Pakistan: Punjab Government Efficiency Improvement Program

Transcription

1 Completion Report Project Number: Loan Numbers: 2385/2386 and 2547/2548 September 2014 Pakistan: Punjab Government Efficiency Improvement Program This document is being disclosed to the public in accordance with ADB s Public Communications Policy 2011.

2 CURRENCY EQUIVALENTS Currency Unit Pakistan rupee/s (PRs) At Appraisal At Program Completion 15 October December 2012 PRe1.00 = $0.016 $0.010 $1.00 = PRs60.62 PRs97.47 ABBREVIATIONS ADB Asian Development Bank ADP annual development program BCC budget call circular CPA core policy area DI&P Department of Irrigation and Power DOH Department of Health E&TD Excise and Taxation Department GDP gross domestic product GPF General Provident Fund GPIF General Provident Investment Fund HED Higher Education Department IMF International Monetary Fund IPSAS International Public Sector Accounting Standard L&DD Livestock and Dairy Department LIBOR London interbank offered rate MDG Millennium Development Goal MPDD Management and Professional Development Department MTBF medium-term budget framework MTDF medium-term development framework MTEF medium-term expenditure framework P&DD Planning and Development Department PIFRA Project for Improvement in Financial Reporting and Auditing PMU program management unit PPCMW Public Policy and Change Management Wing PPF Punjab Pension Fund PPP public private partnership PPS Punjab Pension System PPSC Punjab Public Service Commission PRMP Punjab Resource Management Program PSD private sector development RBM results-based management S&GAD Services and General Administration Department SDR special drawing rights TA technical assistance UIPT urban immovable property tax

3 NOTES (i) (ii) The fiscal year (FY) of the Government and its agencies ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2009 ends on 30 June In this report, $ refers to US dollars. Vice-President W. Zhang, Vice President (Operations 1) Director General K. Gerhaeusser, Central and West Asia Department (CWRD) Director B. Wilkinson, Public Management, Financial Sector, and Trade Division, CWRD Team leaders Team members A. Mukhamedyarova, Financial Sector Specialist, CWRD P. Sood, Financial Sector Specialist, CWRD M. Abro, Senior Project Officer, CWRD J. Colasito, Operations Assistant, CWRD A. Gatson, Operations Assistant, CWRD F. Teves, Project Analyst, CWRD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

4 CONTENTS Page BASIC DATA I. PROGRAM DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Program Outputs 3 C. Program Costs 10 D. Disbursements 10 E. Program Schedule 11 F. Implementation Arrangements 11 G. Conditions and Covenants 11 H. Related Technical Assistance 12 I. Consultant Recruitment and Procurement 12 J. Performance of Consultants, Contractors, and Suppliers 12 K. Performance of the Borrower and the Executing Agency 12 L. Performance of the Asian Development Bank 13 III. EVALUATION OF PERFORMANCE 13 A. Relevance 13 B. Effectiveness in Achieving Outcome 13 C. Efficiency in Achieving Outcome and Outputs 14 D. Preliminary Assessment of Sustainability 14 E. Impact 14 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons 15 C. Recommendations 15 i APPENDIXES 1. Design and Monitoring Framework Policy Matrix for the Punjab Government Efficiency Improvement Program Effective Gender Mainstreaming Reporting Status of Compliance with Loan Covenants 38

5 BASIC DATA A. Loan Identification 1. Country Pakistan 2. Loan Numbers Loan 2385-PAK, Loan 2386-PAK, Loan 2547-PAK, Loan 2548-PAK 3. Program Titles Loan 2385 Punjab Government Efficiency Improvement Program (Loan for Subprogram 1) Loan 2386 Punjab Government Efficiency Improvement Program (Technical Assistance Loan) Loan 2547 and 2548 Punjab Government Efficiency Improvement Program (Loans for Subprogram 2) 4. Borrower Loan 2385 and 2386 Islamic Republic of Pakistan Loan 2547 and Executing Agency Loan 2385 Planning and Development Department (P&DD) of Government of Punjab Loan 2386 P&DD Loan 2547 P&DD Loan 2548 P&DD 6. Amount of Loan Loan 2385 $250,000,000 Loan 2386 $8,800,000 (SDR5,672,000) Loan 2547 $75,000,000 Loan 2548 $75,000,000 (SDR48,298,000) 7. Program Completion Report Number 1474 B. Loan Data 1. Appraisal Date Started/Completed Loans 2385 and 2386 Not applicable 1 Loans 2547 and June 2009 to 8 July Loan Negotiations Date Started Loans 2385 and October 2007 Loans 2547and August 2009 Date Completed Loans 2385 and October 2007 Loans 2547 and August Date of Board Approval Loans 2385 and December 2007 Loans 2547 and September Date of Loan Agreement Loans 2385 and December 2007 Loans 2547 and September A loan fact-finding mission (16 31 July 2007) was fielded instead of a loan appraisal mission.

