Khyber Pakhtunkhwa Education Sector Plan Support Programme (KP-ESPSP) CRIS number: 2013/

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1 ANNEX I of the Commission Decision on the Annual Action Programme 2013 for Pakistan Action Fiche for Khyber Pakhtunkhwa Education Sector Plan Support Programme 1. IDENTIFICATION Title/Number Total cost Khyber Pakhtunkhwa Education Sector Plan Support Programme (KP-ESPSP) CRIS number: 2013/ EUR 40 million Total amount of EU budget contribution of which EUR 35 million for budget support EUR 5 million for complementary support Aid method / Method of implementation Type of aid code Budget support Direct (centralised) management: Sector Reform Contract A02 Sector Budget Support Markers BSAR DAC-code Sector Education Policy and Administrative Management Aid method / Method of implementation Complementary support Direct centralised management: procurement of services DAC-code Sector Education Policy and Administrative Management 2. RATIONALE AND COUNTRY CONTEXT 2.1. Summary of the action and its objectives The response proposed aims to support the provincial government of Khyber Pakhtunkhwa (KP) in the implementation of the education reform programme through a Sector Reform Contract and with a special focus on improving quality of education services Country context Main challenges The data for the Millennium Development Goals for Pakistan are bleak with progress against most indicators lagging behind. While poverty initially declined over the last decade, this trend reversed after 2008 due to low economic growth, high inflation and the impact of successive humanitarian crises resulting from natural calamities and militancy. Education performance remains poor in large parts of the country. Results of reform programmes have been slow to come and have had scarce impact beyond matching the rapidly growing population. One of the main causes of this underperformance is the persisting low level of public spending for education, which represents less than 2% of the national income. - 1

2 The situation in the education sector is particularly bad for the province of Khyber Pakhtunkhwa (KP), where conflict and rising militancy has severely affected the effectiveness of the education system. Approximately, only half of its 24 million inhabitants are literate though with large differences between urban (60%) and rural areas (43%) and between males (65%) and females (28%). The gross enrolment rate (GER) is 83%, compared with a national average of 87%. The GER for girls is 70% and significantly lower than that for boys. Quality and efficiency of the education system is low with only 58% of children completing primary education (Grade 5). The retention rate at secondary school is even lower (55%). Since 2009 the Government of Khyber Pakhtunkhwa, with donor support, has embarked on substantive educational reforms to improve access to and quality of education in key areas. Although some progress has been made, serious challenges for improving school performance persist. These challenges among others relate to the need to address weaknesses in performance of teaching staff, including high levels of absenteeism; to further improve preand in-service training; to build capacity along with ongoing decentralization of authority and service provision; to more effectively involve parents and communities in supporting education; and to improve coordination between (district) administrations and schools Fundamental values The transition from military rule to democratic government in 2008, the successful transition from one democratically elected government to another in May 2013, the liberty of the press, the decentralisation process and the increasing control exercised by the national and provincial assemblies and the judiciary, confirm a clear progress in the democratic process. In 2012 Pakistan removed the majority of reservations to international human rights instruments such as the International Covenant on Civil and Political Rights and the UN Convention against Torture. Reinforcement of the Ministry for Human Rights, the recent legislation improving human rights and in particular with regard to the protection of women, as well as the establishment of the National Commission on the Status of Women and an independent Human Rights Commission, are promising signs of engagement in the area of human rights Eligibility for budget support Public policy Based on the National Education Policy (2009) and the Poverty Reduction Strategy Papers (PRSP) I and II, the Government of Khyber Pakhtunkhwa developed an Education Sector Plan (ESP), approved in 2009 and updated in The ESP aims to achieve universal primary education by 2015 through ensuring that all children complete a full course of primary education. The Education Sector Reform Unit (ESRU) was established to perform a wide range of responsibilities related to the implementation of the ESP, including policy development, planning, monitoring and evaluation, coordination with donor agencies, and processing and implementing provincial level activities. A recent donor review of the ESP calls for a less ambitious and more realistic approach in reducing the number of performance measures and targets and establishing better baselines enabling a more transparent and result oriented reporting. Improvements are also suggested with regard to the planning of activities and spending of resources in line with reforms related to Public Finance Management (PFM). Further strengthening of the ESRU is required to ensure adequate capacity to implement the full reform process. The provincial government is yet to fully implement the additional fiscal, planning and educational responsibilities that were shifted from the Federal Ministry of Education in July 2011 as a result of the decentralization introduced by the 18th Amendment to the Constitution. There is a need to rationalize, restructure and align the different roles and - 2

