they are fully developed and reviewed;

(h) Ministry o f Water and Power: to support the initial institutional reform and capacity building needs in the power sector.

(i) Statistics (FBS): to enhance the ski l ls and knowledge o f technical staff to effectively manage information collection and accurate reporting o f key country statistics, conducting various surveys including Pakistan Integrated Household Survey, Household Income and Expenditure Survey, their comprehensive analysis including poverty assessment methodology as well as effective and accurate collection o f information for national accounts.

(‘j) Provincial Finance and Planning: to strengthen the provincial government’s capacity in the areas o f provincial reform formulation, implementation, evaluation and monitoring. The funds will also be used to improve budget, expenditure management, poverty expenditure monitoring and develop medium term budgetary framework planning, project design, and implementation at the Provincial as well as district levels and civil service reforms.

iii) Strengthening of Regulatory Function The third component will support capacity-building o f the Regulatory Agencies (National Electric & Power Regulatory Authority (NEPRA), O i l & Gas Development Authority (OGRA) and Pakistan Telecommunication Authority (PTA). Specifically this component will support the following agencies:

(a) NEPRA: to strengthen NEPRA’s capacity to regulate the natural monopoly aspects o f the electric power sector, develop a competitive structure for electric power generation and supply and ensure the reliability and adequate supply o f electric power. Skill development and development o f regulatory institutions are to be key areas o f focus. Total cost i s US$ 2 million.

(b) OGRA: to strengthen OGRA’s capacity to improve i t s ability to foster competition, encourage

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private investment and ownership in the sector and deal with challenges arising from the proposed restructuring o f the gas sector. Total cost estimated around US$ 2 million.

(c) PTA: To strengthen capacity to regulate the telecommunications sector and implement the telecom deregulation policy which wil l open all market segments within the industry to private investors. Total cost estimated US$ 1.6 million.

The total cost o f the project i s estimated to be US$ 61 million. O f this, about 61% i s for training; around 22% for consultancies (16% for institutional development and 6% for specific studies predominantly for the regulatory agencies and MoC) and 15% i s for procurement o f goods and services.

A: Professional Development: (a) EDP/PDev: US$ 17 m (b) NSPP: US$5 m (c) FPSC: US$ 1 m

B: Economic policy & management (a) Finance: US$4 m (b) CBR: US$6 m (c) Commerce: US$2 m (d) Estab./CSRU: US$2 m (e)P&DD: US$ 5.4 m (f) EAD: US$ lm (g) PPRA: US$ l m

(a) NEPRA: US$2 m (b) OGRA: US$2 m (c) PTA: US$ 1.6 m

(a) Ministry o f Water & Power (MoW&P) (b) Statistics (FBS); (c) Provincial Finance/Planning;

C: Regulatory agencies

D: Unallocated

Others (unidentified) Total Project Costs

Total Financing Required

2 1.40

5.60

11.00

61.00 61.00

37.7

35.1

9.2

18.0

100.0 100.0

21.06

18.76

5.28

9.90

55.00 55.00

38.3

34.1

9.6

18.0

100.0 100.0

Retroactive financing to the extent o f US$ 5 million equivalent has been included for various project preparation and start-up expenditures incurred after August 31,2003.

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Table: Project Cost by Category

Category Total Cost- US$ Mil l ion A: Training 37.5

i. Institutional Development 9.5 ii. Studies 4

C: GoodsNlTorks 9 D. Other-Miscellaneous 1

B: Consultancy 13.5

TOTAL PROJECT COST 61

YO of Total 61% 22% 16% 6% 15% 2%

100%

B: Proiect Readiness:

Of the total proposed US$ 61 million, nearly 80% i s clearly defined, with sub-components fil ly developed and costed and strong leadership in place for implementation. These components have already been appraised. About 10% are preliminary proposals from a few agencies (MoW&P, Statistics) that are under different stages o f preparation and are expected to be ready within the next 8-12 months. The remaining 10% i s ‘un-allocated’ and w i l l be available, on a demand-driven basis, to new agency proposals which, during the 5 years o f project implementation, w i l l meet the criteria for inclusion. The status o f readiness o f the various components i s presented below:

(a) Professional development: The key components o f this program; Le. the Professional Development and Executive Development Programs (PDev & EDP), are clearly defined and are at a stage where the government can begin the process o f selection o f officers for degree and non-degree programs. Key actions already taken include (i) selection criteria for candidates has been established; (ii) broad areas for degree programs identified; (iii) a preliminary l i s t o f universities has been drawn; and (iv) estimated program costs have been worked out. In addition, steps have been initiated (such as hiring o f international faculty) to strengthen in-country c iv i l service training institutions’ capacity (NIPAsPASC), as well as improving the civ i l service recruitment process and system (FPSC). The estimated cost o f this program i s US$ 23 million. Details o f individual proposals are attached in Annex 2.

(b) Regulatory agencies: This component i s also f i l ly developed. The capacity building needs for the f i rs t phase o f the regulatory agencies’ program ( N E P W O G W P T A ) have been identified, and the scope o f work/TORs for analytical workhechnical studies have been developed. Specifically:

NEPRA has prepared clear proposals with respect to the various elements o f the requested package. These are consistent and appear to address the underlying capacity issues that the regulatory agency i s facing. A procurement plan has been prepared to ensure prompt delivery o f the required services. This coupled with the internal procurement resources o f the agency should ensure a rapid utilization o f the project funds. Total estimated cost i s US$ 2 million. OGRA’s proposal comprises o f activities related to analytical work, and training o f i t s members and professional staff. Detailed procurement plans and TORS have been developed for hiring individual consultants and for undertaking the key studies. Total estimated cost i s US$ 2 million. Assistance to PTA i s estimated at about $1.6 mill ion consisting o f the following: (a) educatiodtraining for capacity building, and (b) consultantladvisory services. O f the total,

0

0

0

- 20 -

about a third o f this program, comprising short term training and the consultancies, w i l l be ready for implementation during the f irst year.

Total estimated cost o f this component i s US$ 5.6 million.

(c) Strengthening economic policy & management: Most o f the key government ministrieslagencies that are part o f this component have clearly defined capacity building programs. Specifically:

The Central Board of Revenue (CBR) has a well developed program with detailed costs worked out, along with timelines for procurement o f goodslworks and consultancies prepared. A contract for design and refurbishment o f the LTU, MTU, CARE pilot, Taxpayer Facilitation Centers and Dispute Resolution Center has already been awarded under Bank procurement procedures and wi l l be financed retroactively. For the remaining contracts i t s i s expected that shortlisting o f f i rms and RFP issuance will be completed by negotiation; Proposals from Ministry of Finance (Debt Management, Corporate Finance, Policy Wing) are also well developed and have been appraised. The costs have been brought down, from an initial US $ 8 mill ion to US $ 4 million, in line with the implementation capacity o f the MoF. TORs for key consultancies and procurement plans have been completed; Proposal o f Establishment Division for setting up o f the CSRU i s developed, along with i t s TORS and staffing needs. The head o f the CSRU has been appointed. Work has been initiated including drafting o f TORs, etc., for some o f the technical studies to be undertaken in the f i rs t year. This component i s also ready to ro l l out as soon as project becomes effective Planning & Development Division's (P&DD) capacity building proposal comprises: strengthening o f i t s planning, monitoring and evaluation capacity; improving macro modeling and building up research facilities; skil ls development; strengthening o f the Pakistan Planning and Management Institute (PPMI); etc. The proposal i s well developed and consistent with overall project objectives with strong leadership in place for implementation. The Commission has a fairly well developed procurement plan for the entire duration o f the project and have drafted TORs for main consultancies Ministry of Commerce (MOC) i s committed to strengthen and enhance i t s capacity to play an increased role in the emerging global environment. The initiatives proposed in th i s regards are a f i rst step toward the required reorganization and restructuring o f MOC. The M O C has now submitted a revised capacity building proposal- as agreed during appraisal- which i s well developed and consistent with project objectives. Since the TORs for the consultancies would be taken up as part o f the institutional restructuring exercise, the targetted timeframe for the consultancies would be in the second year o f the project; Economic Affairs Division (EAD) i s seeking assistance to enhance i t s capacity to coordinate and negotiate government's loan portfolio with donors and liason with government and donor agencies for smooth implementation. The proposal comprises specialized training and managerial skil ls enhancement in the above noted areas, and improvements in database management and information systems. The proposal has been revised in l ine with EAD's implementation capacity. Therefore, EAD has been included in the 'allocated' category; Public Procurement Regulatory Authority's (PPRA) proposal comprises specialized training and skil ls enhancement in procurement related areas and improvements in i t s management informations systems. PPRA has already drafted public procurement rules - - a preliminary review has been undertaken, and the proposed rules found satisfactory. Given that the agency i s well advanced in finalizing the rules, it has been agreed to include PPRA under the 'allocated' category o f the project.

Total estimated cost o f this component i s US$ 2 1.4 mill ion

- 2 1 -

2. Key policy and institutional reforms supported by the project:

Public Sector's capacity enhancement through high quality training programs (domestic and foreign) coupled with specialized consultant support for technicaYanalytica1 work would result in significant improvement in the overall quality o f policy formulation, public service delivery, and human resource management. Analytical work in support o f broader Civil Service Reforms under the aegis o f the Civi l Service Reform Unit (CSRU) w i l l enable the government to accelerate implementation in areas such as pay & pension reforms, promotion policies, recruitment policies, etc. A major institutional outcome sought i s the development and enhancement o f domestic public sector training capacity through upgradation o f the c iv i l service training institutions (NIPAs/PASCletc.) and eventually leading towards establishment o f the National School o f Public Policy (NSPP); the NSPP, in the medium to longer run, will serve as a premier public sector training institution for the civil servants o f the country. Regulatory agencies' capacity will be enhanced which will result in a redefined role o f the government as a facilitator, and w i l l improve transparency in regulatory policy decisions, leading to greater investor confidence and contributing towards accelerated reforms and privatization. Finally, key economic ministries, who are in the forefront o f design and implementation o f reforms, will be strengthened, thus ensuring that on-going reforms are effectively implemented and future reforms are adequately designed.

3. Benefits and target population:

The target group comprises: (a) Grade 17 to 2 1 civil service officers (federal; provincial) plus professional level ex-cadre officers; (b) Key federal ministries including Finance, Planning, CBR, Commerce, Establishment, and some key provincial economic ministries etc. (c) Key regulatory agencies, including NEPRA, OGRA and PTA.

Benefits:

The project i s expected to yield significant benefits to the public sector, in the medium to long term. Broad-based professional development would result in building a 'critical mass' o f reform champions and significant improvement o f the technical sk i l l s at all levels o f the government. With over 500 persons trained, each key ministrylagency would have a critical number o f trained personnel which will engender a demand for quality within service. This, coupled with enhancement o f domestic recruitment and training institutions, would lead to raising the overall quality o f policy formulation, public service delivery, and human resource management. Further, capacity building o f key economic ministries and departments will support more effective and timely implementation o f GOP's reform program, along with more innovative design o f future reforms. Capacity building o f regulatory institutions would contribute to improved tariff-decisions, and balancing o f the interests o f different stake-holders.

The overall benefits and impact o f the project are expected to continue beyond the project. The strengthening o f domestic public sector training institutions (including establishment o f NSPP) will substantiallly improve the quality o f public sector training and education over the medium to long run. Similarly, strengthening o f key institutions, such as the FPSC/Establishment Division will enhance the civil service entry/recruitment, and placement processes. Most importantly, the work under the CSRU w i l l facilitate implementation o f the overall civil service reforms. Over the long haul, the aggregate benefits of this project are expected to be substantial, provided broad-based civil service reforms and professional skills development continues.

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4. Institutional and implementation arrangements:

In order to streamline project implementation, the following implementation arrangements are being envisaged by the Government.

A National Steering and Coordination Committee (NSCC) comprising Secretaries o f Finance, Establishment, Economic Affairs, and Planning Division plus one independent academic (or a key civil society representative), wi l l oversee implementation o f the project and review new proposals for inclusion in the program. Specifically, the NSCC w i l l perform the following functions:

Overall monitoring o f the project, including a comprehensive mid-term review o f the entire program; Reviewinghetting o f new capacity building proposals, from the ‘un-allocated’ portion o f the credit; and Reviewinghetting o f re-allocation among sub-projects o f the un-utilized funds.

0

0

0

The project will be implemented by the Finance Division (FD). A small facilitation and coordination unit has been established in the FD, the Project Coordination Unit (PCU), headed by a Project Coordinator (PC), which w i l l include two professionals (one Procurement Specialist & one Finance Manager) and two accounting assistants (accounts officer and assistant accounts officer). The PCU would report to the Additional Secretary, Ministry o f Finance (Policy Wing) and would be responsible for:

0

0

0

0

facilitating the participating agencies with procurement and financial management processing issues; assisting agencies with preparation o f new proposals, in line with the overall project development objectives; acting as a secretariat for the National Steering h Coordination Committee (NSCC); preparing quarterly project progress reports for the NSCC and the Bank.

As for the mechanism for f low o f funds, Finance will maintain a special account. There shall be 5 other implementing entities (Establishment Division, Planning & Development Division (P&DD) NEPRA, OGRA & PTA) which w i l l each have their own Special Account and accounting staff to manage the accounting and reporting processes. The special account to be maintained by the PCU at the FD shall cater for the funding needs o f the other agencieslministries which do not have special accounts (such as EAD, Commerce, CBR, etc.).

Each agency would be responsible for i ts own procurement (such as goods, consultants, works). The procurement specialists in the PCU would assist the individual agencies under the project in carrying out procurement (such as preparing bidding documents contract award), but the financial management would be carried out by the individual implementinghub-implementing agencies managing the special accounts. Each agency operating as a beneficiary in an implementinglsub-implementing entity will assign a focal person for procurement and financial management. Contracts would be finalized and signed by the individual agencies.

Three assignment accounts would be opened at the Finance, Planning, and Establishment Divisions for payment o f counterpart funding. Regulators would use their existing accounts for payment o f counterpart funds. The detailed financial management assessment is provided in Annex 6B.

Goods and works under the Project w i l l be procured in accordance with the Bank’s Procurement Guidelines, and Consultants’ services in accordance with the Consultants’ Guidelines. The procurement capacity assessment and applicable procurement procedures are provided in Annex 6A.

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An umbrella PC-1 has been prepared (by the PCU) which includes individual components and an un-allocated amount. Individual components w i l l be managed and executed entirely by respective ministries and agencies.

Approval Process for New Proposals The criteria for allowing new agency proposals would include:

(i) full alignment to project objectives and with the agency's overall strategic visiodplan; (ii) an entity improvement plan (EIP) along with indicators for monitoring progress o f the institutional strengthening program; (iii) clearly defined proposals with timelines o f activities and fully costed components; and (v) agencies having their first year's program ready for implementation.

Interested agencieslministries would prepare their capacity building proposals along with an Entity Improvement Plan (EIP) in consultation with the PCU/PC. These EIPs would be prepared in l ine with agreed criteria (as noted above) and will be shared with the Bank for review before submission to the NSCC through their respective SecretariedAgency heads. The proposals would then be submitted to the NSCC for consideration and approval. Once approved, the individual PC-1s would then be submitted to the Planning Commission for CDWP approval. Following the CDWP approval, PCUPC will allocate resources from the un-allocated amount to the new participating agency.

D. Project Rationale 1. Project alternatives considered and reasons for rejection:

The proposed project i s aimed at broad-based capacity building and the alternatives considered are essentially about options and balance. Specifically:

(i) Consultancy vs. Training: In the past, hundreds o f millions o f dollors have been spent on consultancy support in Pakistan without any real benefits to society. Traditionally capacity building projects are heavily dependent on external consultants who fly-in for short periods, provide immediate technical and analytical support, and leave without establishing any in-house or residual capacity in the system. Further, as the capacity within the government institutions i s weak, they are unable to utilize the consultants effectively. As a result there has been a huge backlash, within government and civ i l society, against reliance on consultants. This project addresses the above issues: by focusing on developing local capacity through training and professional development -- around 60-70% o f project funds will be channelled towards this component; and providing very limited and focused consultant support, mainly for highly technical and specialized analytical work to be undertaken by key agencies, such as the Regulatory agencies and Ministries o f Finance, Commerce, Information Technology etc.