6 ii 5. Date of Loan Effectiveness In Loan Agreement Loans 2385 and January 2008 Loans 2547 and October 2009 Actual Loans 2385 and December 2007 Loans 2547 and September 2009 Number of Loan Extensions In Loan Agreement Loans 2385 and 2386 None Loans 2547 and 2548 None Actual Loans 2385 and 2386 None Loans 2547 and 2548 None 6. Closing Date In Loan Agreement Loan June 2008 Loan May 2012 Loans 2547 and March 2010 Actual Loan 2385 Loan February December 2012 Loans 2547 and October 2009 Number of Extensions Loan 2385 Loan 2386 None 1 Loans 2547 and 2548 None 7. Terms of Loan Interest Rate Loans 2385 and 2547 Loans 2386 and 2548 LIBOR and 0.60% less a credit of 0.40% 1.0% per year during the grace period and 1.5% per year thereafter Loans 2385, 2547, and 2548 Commitment charge of 0.15% per annum Maturity (number of years) Loan Loans 2385 and Loan Grace Period (number of years) Loans 2386 and Loans 2385 and Terms of Relending (if any) None Interest Rate Maturity (number of years) Grace Period (number of years) Second-Step Borrower

7 iii 9. Disbursements a. Dates i. Loan 2385 Initial Disbursement Final Disbursement Time Interval 08 January January Effective Date Original Closing Date Time Interval 21 December June months ii. Loan 2386 Initial Disbursement Final Disbursement Time Interval 18 December December months Effective Date Original Closing Date Time Interval 21 December June months iii. Loan 2547 Initial Disbursement Final Disbursement Time Interval 30 September September Effective Date Original Closing Date Time Interval 30 September March months iv. Loan 2548 Initial Disbursement Final Disbursement Time Interval 30 September September Effective Date Original Closing Date Time Interval 30 September March months Category b. Amount Original Allocation Amount Canceled Last Revised Allocation Amount Disbursed Undisbursed Balance i. Loan 2385 ($) 250,000, ,000, ,000,000 0 ii. Loan 2386 (SDR) 5,672, ,672,000 4,488,571 1,183,429 ($) 8,800,000 8,800,000 6,922,514 1,877,486 iii. Loan 2547 ($) 75,000, ,000,000 75,000,000 0 iv. Loan 2548 (SDR) 48,298, ,298,000 48,298,000 0 ($) 75,000,000 75,000,000 75,000,000 Category or Subloan i. Loan 2385 ($) Punjab Government Efficiency Improvement Program-Subprogram 1 Original Allocation Last Revised Allocation Amount Added 250,000, ,000,000 0 ii. Loan 2386 (SDR) 01 - Equipment 644,525 0 (644,525) 02a - Consultants 4,105,025 5,105,025 1,000,000 02b - Workshops and Training 503, ,049 (338,200)

8 iv Category or Subloan Original Last Revised Amount Added Allocation Allocation 02c - Logistical Support for Studies and 19, Surveys 02d - Reports and Communications 22,275 10,000 (12,275) 02e - Misc. Administration and Support 33,413 33,413 0 Costs 03 - Interest Charges 174, , Contingencies 170, ,155 0 Total 5,672,000 5,672,000 0 iii. Loan 2547 ($) Punjab Government Efficiency Improvement Program-Subprogram 2 iv. Loan 2548 (SDR) Punjab Government Efficiency Improvement Program-Subprogram 2 ( ) = amount canceled, Misc. = miscellaneous. 75,000,000 75,000, ,298,000 48,298,000 0 C. Program Data 1. Program and Project Costs Cost Appraisal Estimate Actual Loan 2385 ($) Foreign Exchange Cost 250,000, ,000,000 Local Currency Cost 0 0 Total 250,000, ,000,000 Loan 2386 (SDR) Foreign Exchange Cost 5,672,000 4,488,571 Local Currency Cost 0 0 Total 5,672,000 4,488,571 Loan 2547 ($) Foreign Exchange Cost 75,000,000 75,000,000 Local Currency Cost 0 0 Total 75,000,000 75,000,000 Loan 2548 (SDR) Foreign Exchange Cost 48,298,000 48,298,000 Local Currency Cost 0 0 Total 48,298,000 48,298, Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 1,200,000 ADB Financed (i) Loan 2385 ($) 250,000, ,000,000 (ii) Loan 2386 (SDR) 5,672,000 4,488,571 (iii) Loan 2547 ($) 75,000,000 75,000,000 (iv) Loan 2548 (SDR) 48,298,000 48,298,000 Total SDR 53,970,000 ADB = Asian Development Bank. USD 326,200,000 SDR 52,786,571 USD 325,000,000