3 functions of the existing provincial professional training institutions as well as in the preparation of text books and other didactic support material. Much of this continues to be done through technical assistance provided by several international donors. For the next financial year starting July 2013, the Government of Khyber Pakhtunkhwa has significantly increased the budget for education, notwithstanding that part of it is due to school teacher salaries previously counted as part of the 'general public service' budget having been shifted into the education budget. The new budget also provides for the establishment of an independent data collection and monitoring unit that should enable the establishment of a comprehensive monitoring system for the education sector. Further changes announced through the Local Government Act adopted in May 2012 are expected to increase and strengthen the capacity of the district education offices to plan and manage the education system at district level, sub-divisional level and circle level. On the basis of the above assessment, it can be concluded that there is a relevant and credible education sector strategy that supports the objectives of poverty alleviation and sustainable growth through the provision of quality education for all Macroeconomic policy Following the end to the global economic boom in 2008, annual growth in GDP remained a paltry 3% per year. Persisting insecurity, frequent and increasing load shedding, decreasing supplies in natural gas, lack of a robust legal environment and unsustainable levels of often untargeted subsidies are among the major causes that kept Pakistan performing well below its potential. Energy has become the main expenditure item in the budget surpassing defence expenditure for the first time this year and the main reason behind higher fiscal deficits and increasing public debt. In June 2013, the new Government led by Pakistan Muslim League (Nawaz) took power following the election in May 2013 and presented its budget for financial year The main focus of the new PML-N led Government will be on the energy sector and the revival of the economy. It has started to resolve the circular debt and promote new energy infrastructure and new forms of energy generation, which is expected to have a positive impact on economic recovery and foreign investment. In addition, the Government intends to cut expenditure by 30% while at the same time promoting investment in infrastructure. The strategy of the Federal Government, similar to what the PML-N has been doing in Punjab, is to stimulate the economy by creating jobs and increasing public investment while at the same time modernizing and repairing the deficient infrastructure of the country. This move, accompanied by the successful completion of energy reforms, is expected to improve the macroeconomic prospect of the country in the medium term. The new budget is considered to be more realistic than before. Having lowered expectations of some sectors that wanted to see a revolutionary change, the new Government has set out more realistic and achievable targets. The fiscal deficit target for next fiscal year is 6% of GDP. On the revenue side, the new Government intends to increase tax to Gross Domestic Product revenue significantly. The new budget is very cautious regarding tax collection. The Government will have to revamp the whole tax policy and tax administration progressively over the coming months and years but the fruits of this will probably not be visible in the new fiscal year and this explains the conservatism of the budget on the revenue side. Tax reforms will remain a difficult task for the new Government due to political and bureaucratic resistance and it will have to be accompanied by enhanced tax collection by the provinces. Pakistan remains exposed to external shocks in the form of food, gas and oil price 1 See annex 3 for more information on Sector Policy. - 3

4 fluctuations, which are heavily subsidised by the Government. Natural disasters like earthquakes and floods have also had an impact on the economy in recent years. Pakistan and the International Monetary Fund (IMF) agreed a Stand-by Agreement in 2008 to avert a balance of payment crisis. The programme was suspended in 2011 due to the inability of the former Government to contain fiscal deficit and implement the required economic reforms. An Article IV Consultation report was published in February 2012 reiterating the need to improve public finances, solve the energy crisis and reduce inflation. This year the IMF started negotiations with the new Government on a reform package and an Extended Fund Facility of USD 5 to USD 7 billion. A new IMF programme would provide the Government with needed foreign exchange and provide sufficient confidence to attract more international bilateral finance. Based on the analysis above, in particular the budget measures of the new Government and the latest IMF review dated February 2012 and the new negotiations it is concluded that the authorities pursue a credible and relevant stability oriented macroeconomic policy aiming at restoring fiscal or external stability and sustainability Public finance management In order to address PFM weaknesses following the 2011 PEFA results, the Government of Khyber Pakhtunkhwa adopted an Integrated PFM Reform Strategy in late 2011 with five general objectives: a) making budget formulation more strategic by linking policies and priorities with budgeting (Medium Term Budget Framework); b) making the budget credible and results oriented for better service delivery (Output Based Budgeting); c) improving budget execution and reporting and payroll and pensions systems; d) capacity building of the workforce of KP audit, internal audit, strengthened Public Accounts Committee; and e) accountability for results (Monitoring & Evaluation). The new strategy has been successfully rolled out across all departments and is directed by Strategic Oversight Committees and coordinated by the Additional Finance Secretary Budget in the Finance Department. All the reforms have been endorsed by the Cabinet and the Finance Department has held regular donor working groups to update on the status of the reforms. Results-based budget management is also being gradually introduced into districts and together with capacity building for local officials and community driven development are the key elements contributing to the Government of Khyber Pakhtunkhwa PFM reform agenda. Pre-budget consultations are now regularly held with key stakeholders both at provincial and district level. Based on the analysis above, it is concluded that the PFM reform strategy is considered sufficiently relevant to the development objectives of the KP Province and it is a credible strategy which identifies key weaknesses in public financial management adequately and narrows its approach of interventions into specific priority sectors. This is because it is reasonably well sequenced and it has gained the championship of the Finance Department with sufficient ownership of provincial authorities Budget transparency and oversight of the budget The Government of Khyber Pakhtunkhwa is now publishing all budget documents including an annual White Paper providing a snapshot of the Government s plan towards the new 2 See annex 4 for more information on the macroeconomic policy. 3 See annex 5 for more information on PFM. - 4

5 budget and the Output Based Budget document containing strategic priorities and expenditure ceilings. The latter is prepared on the basis of Forward Budget Estimates for up to three years. The entry point for budget support eligibility is considered to be met, as the Executive's budget proposal for FY was published on the 13 th of June 2013 on the Government of Khyber Pakhtunkhwa's Ministry of Finance website at Lessons learnt The evaluation of KP-ESRP (DCI-ASIE 2007/18-465) confirmed its effectiveness in providing critical fiscal space to the Government of Khyber Pakhtunkhwa s sector budget to implement on-going key measures for improving access to and quality of elementary and secondary education and promotion of gender equality. It also showed that there is a clear need for more effective policy dialogue 5 and a better focussed and more integrated TA component. The DfID funded Education Sector Programme started in 2011 and has been a game-changer in donor assistance for education in KP. The much more significant budget and comprehensive approach, in combination with a strong accompanying political engagement, has demonstrated how a substantial impact on education reform in the province can be achieved. The most important achievement has been the adoption of the key performance indicators of the programme by the Government of KP and how these have been translated into Government of KP's education budget for The Integrated In-service Teacher Training and Supervision System in selected schools in two districts, piloted by Gesellschaft für internationale Zusammenarbeit (GiZ) and funded by the EU, has produced evident improvement in learning outcomes of children. GiZ, with funding from other donors, will continue scaling up the model in three more districts. However, in order to sustain the initiative, there is a need to move away from this project based approach and seek a better integration in the education system with direct funding through the budget. The experiences of successful (pilot) initiatives by Development Partners and the Government of KP, and new developments and policies, should be built on in order to strengthen the existing systems and mechanisms and improve service delivery and support different aspects of ESP implementation. Currently there is no strategic overview governing the selection of districts for these various interventions and these initiatives are not being fully integrated into the education system. The Government of KP needs to pull together the various programme interventions and make the necessary budget allocations to align and systematise the work being done and strengthen the focus on quality issues in the education sector Complementary actions Currently Department for International Development (DfID), USAID, Canada, EU, Germany, Norway, Australia and the Netherlands have pledged and/or are providing support to the Government of KP s Education Sector Plan 6. GIZ, with whom several donors 7 have bilateral agreements in support of its Basic Education Programme in KP, focuses on providing support to governance structures to assist in the planning process, strengthening capacities across the sector and improving the learning environment. DfID is the lead donor for education in KP, providing the largest external financing for the sector (GBP million, 60% of which is through sector budget support) with co-financing 4 See annex 6 on budget and transparency. 5 The policy dialogue will also pay attention to the need of enhancing awareness and preparedness for Disaster Risk Reduction in basic education and school management. 6 See donor matrix in appendix 1. 7 EU, Germany, the Netherlands and Australia. - 5