(ii) Domestic vs. Foreign Training: The option o f predominantly using domestic modes o f training for professional development was considered and rejected due to the fact that, at present, the quality and capacity o f domestic training institutions i s weak (as highlighted earlier). The aim i s to address and bridge the ski l ls gap that currently exists in the middle-level c iv i l servants who occupy bulk o f policy levevmanagerial positions. This could only be achieved through exposing them to world class/ top notch institutions so as to inculcate new ideas, cutting edge knowledge, and cross country experiences. These officers are expected to form the 'critical mass' within the c iv i l service and are expected to lead the reforms. The government recognizes that, generally those who have been trained overseas are more supportive o f reforms, and perform better in terms o f policy analysis and implementation. In the Bank's own work across

- 24 -

different agencies, this linkage between advanced professional training and quality o f civil servants i s very evident. Not withstanding the above, the project will, in parallel, focus on strengthening domestic training institutions, with the aim o f bringing them in line with international standards. Thus, foreign training i s expected to reduce over time (over 5-7 years), as domestic training institutions are strengthened.

(iii) Scope of Project and Target Population: There was a wide discussion about the scope o f th is project and the target population i.e. (i) who should be included: whether all or selected agencies; (ii) distribution between federal and provincial civil servants; inclusion or exclusion o f provincial ministries etc. Also, under consideration was complexity in project design. Balancing the various factors, the project i s optimally targetted at those agencies and officers whose capacity building will produce a positive impact to the existing system. These include: civil servants at middle-senior level (federal/provincial) occupying bulk o f key managerial and policy level positions (about 500-600); key economic management and regulatory agencies (8-10); and key domestic public sector training institutions (3-5). All project activities compliment each other i.e. professional training o f middle-senior level civil servants, who are in the fore-front o f economic management and implementation, will create a 'critical mass' in the system which will, in tum, lead to improved design and implementation o f future policies. As the domestic training capacity i s enhanced, the size o f this 'critical mass' will fiirther increase. Over the long haul, there will be a large pool o f professionally competent, well- trained public officials, thus improving the overall quality o f public sector delivery.

2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).

WORLD BANK

Closed Projects

Indonesia: Professional Human Resource Development Project: The most relevant projects financed by the Bank in the area o f professional development are the two projects undertaken in Indonesia during the 1990s, namely the Professional Human Resource Development Project (PHRDP-I & PHRDP-11), funded through IBRD Loans. Total Bank commitment under PHRD-I was US$ 116 million; and PHRD-I1 was US$ 70 million. The objectives o f PHRDP-I were to improve human resource policy making; and quality o f professional, technical and managerial staff. One o f the major components o f this project was professional and managerial staff development, which included overseas training and fellowship programs. More than 75% o f project costs went into overseas training (largely in degree programs); over 2,500 staf f were sent abroad for degree and non-degree training, largely to U S universities. These programs effectively served as a source o f high level professional and mangerial manpower. The project was immediately succeeded by PHRDP-11. Evaluation o f this program indicated that there was almost no "brain drain" and the success rate o f fellowship participants was very high; the training made positive impacts on each ministry in terms o f the returnees' contribution towards implementation o f the country's development strategy.

Pakistan: Technical Assistance Credit-I & 11 & 111: The objectives o f the technical assistance credits were primarily to support Government's efforts on policy reforms related to macro-economy, and in industry, energy, agriculture, transport and urban sectors. These projects were designed to finance specialized studies in the above areas, mostly through consultant support. There was some limited training provided under the TA-111, whereby few o f the Auditor General's Department staff were sent abroad for training. Support under this component further led to a bigger project for the Auditor General (described below). Although the TAs were assessed as satisfactory in meeting the desired project objectives o f policy reforms, they were largely consultant focused, and did not have a lasting impact on in-house capacity. In particular, the TA-I11 while most successful in achieving i ts macroeconomic and sectoral objectives, only achieved partial sucsess

- 25 -

in enhancing policy formulation and implementation capacity o f the government. The latter was attributed, to some extent, to cumbersone and inflexible rules and procedures governing the implementation o f the

Pakistan: Telecommunications Regulation and Privatisation Support Project: The objectives o f the Project was to assist the government in (a) implementing the program o f reforms and efficient development o f the Pakistan telecommunication sector by implementing a suitable regulatory framework for both private and public telecommunication operators and the efficient allocation and use o f the radio spectrum; (b) assist in establishing Pakistan Telecommunications Authority (PTA)and Frquency Allocation Board (FAB); (c) Assisting PTA in building capacity for and in promoting competition in the provision o f telecommunications services and increasing private sector participation; (d) Supporting FAJ3 in efficient management and allocation of radio frequency spectrum for public and private use; (e) Supporting PTCL privatization process. The project has been implemented satisfactorily, achieving most o f i t s objectives. I t closed on June 30,2003. An important outcome i s adoption o f a positive Telecommunications Liberalisation Policy. PTA i s responsible for implementing this policy and has requested the Bank's further asistance under the proposed Public Sector Capacity Building Project.

TA-111.

Ongoing Projects in Pakistan

The on-going capacity building programs undertaken by some o f the key economic management agencies, such as the Central Board o f Revenue, AudiUAccounting Departments and the State Bank o f Pakistan, have so far been successful in yielding immediate benefits to these organizations (most o f these reforms are being supported under Bank projects--PIFRA, Banking Sector TA) . The Project for Improvement in Financial Reporting and Auditing (PIFRA) has been successful in building capacity o f the staff o f the Auditor General and Controller General o f Accounts, to better align their practices with international accounting and auditing standards. Under a component o f this project, about s i x t y staff have undertaken professional training abroad and within the country (Masters and above) in the areas o f Finance and Accounting. Over 90% o f these officers have returned and are serving in their respective departments. Of these, about 15% are women. A second phase o f this project i s under preparation which aims to deepen and broaden the financial management reforms, and extend the capacity building initiatives by upgrading government financial processes and systems with rigorous internal controls and fully trained and qualified staff.

The Central Board o f Revenue (CBR), as part o f i t s restructuring and reforms process, has sent [over 70 officers abroad to be confirmed] during the last five years for specialized training. Of these, 90% have returned and are being utilized in the CBR. The Bank i s currently working with CBR to prepare a US$ 100-150 mill ion Tax Administration Reform project. This project w i l l include, among other things, major institutional and capacity building component; some o f these initiatives are already being financed under the proposed "Public Sector Capacity Building Project".

The State Bank o f Pakistan i s also undergoing major systems and ski l ls improvement o f i t s staff. The Bank has extended i ts support through (i) Financial Sector Deepening -TA project, which closed in FYO1; and (ii) the on-going Banking Sector Technical Assistance project.

ADB and DFID

Closed Projects

Pakistan: Fiscal Decentralization Technical Assistance: This ADB-DFID co-financed TA comprised of: three main components: revenue management, expenditure management and training in Pakistan. The

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output o f the TA provided critical inputs for the Decentralization Support Program (DSP) described below.

Pakistan: Technical Assistance for Support to the Implementation of Decentralization: The primary objective o f this ADB TA was to provide interim support to the Government’s implementation o f decentralization reforms. I t s main components included assisting implementation agencies and supporting the monitoring and evaluation system for decentralization.

On Going Projects

Pakistan: Decentralization Support Program: The broad program objective i s improved local government representation, accountability, and efficiency resulting in improved service delivery. This objective w i l l be achieved through reforms in three main areas; a) policies, laws and regulation; b) institutional strengthening and capacity building and; c) fiscal restructuring and budgetary measures. Key federal, provincial and local government institutions come under the purview o f the project.

Pakistan: Local Government Performance Enhancement Technical Assistance: This TA loan i s aimed at assisting federal, provincial and local implementing agencies to build capacities in core planning, finance management, procurement and audit functions necessary for efficient and equitable service delivery.

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CANADIAN INTERNATIONAL DEVELOPMENT AGENCY (CIDA)

Sector Issue

Ongoing Projects Pakistan: Democratic Governance Program: This program aims to support processes leading to the devolution o f power, the decentralization o f administration and the participation o f citizens in local govemance. Funds are being allocated to activities in cooperation with organizations such as DFID, NORAD etc. Expected results include improved local govemance policies and administration and more effective local democratic institutions.

Project

Bank-financed Accounts and Auditing Development Planning, Energy, Agriculture and Industry Development Planning, Energy, Agriculture and Industry Development Planning, Energy, Agriculture and Industry Banking

Banking

Public Sector Capacity Building

Public Sector Capacity Building

Telecom

PIFRA-I (CreditCR292 1 -PAK) Technical Assistance Project (CreditCR1256-PAK) 2nd Technical Assistance Project (CreditCR 1480-PAK) 3rd Technical Assistance Project (CreditCR 1 75 5-PAK) Financial Sector Deepening and Intermediation (LoanLN3808-PAK) Banking Sector Technical Assistance (CreditCR3688-PAK) Professional Human Resource Development Project

Second Professional Human Resource Development Project (LoanLN3 825-IND) Telecom Regulation and Privatisation (Loan

(LoanLN3 134-IND)

LN39500-PAK) Other development agencies

I

P/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), k

Latest Si (PSR)

(Ban k-finance1 Implementation

Progress (IP)

S

S

S

S

S

S

(Highly Unsatis

iervision atings projects only)

Development Objective (DO)

S

S

S

S

S

S

tctory)

3. Lessons learned and reflected in the project design:

The key lessons from similar projects in Pakistan, Indonesia, Eritrea and from experience world-wide with public sector institutional reforms include:

i) The rules and procedures goveming the implementation o f TA operations should be simple and streamlined to reduce transaction cost and speedy implementation; ii) For effective management o f any TA project, Project Director should have greater authority to decide on most matters relating to the award o f contracts for studies, disbursements and other administrative matters; iii) A key recommendation o f the ICR o f the P K TA-111, regarding design o f future TAs underlined that

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focus should be on economic reform issues, in particular building capacity o f key economic agencies l ike MOF, EAD and Planning Division; iv) Excessive complexity in terms o f institutional participation should be avoided. In addition, it i s important that all complementary institutions are directly or indirectly included as participants and beneficiaries. Without this, sustainable gains in institutional capabilities are not achieved; v) Sustainable capacity building requires that broader civil service reform issues (incentive, compensation, etc.) be addressed and that consensus building among stakeholders should be undetaken. This i s important in order to sustain the benefits to the organizational capacity through investments in training and education; vi) Consultants for short term analytical support should be minimized, and staf f trainindeducation maximized if sustainable institutional capacity i s the desired goal.

While designing the project, the team tried to incorporate the above lessons. Focus o f the project i s only on key government agencies including complementary institutions (NSPP; Regulators). Analytical work in support o f overall civil service reforms i s being supported through the establishment o f the Civ i l Service Reform unit. The size o f the direct target population i s sufficiently large to form a critical mass so that it can perform a catalytic role and leverage benefits to the indirect beneficiaries o f this project. The focus o f the proposed project i s on sustainability through maximization o f investment in staff trainindeducation, using a combination o f foreign (declining importance over the project disbursement period) and domestic (increasing role over project l ife) educational and training institutions.

4. Indications o f borrower commitment and ownership:

The interest elicited in the proposed capacity building facility so far by the government and the respective ministries, divisions and agencies represents substantial commitment. The proposed project builds on nearly one and a half years o f dialogue between the government and the Bank. The components that will be supported under the project are central to the success o f the implementation o f the broad Economic Policy Reforms that the GOP has already initiated. The Finance Minister i s leading this process. There are also strong champions at the political and agency level, particularly from the heads o f the relevant participating agencies (Establishment, MoF, CBR, Planning). The project has been endorsed by the Finance Minister. Each participating agency has submitted an Entity Improvement Plan (EIP) approved by the agency head. The umbrella PC-1 for the entire project has been cleared by CDWP on 24 January 2004.

5. Value added of Bank support in this project:

By strengthening public sector capacity and enhancing quality o f civil service, the Bank will significantly contribute towards successful and timely implementation o f GOP’s on-going structural reform program at the federal and provincial levels. The Bank’s experience with institutional reforms and global experience in public sector management places it in an advantageous position to assist GOP in achieving the intended capacity building outcomes. There i s a critical need for well trained and qualified professional, technical and management officers in the civil service to successfully implement the Government’s program of poverty reduction, economic growth and human development.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4): 0 Cost benefit 0 Cost effectiveness 0 Other (specify) Not Applicable. There i s no economic evaluation methodology for technical assistance projects. This i s

NPV=US$ million; ERR = % (see Annex 4)

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primarily a capacity building and training program. However, further strengthening o f government's capacity to support the implementation o f i t s on-going economic reform i s likely to have a positive effect on general business environment, public sector accountability and expenditure, regulatory functions and public service delivery.

2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Not Applicable. Same as above.

Fiscal Impact:

Not Applicable. Same as above.

3. Technical: In Pakistan, the capacity and quality o f public institutions has been declining over time. Although the civil service has pockets o f excellence, collectively i t s performance leaves a lot to be desired. A quantum leap in efficiency and management culture o f the government i s needed if Pakistan has to accelerate and sustain growth, reduce poverty, anticipate the opportunities and challenges o f the future, and enable i ts enterprising citizens and private sector to realize their full potential and compete in a fiercely competitive global market. Successful implementation of GOP's on-going reform program - both at federal and provincial levels - i s inseparably linked with the capacity o f government institutions and the quality o f c iv i l service.

The technical analysis underpinning the design o f this project has already been reflected in the section titled "Key aspects o f Civ i l Service" (pl. refer to section B - Strategic Context).

4. Institutional: The project will be implemented by the Finance Division. However, individual participating agencies would be responsible for implementing their own sub-projects. (For detailed implementation arrangements, see sections 4.1-4.4).

4.1 Executing agencies:

a. b.

d. e. f. €5 h.

C.

1.

j.

Ministry o f Finance CBR Establishment Division Ministry o f Commerce NEPRA OGRA P T A Planning & Development Division PPRA EAD

I n addition to the above, all those agencies that wi l l qual i j j for inclusion in the project during the implementation phase.

4.2 Project management:

Following implementation arrangements are being envisaged by the Government: A National Steering and Coordination Committee (nSCC) comprising Secretaries o f Finance, Establishment, Economic Affairs, and Planning Divisions and one independent academic (or a key civil

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society representative), will oversee implementation o f the project and review new proposals for inclusion in the program. Specifically, the NSCC will perform the following functions:

Overall monitoring o f the project, including a comprehensive mid-term review o f the entire program; Reviewinghetting o f new capacity building proposals from the ‘un-allocated’ portion o f the credit; and Reviewinghetting o f re-allocation among proposals o f un-utilized funds.

0

0

0

The project will be implemented by the Finance Division (FD). There will be a small facilitation and coordination unit in FD, the Project Coordination Unit (PCU), headed by a Project Coordinator (PC), which will include two professionals (one Procurement Specialist & one Finance Manager) and two accounting assistants (accounts officer and assistant accounts officer). The PCU would report to the Additional Secretary, Ministry o f Finance (Policy Wing) and would be responsible for:

facilitating the participating agencies with procurement and financial management processing issues; assisting agencies with preparation o f new proposals, in line with the overall project development objectives; acting as a secretariat for the National Steering & Coordination Committee (NSCC); preparing quarterly project progress reports for the NSCC and the Bank.

0

0

0 0

4.3 Procurement issues:

Goods and works under the Project will be procured in accordance with the Bank’s Procurement Guidelines, and Consultants’ services in accordance with the Consultants’ Guidelines. The procurement capacity assessment and applicable procurement procedures are provided in Annex 6A.

4.4 Financial management issues:

The project w i l l be implemented at central level. Finance Division (FD) will maintain one special account. In addition, there shall be 5 other implementing entities (Establishment Division, Planning, NEPRA, OGRA & PTA) which will each have their own Special Account and accounting staff to manage the accounting and reporting processes.The special accounts to be maintained by the FD and ED shall cater for the funding needs o f the other agencies/ministries which do not have special accounts (such as CBR, EAD etc.). Financial management would be carried out by the individual implementinglsub-implementing agencies managing the special accounts. Three assignment accounts would be opened at the Finance, Planning and Establishment Divisions for payment o f counterpart funding. Regulators would use their own intemal resources for payment o f their respective counterpart hnds.The detailed financial management assessment i s provided in Annex 6B.