9 v 3. Cost Breakdown by Program and Project Component Component Appraisal Estimate Actual Loan 2385 ($) Punjab Government Efficiency Improvement Program- Subprogram 1 250,000, ,000,000 Loan 2386 (SDR) Equipment 644,525 0 Consulting Services 4,105,025 4,318,269 Workshops and Training 503,249 65,014 Logistical Support for Studies and Surveys 19,336 10,247 Reports and Communications 22,275 19,586 Administration and Support Costs 33,413 33,869 Interest Charge 174,022 41,586 Unallocated 170,155 0 Total 5,672,000 4,488,571 Loan 2547 ($) Punjab Government Efficiency Improvement Program- Subprogram 2 Loan 2548 (SDR) Punjab Government Efficiency Improvement Program- Subprogram 2 75,000,000 75,000,000 48,298,000 48,298, Program Schedule Item Appraisal Estimate Actual Workshops and Training None May 2009 June 2011 Logistical Support for Studies and Surveys None September 2007 August 2009 Date of Contract with Consultants None May 2009 February 2012 Equipment and Supplies b b No goods were procured under Subprogram 1 and Subprogram Program Performance Report Ratings Implementation Period Development Objectives Ratings Implementation Progress Loan 2385 From 21 December 2007 to 31 December 2007 Satisfactory Highly Satisfactory From 1 January 2008 to 31 December 2008 Satisfactory Satisfactory Loan 2386 From 21 December 2007 to 31 December 2010 Satisfactory Satisfactory Loan 2547/2548 From 30 September 2009 to 9 October 2009 Satisfactory Satisfactory D. Data on Asian Development Bank Missions Name of Mission Date No. of Persons Loan 2385/2386 Loan fact-finding a July 2007 Not available No. of Person- Days Not available Specialization of Members b,c Not available

10 vi Name of Mission Date No. of Persons No. of Person- Days Specialization of Members b,c Inception mission 5 10 May a, b, c, d e, f Follow-up 3 June f Consultation September 1 2 f 2008 Country contact/consultation November 2 10 f, g 2008 Loan review mission January a, b Loan disbursement 28 June 2 July 2 10 h, i 2010 Loan review mission June a Loan review mission July d, g, j, k Loan review mission 4 29 April 2 May 2 8 a, b, 2011 Loan review mission April b Program completion review 3 8 June f, m, t Loan 2547/2548 Planning 5 9 May a, c, d, e, n, o, p Country contact/consultation November 2 10 l, q 2008 Loan fact-finding 24 March 3 April 5 55 a, d, f, m, r 2009 Loan appraisal 28 June 8 July 3 33 f, a, d, 2009 Loan negotiations August a, d, l, o, s Loan review mission January a, d, k, l Loan review mission February c, d, f Program completion review 3 8 June f, m, t a A loan fact-finding mission (16 31 July 2007) was fielded instead of a loan appraisal mission. b a = social security specialist, b = senior public resource management specialist, c = economist, d = economist (public finance), e = fiscal management specialist, f = project analyst, g = senior economist, h = senior control officer, i = assistant disbursement analyst, j = senior finance specialist, k = young professional (economics), l = counsel, m = senior project officer (health and rural development), n = senior private sector development specialist, o = senior public sector management specialist, p = assistant project analyst, q = senior economist (fiscal management), r = senior project management specialist, s = financial control specialist, t = financial sector specialist. c Asian Development Bank Pakistan Resident Mission provided support to the missions in the field.

11 I. PROGRAM DESCRIPTION 1. On 10 December 2007, the Asian Development Bank (ADB) approved the Punjab Government Efficiency Improvement Program Cluster Subprogram 1 and accompanying technical assistance (TA) Loan and TA grants for Pakistan. 1 On 17 September 2009, ADB approved Subprogram 2 of the cluster program. 2 The $250 million loan for Subprogram 1 was released upon loan effectiveness on 21 December Loans of $250 million each were envisaged for Subprogram 2 ( ) and Subprogram 3 ( ). The loan for Subprogram 2 was reduced to $150 million and was disbursed upon effectiveness on 30 September A TA loan of $8.8 million equivalent and a TA grant of $950,000 equivalent were provided to support the implementation of reforms under the cluster program. In 2011, ADB programmatic support halted after the International Monetary Fund (IMF) program stopped, so Subprogram 3 was not processed The cluster program aimed to sustain high levels of economic growth, resulting in lower poverty incidence and improved public services. The program outcome was greater efficiency in the allocation of scarce public resources, and greater responsiveness of the government to the needs of citizens. This outcome was to be achieved through four outputs or core policy areas (CPAs), with reforms leading to (i) greater performance orientation in planning and budgeting; (ii) a fully-funded and well-managed civil service pension system that increased the confidence of civil servants and the public, and generated fiscal space for high-priority investments in the social sectors; (iii) improved efficiency of the civil service apparatus, with sound incentives and merit-based appointment and career progression; and (iv) greater private sector contribution to growth and sustainable public private partnerships (PPPs). The design and monitoring framework of the program cluster is in Appendix 1. II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 3. At the time of formulation in 2007, the cluster program design was relevant. The relevance of design was contingent on the achievement of the entire cluster. Given that Subprogram 3 was not processed, the design became less than relevant at completion. Under the Punjab Resource Management Program (PRMP), which was implemented from November 2003 to August 2007, the provincial government of Punjab introduced wide-ranging reforms in public resource management. 4 It enhanced revenues and rationalized expenditures, improved planning and budgeting, and introduced elements for private sector development and civil service reform. In parallel, the provincial government implemented reforms in service delivery 1 ADB Report and Recommendation of the President to the Board of Directors: Proposed Program Cluster, Loan for Subprogram 1, Technical Assistance Loan, and Technical Assistance Grants to the Islamic Republic of Pakistan for the Punjab Government Efficiency Improvement Program. Manila. 2 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loans for Subprogram 2 to the Islamic Republic of Pakistan for the Punjab Government Efficiency Improvement Program. Manila. 3 In October 2011, the IMF terminated its country program with Pakistan, as the government failed to meet its reform commitments. Thus, the IMF Country Assessment Letter for Pakistan a prerequisite for ADB s program loans was not issued. After continued delays in moving the IMF program forward, ADB and the government mutually agreed to cancel Subprogram 3 and reprogram the funds to other ADB-financed projects in Pakistan. 4 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Islamic Republic of Pakistan for the Punjab Resource Management Program. Manila; ADB Report and Recommendation of the President to the Board of Directors: Proposed Program Loan and Technical Assistance Grant to the Islamic Republic of Pakistan for the Punjab Resource Management Program: Subprogram 2. Manila.