6 from AusAID (AUD 63.8 million). DfID/AusAID s budget support funding covers support to the so-called Roadmap, which is enshrined in the updated ESP, and has a separate programme framework to channel its support. 8 The proposed EU support will complement it with a specific emphasis on quality of education provision. It will also complement on-going activities under other EU funded programmes for KP, notably the KP District Governance and Community Development Programme (DCI-Asie 2012/23634), a sector reform contract that supports the Government of Khyber Pakhtunkhwa in reforming public administration at district level to improve service delivery, including education, through investing in community development targeting six district budgets of the Malakand Division Risk management framework Key risks for Pakistan have been identified in the current country Risk Management Framework (RMF, see annex 7). The average inherent risk is substantial implying that country systems and institutional structures are not sufficiently robust to guard against key risks and could significantly disrupt the programme or the achievement of results. However, with the proposed mitigation measures the risk is scaled down to moderate. High risk dimensions are those dealing with implementation of public policies, control of non-salary expenditures, procurement, external audit and corruption. The macroeconomic risks can be mitigated with safeguards put in place to ensure funds are transferred immediately to the provincial governments. An agreed Extended Fund Facility with the IMF in combination with a reform package could further ensure sound fiscal and monetary policies to bring the economy on a higher growth path. Tranches are only released once eligibility criteria and other additional requirements are met. The PFM risks will be mitigated through considerable capacity development and technical cooperation as part of the on-going DfID funded sub-national governance programme for KP. For the education sector, the underlying challenge is high levels of corruption risk in the Education department combined with low staff capacity, which has led to a poor relationship between the Finance and Education departments. The principal driver of corruption is a political power structure founded on patronage networks and an insurgency which undermines state control. Expectations are, however, that the newly elected Government will significantly improve the capacity in the Education department. 3. DETAILED DESCRIPTION OF THE BUDGET SUPPORT CONTRACT 3.1. Objectives The overall objective of the KP-ESPSP is to assist the Government of Khyber Pakhtunkhwa in eradicating poverty, promoting sustainable and inclusive growth, and consolidating democracy. The specific objectives of the KP-ESPSP, building on the experience of the KP-ESRP and other DPs in the sector, are to: Improve the financial capability of the government to achieve its education sector policy objectives; Promote Education sector policies and reforms; 8 The DfID sponsored Roadmap envisages the following areas of action: Financial resources; Monitoring, accountability and data transparency especially on gender divide; Support, selection and gender-focus of EDOs; Textbooks, teacher guidance and training; Elementary Education Foundation initiatives to improve female access; Critical supporting actions that will communicate reform to the system and public, enforce objective criteria for hiring and transferring of teachers, empower PTCs by developing stronger links to districts, enforce corporal punishment bans and develop transport solution in rural areas. - 6

7 Improve service delivery in the Education sector; and Improve governance within the Education sector. The response proposed aims to support the Government of KP in addressing the challenges present in the education system mentioned earlier and particularly those around access, governance and PFM, quality and learning outcomes. Particular emphasis of the proposed support is on improving quality of the education services delivered through systematising a 'school effectiveness' approach. The EU support will be fully aligned with the current DfID/AusAID support to the education sector Expected results KP-ESPSP aligned to DfID/AusAID support expects the following: Impact: More educated people in KP making a positive social and economic contribution; Outcome: More children in school, staying longer and learning more; Output: a better managed, more accountable school system; Output: Better teacher performance and teaching in the classroom; Output: Improved school infrastructure and conducive learning environment; Output: improved access to education, especially for girls. EU complementary support focuses on improving quality of services delivered and expects the following: Outcome: Improved learning outcomes for both girls and boys Output: Enhanced professional capacity and performance of head teachers, teachers and Parent Teacher Cooperatons as shown by quality of school improvement plans and actions taken; Output: Enhanced professional capacity of Assistant Subdivisional District Education Officers or circle offices for providing adequate support to development and implementation of school improvement plans as shown by quantity (% of schools visited) and quality of provided support to schools and PTCs. Output: Yearly increase in the take up by Government of Khyber Pakhtunkhwa of regular cost for the school effectiveness approach Rationale for the amounts allocated for budget support The total amount allocated to the education sector under the MIP is EUR 78 million, of which 51 % is to be delivered under the present budget support programme. Donor funding for the KP education sector has been largely instrumental in ensuring additional fiscal space for key investments and grants during the past three years. Discussions remain, however, as to the high amount of donor funds supporting the improvement of schooling infrastructure as compared to other priorities established by the ESP. Providing access to schools does not automatically equate with ensuring quality service delivery and increased learning outcomes 10, which is also why the proposed KP-ESPSP emphasises the quality related priorities of the ESP. There is no longer a financing gap for the ESP on the aggregate level so efforts should focus more on achieving allocative efficiency within the sector, including from the composition of expenditure perspective. The DfID/AusAID support focuses in particular on governance, PFM, access and facilities and, to a lesser degree, on quality of education and learning outcomes. Building on the need for a more macro-level emphasis on quality 11 and the EU current support in this area (through GiZ), both the budget support and complementary support proposed under the KP-ESPSP have a specific emphasis on quality. 9 Assumption that at the end of this period of support the different initiatives in the selected districts are absorbed by the GoKP's annual budget and that within 5 yrs full blending of the different initiatives on school effectiveness for all 25 districts has taken place. 10 This is nicely illustrated in the recent Alif Ailaan Pakistan District Education Rankings 2013 which ranks AJK and Gilgit-Baltistan as 1 and 3 (out of 7 provinces / territories) in terms of education indicators respectively but 7 and 6 respectively in terms of school infrastructure and facilities. 11 Other DPs as well as DfID are providing support to quality and capacity development through technical assistance on the macro-level as well as to teacher training, PTC development, curriculum reform and so on at the micro-level. - 7

8 3.4. Main activities The main activities to implement the budget support package are policy dialogue, financial transfer, performance assessment, reporting and capacity development Budget Support Performance assessment: The EU budget support will be aligned with the current DfID/AusAID support to the education sector and the 12 key performance indicators (KPIs) outlined in the DfID/AusAID Policy Matrix will be adopted and are subject to periodic joint reviews. These indicators cover three broad areas: 1) governance and PFM (Output Based Budgeting; developing audit systems; organisational development of key institutions; protecting non-salary and development budget allocations); 2) access and facilities (provision of stipends for girls; developing the capacity of Parent Teacher Cooperations; developing low-cost private sector; developing the Elementary Education Foundation to provide secondchance education for children and training for women); and 3) quality and learning outcomes (improving students learning outcomes; improving school performance; improving teacher management; curriculum innovation and implementation). The fully variable tranches for the EU budget support have been designed so as to ensure the specific EU focus on quality. Out of three tranches of EUR 9 million and one tranche of EUR 8 million, EUR 7 million will be disbursed if 8 out of the 12 KPIs are met (which is the same requirement for the disbursement of DfID/AusAID tranches) and an additional EUR 2 or 1 million, respectively, would be released only if among the 8 indicators that are met, at least 2 are indicators on quality and learning outcomes. Policy dialogue: The EU's policy dialogue with the Government of Khyber Pakhtunkhwa and other stakeholders will address the challenges and progress made in the education sector but will be primarily focussed on issues of quality based on evidence generated through the technical assistance and capacity development activities under the complementary support. Various mechanisms for policy dialogue will be explored including regular bilateral discussions with the E&SE department / Government of KP, donor meetings, joint reviews and so on. The EU will partner DfID, AusAID and the Government of KP in the regular Roadmap stock-taking reviews. This approach focuses on high level political dialogue at 2- monthly stocktaking meetings and involves presenting progress in the sector using data collected on a regular basis by an independent monitoring unit (currently being contracted by the Education department) focussing on 4 main indicators for progress district by district: student participation; teacher presence; district administration visits (% of schools visited); and availability and functioning of facilities (% functioning electricity, drinking water, toilet, and boundary walls). Participating in this forum provides an opportunity for the EU to conduct high level political and policy dialogue, but it should be acknowledged that these review meetings are currently very much DfID-managed and led and often provide very limited opportunity for the EU to influence its agenda. Therefore, the Delegation will work specifically on engaging with DfID and other Development Partners, bilaterally and in joint donor meetings, to ensure that quality is brought more to the centre of the policy dialogue Complementary support Complementary support will focus on improving the quality of education through activities related to the school effectiveness approach and will build on successful pilot projects like GIZ s school effectiveness framework, in-service teacher training and supervision project, as well as other initiatives related to the capacity building of parent - teacher committees and the implementation of the new curriculum. Services will be procured to provide technical assistance to the Government of KP to build its capacity to manage holistic sectoral reform - 8