5. Environmental: 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis.

None

5.2 What are the main features o f the EMP and are they adequate?

NIA

5.3 For Category A and B projects, timeline and status o f EA:

N/A

Environmental Category: C (Not Required)

Date o f receipt o f final draA:

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5.4 How have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted?

5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP?

This i s primarily a capacity building and training project, and i s not expected to have any negative impact on the environment.

6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes.

Better trained staff leading to improved quality o f policy-making and implementation i s a social development outcome. The issues that emanate from th is outcome are the criteria o f selection o f staff, and retention o f trained staff. A second set o f social issues i s the poor quality o f output f rom Pakistan's higher education system and the need for higher education reforms since the potential c iv i l service officers are taken from this system. Thus the project's emphasis in improving local training capacity along with foreign training for capacity building.

The project's intervention i s geared to address the above noted key social issues.

6.2 Participatory Approach: How are key stakeholders participating in the project?

The implementing agency wi l l hold consultations with the participating ministries and agencies who are the key stakeholders. Based on these consultations, the programs o f the participating agencies will be developedfinalized. In addition, key stakeholders within federal, provincial and district governments will also be consulted in the overall restructuring process o f the civil service.

6.3 How does the project involve consultations or collaboration with NGOs or other c iv i l society organizations?

Since th is i s essentially capacity building o f the government, collaboratiodconsultation with NGOs/CSOs i s not envisaged; however, where required it w i l l be undertaken.

6.4 What institutional arrangements have been provided to ensure the project achieves i t s social development outcomes?

Since the social development outcome i s also the project development outcome, therefore, the institutional arrangement i s the same as that o f the project, and i s laid out in Section C.

6.5 How wi l l the project monitor performance in terms o f social development outcomes?

Monitoring mechanisms will be established at various levels. They include: (i) A National Streering Coordination Committee (NSCC); (ii) Project Coordination Unit within the implementing agency; and (iii) the Civ i l Service Reform Unit under Establishment Division. For details refer to Section C.

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7. Safeguard Policies:

S

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

NIA

The government has introduced broad based reforms. Nevertheless, the pace o f these reforms could be slow, given the nature o f reforms, availablility o f fiscal space, political dimesnsions, etc. Also, some components o f the CSR agenda are s t i l l at an early stage o f implementation. Nevertheless, the FederaVProvincial Governments are building consensus and indications are that the GOP wil l continue to move on this front. The Government

F. Sustainability and Risks 1. Sustainability:

The focus o f the proposed project i s on sustainability through maximization o f investment in staf f training and education using a combination o f foreign (declining over time) and domestic (increasing over medium term) institutions.

2. Critical Risks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):

This i s a high risk and high return project. The broad-based professional development would result in: (a) significant improvement o f the technical skills at key levels o f the government; and (b) building a critical mass o f reform champions - thus raising the overall quality o f policy formulation, public service delivery, and human resource management. With over 500 persons trained, each key ministrylagency would have a critical number o f trained personnel who will, in turn, engender a demand for quality within service. Further, capacity building o f key economic ministries and departments w i l l ensure that the government’s Economic Reform Program i s effectively implemented and that future reforms are appropriately designed.

Notwithstanding the above benefits, following risks need to be flagged:

Risk From Outputs to Objective Slow implementation o f the broad-based civ i l service reforms, such as Pay and Pension, Merit-based Recruitment & Promotions, Rightsizing, etc

Risk Rating I Risk Mitigation Measure

- 33 -

S

M

M

M

Program not yielding desired results/outcomes, such as delays in implementation o f training programs, returnees not placed in relevant areas, etc.

has set up a Civi l Service Reform Unit (CSRU) under th is project which will: (i) manage the professional development program including monitoring progress, tracking s ta f f placements after return, monitoring the bond implementation, carrying a comprehensive mid-term review o f the program etc; and (ii) carry out analytical work such as Pay and Pension Study, PromotiodTransfer Policies etc. to support and strengthen overall c iv i l service reform efforts. Further, given that it will take at least 2-3 years before the professional development program will begin to show results, one needs to start the process now so that the various components o f the civil service reform (including professional development) work in tandem There w i l l be a comprehensive mid-term review, middle o f third year o f implementation, when several cohorts o f the EDP, two cohorts o f PDev would have returned back. The mid-term review w i l l assess the effectiveness o f the program and make 'mid-course' corrections based on emerging lessons. In addition, the CSRU will closely track and monitor placements o f officers upon their return to ensure that most o f these officers are placed in the relevant areadagencies

(a) Given that these officers are being drawn from a diversified pool, covering federal and provincial officers, both cadre and non-cadre categories, the risk i s not substantial, and could be managed by placement o f good quality second tier officers across these agencies (b) The target group for the foreign degree program are middle-senior level officers (grades 17-1 9) with age limit o f no more than 37 years. These officers will apply in a relevant area, from a pre-identified l is t o f disciplines, and to a university, from a pre-determined l is t o f reputed universities. The selection o f the staff will be done through an objective process, including rigorous pre-screening and later through admission criteria o f overseas universities. This process w i l l ensure transparency and merit-based selection. (c) The past record with foreign training

From Components to Outputs Component (i): Professional Development (a) Sending away key policy level officers in large numbers ( 100 per year) might slow down government functioning at various levels

3) Govemance issue in the selection o f ifficers for training, especially overseas legree programs.

I

(c) Leakage o f trained officers

- 34 -

Component (ii) and (iii): Strengthening key economic ministries and regulatory agencies: (a) Implementation risk: Traditionally capacity building i s perceived to be consultant driven with l i t t le ownership within government agencies to implement

M

M S

), M (Modest Risk),

(b) Leakage o f trained officers Overall Risk Rating Risk Rating - H (High Risk), S (Substantial Ri:

programs indicates that this risk may not be significant; more than 80% o f officers sent on degree programs by CBR and the Auditor General o f Pakistan in the recent past have returned and are fully utilizing their training. Moreover, the professional training program has been designed to target a large number o f officers; notwithstanding some ‘leakage’, there i s a high probability that a critical mass w i l l remain within the system. Also, the officers will be signing a ‘bond‘ with GOP to serve for at least 5 years upon return. Lastly, the current international environment seems to be reversing the trend o f brain-drain o f Pakistanis abroad. (a) By focusing on developing local capacity through training and professional development, this risk w i l l be directly addressed and mitigated; around 60-65 percent o f the project funds have been allocated to training, and only limited amount for consultancies; thus ensuring sustained in house capacity building rather than short term external support (b) Same explanation as above { in (i) (c))

N(Negligib1e or Low Risk)

3. Possible Controversial Aspects:

None

G. Main Loan Conditions 1. Effectiveness Condition

0 Standard Conditions will apply

2. Other [classify according to covenant types used in the Legal Agreements,]

A: General 0 MoF shall ensure that the National Steering and Coordination committee (NSSC), and the Project

Coordination Unit (PCU), shall be maintained throughout the project implementation period, with terms o f reference and composition satisfactory to the IDA; All Participating Agencies shall ensure implementation o f their Entity Improvement Plans (EIPs) as agreed with the Bank; The Borrower shall annually review with the IDA the CSR Agenda and progress in carrying it out, and, thereafter, take all measures required to ensure i ts efficient future implementation and completion and achievement o f i t s objectives, taking into account the IDA’S views on the matter; The Borrower shall ensure that all EIPs and progress in carrying them out will be reviewed annually with the Association, and, thereafter, all such measures will be taken as are required to ensure their

0

0

0

- 35 -

efficient future implementation and completion and achievement o f their objectives, taking into account the Association's views on the matter. candidates for EDP and PDev w i l l be required to be: (i) eligible under criteria, (ii) selected in accordance with procedures, (iii) bonded in a manner, and (iv) placed in pre-selected courses at pre-selected universities, all satisfactory to the Association; EDP and PDev and progress in carrying them out w i l l be reviewed annually with the Association, and, thereafter, all such measures will be taken as are required to ensure their efficient future implementation and completion and achievement o f their objectives, taking into account the Association's views on the matter. The Borrower undertakes that, unless the Association shall otherwise agree, no EIP proposed by a Participating Agency w i l l be included unless: (a) establishes that the activities to be carried out under it are consistent with the objectives o f the Project, and with the overall strategic visiodplan o f the Participating Agency concerned; (b) sets out with respect to such activities: timelines; progress monitoring indicators; full costs; and a program for the f i rst year ready for implementation; and (c) has been: prepared in consultation with the PCU/PC; reviewed by the Bank; and approved by the NSCC. The MoF shall prepare and provide to IDA in a form acceptable to IDA: 0 starting December 3 1 2004, quarterly progress reports, including progress achieved in the

implementation o f the various components o f the project, identifying any problems encountered and suggested remedial actions to ensure the efficient implementation o f the project and the achievement o f the objectives thereof during the period following such date by September 30 2006, a mid-term report assessing the project progress and outcomes. 0

B: Covenants related to Financial Management 0 The MoF and all Implementing Agencies shall:

0 maintain a financial management system, including records and accounts, and prepare financial statements in accordance with accounting standards acceptable to IDA to reflect their operations and financial condition and to register separately the operations, resources and expenditures related to the project; have their records, accounts and financial statements (statements o f income and expenses and related statements) for each fiscal year audited, in accordance with auditing standards acceptable to IDA, consistently applied, by independent auditors acceptable to IDA; furnish to IDA, as soon as available, but in any case not later than six months after the end o f each such year, excepting 3 1 December 2004: (i) certified copies o f the financial statements for such year as so audited, and (ii) an opinion on such financial statements, records and accounts and a report o f such audit by said auditors, o f such scope and in such detail as IDA shall have reasonably requested; and furnish to IDA such other information concerning said records, accounts and financial statements and the audit thereof as IDA shall from time to time reasonably request.

0

0

0

H. Readiness for Implementation 0 1. a) The engineering design documents for the first year's activities are complete and ready for the start

[xi 1. b) No t applicable. o f project implementation.

[xi 2. The procurement documents for the f i rst year's activities are complete and ready for the start o f project implementation.

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Kl 3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory

0 4. The following items are lacking and are discussed under loan conditions (Section G): quality.

Note: In place o f PIP, we have Entity Improvement Plans for each participating agency. Kindly note PIP i s no longer required under the new guidelines)

1. Compliance with Bank Policies Ixi 1. This project complies wi th all applicable Bank policies. 0 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Sector ManagerlDirector K y a M l a q u e Team Leader

- 37 -

Annex 1: Project Design Summary PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

Sector-related CAS Goal: mproving Government :ffectiveness in public sector nanagement

'roject Development 3bjective: To support GoP's efforts in he implementation o f its In-going Economic Reform 'rogram by: 1. Enhancing the skills o f

public sector officials through broad based professional development

2. Strengthening capacity of key ministries/agencies which are in the forefront o f design, implementation and monitoring o f reforms;

3. Strengthening capacity of independent regulatory institutions in effectively regulating their respective sectors

jector Indicators: 0 Improved quality o f

public sector policy formulation and implementation

0 Improved public service delivery

0 Improved public sector accountability

0 Improved public expenditure management

0 Improved regulatory functions

0 Increased competition and private sector participation

htcome I Impact ndicators: 1. Professional

Development: 0 Grade 17+ staff

occupying key policy level positions in the Government are professionally qualif iedtrained in relevant areas.

0 Quality o f domestic public sector training meet international standards

!. Economic Ministries: 0 Adequate in-house

capacity to perform key economic functions (measured by MTBF, PER, Deb1 Policy, Tax Administration) and

Data Collection Strategy

iectorl country reports: 0 Bank's supervision o f

federal/ provincial SAC programs

0 Bank's PER Report 0 Gov.'s Economic Report 0 PRSP outcomes. 0 Bank's sectoral reviews,

e.g. Investment Climate Assessment; Power, Oil & Gas Review, Telecom, etc.

'roject reports:

0 Civil Service Reform Unit's (CSRU) progress reports (tracking o f returnees, placements).

0 PCU Quarterly Monitoring Report.

0 PCU Mid-Term Review and Final Evaluation (after completion)

0 Bank reports o n broader c iv i l service reform implementation

0 PCU/Agency Quarterly Monitoring Report.

0 PCU Mid-Term Review and Final Evaluation (after completion)

Critical Assumptions :Tom Goal to Bank Mission) 0 Macro-economic situation

stays stable 0 Broad based Civil Service

Reforms are implemented to achieve competence, transparency & accountability o f public sector

0 Continued demand by the public for improved public sector performance

0 Sectoral reforms implemented

from Objective to Goal)

0 The GOP will move forward with its Civil Service Reforms agenda, especially in the areas o f CS structure, pay & pension

0 Increasing inputs in some specific areas will, over time, lead to better public sector performance.

0 Changing some key processes within the key agencies will lead to better performance.

0 Sector specific outputs would lead to certain reforms.

- 38 -

,

improved fiscal and financial mgmt.

0 Improved agency processes; less reliance on external consultants; reduction in overheads

Regulatory Agencies:

NEPRA, OGRA, P T A to regulate/ monitor performance o f the utilities, measured by annual tari f f hearings and enforcement o f licence conditions.

0 Improved climate for private investment and participation; and privatization o f one generation and one distribution business by FY06

competition in the sector, through open accesstcommon carrier regime, manifested by direct producer and consumer contracts.

0 Regulatory regime i s sufficiently developed to foster privatization, as measured by investors broad agreement on regulatory principles through privatization transactions .

0 Telelcom service providers meet quality standards

0 Enhanced capacity in

0 Enhanced

0 PCU /Agency Quarterly Monitoring Report.

0 PCU Mid-Term Review and Final Evaluation (after completion)

- 39 -

Hierarchy of Objectives Key Performance

Indicators

0 Input Indicators:

htput from each :omponent: : Professional Development 0 Overseas degree and

non-degree training programs implemented.

0 NSPP operationalized

1.

2.

3.

4.

5.

Output Indicators:

0 Overall at an aggregate project level:

1. Approximately 250-300 civil servants including ex-cadre (grade 17-19 or

Implementation o f PDev/EDP training programs Core faculty for NSPP recruited by 2006; NSPP-twinning relationship established with world class institution, by 2006; Federal Public Service Commission's (FPSC) entry level CSS Competitive examination process reviewed by 2006; FPSC Restructuring Report completed by 2006.

Data Collection Strategy

'roject reports:

0 PCU Quarterly Monitoring Report.

0 PCU Mid-Term Review and Final Evaluation (after completion)

0 Civil Service Reform Unit's (CSRU) monitoring reports (tracking o f returnees, placements).

Critical Assumptions 'rom Outputs to Objective)

Ley Assumptions: 0 Reforms based purely on

professional assessments that increasing inputs in some specific areas will, over time, lead to better public sector performance.

Ssk-mitigation: 0 Ensure full professional

debate; 0 Ensure that training i s a

contribution to structural reforms in the civil service;

adjust bonding arrangements if necessary;

0 Regularly monitor progress in inputs over project l i fe

0 Monitor return rate and

- 40 -

2: Economic ManaPement

a Finance: Enhanced capacity to effectively formulate, coordinate and implement economic and fiscal policies including tax policy and reforms.

'rocess Indicators

L . Debt Policy & Coordination Unit:

a D P C O l l l y

a Preparation o f functional by 2004.

Annual Debt Policy Statement by 2005, after approval o f the fiscal responsibility bill; to be laid before the National Assembly.

a Formulation o f an improved Fiscal Policy by 2005 after approval o f the fiscal responsibility bill; to be laid before the National Assembly.

regular updating o f an improved and comprehensive macro-economic framework.

a Preparation and

Z. Corporate Finance: a Regular monitoring

o f SOEs financial position & balance sheet analyses, starting with atleast 2 ( WAPDA/KESC), by 2005, and eventually expanding to the majority o f public corporate sector by 2008.