12 2 under the Punjab Devolved Social Services Program 5 and in the judiciary through the Access to Justice Program. 6 These ADB interventions and support from other development partners laid a broad foundation for reform partners in the governance, infrastructure, and social sectors. 4. Building on these improvements the provincial government launched its secondgeneration reforms at the fourth Punjab Development Forum in April The government wished to create a more effective public sector and foster a dynamic private sector to achieve Punjab s Vision 2020 goals. 7 Key pillars included (i) improving fiscal and public financial management and instituting a results-oriented medium-term planning and budgeting system; (ii) establishing a well-funded and adequate pension system; (iii) fostering an efficient civil service; (iv) fostering dynamic private sector-led growth and public private partnerships (PPPs); (v) achieving the Millennium Development Goals (MDGs); and (vi) improving access to justice to enhance legal and regulatory certainty and enforceability in all economic spheres. Along with the cluster program, the request of the provincial government was to prepare two additional program clusters the Punjab Millennium Development Goals Program and the Access to Justice Program. The principal driver for the three cluster programs was accelerated funding of the civil service pension system, while leveraging reforms in the respective areas. 8 For this, the government required an infusion of at least PRs100 billion, and it sought about $300 million in program lending support per year over FY to address this gap. 5. The size of the expected budgetary support under the cluster program was viewed as a strong incentive to address more complex reform measures, in particular for the civil service and private sector development. Given the complexity of the reforms in these areas and the time required to filter reforms through the bureaucracy, the program was designed as a cluster, comprising three single-tranche subprograms. This modality provided adequate flexibility to meet emerging reform needs and use program conditions for policy reform, rather than as rigid prescriptions. During the processing of Subprogram 2 good use was made of this flexibility and some targets were revised to suit the changed economic situation. 6. The cluster program was designed during a period of rapid economic growth. For the 3 years preceding Subprogram 1, national gross domestic product (GDP) was growing at over 7% annually. However economic conditions have worsened since 2008, with rising world oil and food prices, global financial turmoil, natural calamities, and a deteriorating domestic security situation. Growth slowed from 7.5% in FY2007 to 3.4% in FY2009. The rapidly worsening fiscal, economic, and security situation, together with reduced lending from ADB, required revision of earlier commitments made. 9 While the government continued to address growing pension contingent liabilities, more modest targets were confirmed in a revised funding and reform strategy that also proved to be too ambitious. In early 2008 the political landscape changed, followed by a 6-month period when the new government reviewed and set its priorities, with 5 ADB Report and Recommendation of the President to the Board of Directors: Proposed Program Loans and Technical Assistance Grant to the Islamic Republic of Pakistan for the Punjab Devolved Social Services Program. Manila. 6 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loans and Technical Assistance Grant to the Islamic Republic of Pakistan for the Access to Justice Program. Manila. 7 Government of Punjab Punjab s Vision Lahore. 8 The Punjab Millennium Development Goals Program aimed to improve access, quality, and equity of health services in the province, especially in relation to MDGs 4 and 5. The Punjab Access to Justice Program was to improve judicial policy and administration, access to justice, judicial training, legal education and strengthening of legal profession, commercial dispute resolution and drafting and amending legislation. 9 The loan size of Subprogram 2 of the cluster program was reduced from $250 million to $150 million, and the Punjab Access to Justice Program was never processed. Total program lending provided was $650 million against the original target of $1.5 billion.