9 through adopting a school effectiveness approach initially in a selected number of districts with the aim to gradually expand across the province Donor coordination For the next 3 to 5 years, development partners (including DfID, USAID, CIDA, Netherlands, GiZ, EU, AusAID and Norway) will continue to provide huge resources to the education sector in KP. The ESP is the main instrument for E&SE sector and donor coordination. In 2009, a number of DPs supported the education sector by signing a Memorandum of Understanding (MOU). However, currently a perception exists that there is a lack of effective donor coordination and harmonization despite a common interest to support the ESP. The Capacity Development Strategy (CDS) provides for a coordinated approach to technical assistance and capacity building among the key stakeholders and the EU, AusAID, Germany and the Netherlands, through GIZ, implement capacity building interventions within this framework. The weak capacities and resource base of the main stakeholders (ESRU, district offices, and PTCs at the school level) is further strained through a lack of a harmonised approach by the DPs to the Government of KP's CDS. Donors use the CDS as a reference document, but have not yet entered into joint planning, joint reviewing or pooled funding of TA / capacity building interventions. The Government of KP could remedy this through stronger leadership in donor coordination and through adopting the school effectiveness approach. The proposed KP-ESPSP is also a strong step in this direction. In order to further strengthen donor coordination and harmonisation, the EU is agreeing with the Government of KP (through an exchange of letters) that the Development Linked Indicators/triggers for disbursement of its 4 th and final SBS tranche under the KP-ESRP will be the same key performance indicators as in the DfID/AusAID policy framework, and which will be assessed/reviewed jointly (Government of KP, DfID, AusAID, and the EU). This alignment between DfID, AusAID and EU means for the first time that probably at least over half the assistance to the sector is fully coordinated. Government of KP has recently re-engaged in donor coordination and indicated its readiness to take the lead. Donors, including the EU, are pursuing the Education Department to initiate a joint policy framework and a joint annual review mechanism Stakeholders The main stakeholders of the EU support to the ESP will be the teaching and other staff, parent-teacher committees, parents and the wider communities at school level, the district education management staff, the Education and Secondary Education Department at provincial level as well as the Finance and Planning & Development Departments of the Government of Khyber Pakhtunkhwa. Non-state actors and civil society will be involved in capacity building initiatives, programme reviews and awareness building Conclusion on the balance between risks and expected benefits/results The EU support will be aligned with the support of the two main donors to the ESP as well as building on ongoing initiatives. This will not only help improve effective and efficient implementation, but underpin also the expectation that joint donor support and messaging will help strengthen and sustain the Government of KP s commitment towards the implementation of the ESP and encourage them to take the lead in donor coordination. The experience of DfID indicates that the linking of specific performance indicators, emphasising specific components of the ESP to the disbursement of funds, offers maximum returns and has the potential to transform the sector. Non-intervention in terms of not using budget support as an implementation modality constrains the EU from directly working with and through the Government, which for the proposed programme for education is essential. Contributing to - 9

10 bringing back the State to deliver better services is considered essential in particular from a peace-building and stabilisation point of view. 4. IMPLEMENTATION ISSUES 4.1. Financing agreement In order to implement this action, it is foreseen to conclude a financing agreement with the partner country, referred to in Article 184(2)(b) of the Financial Regulation Indicative operational implementation period The indicative operational implementation period of this action, during which the activities described in sections 3.4. and 4.4. will be carried out, is 48 months, subject to modifications to be agreed by the responsible authorising officer in the relevant agreements Criteria and indicative schedule of disbursement of budget support The general conditions for disbursement of all tranches are as follows: i. Satisfactory progress in the implementation of the sector policy and strategy. Indicative sources of verification: Roadmap stock-taking data, progress reports by Government of KP on implementation of the education sector plan and reforms, including budget expenditure reviews, joint (annual) review reports, documents and surveys on progress towards meeting key performance indicators identified in joint policy matrix (DfID/AusAID/EU), progress reports on procurement reforms, TPV findings, etc. ii. Satisfactory progress in the maintenance of a stability-oriented macroeconomic policy. Indicative sources of verification: Information provided by Government of KP, economic reports by