3. Policy Wing: a Monitoring &

reporting (by posting on MOF website) oi PRSP indicators on quarterly basis! starting 2004.

a Preparation o f Public Expenditure Review, starting 2005.

a PCUlAgency Quarterly Monitoring Reports.

a PCU Mid-Term Review and Final Evaluation (after completion)

;ey Assumptions: a Changing some key

processes within the key agencies w i l l lead to better performance.

5sk-mitigation: Aligning with key PRSP indicators to strengthen linkage between overall reform and agency level reform program

- 4 1 -

8 CBR: Improved taxpayer services.

0 Commerce: Enhanced capacity to deal with trade issues and WTO related matters.

0 Establishment Division (CSRU): Enhanced capacity on key civil service reform (CSR) areas.

1.

2.

3.

$ #

5.

I.

z.

3,

1.

I.

1 LTU in Lahore and 5 MTUs in Karcahi, Quetta, Peshawar, Faisalabad and Rawalpindi operational by 2004. Sales Tax Automated

Refimd Repository (STARR), second phase implemented by 2004. Customs Pilot Project involving development & implementation o f re-engineered procedure for clearance of imports and exports implemented by 2004. Universal Se l f Assessment Scheme (USAS) implemented by 2004. 7 Taxpayers Facilitation Centers (TFCs) established by 2004.

Legal Advisory Cell established by 2005 foi expert advice & guidance to the business community. Data Cell/Digital Libra0 established by 2006 At least 30-40 officials shall receive specialized short-term training b j 2006.

CSRU operational by 2004. A technical study on compensation issues and options completed in conjunction with MoF by 2005.

0 PCU/Agency Quarterly Monitoring Report.

0 PCU Mid-Term Review and Final Evaluation (after completion)

0 Published documents from individual units.

0 PCU/Agency Quarterly Monitoring Report

0 PCU Mid-Term Review and Final Evaluation (after completion)

0 Quarterly Report on trade performance, major trade initiatives and trade policy implementation

0 PCU/Agency Quarterly Monitoring Report.

0 Civil Service Reform Unit's (CSRU) monitoring reports

0 Progress reports on broader civil service reform implementation

0 PCUIAgency Quarterly Monitoring Report.

0 PCU Mid-Term Review and Final Evaluation (after completion)

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Economic Affairs Division (EAD): Enhanced capacity to manage donor funded projects.

B Planning: Enhanced capacity in economic planning & monitoring

Public Procurement Regulatory Authority (PPRA): Enhanced capacity to implement public procurement

!: Regulatory Function hhanced capacity to deal vith regulatory issues.

NEPRA: Strengthen capacity to regulate the electric poweI sector and develop a competitive structure for generation and supply.

1.

2.

1.

2.

3.

1.

1.

2.

Improved MIS to be implemented by 2005. At least 40-45 middle-level staff receive specialized training by 2007.

Complete macro-model functional by 2005 Research library digitized by 2005 First batch of 10 case studies completed by 2005 First batch of 39 officers receive specialized short-term training by 2005

Public procurement rules under preparation to bc finalized for notificatior by the federal governmen by 2004. Atleast 20 staff wil l receive specialized training by 2008,

3utput Indicators:

1. Cost of capital and cost o service identified, by 2006.

2. Performance and environment standards notified, by 2005.

3. Congestion costs for pricing decisions identified,by 2006.

4. Framework for targetted and direct subsidies developed, by 2005.

5. Framework for direct sale by Generators to Bulk Power Consumers (Singlc Buyer + model) adopted, from 2004.

PCUIAgency Quarterly Monitoring Report. PCU Mid-Term Review and Final Evaluation (after completion)

PCUIAgency Quarterly Monitoring Report. PCU Mid-Term Review and Final Evaluation (after completion)

PCUIAgency Quarterly Monitoring Report. PCU Mid-Term Review and Final Evaluation (after completion)

ProjectJAgency Quarterly Monitoring Report. Project Mid-Term Revievr and Final Evaluation (after completion) Gov. publications and survey reports.

Key Assumptions:

3overnment commitment to md support for reforms i s naintained; and reform irograms are implemented (ai 3er CAS High/Base case ?)

Reforms measured in terms oj sector specific outputs

Risk-mitigation: Close monitoring of sectoral reforms and deliverables

Bank maintains policy dialogue and support

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0 OGRA: Strengther capacity to foste competition and dea with the challenge! arising from tht proposed restructuring o f tht gas sector.

0 PTA: Stregthen

implement the telecom deregulation policy.

capacity tc

1.

2.

3.

I,

l .

1.

I.

I ,

Framework for performance standards, competition, optimizing production and other operational aspects o f o i l & gas sector developed, by 2006. Technicallfinancial and other performance standards for the o i l and gas sectors developed and notified, by 2005. Framework and Rules for open access and common carrier regime in Pakistan prepared by 2005.

Award o f LD and LL (fixed telephone licenses) by 2004; Framework formulation for US0 will be devised by 2005; Formulation o f Quality o f Service parameters for telecom services by 2005; Framework for determination o f interconnection charges on cost based convention by 2005. Atleast 45 staff will receive specialized training by 2008.

0 ProjecUAgency Quarterly

Project Mid-Term Review Monitoring Report.

and Final Evaluation (after completion) Gov. publications and survey reports.

ProjecdAgency Quarterly

0 Project Mid-Term Review Monitoring Reports.

and Final Evaluation (after completion) Gov. publications and survey reports.

0 ITUreports Periodic surveys to compare tariffs with other developing countries

Key Assumptions: 3overnment commitment to md support for reforms i s naintained; and reform irograms are implemented (as ier CAS HigWBase case ?) Zeforms measured in tenns o f iector specific outputs

Risk-mitigation: :lose monitoring o f sectoral .eforms and deliverables. 3ank maintains pol icy iialogue and support

Key Assumptions: 3overnment commitment to md support for reforms is naintained; and reform irograms are implemented (as )er CAS HigWBase case ?)

Zeforms measured in terms o f ;ector specific outputs

Risk-mitigation: l o s e monitoring o f sectoral .efonns and deliverables.

3ank maintains pol icy jialogue and support

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Sub-components: 1: Professional Development (a) Training Programs abroad (degree & non-degree)

(i) PDev (ii) EDP

(b) Domestic Training Institutions - PASC/NSPP/ NIPAS/ CSNetc.

(c) Federal Public Service Commission (FPSC)

2: Economic Policv and Management (a) Finance (b) CBR (c) Commerce (d) CSRU (e) Planning ( f ) EAD

, (g) PPRA

3: Regulatory Function (a) NEPRA

(c) PTA CO) OGRA

4: Un-allocated (a) Ministy o f Water & Power (b) Statistics-FBS (c) Provincial Fin.& Planning (d) Others/Un-identified

Key Performance Indicators

nputs: (budget for each :omponent) 623 million

$13 million $4 million

$5 million

61 million

6 21.4 million E4 million E6 million 62 million 62 million 65.4 million E l million E1 million

E 5.6 million E2 million E2 million E 1.6 million

911 million

Data Collection Strategy

roject reports:

a Quarterly project monitoring and supervision reports

0 CSRU progress reporting Project Mid-Term Review and Final Evaluation (after completion)

a Quarterly project monitoring and supervision reports

0 Project Mid-Term Revieu and Final Evaluation (after completion)

a Quarterly project monitoring and supervision reports

a Project Mid-Term Reviev and Final Evaluation (after completion)

Critical AssumDtions rom Components to 1utputs)

- 45 -

Annex 2: Detailed Project Description PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

By Component:

Project Component Professional Development - US$23.00 million Restructuring o f the Civi l Service i s one o f the significant administrative features o f the Civil Service Reforms under the Economic Revival Program o f 1999. This component o f the PSCBP will address the capacity and technical ski l ls gap in the civil service, and will largely focus on the professional development of federal and provincial c iv i l service and ex-cadre officers. It will be undertaken through the following:

(al) Professional Training Program (degree and non-degree) for middle to senior level officers (US!$17 million): The Establishment Division will manage and implement two training programs for civil servants under this sub-component. These are: (i) an Executive Development Program (EDP) for senior (BPS 20 and 21) c iv i l servants to create a community o f reform champions in the upper echelons o f the civil service. (ii) a Professional Development Program (PDev) for younger (BPS17-19) c iv i l servants to enhance their technical capabilities as policy analysts and implementers. The program w i l l be open to all federal and provincial officers on competitive basis.

(i) Executive Development Program (EDP) (US$4 million): The Establishment Division will manage an external short-term (5-6 weeks) training program targeting senior federal and provincial civil servants in grades 20 and 21- both federallprovincial and ex-cadre.

The proposed criteria o f selection for EDP includes: 0

0

0

Selection Criteria: 0

Rank in top quintile i.e. have received 'very good' (this represents the highest category in ACRs), for the last 5 years o f service performance record; Likely to be promoted shortly after return; N o more than 55 years o f age.

Cohorts: 0 Each cohort will comprise 50 officers and not more than 200 officers will be trained during the

project period starting first batch in fall 2004. Gender diversity will be maintained to the extent possible.

SelectiodManagement Committee: 0 Final Selection w i l l be made by a Management Committee, headed by Secretary Establishment

and representatives o f Finance (Additional Secretary), Establishment (JS Training), and prominant and 1-2 prominent and independent senior level people, from acadamic and government.

(ii) Professional Development Program (PDev) (US$13 million): Under this, the Establishment Division will undertake an external degree educational program (foreign and domestic) targeting federal and provincial civil servants in grades 17- 19 - both federal/ provincial and ex-cadre.

Selection Criteria: 0 The proposed criteria o f selection includes:

0 Grades 17 to 19 officers; only those Grade 17 with minimum of 5 years of service;

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0

0 N o more than 37 years o f age (+ two years as exceptions only); Only those who have a domestic Master's Degree or 16 years o f education (MBBS, BE etc.) with First Division in at least two o f the three Degrees ((FNFSc., Bachelor and Masters);

0 D o not already have a foreign Master's Degree; 0 Rank in CS Academy on Graduation for CSS officers, and equivalent ranking for ex-cadre

officers. Those who qualify on the above criteria w i l l have to pass the GREI GMAT-type screening exam, conducted by an independent institution (such as IBA, LUMS, etc). However, for the f i rst year o f the program, candidates will not be pre-tested through GREIGMAT -type screening exam. This i s to ensure that some individuals can benefit f rom the PDev program during the first year. Potential candidates, meeting the entry criteria (grade, age, division, rank, etc.), w i l l be encouraged, through an advertisement, to apply directly to pre-selected universities within the pre-specified areas o f study (as indicated below). Final Selection for PDev w i l l be made by a Selection Board Committee, headed by Additional Secretary Establishment Division, and representatives o f Finance (Additional Secretary), Establishment (JS Training), and 1-2 prominent and independent senior level people, from acadamic and government. Those finally selected should be authorized to apply to O N L Y selected set of universities, and in selected areas/ core subjects (a "tentative" l is t o f proposed institutions and subjects i s indicated below -Table 1852).

Cohorts: 0 In order to manage the evolution o f the program, and taking into account delays envisaged in

finalizing the pre-testing arrangements, the initial group would be small (say 50) for f i rs t academic year, 2005106; followed by 75 each, in 2006107 and 2007108 respectively, and finally 100 in 2007108. A total o f 300 civil servants are expected to benefit from this program. To ensure gender diversity, a minimum (say 20%) could be female participants; this proposed distribution should be applied to the full 300 participants rather than on each o f the four individual cohort.

0

Information Sharing: 0 Newspaper announcements supplemented by formal paper and electronic communications from

the Establishment Division would ensure wide awareness and transparency o f the proposed degree program and i t s criteria for selection. Establishment Division would also provide secretariat support staff for management o f the program such as screening, support to selection committee, etc.

Post-Degree Responsibility: 0 To minimize leakage, the participating c iv i l servant would s i g n a government bond which

would commit herh im to continue to serve the government for a minimum of (5 years) in the ministry1 departmentlorganization in which he or she has obtained the training. If, for some reason, the civil servant would want to leave government service, the expenditure on hisher education should become a loan to be fully repaid before exit.

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Table-1: LIST OF UNIVERSITIES FOR DEGREE PROGRAM

Canada UK McGi l l Oxford Toronto Cambridge McMaster LSE

Royal Institute o f Public Administration Economic Center o f Bath University London University

1 Australian Nationa

France INSEAD

Singapore Civi l Service College b ational Universitv

Pakistan LUMS, IBA, NUST

USA Harvard Business School Harvard Kennedy School MIT Columbia Yale Stanford Chicago Pennsylvania Michigan Ann Arbor George Town North Westem Williams College

Table-2: PRIORITY AREAS FOR DEGREE PROGRAMS

i) Economics Fiscal, Monetary; Trade; Industrial Economics; Public Finance; Regulation; Agricultural Economics;

Education Economics; Health Economics

ii) MBA Finance, Banking; Accounts

iii) Public Policy & Public Administration Policy, Planning and Management; Monitoring and Evaluation

iv) Regulation of Public Monopolies and Public Utilities Utility Management

v) Governance Devolution and Decentralization; Fiscal Decentra1ization;Fiscal Federalism; Local Government Administration

vi) Law Regulatory Economics; Intemational Water Law, Financial and Economic Law; Trade and technical law;

vii) Social Sector Development Education Planning, Policy and Management; Health Planning, Policy and Management; Population Planning, Policy and Management; Gender Development & Management

viii) Irrigationmatural Resource Management

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e.g. Water Resources Planning, Policy and Management; Watershed Management; Groundwater Management

ix) Infrastructure Infrastructure Planning, Policy and Management;

(a2) Professional Training Program (degree and non-degree) for middle to senior level staff of regulatory agencies; Under this, the regulators will select relevant courses for short and long te rm training. The selection criteria w i l l be in accordance with regulator's EIPs.

(b) Strengthening In-Country Training Capacity through support of Training Institutions (PASC/NSPP; NIPAs, CSA, etc.). Total Cost US$ 5 million. This sub-component comprises up-gradation o f civil service training institutions (PASClNSPP, CSA & NIPAs) including: building faculty capacity; improving/revising curricula; enhancing infrastructure and IT connectivity; and twinning with international institutions. The component will also support establishment o f the National School o f Public Policy (NSPP). Following initial activities are envisaged under the NSPP:

Hiring o f core faculty which i s driven by a strategic choice for the niche that NSPP would like to

Hiring a Publications Manager, Business & Marketing Manager and an Information System's

Needs Analysis for curriculum reform (Pre-service; In-service; Degree Program); Evaluate and Improve pre-service (CS Academy) and in-service (NIPA; PASC) training programs; Work towards becoming a Graduate Degree granting institution, over three to five years, i.e. f i rst

Develop by competing with private and public sector universities to provide short term training

(i) fill in the firmament o f educational institutions; (ii) Manager; (iii) (iv) (v) set o f students begin in 2006 for graduation one year later; (vi) programs for Civ i l Servants in various areas including:

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e Public sector procurement; 0

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Statistical Analysis (For Federal Bureau o f Statistics, Statistics Division, Economic Advisor Wing) Regulatory Issues (Economics; Tariff Setting experiences elsewhere) for Regulatory Agencies) Human Resources Development Program (Federal, Provincial Departments); Change Management Program (Federal, Provincial Departments); Monitoring & Evaluation (Federal; Provincial Departments);

Information Technology (Federal, Provincial Departments) Library development and link with IT Department.

The above i s an illustrative l i s t and would be subject to the results o f Needs Analysis. Over the medium to long term, this will put NSPP among one o f the key suppliers o f domestic training and education competing with the private sector.

(c) Improving Civil Service Recruitment process through support of Federal Public Service Commission (FPSC) The key areas o f support will include strengthening o f entry level examination process including improving syllabi and system of competitive examination, management o f promotion examinations, handling of promotions, curriculum development ski l ls enhancement, and upgradation o f FPSC to an automated computerized environment. Total cost i s around US$ 1 million.