13 3 higher expenditure outlay to counter increased poverty and security risks reducing the relevance of the targeted high-impact reforms. B. Program Outputs 7. The outcome of the program was to bring about greater efficiency in the allocation of scarce resources and greater responsiveness to citizens needs. 10 The outcome was supported by four outputs: (i) public resource management modernized and made more efficient; (ii) civil service pension system made financially sustainable; (iii) civil service efficiency and motivation enhanced; and (iv) greater private sector participation in economic activity, and a redefined role for the Punjab public sector. 11 A fifth output, results-based management adopted, was introduced in Subprogram 2 to help the government to adopt modern public sector management techniques to achieve its vision. Each output was underpinned by a set of separate policy actions for each subprogram that needed to be completed before the release of funds. An analysis of the cluster program is presented in paras The policy matrix is in Appendix Output 1: Public Resource Management Modernized and Made More Efficient 8. Prior to program start-up, the medium-term development framework (MTDF) and medium-term budget framework (MTBF) were of poor quality and were not prepared in a timely manner. They were not fully integrated with the annual development plan (ADP) process and medium-term expenditure framework (MTEF). The compartmentalized approach to the preparation of the MTDF and MTBF was an obstacle to effective public financial management. In the format used prior to the program, the budget call circular (BCC) was not suited to the integration of the annual budget with the MTBF, as it did not include recurrent budget ceilings notifications to line departments. 12 On the revenue side, tax administration was one of the weakest areas, constraining the government from meeting its revenue-generating potential. The output objective was to improve public resource management through structural reforms in expenditure management and revenue generation, including MTDF and MTBF integration. 9. Under Subprogram 1, the Finance Department and Planning and Development Department (P&DD) adopted joint protocols to ensure greater coordination in planning and budgeting within central departments and between central and line departments. A rolling MTBF was adopted for FY2008 FY2010, with the aggregate resource envelope defined. 10. Under Subprogram 2, the Finance Department and P&DD implemented joint protocols to review consolidated budgets. Provincial revenue targets and expenditure ceilings were approved by the cabinet through the MTBF for FY2010 FY2012. Bottom-up, output-based budgeting was pilot tested in the Department of Health (DOH) and Department of Irrigation and Power (DI&P) for FY2010 FY2012 to link expenditure with outputs. The Strategic Policy Unit was created in the DOH and the MTEF Committee was established in the DI&P to define sector policies and strategies, and to estimate the resources needed to implement these strategies. The provincial government developed output-based budgets for both departments to the 10 The outcome was restated as an efficient, accountable, and enabling government in the Subprogram 2 RRP. 11 The four outputs remained the same but the language used to describe the outputs was altered under Subprogram 2, under which the four outputs were (i) improved public financial management, (ii) improved contingent liability management, (iii) improved civil service management, and (iv) private sector participation promoted. PPPs became the focus of output (iv) under Subprogram The Budget Call Circular is the key document circulated by the Finance Department to line ministries at the start of the budget cycle.

14 4 spending unit level, and the exercise was rolled out to another five departments. The annual budget and MTBF were integrated for the DOH and DI&P for FY2010. Pre-budget consultations with the provincial assembly were conducted for FY2010, and proposed amendments to rules of procedure were submitted to the assembly. The MTBF BCC for FY and FY , with instructions on current and development budget ceilings for the pilot MTBF line departments and deputy district officers, was issued in November 2010 and November 2011 for two annual budget cycles. Promotion of gender equity was introduced in Subprogram 2 and the resource allocation for Gender Reform Action Plan implementation was doubled from PRs70 million in FY2008 to PRs148 million in FY Prior to the cluster program, fiscal discipline was being compromised by the prevalence of supplementary grants. Under Subprogram 2, with an increased focus on contingent liability management, an improved process of applying for supplementary grants was pilot tested in the DOH and DI&P in FY2010. Justification for supplementary grant requests must now be submitted in a new, more detailed form. For the DOH, the ceiling for net supplementary grants has been fixed. Improvements to the quality of the ADP were also made by reducing the number of unapproved new schemes, through fewer approvals or cancellation. In FY2011, ongoing schemes with an allocation of less than 10%, and new schemes with an allocation of less than 15% of the financing needs, were eliminated. The emphasis on tax reform was reduced under Subprogram 2, and property tax reform was moved to Subprogram Although Subprogram 3 was not processed, the government complied with indicative actions, including pre-budget consultations for FY2011 and 2012 budgets; extension of the MTBF to the Excise and Taxation Department (E&TD), Livestock and Dairy Department (L&DD) and the Higher Education Department (HED); rationalization and quality improvement of the 2011 ADP; and introduction of gender-responsive budgeting in the DOH and HED. Some reforms to improve tax revenues and administration were also undertaken. A detailed analysis of the two major taxes the urban immovable property tax (UIPT) and motor vehicle tax was carried out. For the UIPT, a property tax survey was re-started in 2013 and the updated annual rental value table was approved by the cabinet. The cabinet also endorsed the reduction of the UIPT rate and certain exemptions that were in force were removed. 13. Output 1 was partially achieved, and contributed partially to the program outcome. Some elements causing greater efficiency in the allocation of resources were developed, including the capacity of officials to prepare and use MTBFs down to the district level in the seven pilot departments. 13 At Subprogram 2 completion, expansion of output-based budgeting was considered to be the driver of reform in expenditure management. Joint protocols have been adopted for budget review and are being used for coordination between the Finance Department and P&DD. Transparent planning procedures were stipulated at district level, but the program objective of greater transparency, predictability and realism in interdepartmental resource allocation was not achieved. Complete revision, updating, and publication of the Planning Manual to reduce the number of unapproved schemes has not been done. 14. MTBF has been implemented in the pilot departments to bring coherence between policy priorities and development expenditures. Starting in 2011, budget statements were prepared for seven key departments, department strategic reviews were completed for the MTBF departments, a medium term fiscal framework was formulated for three cycles, a budget strategy paper was prepared, with accompanying budget call circular, manual, and monitoring 13 Before the cluster program, implementation of the MTBF had been considered to be beyond the capacity of provincial government departments.