Project Component Strengthening Economic Policy and Management - US$21.40 million Capacity building of key federal and provincial ministries and divisions, including Finance, Planning, Commerce, Central Board of Revenue, Establishment, etc., who are in the vanguard of design and implementation of GOP's reform agenda. More specifically, this component will assist:

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(i) Ministry of Finance (MoF) to build capacity o f i ts various wings dealing with Policy Formulation; Budget & Expenditure Management; Debt Management; External Finance; Corporate Finance; and Internal Finance, to enable them to effectively coordinate implementaion o f economic and fiscal policies and reforms o f the Government. The project will support an integrated medium term program comprising: professional training o f staff (degree and non-degree-- short term specialized training in areas such as pension reforms, debt manamgement, public expenditure management); short and long term consultant support for specialized analytical work and policy reform programs; and infrastructure and I T facilities upgrade. Individual wings o f M o F have prepared integrated proposals, which add up to a total o f around US$4 million. These include:

0 Debt Management: Strengthening the newly established Debt Policy and Coordination Office (DPCO) to monitor the country’s debt situation. This office will serve as a Secretariat to achieve the objectives envisaged in the Fiscal Responsibility and Debt Limitation Ordinance 2003 and prepare a ten year debt reduction path. These activities are expected to bring the country’s debt situation to a sustainable path and contribute to sustaining financial discipline. Specifically, the DPCO will:

a) Present the Annual Debt Policy Statement included in the ABS before the National Assembly; b) Coordinate the preparation and regular updating o f a comprehensive macro-economic framework. c) Submit an annual report on the implementation o f agreed debt strategy. d) Provide leadership on debt data questions to all concerned parts o f the government and ensure compliance with agreed reporting requirements. e) Give policy advice on external borrowing and internal borrowing strategies and make recommendations on reducing the cost o f borrowing. f) Monitor the implementation o f contingency management arrangements, which should be located in the Budget Wing. g) Submit annual debt policy statement on trends in public and external debt and the implementing o f adopted debt reduction goals as well as suggesting adjustments in the Government’s overall debt strategy.

Corporate Finance, Banking and Investment Wings: to improve their monitoring capacity to evaluate key public sector enterprises, process o f privatization, banking, and capital markets and facilitate private sector participation in key areas. Effective management o f financial aspects o f state owned enterprises i s expected to lead to financial discipline, reduction in subsidy and improved utilization o f resources. As a result o f the reforms in the areas o f financial sector liberalization, institutional strengthening, domestic debt, monetary management, banking laws, foreign exchange and capital market, which began in the 199Os, the role o f the Finance Division has become more critical. I t now has to perform the following broad categories o f fimctions as well:-

e

a) Institutional Monitoring: b) Financial Sector Monitoring and Reforms and Maintaining Database: c) Privatization and Restructuring o f Public Sector Enterprises, Banks and DFIs

e External Finance Wing (Budget, Credit & IFR): Strengthening capacity in the key areas o f public finance, expenditure management and monetary policy. Building expertise in the key areas o f external finance, external debt management, balance o f payment, trade, WTO related issues, management o f multilateral debt, matters relating to bond issues, international capital markets and monetary policy. Finance Division intends to build capacity o f the officers working in External Finance Wing through training in reputable international and domestic institutions on modem techniques o f managing external financeshesources, overall financial management and policy analysis. The Finance Division also intends to increase their capacity by using information technology in day-to-day business o f the Ministry. The use of IT can be enhanced through training in the field o f IT from local and international institutions and installation o f necessary equipmentlsoftware.

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Policy Wing: Strengthening capacity in policy areas related to fiscal analysis including revenue projections, tax policy dialogue with CBR, building expertise in development o f a macroeconomic framework and in formulation o f a human development strategy, Public Expenditure Review, formulation, updating, and monitoring o f Poverty Reduction Strategy Paper, preparation o f Poverty Reduction Strategy Credit, assist the M o F in Policy formulation and analysis in key areas , and overall monitoring o f broad based structural reforms under IMF, the World Bank programs and the Asian Development Bank program loans. Internal Finance Wing: Although, GoP i s off-loading i t s majority share to the private sector in most o f the nationalized commercial banks, yet M O F i s represented on the Board o f Directors o f all Nationalized Commercial Banks. Therefore expertise to evaluate balance sheets o f the banks and proper monitoring and tracking o f their performance i s required to avoid build-up o f contingent liabilities as happened in the past. In addition, there i s need to build capacity for monitoring trends in financial markets domestically and international1 y.

(ii) Central Board of Revenue: This sub-component i s part o f CBR's overall tax administration reform strategy, to be supported under a larger Tax Administration Reform Project that i s currently under preparation with Bank assistance through a Project Preparation Facility (PPF). In addition to preparation o f a comprehensive reform plan, CBR has also undertaken a few reform initiatives under the PPF including, establishment o f Large/Medium Tax Payers Units -LTU/ MTU, sales tax STARR project, a customs pilot and others. The PPF funds are already committed, and the larger program support i s unlikely to be effective before the next 6-8 months. As it i s critical to continue with the short term initiatives without delay and so as the reform program does not lose i t s gained momentum, it has been agreed to include some immediate reform initiatives under this project, and bridge the financing gap while the larger program i s prepared. The initiatives proposed to be supported under th is sub-component include:

Capacity Building and Training o f CBR Employees; In order to properly manage the reform process o f the CBR as well as making the CBR capable to meet h t u r e challenges, training and capacity building o f the officers and officials have become imperative, to steer along the reforms agenda o f the organization. The training will be imparted at different locations/institutions like IBA, LUMs, NUST, C B M and Training Directorate o f Customs and Income Tax. Change Management Workshops and Communication; In order to accustom the workforce with the changed culture and administrative changes it i s necessary that a system be evolved wherein the employees are taken into confidence on the reform initiatives. Change management workshops, seminars and newsletter would effectively serve this purpose. Large Taxpayers Unit (L TU), Lahore; Many tax administration around the world have realized the need and importance o f handling large taxpayers through focused institutional arrangements viz. Large Taxpayers Units (LTUs). While such an arrangement provides quality service for the taxpayer at a single access point, the tax administration i s able to improve the surveillance o f the relatively small number o f taxpayers contributing a bulk o f the revezue. In the first phase CBR has already established a Large Taxpayers Unit (LTU) at Karachi. In the second phase, CBR intends to establish another Large Taxpayers Unit at Lahore. Medium Taxpayer Units (MTUs); A Model Medium Taxpayers Unit has already started working in Lahore w.e.f. October 01, 2002. CBR plans to establish MTUs at Karachi, Quetta, Peshawar, Rawlapindi and Faisalabad. The objective o f the Medium Taxpayer Units (MTUs) i s to establish a modem, integrated, effective and efficient un i ts o f Tax Administration for Income Tax in Pakistan which promotes mutual trust and satisfaction both for the taxpayers and the collectors. Dispute Resolution Complex, Karachi; At present the offices o f Adjudicating officers for Indirect Taxes are located at various sites at Karachi. A pilot dispute resolution complex i s planned to be established in the present Sales Tax (East), Collectorate, Karachi and all Adjudicating Officers dealing with Customs,

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Excise and Sales Tax cases will be, shifted there after suitable alteration and up-gradation o f the building. This institution w i l l ensure effective central monitoring o f adjudication set-up with better management control and evaluation. STARR (Sales Tax Automated Refund Repository); The re-engineering and automation o f Sales Tax Refund System has been identified as an essential component o f the reform o f Sales Tax in all the reform strategy documents. Towards this objective STARR (Sales Tax Automated Refund Repository) project was initiated by the CBR. The project involves automating the whole process from filing o f a refund claim to i t s sanction. A major component o f the project i s to create and maintain a central database comprising Customs and Sales Tax information for the whole country, which will allow online verification o f the documents forming the basis o f the refund claim. Establishment o f Taxpayer Education and Facilitation Centers; Taxpayers in Pakistan lack knowledge o f their tax obligations. Under the newly introduced Universal Self-Assessment Scheme the onus o f declaration o f true particulars o f income rests on the taxpayer relieving thereby the tax administration to focus on high risk taxpayers. This requires establishment o f tax education and facilitation centres to serve as intermediary between the taxpayer and tax administration. Customs Pilot Project; This Pilot Project i s designed to modernize Pakistan Customs into an efficient organization. I t i s an ideal mix o f trade facilitation and customs controls as per best international practices. The project i s designed to reduce the period required for completion o f customs formalities at the port from days to hours. Universal Self-Assessment Scheme; This i s a new concept that i s being introduced in Pakistan with the start o f new Income Tax law operation from 15th July, 2002. Universal Self-Assessment Scheme envisages that all the taxpayers’ returns would automatically qualify for Self-Assessment. The Universal Self-Assessment Scheme will help to minimize direct contract between the officers and taxpayers. According to the scheme it i s now the taxpayer himself and not the taxation officer who w i l l determine a person’s income.

Total cost o f this component i s around US$ 6 million.

(iii) Ministry of Commerce: To strengthen MoC’s capacity to modernize and improve Pakistan’s trading regime and practices, deal with technicalities o f international trade and deal with WTO related matters o f implementation and negotiation. This will include strengthening research, analysis and information management in the public and private sector. The aim i s to build the ministry’s capacity to play an increased role in trade promotion, coordination, facilitation and policy analysis in the emerging global environment. Total cost i s around US$ 2 million. Under the Public Sector Capacity Building Project (PSCBP), the MoC will undertake the following activities:

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0 Hire consultants for formulating h t u r e work plans o f the restructured Wings o f the Ministry. 508 officers and officials working in the Ministry & i t s attached Departments and other relevant private sector personnel will be imparted short/ medium term training in their respective fields o f responsibilities. Through these trainings they would attain required knowledge and state-of-the-art skil ls to deal with the new challenges in international trade. Set up a data cell/digital library. Availability o f backup support data and documents i s essential for any research or analysis activity. This necessitates development o f a resource and reference center, where the relevant documents are properly organized so that their quick retrieval i s ensured. The documents should be made available in the form o f hard copies as well as soft versions. In addition to this, the documents should be available online through an internal networking arrangement. The Data Cell/ Digital Library, housed within the Ministry w i l l fulfill these roles. To establish this digital library, the services o f experts in Trade Issues, Library Sciences and Information Technology will be required. All the documents will be indexed and a system for their classification and arrangement will be developed. W T O and UNCTAD will also be requested to

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extend technical assistance. Set up a Legal Advisory Cell primarily to arrange expert advice and guidance to the business community in cases where they are facing action under trade remedy laws or where they need to resort to action under these laws to defend their legitimate commercial interests. It has been proposed that the Cell may be housed within WTO Wing o f the Ministry o f Commerce., Launch a Stakeholder’s Awareness Program through intensive, frequent and regular interaction with all stakeholders in the foreign trade sector. This programme i s designed to keep them updated about developments at international level and measures being taken by the govemment to face new challenges & opportunities. This will also help the government to adjust i ts policies in the light o f inputs received through this inter-action.

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(iv) Establishment Division: To strengthen Establishment Division’s capacity to address the broader civil service reform program, through a Civil Service Reform Unit (CSRU). Under this US$ 2 mill ion would be allocated to the CSRU. I t s charter will be to oversee GOP’s comprehensive civil service reform program. Specifically, i t will support the following pillars o f c iv i l service reform:

Devolution Completion o f devolution, with responsibilities and staff assignments moved from the federal to the

provincial level, and from the provincial to the district levels, with less cross management o f staff between levels o f govemment.

Organizing SeminarsiWorkshops o f provincial and national level stakeholders to develop consensus on additional reforms regarding restructuring, compensation issues and investment in professional development.

Recruitment and Promotion Reforms 1 Modemizing the cadre system and reforming the system o f occupational groups so that internal mobility within the public sector i s increased, and lateral entry from the private sector for skilled staff i s encouraged, including the creation o f a national executive service or equivalent broad-based staff grouping at senior levels.

Strengthening o f merit protection, ensuring that the federal and provincial Public Service Commissions have appropriate competence to oversee merit in recruitment for senior grades. Pay and Pension Reforms

Providing support for deepening the Pay and pension reforms (including monetization o f benefits) which provide for more attractive and more transparent packages o f total compensation at senior levels, within fiscal constraints. Professional Development * Improving the quality o f training and professional development available to serving staff. This will include managing the Executive Development program (EDP) and Professional Development program (PDev). Monitoring and Evaluation - Monitoring implementation o f already initiated governance, structural and policy reforms. . Maintaining updated databases o f civil service employment totals at all levels o f government Developing appropriate human resource management information systems so that the federal, provincial

and district governments are able to plan their human resource management on the basis o f actual s taf f and identified skills, and not just sanctioned positions.

Carrying out evaluation o f reforms * Generating periodic reports for submission to the Secretary, Establishment Division and the Cabinet Committee on Civi l Services Reforms.

Maintaining an active dialogue with counterparts.

Carrying out tracer studies for the returnees o f the EDP and PDev Programs.

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0 Coordination Serving as Secretariat for the Cabinet Committee on Civi l Service Reforms

* Maintaining a close liaison with CSR uni ts established in other MinistriedDivisions . Making concrete proposals for aligning donor initiatives - particularly between the ADB, WB and DfI D.

(v) Planning & Development Division (P&DD): strengthening P&DD's capacity as a planning and monitoring agency. This involves capacity building to plan, design, appraise, implement, monitor and evaluate development projects. The allocated s u m w i l l also be used to stengthen project management practices besides preparing overall sectoral policies and planning framework over the medium and long term. Total cost i s around US$5.4 million.

The major issues which are hindering the P&DD's performance include;

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ageing o f P&DD's Officers (only 10 officers out o f 15 1 are in the age bracket of 20-40 years), lack o f good trainers and other training facilities at the Pakistan Planning and Management Institute (PPMI) and provision o f localized training only, lack o f professional resources for economic policy formulation and analysis inadequate and under-qualified human stock to work on the social, infrastructure and service sectors.

P&DD intends to improve and strengthen economic management through adequate staffing with knowledgable and professionally competent officers. More specifically it intends to;

Strengthen economic policy formulation and analysis through improved macro modeling and building up o f researcwlibrary facilities. The present facilities o f modelling require improvement in terms o f equipment and training. Strengthen evaluation & monitoring o f development projects through capacity building o f the Projects Wing. Strengthen the Pakistan Planning & Management Institute (PPMI) through twinning with reputed intrenational training institutions to impart most modem and relevant training in economic management.This i s crucial for the professionalization o f the national planning process. The institution would confine i t s training to project related activities, including proper project planning and implementation, preparation o f PC-I forms etc. Develop human resources in the P&DD through skill development, induction o f young professionals, senior managers and consultants. Improve work-environment through provision o f administrative facilities (machinery, equipment and furtures) and introduction o f human resources management systems.

(vi) Economic Affairs Division (EAD): To strengthen EAD's capacity in coordination and monitoring o f relationship with donors and donor funded projects. This entails development o f technical and managerial capacity o f the Division in the management o f loan portfolios, streamlining o f all procedures and operations and effective monitoring o f the donor sponsored projects. Total cost i s US$lmillion.Under i ts EIP the EAD will be strengthened through the following activities:

0 building capacity o f officers via long and short term training improving procedures through development o f standard operating procedures for each wing, improving MIS, clarification o f roles and job description and transition towards computerized environment in practice. establishing a monitoring cell for overseeing aid utilization and disbursements o f donor funded projects.

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(vii) Public Procurement Regulatory Authority (PPRA): Strengthening the newly established PPRA to regulate public sector procurements, develop a modem transparent and cost effective public procurement system and put in place an effective procuremnet monitoring system. To acheive this, there arises the broad need for capacity building through training o f existing/future workforce o f PPRA (both locally as well as abroad) in areas o f specialization in their own respective feilds inorder to meet present requirements and future challenges.

The returning trainees shall be appointed in posts relating to their respective areas o f specialization so that they can make coordinated efforts for development o f a dynamic and cost effective public procurement system. The returning trainees shall also train concerned officials o f public sector organizations as well as officials o f the Auditor General o f Pakistan so that they rae familiar with teh revised procurement regulations and procedures and able to implement these procedures.

Under the PSCBP, a comprehensive Management Information System (MIS) for monitoring public procurement shall also. be established with a veiw to monitor the adherence to revised procurement procedures and practices. Total cost US$ 1 million.

Project Component Strengthening the Regulatory Function - US$ 5.60 million This will support capacity-building o f the newly established Regulatory Agencies through: (a) specialized training o f officers (including under the PDev/EDP programs as outlined in component; (b) specialized technical consultancies for undertaking analytical studies (such as Guidelines and Standards for Power Acquisition Programs; the Commercial Code; Licensing o f Operators in the Telecom Sector; Universal Service Obligation); and (c) procurement o f equipment and related materials. Total cost o f this component i s around US$5.6 million.

(i) National Electric Power Regulatory Authority (NEPRA): To strengthen NEPRA’s capacity to regulate the natural monopoly aspects o f the electric power sector, develop a competitive structure for electric power generation and supply and ensure the reliability and adequate supply o f electric power. NEPRA has broadly identified three areas o f assistance namely s k i l l development, technical studies and consultant services. With no history o f infrastructure regulation there i s dearth o f trained professionals wi th the capability to address the complex issues o f electricity regulation. The present activities o f NEPRA have remained confined to licensing and tariff formulation. There i s an urgent need to up grade the ski l ls o f the NEPRA staff to deal with issues o f electricity regulation. Skill development w i l l consist o f degree training in the areas o f regulatory economics and finance, attendance at seminars and study tours (for senior management) and training in data management and public relations (for support staff). Trained professionals would be better equipped to supervise international consultants and appreciate the services o f the consultants. Additionally, NEPRA intends to form a unit o f the trained professionals to implement regulation and manage esential task o f information dissemination and management.

NEPRA intends to conduct technical studies in two main areas; cost o f service to develop tari f fs for regulated utilities on the basis o f long run marginal cost (LRMC) and incentive tariff to develop a tariff model that lays down the rules for formulating incentive based tariff.

Consultant services are required in the areas o f standards, tariff and compliance. The ideal approach suggested by NEPRA would be teh provision o f a senior level expatriate industry professional with experience in the three identified areas for six to nine months. NEPRA staff would assist this consultant who would reveiw the work o f incumbents in teh groups, select new staff members, identify resources and lay down procedures for undertaking o f assignments within these groups. The consultant would be a division head with an under study who would take over as the division head aRer hidher departure. With a combination o f case studies, seminars,

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advisory and management services, the consultant wuld be expected to equip NEPRA with adequate knowledge to manage Standards, Tariff and Compliances departments. Other consultants would also be required to prescribe standards for Uniform System o f Accounts (USOA), Commercial sub code and Power acquisition programs.

All these capacity building measures w i l l increase effectiveness o f sectoral reforms that are contingent on independent and effective regulation. Total cost i s US$ 2 million.

(ii) Oil & Gas Development Authority (OGRA): To strengthen OGRA’s capacity to improve its ability to foster competition, encourage private investment and ownership and deal with challenges arising from the proposed restructuring o f the gas sector. OGRA has identified studies pertaining to key regulatory activities and relevant degree and non-degree training for support under the PSCBP. Total cost i s U S $ 2 million.

Various studies pertaining to key regulated activities w i l l be undertaken to enable OGRA to regulate the o i l and gas sector. They include:

Study on development and enforcement o f technical and performance standards relating to LPG Study on development and enforcement o f technical and performance standards relating to CNG. Study on ensuring effective competition in teh o i l marketing sector. Study on quality control issues in the petroleum products trade and their addressal.

Study on development o f open access and common carrier regime. Study on reveiw for Human Resource requirements o f OGRA by independent consultants. Study on optimization o f refineries production with reference to the competition and efficiency issues. Studies pertaining to other operational aspects o f oil&gas related provisions in the OGRA ordinance.

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OGRA has proposed an extensive professional development programme for i t s officers under the Capacity Building Programme, in which younger professionals would be sent for degree programmes pertaining to regulatory affairs in leading intemationaUloca1 universities. Moreover, middle and senior level managers will be sent on various professional development programmes, including scondment with regulatory authorities operating in different parts o f the world.

Various measures including implementation o f Uniform System o f accounts, are being undertaken, to develop capacity to regulate the natural gas sector in unbundled form.

(iii) Pakistan Telecommunication Authority (PTA): To strengthen capacity to regulate the telecommunications sector and implement the telecom deregulation policy which will open all market segments within the industry to private investors. Total cost i s US$ 1.6 million. PTA i s gearing up to respond to regulatory challenges arising out o f various options pertaining to implementation o f the deregulation policy already announced by the Ministry o f Information Technology & Telecommunications. I t has cultivated expertise to regulate the sector in the existing integrated form. Various measures including unbundling, USO, tariff-rebalancing, interconnection, drafting o f licenses, etc are being undertaken, to develop capacity to regulate the more competitive telecommunication sector. Inorder to successfully implemnet these measures, PTA i s seeking support rom the PSCBP in the following activities:

Professional Development: This component involves education o f younger (grade 17-19) officers o f PTA from reputed universities o f the world at graduate/post graduate level to significantly enhance their technical capabilities as policy analysts and implementers. The specialised fields identified are telecom regulation, telecommunication policy, financial and tariff analysis and telecommunications technologies. Short Term Training; This includes capacity building for framing the policies and regulatory framework in the country through short term training courses/ visits in specialised fields o f various duration for

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PTA officers at various levels in relevant institutions. Participation in intemational and regional meetings, conferences, workshops, symposia, seminars and exhibitions would also be included. USTTI standard courses every semester would be utilised and efforts would be made to get training courses tailored for the Pakistani Students where possible. Consultancy and Advisory Services; PTA needs at th is stage consultant services for various studies to assist in discharge o f i t s responsibilities for ensuring level playing field for various operators, ensuring competition, consumer protection and services to various segments o f business and the society in general. There i s also a need for in-house advisory service and concluding twinning anangements with appropriate organization(s) o f advanced counties. While, additional consultancies would also be identified during project implementation, the first phase requirements are for consultancies in the following areas: (a) Ongoing Consultancy on Telecom deregulation Policy (Phase-11) (b) Cost and Regulatory Accounting Framework (c) Universal Service Obligation (USO) Framework (d) Quality o f Service Monitoring Framework

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Project Component Unallocated - US$11.00 million

This unallocated amount will be disbursed to interested ministries/agencies once their individual proposals are approved by the NSCC.

The criteria for allowing new agency proposals would include: (i) full alignment to project objectives and with the agency's overall strategic visiodplan; (ii) a Entity Improvement Plan (EIP) along with indicators for monitoring progress o f the professional development program; (iii) clearly defined proposals with timelines o f activities and fully costed components; and (iv) agencies having their f i rst year's program ready for implementation.

Interested agencies/ministries would prepare their capacity building proposals along with an Entity Improvement Plan (EIP) in consultation with the PCU/PC. These EIPs would be prepared in line with agreed criteria (as noted above) and will be shared with the Bank for review before submission to the NSCC through their respective SecretariesIAgency heads. The proposals would then be submitted to the NSCC for consideration and approval. Once approved by the NSCC, the individual PC-1s would be submitted to the Planning Commission for CDWP approval. Following the CDWP approval, PCUPC will allocate resources from the un-allocated amount to the new participating agency.

Some o f the proposals under th i s component are already being developed. These include: (i) Ministry of Water & Power: to support the initial institutional reform and capacity building needs in the power sector.

(ii) Federal Bureau of Statistics: to enhance the skil ls and knowledge o f technical s ta f f to effectively manage information collection and accurate reporting o f key country statistics, conducting various surveys including Pakistan Integrated Household Survey, Household Income and Expenditure Survey, their comprehensive analysis including poverty assessment methodology as well as effective and accurate collection o f information for national accounts.This i s to be acheived through short term specialized training, specialized consultancy, and I T support, in areas such as data collection techniques, analysis, etc.

(iii) Provincial Finance and Planning: to strengthen the provincial government's capacity in the areas o f provincial reform formulation, implementation, evaluation and monitoring. The allocated sum will also be

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used to improve budget, expenditure management, poverty expenditure monitoring and develop medium term budgetary framework planning, project design, and implementation at the Provincial as well as district levels and civil service reforms.

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Annex 3: Estimated Project Costs PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

Local Foreign Project Cost By Component US $million US $million

Total US $million

Professional Development I 5.00 I 18.00 I 23.00 12.00 1.60 3 .OO

21.60 0.00

Economic Policy and Management Regulatory Function Unallocated Total Baseline Cost

Physical Contingencies

9.40 2 1.40 4.00 5.60 8.00 11.00

39.40 61.00 0.00 0.00

Price Contingencies

Total Proiect Cost: 0.00 0.00 0.00

2 1.60 39.40 61.00 ~~

Total Financing Required 21.60 39.40 61.00 ~~

Project Cost By Category

I Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is 61 (US$m). Therefore, the project cost sharing ratio i s 90.16% of total

project cost net of taxes.

Local Foreign Total US $million US $million US $million

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Goods Works Services Training Other- Miscellaneous

Total Project Cost: Total Financing Required

3.90 0.10 4.00 4.30 0.70 5.00 9.50 4.00 13 S O 3 .OO 34.50 37.50 0.90 0.10 1 .oo

21.60 39.40 61.00

21.60 39.40 61 .OO

Annex 4 PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

Not applicable as this is a TA project. PI. refer to section E - Summary Project Analysis.

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Annex 5: Financial Summary

IBRDllDA Government

Central Provincial

Co-financiers

PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT Years Ending

IMPLEMENTATION PERIOD 1 1 Year1 1 Year2 I Year3 I Year4 I Year5 I Year6 I Year 7

Total Financing Required Project Costs Investment Costs 12.0 13.0 13.0 12.0 10.0 0.0 0.0 Recurrent Costs 0.2 0.2 0.2 0.2 0.2 0.0 0.0

Total Project Costs 12.2 13.2 13.2 12.2 10.2 0.0 0.0 Total Financing 12.2 13.2 13.2 12.2 10.2 0.0 0.0

11.0 11.9 11.9 11.0 9.2 0.0 0.0 1.2 1.3 1.3 1.2 1 .o 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Jser FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 12.2 13.2 13.2 12.2 10.2 0.0 0.0

Main assumptions: The project will be implemented over a five year period starting from FY05 and ending in FY09

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Annex 6(A): Procurement Arrangements PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

Procurement

Procurement Capacity An assessment o f the Implementing Agencies‘ procurement capacity was carried out by a Procurement Accredited Staff (PAS) during appraisal. The main findings are as follows:

Ministry o f Finance will be primary responsible and accountable for implementation o f the project including carrying out procurement, within each agency’s respective jurisdiction. Although MOF has been WB’s main counterpart it has not been directly involved in implementing a Bank financed project. The project components will be implemented through Participating Agencies such as Central Board o f Revenue (CBR), Ministry o f Commerce(MOC), O i l and Gas Regulatory Authority(0GRA). National Electric and Power Authority (NEPRA), Establishment Division, FPSC, PPRA. Among the Participating agencies only Central Board o f Revenue (CBR), O i l and Gas Regulatory Authority(OGRA), National Electric and Power Authority (NEPRA) have implemented Bank financed projects. Though these agencies are familiar with the Bank procedures, the staff involved may not be necessarily the same staff who has implemented Bank financed projects earlier. None o f the above agencies have staff dedicated exclusively for procurement and there i s a general lack o f expertise in the Bank’s procurement procedures, particularly procurement o f goods and services. Most o f the proposed assistance i s focussed on staff development programs. Though there will be very few I C B contracts under goods, a considerable amount o f consulting services are to be financed under the credit. In order to strengthen the procurement capacity, Govemment o f Pakistan has agreed to engage at least one individual procurement consultant initially. This procurement consultant will be engaged by the Ministry o f Finance(M0F) and w i l l be based in MOF’s Project Coordination Unit. The consultant will provide procurement advice to M O F as well as all other Participating Agencies who will be responsible for carrying out their own respective procurement.

Procurement Methods Goods and Works to be financed under the project shall be procured in accordance with the Guidelines for Procurement under IBRD Loans and IDA Credits, January 1995, revised January 1999. Consultants Services financed under the project shall be procured in accordance with IDA’s Guidelines for Selection and Employment o f Consultants by World Bank Borrowers, January 1997, revised May 2002. IDA’s standard bidding documents for procurement under Intemational Competitive Bidding (ICB), and sample bidding documents for procurement under National Competitive Bidding (NCB) which are already being used on other Bank financed projects in Pakistan, w i l l be used for procurement o f Goods and Works under the project. The Bank’s Standard Request for Proposal document will be used in the selection o f Consulting f i rms.

All expected procurement o f goods, works and consultants’ services will be listed in the project’s General Procurement Notice (GPN). The GPN will be published in the United Nations Development Business (UNDB). All ICB contracts will be published on UNDB on line independent o f the value

Civi l Works (US$Sm): Civ i l works generally comprise small value contracts for new and upgrading o f existing buildings, and are not expected to attract the interest o f foreign contractors. Accordingly, all c iv i l works under the project w i l l be procured through National Competitive Bidding (NCB) procedures acceptable to IDA.

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However, if foreign f i rms wish to participate in these contracts, they w i l l be permitted

Goods (US$4m): Goods under the Project would generally include computers, office equipment, motor vehicles, fumiture, proprietary software.

International Competitive Bidding (ICB) procedures w i l l be followed for each Goods contract estimated to cost more than US$200,000 equivalent. Domestic Preference will be allowed to local manufacturers on ICB contracts. Goods estimated to cost between US$25,000 equivalent and US$200,000 per contract will be procured through National Competitive Bidding (NCB) procedures acceptable to IDA. Small value off-the-shelf goods estimated to cost US$25,000 equivalent or less per contract are expected to be procured following NationaVInternational Shopping procedures in accordance with the Procurement Guidelines.

Improvement of Bidding Procedures under National Competitive Bidding The following improvements in bidding procedures w i l l apply to all procurement o f Goods and Works

under National Competitive Bidding, in order to ensure economy, efficiency, transparency and broad consistency with the provisions o f Section 1 o f the

Guidelines: 0

0

0

0

0

0 0

0

0

0

0

0

Invitation to bid shall be advertised in at least one national newspaper with a wide circulation, at least 30 days prior to the deadline for the submission o f bids; bid documents shall be made available, by mail or in person, to all who are willing to pay the required fee; foreign bidders shall not be precluded from bidding and no preference o f any kind shall be given to national bidders in the bidding process; bidding shall not be restricted to pre-registered f i rms; qualification criteria shall be stated in the bidding documents; bids shall be opened in public, immediately after the deadline for submission o f bids; bids shall not be rejected merely on the basis o f a comparison with an official estimate without the prior concurrence o f the Association; before rejecting all bids and soliciting new bids, the Association’s prior concurrence shall be obtained; bids shall be solicited and contracts shall be awarded on the basis o f unit prices and not on the basis o f a composite schedule o f rates; contracts shall not be awarded on the basis o f nationally negotiated rates; contracts shall be awarded to the lowest evaluated and qualified bidder; and post-bidding negotiations shall not be allowed with the lowest evaluated or any other bidders.

Consultants’ Services (US$13.5m): The credit will finance several consultancy assignments and short and long term nationalhtemational individuals for the implementation agencies for management advice in policy reforms, studies, etc.

Contracts with consulting f i r m s estimated to cost more than $100,000 per contract will be procured in accordance with Quality and Cost Based Selection procedures. Contracts estimated to cost less than $100,000 per contract may be procured through the method o f Selection Based on Consultants’ Qualifications. For contracts with consulting f i r m s estimated to cost less than $500,000 equivalent per contract, the shortlist o f consultants may comprise entirely national consultants in accordance with the provisions o f paragraphs 2.7 and footnote 8 o f the Consultant Guidelines. Contracts with individual consultants will be procured in accordance with the provisions o f paragraphs 5.1 to 5.4 in Section V o f

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the Consultants Guidelines. In view o f some specialized training that may be needed by a few agencies, the services o f universities/ institutions to impart this training may be procured through ‘single source selection’ in accordance with the provisions o f paragraghs 3.8 to 3.1 1 o f the Consultants Guidelines.

Training and Workshops (US$ 37.5 m): The credit will finance long term and short term staf f development programs both local and foreign for the staff o f the participating agencies. In addition there will be a series o f national workshop conducted by the participating agencies to enhance the capacity o f staff. A l i s t o f national and international universities, institutes and training establishments have already being identified based on their qualifications and experience to conduct.