15 5 and evaluation framework. Procedures have been put in place and progress is substantial. However, without province-wide implementation and oversight or public disclosure, the overall annual budget process is not yet fully transparent or predictable. 14 In expenditure management, the Finance Department embraced wide-ranging improvements, but tax reforms have not yet been sufficiently addressed as part of the overall output requirement. 15. The success of the budgeting pilot tests changed the government s mindset. The pilot results created confidence that processes could be improved, and serious budget reform could be initiated in line departments without being engineered and directed by the Finance Department. However, capacity for MTBF preparation and implementation remains weak, as it has not been institutionalized and reinforced. 16. MTBF capacity and skills have been developed and institutionalized in the pilot departments. Learning by doing over several budget cycles will further strengthen MTBF capacity. The Project to Improve Financial Reporting and Auditing (PIFRA) provided connectivity to all major line departments by the end of Subprogram The government is keen to expand the MTBF to cover the remaining (non-pilot) departments at its own cost in order to bring them all under the same format. However, future rollouts of the MTBF will be partly contingent on how far line departments have assimilated PIFRA and TA support, and readiness of the Finance Department and P&DD. Some actions have been undertaken, but reforms are still needed in revenue generation and administration. 2. Output 2: Civil Service Pension System made Financially Sustainable 17. The Punjab Pension System (PPS) and the General Provident Fund (GPF) were the two main pillars of the pension system of the provincial government. The PPS is a noncontributory, unfunded defined benefit system that is financed from the annual budget of the provincial government. The GPF is an unfunded, defined contribution scheme. Prior to the cluster program, liabilities arising from PPS and GPF obligations were becoming a growing burden on the finances of the provincial government, and the existing pension system was not financially sustainable. Pension outlays increased from PRs1.7 billion in FY1991 to PRs425 billion in FY2007. With the current expenditure budget for FY2007 at PRs191 billion, the pension liability was 2.2 times the expenditure budget. The provincial government recognized that its pension obligations have serious budget implications and, if not managed prudently, could crowd out other development priorities of the government in the future. The absence of a robust recordkeeping and information management system, combined with weak analysis and accounting capacity, resulted in inaccuracies in calculating pension entitlements and making payments. The benefit structure of the pension system was also weak. For example, pensions were calculated on the basis of last salary drawn rather than the international best practice of basing it on average earnings over several years. The output objective was the development of a financially sustainable pension system to provide retirement income security to civil servants. 18. Under Subprogram 1, the legal framework for pension reform was established by the Pension Fund Act, The Punjab Pension Fund (PPF) was created in March 2007 and the General Provident Investment Fund (GPIF) law was submitted to the provincial assembly. An initial PPF funding strategy, with a time-bound funding plan, was adopted in July The aim 14 Under the World Bank s new program, as a result area, all government organizations are required to put their budget in user-friendly format on their institutional websites. November World Bank. Punjab Public Management Reform Program. Washington, DC. 15 World Bank. Project to Improve Financial Reporting and Auditing. Project I (1997) and Project II (2011). Washington, DC.

16 6 was to accumulate PRs100 billion by FY2016 and to meet 30% of the annual expenditures from investment income. PPF management rules and clear fiduciary norms for fund management were adopted, and the management committee of the PPF was established. Civil service pension liabilities were estimated and annual cash flow needs were determined. A policy note on key priorities for pension administration was prepared. The Pension Administration Task Force was appointed to establish sound record-keeping and administration, with a clear timebound plan to ensure the integrity and accuracy of the PPF and GPF record of employees. 19. Under Subprogram 2, the GPIF was created under the GPIF Act of September The PPF was operationalized with the appointment of the general manager, chief investment officer, risk management officer, trustee, and internal auditor. The Pension Administration Task Force launched the testing of alternative methods to populate the GPF database to (i) introduce a baseline, (ii) facilitate the efficiency and accuracy of data gathering, and (iii) improve the validation and entry of historic GPF records. By August 2009, the Office of the Accountant General completed data entry for 988,338 employees, 165,899 pensioners, and 782,443 GPF records using the PIFRA SAP/R3 enterprise resource planning software. The provincial government, for the first time, assessed the solvency and sustainability of the pension scheme. Contingent liabilities of the PPF and GPF as of June 2008 were estimated and included in the white paper for the FY2010 budget, and this reporting is now done regularly. 20. As required under Subprogram 3, a pension and GPF expense report in line with International Public Sector Accounting Standard (IPSAS) 25 was prepared and integrated in the FY2011 budget. The SAP/R3 database for most civil servants on payroll, pension, and GPF records was completed. A single investment unit, with a sound governance structure and practices, was created to manage the PPF and GPIF, although management capacity needs strengthening. Allocation of an additional PRs9 billion for the PPF, envisaged in FY2011, was not made. 21. Output 2 was partially achieved. While the legal framework for the PPF and GPIF were established and a professional investment unit was created, the capitalization target was partly met. Administration improved with the automation of the pension and GPF records. Improvement of the pension system, was not completed as originally planned. Time and resources were expended in setting up the pension fund and making it operational, but it was not adequately capitalized. 16 The government transferred PRs12 billion to the PPF in FY but withdrew PRs1.8 billion during FY About 95% of the payroll, 92% of the pension, and 75% of the historic GPF records were automated in the SAP/R3 system by the end of Under the Pension Administration Taskforce, a detailed exercise to verify HR Payroll data was conducted across the province in coordination with the office of the Accountant General Punjab and 90% of the anomalies were removed. The pension fund capitalization target had to be revised downward because of (i) budget shortfalls arising from worsening economic conditions and reduced development partner support; (ii) changes in the provincial government s priorities, leading to increased expenditures to counter poverty and security risks; and (iii) few investment opportunities generating positive returns in a weak economy with high inflation. 22. The funding level currently is too low to meet the accrued pension and GPF liabilities. 17 As of June 2013, 54% of the PPF portfolio was invested in Pakistan infrastructure bonds, 33% 16 PRs100 billion was to be accumulated by FY , and 30% of the annual expenditures were to be met from investment income. 17 While the fund had only 2% of fund requirements, in FY 2014 Rs 4.8 billion was transferred to the PPAF and Rs 3.34 billion to the GPIF, and for FY 2014 Rs 10.0 billion is projected for the PPAF and Rs 4.8 billion for the GPIF,