Procurement Planning Procurement under the project will be carried out in accordance with the agreed procurement plans. Procurement plans wi l l be closely monitored and updated every six months.

Review of Procurement by the Bank (Table B) Prior Review: 0

0

The first N C B contract for Goods o f the each Participating agency, irrespective o f value, and thereafter each contract for Goods estimated to cost US$200,000 equivalent or more. The first N C B contract for works o f the each Participating agency, irrespective o f value, and thereafter each contract for Works estimated to cost US$200,000 equivalent or more. The first Consultants’ Services contract with consulting f i r m s o f the each Participating agency, irrespective o f value, and the first consulting services contract with individual consultants o f the each Participating agency, irrespective o f value, and thereafter all contracts with f i r m s estimated to cost US$lOO,OOO equivalent or more, and with individuals estimated to cost US$ 50,000 equivalent or more.

All other contracts w i l l be subject to Post-Review by IDA. Each Participating Agency will send to IDA on a quarterly basis, a l i s t o f all contracts subject to post-review.

Procurement Information and documentation Procurement information will be recorded and reported as follows by each Participating Agency: (a) Complete procurement documentation for each contract, including bidding documents, advertisements, bids received, bid evaluations, letters o f acceptance, contract agreements, securities, related correspondence etc., w i l l be maintained by each implementing agency in an orderly manner so as to readily available for audit. (b) Contract award information will be promptly recorded and contract rosters, in the IDA’S sample format, maintained by each Participating Agency. (c) Comprehensive quarterly reports by each Participating Agency indicating:

(i) (ii)

revised cost estimates, where applicable, for each contract; status o f on-going procurement, including a comparison o f originally planned and actual dates o f the procurement actions, including preparation o f bidding documents, advertising, bidding, evaluation, contract award and completion time for each contract; and

(iii) updated procurement plans, including revised dates, where applicable, for the procurement actions.

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Procurement methods (Table A)

I Procurement Method

Expenditure Category ICB NCB Other2 N.B.F.

Table A: Project Costs by Procurement Arrangements (US$ million equivalent)

Total Cost

2. Goods

3. Services

1. Works (0.00) (4.50) (0.00) (0.00) (4.50) 1 .oo 1.50 1.50 0.00 4.00

(1 .OO) (1.20) (1.20) (0.00) (3.40) 0.00 0.00 13.50 0.00 13.50

I 0.00 I 5.00 I 0.00 I 0.00 I 5.00

4. Training and Workshops

4. Miscellaneous

(0.00) (0.00) (12.00) (0.00) (1 2.00) 0.00 0.00 37.50 0.00 37.50 (0.00) (0.00) (34.30) (0.00) (34.3 0) 0.00 0.00 1 .oo 0.00 1 .oo

(0.00) (0.00) (0.80) (0.00) (0.80) Total 1 .oo 6.50 53.50 0.00 61.00

(1 .OO) (5.70) (48.30) (0.00) (55.00) I’ Figures in parentheses are the amounts to be financed by the IDA Credit. All costs include contingencies.

Includes c iv i l works and goods to be procured through national shopping, consulting services, services o f contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

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Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent)

Selection Method Consultant Services

Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. Total cosd A. Firms

B. Individuals

Total

" Including contingencies

4.30 0.00 0.00 0.00 4.10 0.00 0.00 8.40 (3.60) (0.00) (0.00) (0.00) (3.50) (0.00) (0.00) (7.10) 0.00 0.00 0.00 0.00 0.00 5.10 0.00 .5.10

(0.00) (0.00) (0.00) (0.00) (0.00) (4.90) (0.00) (4.90) 4.30 0.00 0.00 0.00 4.10 5.10 0.00 13.50

(3.60) (0.00) (0.00) (0.00) (3.50) (4.90) (0.00) (12.00)

Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Credit.

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Prior review thresholds (Table 6 )

Contract Value Threshold Procurement

Expenditure Category (US$ thousands) Method

Table B: Thresholds for Procurement Methods and Prior Review'

Contracts Subject to Prior Review (US$ millions)

>200,000 <200,000

> 200,000 25,000-200,000

<25,000

1. Works ICB All NCB First NCB Contract from

each participating agency ICB All NCB First NCB Contract from

each participating agency N S None

2. Goods

Consulting Firms

Individual Consultants

> 100,000 <100,000

> 50,000 <50,000

QCBS SBCQ

Section V-CG -do

All First SBCQ Contract from each participating agency

All First IC Contract from

each participating agency 4. Miscellaneous 5. Miscellaneous 6. Miscellaneous

Total value of contracts subject to prior review:

Frequency of procurement supervision missions proposed:

8 million

One every 6 months (includes special procurement supervision for post-review/audits)

Overall Procurement Risk Assessment: High

"Thresholds generally differ by country and project. Consult "Assessment of Agency's Capacity to Implement Procurement'' and contact the Regional Procurement Adviser for guidance.

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Annex 6(B): Financial Management and Disbursement Arrangements PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

Financial Management

1. Summary of the Financial Management Assessment

Executive Summary The project will be implemented at the Central level. The main implementing agencies (IAs) have had no prior experience o f directly implementing Bank-financed projects. For this reason, a Financial Management Coordinator (FMC) will be hired at the Project Coordination Unit (PCU) level in the Ministry o f Finance. The F M C w i l l be responsible for training o f the accounting staff o f the implementing agencies, and for the consolidation o f FMRs and annual accounts received from the various Project Implementing Units (PIUs).

The accounts o f the implementing agencies and for the project as a whole shall be maintained on cash basis. To facilitate flow o f funds, Special Accounts would be opened by Finance Division, Establishment Division, Planning & Development Division and each o f the 3 Regulatory Institutions (NEGRA, OGRA, and PTA). for submission to the Bank. The PCU, located at the Ministry o f Finance, would also receive quarterly FMRs from each o f the implementing agencies, consolidate them for the entire project and submit to the Bank within 45 days after the end o f the quarter. In respect o f the project counterpart funds, each Government implementing agency shall establish an Assignment Account against which government contributions shall be paid. In respect o f the three Regulatory agencies however, counterpart funds shall be provided directly from their own resources.

Each Implementing Agency shall produce quarterly FMRs

The individual implementing agencies maintaining Special Accounts shall each cany out their own withdrawal application processes and their annual accounts audited by the Auditor General o f Pakistan. The consolidated accounts o f the project, comprising the individual accounts o f the six implementing agencies shall be opined on by the Auditor General o f Pakistan. The operation and maintenance o f the books o f accounts and other records o f the project shall also remain the responsibility o f the individual implementing agencies nominated to operate the Special Accounts.

Each o f the six implementing agencies will identify one qualified and experienced Accountant and one Accounting Assistant to manage the financial aspects o f i t s operations under the project. The F M C shall provide induction training to, and overall arms-length supervision of, the nominated financial management staff o f the implementing agencies o f the project.

Notwithstanding the lack o f prior experience o f the implementing agencies in executing Bank-financed projects, the risk rating o f the project i s set at ‘Moderate’ for the following reasons: (a) the project shall employ or be assigned qualified financial management personnel, acceptable to the Bank, to manage the financial activities at all six implementing agencies; th is will be Wher reinforced by the recruitment o f a qualified FMC at the PCU to oversee the financial operations at each o f the implementing agencies as well as for the consolidation o f project accounts; (b) the project i s a non-complex one with defined deliverables in the capacity building arena; there are less complicated procurement obligations in the project than would otherwise be found in traditional investment lending projects.

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Country Issues Pakistan i s finalizing i t s reactions to the findings in the Country Financial Accountability Assessment (CFAA) and i s poised to embracing the reform measures contained therein. In addition, the ‘Project to Improve Financial Reporting and Auditing’ (PIFRA) i s achieving satisfactory progress despite i t s slow pace o f implementation. The government has demonstrated, by i ts support for the project and i t s developmental objectives, i ts commitment to enhancing public accountability and financial transparency.-

Risk Rating This i s a less complex project with a rationalized design o f number o f implementing agencies. The implementing agencies, through mitigating measures, shall each be endowed with qualified financial management staff, with qualifications acceptable to the Bank, to manage their financial activities. From the risk rating perspective, the project i s rated as ‘Medium’ risk.

Strengths and Weaknesses The core implementing agencies (Finance, Establishment, and Planning Divisions) have no direct prior experience o f financial managing o f World Bank projects. This i s an inhibiting factor in the proficient management o f the financial resources o f the project. However, mitigating measures as defined in the ‘Agreed Action Plan’ as well as the demonstrated commitment received at the highest level at the Ministry o f Finance in support o f the fiduciary control measures to be put in place for this project, the project i s expected to perform well in rendering i t s financial management deliverables in a timely manner.

Implementing Entities Public Sector Capacity Building Project (PSCBP) w i l l be implemented by multiple agencies inclusive o f Government Ministries and Autonomous bodies with different accounting systems. A National Steering and Coordination Committee (NSCC) comprising Secretaries o f Finance, Establishment, Economic Affairs and Planning Divisions and one independent academic (or a key civil society representative) would oversee the project implementation and review new proposals for inclusion in PSCBP.

A small Project Coordination Unit (PCU) would be set up at the Ministry o f Finance. The PCU shall be headed by a Project Coordinator and the Unit shall include a Financial Management Coordinator (FMC) for the entire project. The FMC w i l l be responsible for training o f the accounting s ta f f o f the implementing agencies, and for the consolidation o f the quarterly FMRs and annual accounts received from the various Project Implementing Units (PIUs).

Funds Flow The project will be budgeted in Government’s ADP budget. There shall be s i x core implementing agencies for the project as follows: Finance and Establishment Divisions, Planning & Development Division, NEPRA, OGRA, PTA. For the IDA’S share o f financing, six Special Accounts shall be set up - one for each implementing agency. The borrower’s share o f financing would be paid through three separate Assignment Accounts (one for each PIU) to be opened at the Finance and Establishment Divisions, and Planning & Development Division. Each Special Account would be operated by two joint signatories to be nominated by the Additional Secretary o f each Division. In respect o f the three Regulatory institutions maintaining Special Accounts, no assignment accounts shall be established since the individual agencies shall meet their counterpart funding from their own resources. All IDA funds shall be transferred to the nominated Special Accounts o f the implementing agencies held with the National Bank o f Pakistan through the State Bank o f Pakistan.

I t may be noted that the participating agencies eligible for funding under the special accounts o f the

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government implementing agencies (Finance and Establishment Divisions) are as follows:

Implementing Agency Audit /Special Opinion FD, ED, P&DD, NEPRA, Project Accounts o f Implementing OGRA, PTA Agency - Financial Statement

Audit

0

0

Finance Division: Finance (FD), Economic Affairs (EAD), Commerce (MOC), Central Board o f Revenue (CBR), and Federal Bureau o f Statistics (FBS) Establishment Division: Establishment Division (ED), Civi l Service Reform Unit (CSRU), Federal Public service Commission (FPSC), National School o f Public Policy (NSPP) and Associated training Institutions.

Date of Receipt 3 1 December o f each year, excepting 3 1 December 2004

The rest of the implementing agencies shall be ‘stand-alones’ as concerns the participatory agencies accessing funds under the project.

M o F ( FMC)

Staffing The PCU, to be located at the Ministry o f Finance, would be headed by a Project Coordinator and supported by a Financial Management Coordinator, who would, inter alia: (a) coordinate the overall FM aspects o f the project; (b) provide training for the staff o f implementing agencies on the maintenance o f accounts and production o f FMRs; and (c) consolidate the information received from implementing agencies for submission to the Project Steering Committee (NSCC) and the Bank. The s i x implementing agencies maintaining Special Accounts shall appoint or nominate qualified personnel (One Accountant and One Accounting Assistant), with qualifications acceptable to the Bank, to keep their books o f account, furnish periodic (quarterly) financial management reports to the Bank and the FMC,. and prepare final annual accounts for audit. The F M C o f the project at the PCU shall be an experienced accountant, with qualifications acceptable to the Bank. The draft TOR for FMC was provided to MOF on September 19, 2003.

Overall Project Accounts (Consolidated) - Special Opinion

3 1 December o f each year, excepting 3 1 December 2004

Accounting Policies and Procedures The Government’s financial rules, chart o f classification and delegation o f powers are used by the MinistriesDivisions, whereas the Regulators have their own financial rules and accounting policies. The cash basis o f accounting shall however be adopted for the purposes o f reporting to the Bank

The F M C at the PCU w i l l develop financial management procedures for the project and shall include the prescribed formats o f reports required by the Bank.

2. Audit Arrangements

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Reporting and Monitoring Financial Monitoring Reports (FMRs): The FMR requirement would include financial statements, physical progress reports and procurement reports for project monitoring. Each Implementing agency holding a Special Account shall prepare quarterly reports for separate delivery to the Bank. A copy o f such quarterly reports should also be made available to the PCU who w i l l consolidate the information from all implementing agencies and submit the consolidated report on the project to the Bank within 45 days aRer the end o f each quarter. In essence the following shall constitute the quarterly FMR reports to be submitted to the Bank:

DivisiodAgency

1. Sources and Uses o f Funds by Components 2. Uses o f funds by Component and Project Activity 3. Output Monitoring Report (linking financial and physical progress)

Completion Deadline

Information System: The project shall maintain books o f accounts using manual systems and on the cash basis. Excel spreadsheets shall be used for FMR reporting. In respect o f the Regulatory Institutions serving as implementing agencies, their mainstream accounting processes shall be used, except that the specific reporting requirements o f the project shall be met as a by-product o f those processes.

Agreed Action Plan

1.

2.

3.

4.

Agreed Action I No* I Financial Management Coordinator (FMC) at PCU to be selected and Bank notified.

Qualified Accounting staff to be identified for each o f the Implementing Agencies Setting up o f accounting procedures for the Project Training to be provided to all the accounting staff and Coordinators

Finance, Establishment Division, Planning & Develop. Division, NEPRA. OGRA. PTA

20 March 2004

Finance Division (AS I 3 1 March 2004 I Fin.)

I I

1. the duration o f the project, a comprehensive financial management system managed by suitable staff with qualification and experience satisfactory to the IDA; 2. The Federal Government shall ensure that only qualifying participating agencies access the funds under the Project 3. The Federal Govemment shall ensure, through the Project Coordinator, and the project Financial Coordinator, that, not later than 3 1 December, each year, excepting 3 1 December 2004, audited accounts o f each o f the s i x project implementing agencies as well as audited opinion on the

The Federal Government shall ensure that all project implementing agencies maintain, for

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consolidated audited accounts, both for each fiscal year, are submitted to the IDA, along with an action plan to address any audit issues.

0.74

1.33

Supervision Plan Except for the first supervision period during which more intensive supervision shall be conducted to ensure compliance with the proposed systems and staffing improvement as outline in this assessment, the Bank's normal supervision procedures w i l l suffice.

100% o f foreign expenditures, 100% o f local expenditures

(ex-factory cost) and 80% o f local expenditures for othei

items procured locally 98% o f expenditures for

consultants domiciled within the Borrower's territory and

88% o f expenditures for other

3. Disbursement Arrangements

16.17

The proposed Credit amount o f USD 55 mill ion i s expected to be disbursed over a period o f five years and would cover about 90% of the project cost. The withdrawals from the IDA Credit would be under traditional transaction based disbursement systems.

100%

The allocation o f the Credit proceeds by disbursement category and percentage to be financed are show in the table below. 100% withdrawals, where applicable, would be net o f taxes and duties:

Allocation of credit proceeds (Table C) '

Expenditure Category 1) Expenditures in respect o f rofessional development .omponent:

(a) Civ i l Works (b) Goods

(c) Consultants' Services

(d) Scholarships/Training (e) Incremental Aministrative and Operating Costs

2) Expenditures in respect o f 3conomic Policy Making and danagement Capacity

(a) Civ i l Works (b) Goods

2.8 I 90%

0.02 80% for FY04 and FY05; 60% for FY06 and FY07; and

40% thereafter

100% o f local expenditures (ex-factory cost) and

80% o f local expenditures for othe items procured locally

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(c) Consultants' Services

3) Expenditures in respect o f Legulatory Capacity

(a) Goods

5.64

0.02

98% o f expenditures for consultants domiciled within the

Borrower's territory and 88% o f expenditures for other

consultants

(b) Consultants' Services

(d) Scholarships/Training (e) Incremental Administrative and Operating Costs

items procured locally 3.11 98% o f expenditures for

6.73

(c) Scholarships/Training 4) Unallocated 'otal Bank Financing :otal Project Costs with Bank Financing

0.89

consultants 2.15 100% 9.9

55.00 61.00

100% 80% for FY04 and FY05;

60% for FY06 and FY07; and 40% thereafter

100% o f foreign expenditures, 100% o f local expenditures

(ex-factory cost) and ,80% o f local expenditures for othei

Use of statements of expenditures (SOEs):

Withdrawals (Documented and under Statement of Expenditures); Disbursement would be fully documented except for those expenditures: (a) under contracts not exceeding the equivalent o f (i) US$ 200,000 for works; (ii) US$25,000 each for goods; (ii) US$ 100,000 for services for consulting f m s ; (iii) US$ 50,000 for services o f individual consultants; (iv) scholarships not exceeding US$20,000; (v) training and (vi) incremental operating costs o f PCU. Such disbursement would be made against Statement o f Expenditures (SOEs), the documentation for which would not be submitted to IDA but retained by the respective accounts maintaining DivisiodAgency and made available during the course o f project supervision.

Special account: To facilitate disbursement, six Special Accounts would be established for Establishment Division (Professional Development, NSPP and FPSC), Finance Division (Finance Wings and all other agencies) Planning & Development Division, and the three Regulators (NEPRA, OGRA and PTA) in the National Bank o f Pakistan on the terms and conditions acceptable to IDA. The Special Accounts would be opened and maintained by PIUs and would be used for payments for all the eligible foreign and local expenditures. The Special Accounts would be replenished on a monthly basis or whenever 20% o f the account has been utilized, whichever occurs first. The Special Accounts, having following

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authorized allocations for advances, would be used for IDA’S share o f financing o f project expenditures (equivalent to requirement for about 4 months estimated expenditures):

Establishment Division : USD 2.00 million Finance Division USD 1 .OO million P&DD USD 0.30 million OGRA USD 0.10 million NEPRA USD 0.14 million PTA USD 0.10 million

Retroactive Finance: Retroactive financing upto an amount o f USD 5 million would cover eligible expenditrures for Project activities after August 3 1,2003.

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Annex 7: Project Processing Schedule PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

Negotiations

Planned Date of Effectiveness

1 Appraisal mission departure I 11/07/2003 I 11/17/2003 I 02/23/2004 0212ma4 O1/3 012004

I

Prepared by: GOP and Individual MinistriedAgencies

Preparation assistance: GOP's own resources

Bank staff who worked on the projecl Name

F s y a Akhlaque, Task team leader Shabana Khawar, Co-task-leader Nick Manning Hanid Mukhtar Zareen Naqvi Rashid Aziz Waqar Haider Mudassir Khan Ahsan Ali Hassan Masood Mirza Ismaila Ceesay Riaz Mahmud Akhtar Hamid A. H. Qureshi Tanq Husain Ambreen Mal ik Zia A1 Jalalay Farah Imran

included: Speciality

PSD Specialist (Institutional/Industrial Economist) Operations (Finance) Public sector specialist Macroeconomics, Finance, Planning Trade and public economics Eneregy Specialist; regulatoly issues O i l & gas; regulation; PSD specialist Finance specialist Procurement specialist Procurement specialist F M specialist F M specialist Legal Telecom specialist, consultant Civ i l service specialist, consultant consultant Social Development specialist Team assistant

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Annex 8: Documents in the Project File* PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

A. Project Implementation Plan 1. Establishment Division's Civil Service Reform Agenda 2. Entity Improvement Plans (EIPs) for each participating agency.

B. Bank Staff Assessments 0 Procurement/ FM assessments . C. Other

*Including electronic files

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Annex 9: Statement of Loans and Credits PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

30-Mar-2004

Oriainal Amount in US$ Millions

Dierence between expected and actual

disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd

PO10556 2004 HIGHWAYS REHAB 50.00 150.00 0.00 0.00 205.61 -0.52 0.00 PO82977 2004 Second Poverty Alleviation Fund Project 0.00 238.00 0.00 0.00 246.19 13.72 0.00 PO83228 PO71454 PO74797 P 0 7 4 8 5 6 PO81909 P 0 7 7 2 8 8 PO55292 PO71092 PO56213 P 0 3 5 8 2 3 PO49791 PO10500 PO36015

2004 Punjab Education Reform Program 2003 AJK Community Infrastructure 8 Services 2003 Banking Sector Technical Assistance 2003 HIV/AIDS Prevention Project 2003 Partnership for Polio Eradication 2003 National Education Assessment System 2002 BSRPP 2001 NWFP ON-FARM WATER MANAGEMENT f 2001 TRADE &TRANSPORT 2001 GEF-Protected Areas Management Project 1999 POVERTY ALLEVIATION FUND 1998 NATIONAL DRAINAGE PR 1997 IMPR FIN REP 8 AUDIT

0.00 0.00 0.00 0.00 0.00 0.00 0.00

'ROJECT 0.00 0.00 0.00 0.00 0.00 0.00

100,oo 20.00 26.50 27.83 20.00 3.63

300.00 21.35

3.00 0.00

90.00 285.00

26.80

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

10.06 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.24 0.00

103.89 21.15 26.85 39.94

0.90 3.86

111.37 21.80

0.95 10.96 13.00 82.90 15.28

0.00 4.67

13.38 6.48

-1.29 0.1 1

-204.62 -2.44 0.57 1.04

-23.54 65.07 15.45

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

25.18 10.24

Total: 50.00 1314.11 10.08 0.24 904.66 -91.92 35.42

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PAKISTAN STATEMENT OF IFC's

Held and Disbursed Portfolio Feb 29 - 2004

In Millions U S Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic ABN AMRO PAK 1995

1996 1995 1991 1995104 1993 199319710 1 2003 1991 1996 200 1 1990192196 2002 1995 1996 2003 1995 1994/97/00 2002 2002 1994 1994 1983102 196518719 1/94/95 1994 200 1 1996

AES La1 Pir AES Pak Gen Abamco Mgmt Askari Bank BRRIL BRRIM BSJS Fund CDCPL Crescent Bahuman Dewan Salman Engro Chemical Engro Vopak Eni Pakistan FIIB Fauji Cement First UDL Gul Ahmed KCT Kohinoor Maple Leaf Metropolitan Bnk Micro Bank Network Leasing Orix Finance PI&CL PPL Packages Regent Knitwear Sarah Textiles Sonen Bank Uch Power Union Bank - PAK

Total Portfolio:

15.00 23.73 13.46 0.00 6.00 0.00 0.00 0.00 0.00 7.50

30.00 0.00 4.23

27.00 0.77

15.59 0.00

14.85 7.75

12.50 11.72 3.00 0.00 2.03 0.00 0.3 1 0.00 0.00 8.66 1.60 3.00

54.05 2.00

0.00 9.50 9.50 0.29 0.00 0.24 0.76 0.60 0.16 0.00 1 .oo 3.90 0.00 0.00 0.00 0.00 0.00 4.10 0.00 6.30 0.00 0.00 2.71 0.00 0.58 0.00 6.63 0.26 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 0.00 0.00 6.67 0.00 1.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

18.78 0.00 0.00 0.00 0.00 0.00 0.00 1.50 0.00 0.00 2.32 0.00 0.00 0.00 0.00

14.84 0.00

12.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.80 0.00 0.00

59.18 0.00

15.00 23.73 13.46 0.00 6.00 0.00 0.00 0.00 0.00 7.40

30.00 0.00 4.23

27.00 0.77

15.19 0.00

14.85 7.75

12.50 11.60 3.00 0.00 0.00 0.00 0.3 1 0.00 0.00 8.66 1.60 3.00

43.96

0.00 9.50 9.50 0.29 0.00 0.24 0.76 0.60 0.16 0.00 0.00 3.90 0.00 0.00 0.00 0.00 0.00 4.10 0.00 6.30 0.00 0.00 2.71 0.00 0.58 0.00 6.63 0.26 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 0.00 0.00 6.67 0.00 1.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

18.78 0.00 0.00 0.00 0.00 0.00 0.00 1.50 0.00 0.00 2.32 0.00 0.00 0.00 0.00

14.84 0.00

12.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.80 0.00 0.00

44.14 0.00 0.00 2.00

264.75 46.53 12.17 111.62 252.01 45.53 12.17 96.58

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Commitment: 0.00 0.00 0.00 0.00

- 78 -

Annex I O : Country at a Glance PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

POVERTY and SOCIAL Pakistan

2003 Population, mid-year (millions) GNi per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1997-03

Population I%) Labor force (%)

Most recent estimate (latest year available, 1997-03) Poverty (% of population below national povertv line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 7,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% of populationf Illiteracy (% ofpopulation age 15+) Gross primary enrollment (% of school-age populationl

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1983

GDP (US$ billions) 28.7 Gross domestic investmenffGDP 18.8 Exports of goods and servicedGDP 11.9 Gross domestic savingslGDP 7.7 Gross national savingslGDP 17.0

Current account baiance/GDP -0.6 1.1

Total external debffGDP 41.9 Total debt servicelexports 20.9 Present value of debffGDP Present value of debffexpotts

interest paymentslGDP (on external debt)

1983-93 1993-03 (average annual growth) GDP 5.8 3.4 GDP oer caoita 3.1 0.9

148.4 470 69.2

2.4 3.2

33 34 64 84

90 54 74 93 54

1993

51.7 20.8 16.3 14.7 20.6

-6.4 1.4

45.8 30.8

2002

2.8 0.4

South Asia

1,401 460 640

1.8 2.3

28 63 71

84 44 97

108 89

2002

59.2 14.7 18.7 14.4 22.8

2.7 1.7

55.3 32.2 42.6

228.5

2003

5.8

Low- income

2,495 430

1,072

1.9 2.3

30 59 a i 76 37 95

103 87

2003

68.8 15.5 20.5 15.6 29.9

6.1 0.9

47.4 25.8 38.4

193.3

2003-07

5.6 3.3 3.1

STRUCTURE of the ECONOMY

(% of GDP) Agriculture Industry

Services

Private consumption General government consumption imports of goods and services

Manufacturing

(average annual growth) Agriculture industry

Services

Private consumption General government consumption Gross domestic investment imports of goods and sewices

Manufacturing

1983

30.3 22.1 15.3 47.7

80.8 11.4 23.0

1983-93

4.4 7.1 6.6 5.7

4.3 6.6 4.9 3.2

1993

25.0 24.7 16.7 50.3

72.2 13.1 22.4

1993-03

3.5 3.6 4.1 4.1

3.5 1.3 0.7 0.0

2002

23.2 23.3 16.1 53.5

74.4 11.3 19.0

2002

-0.1 5.4 5.0 4.1

1.4 13.5 -3.0 4.5

2003

23.3 23.5 16.4 53.2

72.7 11.7 20.4

2003

4.1 5.4 7.7 5.3

-0.6 10.4 10.5 13.9

3eveiopment diamond*

Life expectancy

T 3NI Gross Jer primary

enrollment :apita

i

Access to improved water source

-Pakistan Low-income amup

Economic ratios.

Trade

T

indebtedness

Pakistan - ~ Low-lncome group

Growth of investment and GDP (“h)

2o T

1-21- -GDI +GDP

Growth of exports and imports (Oh) I 30

20

10

0

-10

Pakistan

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall SurDlusldeficit

TRADE

(US$ millions) Total exports (fob)

conon Rice Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate @€C, local/US$J

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

1983

5.3

1983

2,694

1,881

1983

3,420 6,593

-3,173

-421 3,416

-1 78

2,758 12.7

1983

12,026 351

1,145

1,343 63 14

0 350 -87 28 0

255 144 34

110 42 88

1993

9.8 8.7

18.1 -2.4 -8.1

1993

6,782 271 317

3,723 10,049 1,290 1,578 3,409

88 96 92

1993

8,339 12,856 -4,517

2,688 -1,498

-3,326

2,682 644

1,369 25.8

1993

23,712 2,557 2,585

2,383 325 43

0 1,011

710 306 270

429 537 166 371 202 168

2002

2.7 3.1

19.5 0.2

-4.4

2002

9,140 18

448 5,368 9,432

413 2,864 2,594

80 90 89

2002

11,056 11,646

-590

-2,319 4,500

1,591

1,685 -3,276

4,997 61.3

2002

32,769 2,943 5,097

3,755 367 101

0 758

-389 368

-491

800 869 310 559 159 400

2003

3.1 4.6

20.8 -0.4 -1.7

2003

10,889 49

555 6,653

11,333 587

3,098 3,392

89 101 88

2003

13,686 14,047

-361

-2,210 6,775

4,204

1,475 -5,679

9,630 58.4

2003

32,608 2,813 5,604

3,621 367 122

0

612 -394

297 356 335 21

154 -1 34

-GDP deflator -CPI I

Export and Import levels (US$ mlll.) I 10,000

5,000

0

I O3 I 97 98 99 w 01 02

Exports Imports

Current account balance to GDP (“A) I 1”T

Composition of 2003 debt (US$ mill.)

A. IBRD E . Bilateral B - IDA D ~ Other multilateral F - Private C - IMF G -Short-term

Development tconomics 4/1/04

- 80 -

Additional Annex 11 : Detailed Cost Table PAKISTAN: PAKISTAN- PUBLIC SECTOR CAPACITY BUILDING PROJECT

E A D

0.19 0.30 0.30

0.42

0.91

0.91

Participating Agency-ComponentICategory Wise Allocations (US Dollar Millions)

PPRA

0.15 - -

0.80

0.95

0.95

- Total

~Uocatioi -

2.48 3.02 5.64 4.16 1.48 6.73 0.89

18.76 - -

2.80 0.74 1.33 1.33

16.17 0.02

21.06 - -

0.02 3.11 1.68 1.43 2.15 5.28 9.90 6.00

61.00

- - - -

Regulatory

YEPRA

0.02 0.77 0.67 0.10 1.13 1.92

1.92

Y P T A -

Capa

OGRA

~

135 0.2( 1.1: 0.54 1.8:

l.8!

Economic Policy Making and Man1 nent Capacity 'rofessional Dev.

Total - FD -

0.35 1.47 1.39 0.08 0.73 0.47 3.02 - -

- -

CSRU -

0.06 1.50 0.60 0.90 0.18

C B R -

2.48 1.52 0.42 0.42

1 .oo

MOC -

0.25 0.75 0.30 0.45 0.80

P&DD

0.50 1.20 1.15 0.05 2.80 0.42 4.92 - -

- -

EDlNSPP Total -

2.48 3.02 5.64 4.16 1.48 6.73 0.89

18.76 - -

- -

FPSC

Economic Policy Making & Management Capacity (I) Civil Works (2) Goods (3) Consultants' services

a. Institutional Development b. Studies

(4) ScholarhsipsiTraining (5) Incremental Operating Cost

Sub-total: -

2.80 0.74 1.33 1.33

16.17 0.02

21.06 - -

Professional Development (1) Civil Works (2) Goods (3) Consultants' services

a. Institutional Development b. Studies

(4) Scholarhsipflraining (5) Incremental Operating Cost

Sub-total:

Regulatory Capacity (1) Goods (2) Consultants' services

a. Institutional Development b. Studies

(3) ScholarhsipsiTraining

Unallocated: GoP Share

Total:

Sub-total:

2.80 0.3 1 1.05 1.05

16.00 0.02

20.18 - -

0.43 0.28 0.28

0.17

0.88 - - -

0.9s 0.81 0.18 0.5; 1.51 - - -

1.51 -

0.0 3.1 1.6 1.4 2.1 5.2 - - -

5.2 - - -

18.47 - - -

2 1 .oc - 0.88 - Note: The participating agencies would be meeting their logistical costs and taxes (where I D A finances at 100%) from about 10% GOP's share of financing for the project. Logistical costs include all olfce operating costs, salaries of any standeputed to the project, all local travel costs including training. The incremental administrative and operating costs indicated under para 2(e) of Schedule 1 to DCA are meant for P C U at FD, P M U at P C and ED.

- 81 -

MAP SECTION