17 7 in short-term bank deposits, and 10.7% in national savings schemes. In addition to increased funding for the PPF, parametric and systemic reforms are needed to enhance pension benefits and coverage while making the pension system affordable and financially sustainable Output 3: Civil Service Motivation and Efficiency Enhanced 23. The civil service was a drain on the provincial government budget, with its wage bill and pensions accounting for nearly 59% of the consolidated recurrent budget in The system of recruitment, performance evaluation and promotion, and compensation and benefits was weak. The contractual employment system introduced in 2004 was becoming unsustainable. 19 Policies and mechanisms for placements and transfers were not properly structured. The technical and managerial skills of civil servants deteriorated over the past two decades. Local governments lacked sufficient capacity for planning, budgeting, and human resource management, given the relatively short time since the launch of the devolution process under the Punjab Local Government Ordinance of Under Subprogram 1, the Civil Service Modernization and Reform Task Force was established to lead, guide, and oversee the required reforms. A vision for civil service reforms was circulated to government agencies. The resources and capacity of the Civil Service Change Management Unit were enhanced, and it was upgraded to the Public Policy and Change Management Wing (PPCMW) of the Service and General Administration Department (S&GAD). 20 A change management process was initiated and change management agents were designated in all 40 provincial departments and 35 districts. A human resources working group, chaired by the additional chief secretary, was set up to review human resources policies. The Management and Professional Development Department (MPDD) was upgraded to the principal training and capacity building arm of the Punjab civil service, and added as an implementing agency for the program. Under the new provincial government, the number of pilot departments to undergo functional review and business process reengineering was reduced from six (P&DD, Finance Department, Local Government and Community Development Department, S&GAD, E&TD, and L&DD) to two (E&TD and L&DD) to (i) make reforms more manageable, 21 and (ii) create model departments to encourage buy-in from other departments and pave the way for fundamental civil service reform Under Subprogram 2, the provincial government approved a civil service reform policy that laid out the provincial government s intention and commitment to modernize the civil service, and articulated key parameters for reform. 23 The Punjab Contract Appointment Policy (2004) was reviewed and a draft human resources management manual and toolkit based on demonstrating renewed commitment to addressing the shortfall and enabling the funds to be independently financed. 18 Parametric reforms involve modifications to various parameters within the existing system such as retirement age and contribution rate, whereas systemic reforms involve more fundamental reforms in the overall pension design. In FY , Rs 4.8 billion have been transferred to PPF and Rs billion to GPIF. In FY , Rs 10 billion has been allocated for PPF and Rs 4.8 billion for GPIF. 19 The pressure to regularize contractual civil service employees was increasing as their numbers expanded. The difference in compensation between regular and contract employees was not large enough to prevent contractual employees from seeking regularization. 20 The PPCMW is the second tier of the institutional foundation for civil service reform. 21 E&TD and L&DD were moderate-sized departments. 22 E&TD is the provincial revenue department and L&DD supports a sector that generates 40% of farmer income. Functional review was especially important for L&DD because in addition to providing extensive services, the department provides animal nutrition and vaccines and owns farms. 23 These included open and merit-based posting and recruitment, modern compensation packages, stable tenure, skills development, simplified business processes, and rewards linked with service delivery indicators.

18 8 international good practice was prepared. The focus was shifted from an overall review of the Civil Service Act, 1974 to developing a step-by-step road map for reforms, with pilot tests in a few departments. The Punjab Public Service Commission (PPSC) showed strong ownership of the recruitment process reforms. It adopted a new procedure for evaluating applications that significantly reduced recruitment time. 24 A training strategy was also approved in 2009, but was not implemented effectively. 26. As per Subprogram 3 indicative action requirements, the PPSC completed a functional review of civil service recruitment, prepared an action plan for business process reengineering, and undertook human resources reviews. 25 However, the PPSC s new management did not agree with the results of the reviews and no recommendations could be implemented. E&TD and L&DD completed benchmarking to identify and measure key performance indicators, focusing on strategy, function, performance, and process. Pilot surveys to gauge public opinion on service delivery were conducted by E&TD and L&DD and included in a report in Training and staff development in L&DD had a positive effect on the outlook of departmental officials, who took ownership of the reform process and carried it forward. The provincial government collaborated with the Singapore Civil Service College to modernize the MPDD and improve its in-house training capacity. PRs100 million was allocated for training in FY2011, and gender was included in all training modules. The review and revision of overall provincial civil service human resources management policies and regulations, based on the E&TD and L&DD pilots, was not undertaken. The Pay and Pension Commission reviewed policies on tenure, monetization of benefits, and other compensation issues, but the recommendations made to the federal government were not accepted. 27. Output 3 was not achieved, and did not contribute to the program outcome. There was insufficient political will and public pressure to effect long-term, sustained change. The civil service reform vision and change management units needed a well-thought-out strategy and a strong agency, and the process was started but did not proceed over time. The foundations of a professional management cadre were not made, as no civil servants were recruited under the Provincial Management System. The proposed competitive and incentive-based recruitment system for managing development programs was initiated but has not been sustained. Change management agents were appointed, but the anticipated reform strategy and direction from the PPCMW, along with a detailed change management process, did not materialize. TA resources were utilized for functional review, human resources management review, and business process reengineering in the two pilot departments. Some resources might have been used for broad consultation with the education, health, and police departments, which comprise the majority of civil servants, to solicit ideas and support for needed reforms, but the government did not choose to proceed in this direction. The MPDD conducted training and capacity building activities and this helped create a positive impact on the outlook of the departmental officials at various tiers, but the impact remains limited in the absence of a robust human resources policy that includes continuous career development. 4. Output 4: Greater Private Sector Participation in Economic Activity, and a Redefined Role for the Punjab Public Sector 28. Private-sector led growth, including through private sector participation in infrastructure and social services, can contribute to the program outcome of an efficient, accountable, and enabling government. Some initiatives were taken under the PRMP, but there was no coherent 24 The recruitment time was reduced because only shortlisted candidates were interviewed under the new procedure. 25 The PPSC, which recruits public servants for basic pay scales 17 and above, has structural, capacity, and procedural constraints.

19 9 strategy for private sector development prior to the cluster program. The policy and regulatory framework for PPPs was weak. Output 4 was set up to address this gap. 29. For output 4 under Subprogram 1, a private sector development committee was created. Led by the chair of the P&DD board, the committee was responsible for overseeing the development of a PSD strategy, developing an action plan for implementation of the strategy, and providing guidance to the PPP cell. A PPP cell was set up in PD&D in 2008 to draft the PPP policy and regulatory framework and support the development of PPP in a systematic manner. A communication strategy for core labor, environment, and quality standards was prepared to improve the competitiveness of the industrial, commercial, and agricultural sectors. 30. Under Subprogram 2 a private sector development strategy was developed, covering key government interventions to address (i) the business and investment environment links in the legal and judicial system, infrastructure, economic management, and value chains; (ii) agriculture; (iii) industrial policy; (iv) small and medium-sized enterprises; (v) construction; (vi) private sector participation in infrastructure, particularly power and special economic zones; and (vii) human resource development. A committee was established to develop single-window facilitation for foreign direct investors. A framework outlining the road map for PPPs was developed in 2009, and a PPP policy was approved in The Punjab Assembly passed the PPP for Infrastructure Act on 12 July 2010 (replaced by the revised Infrastructure Act 2014). The P&DD hired a manager and two professional staff for the PPP cell. Project development facility guidelines were approved by the provincial cabinet in 2009 and $1 million was allocated to the facility in the FY2010 budget. A preliminary list of potential PPP projects was identified by the P&DD. 31. In accordance with Subprogram 3 indicative actions, a PPP steering committee was established in 2010, chaired by the minister of the P&DD and with representation from the local business chambers, the provincial government, and the private sector. The PPP Cell, with nine technical staff, acts as the secretariat to the PPP steering committee. A PPP risk management unit was set up in the Finance Department but remains under-resourced. A risk management policy was developed, which specified criteria for risk management and defining principles such as project quality, legality, fiscal prudence, and obligations. Guidelines on PPP project inception, preparation, and transaction execution were created. Guidelines and regulations on land acquisition, environmental, and social safeguards pertaining to PPPs, were also defined. Four projects were identified for transaction support. Significant additional work has been done since early 2014, with a new Act, a PPP unit staffed with nine professionals, and feasibility studies being conducted for projects worth around Rs 63 billion, with twelve projects supported by the Project Development Facility. 32. Output 4 was partially achieved, with the policy and regulatory framework for PPP set up, but other aspects of private sector development were not completed. The private sector development strategy was developed, but not implemented. The private sector development committee did not operate on a regular basis, had no permanent secretariat, and the large committee membership made decisions difficult. Subprogram 2 shifted focus to PPPs to align with the government s growing interest in this area. As with pension reform, the government started establishing the necessary government offices based on the PPP law at the time of the cluster program s inception. The PPP momentum was not carried forward and private sector participation did not materialize in the education, health, and infrastructure sectors as envisaged in the output. To facilitate learning by doing, simple PPP (service and management contracts) demonstration projects could have been prepared. However, the PPP cell in the P&DD lacks the necessary technical capacity to drive further PPP reforms and to identify, develop, and promote