Government of Pakistan and State Bank of Pakistan as well as other international financing institutions like WB, ADB and IMF (including IMF programmes in the country and Article IV Consultations). iii. Satisfactory progress in the implementation of its programme to improve PFM. Indicative sources of verification: Information and reports provided by the Government of KP and other public institutions (Parliament, Auditor General of Pakistan, Controller General of Accounts, provincial institutions). Reports published by other donors and international or national organisations on PFM, including assessments like PEFA and Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC) procurement assessments. iv. Transparency and Oversight of the Budget. Indicative sources of verification: Publication of the budget. The specific conditions for variable tranches will be based on the indicators laid out in the DfID/AusAID policy matrix (see annex 1). There will be one variable tranche disbursement each year of the programme (total of 4 tranches), to be disbursed early in the financial year of the Government of KP 12 based on progress made against the indicators for the previous financial year. Out of three tranches of EUR 9 million and one tranche of EUR 8 million, EUR 7 million will be disbursed if 8 out of the 12 KPIs are met (which is the same requirement for the disbursement of DfID/AusAID tranches) and an additional EUR 2 or 1 million, respectively, would be released only if among the 8 indicators that are met, at least 2 are indicators on quality and learning outcomes. 12 GoKP FY is July-June. - 10

11 The indicative schedule of disbursements is summarised in the table below (all figures in EUR millions) based on fiscal year (FY) of the partner country. Country FY Year 1: FY 2014/15 Year 2: FY 2015/16 Year 3: FY 2016/17 Year 4: FY 2017/18 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Variable tranche 9M 9M 9M 8M Total 9M 9M 9M 8M 4.4. Details on complementary support Procurement (direct centralised management) The focus of the complementary EU support will be on improving the quality of education through activities related to the school effectiveness approach with the aim of supporting and systematizing the government and donor's previous and current interventions around school effectiveness and more effectively link reforms with existing experience and capacity. Subject in generic terms, if possible Type (works, supplies, services) Indicative number of contracts Indicative trimester of launch of the procedure Technical assistance in selected districts to build the Government of KP's capacity to manage holistic sectoral reform through adopting a school effectiveness approach Services 1 First quarter 2014 Monitoring (including TPVs) Services 3 3 rd quarter 2014, 2 nd quarter 2015 and 2 nd quarter 2016 Evaluation and audit Services 3 2 nd quarter 2016 and 2 nd quarter 2018 Communication and visibility Services 2 First quarter Scope of geographical eligibility for procurement Subject to the following, the geographical eligibility in terms of place of establishment for participating in procurement procedures and in terms of origin of supplies and materials purchased as established in the basic act shall apply. The responsible authorising officer may extend the geographical eligibility in accordance with Article 31(8) of the basic act DCI on the basis of the unavailability of products and services in the markets of the countries concerned, for reasons of extreme urgency, or if the eligibility rules would make the realization of this action impossible or exceedingly difficult Indicative budget Module Amount in EUR Third Party contribution Budget support: Sector Reform Contract NA Complementary Support: procurement (direct centralised) NA Monitoring (including TPVs) NA - 11

12 Evaluation and audit NA Communication and visibility NA Totals Performance monitoring There is no system per se for performance monitoring within the sector. However, there are a number of monitoring activities which take place either periodically or as part of a subprogramme. Development partners are pushing for an agreed joint review mechanism with a joint performance framework and the EU is furthering this endeavour by adopting the DfID/AusAID policy matrix for the final tranche of EU SBS under the KP-ESRP and will jointly assess / review performance with the Government of KP, DfID and AusAID against key performance indicators. This will be continued under the KP-ESPSP. DfID s Roadmap approach is a political tool overlying the Education reform programme to stimulate political will for change. As mentioned in section 3.4.1, it is a performance monitoring instrument that focuses on high level political dialogue at 2-monthly stocktaking review meetings with the Chief Minister of the province led by the UK's Special Representative for Education. These meetings enable (often sensitive) discussions to take place and allows for regular course correction. The EU has since March 2013 participated in the stock-taking meetings in KP taking place every two months and will continue to do so under the KP-ESPSP. Independent consultants recruited directly by the Commission (or the responsible body to which the monitoring task has been delegated) on specifically established terms of reference will carry out external monitoring and ROM missions as well as joining joint reviews and conducting TPVs as required Evaluation and audit External evaluations and audits will be carried out by independent consultants recruited directly by the Commission in accordance with EU rules and procedures based on specifically established terms of reference. Joint evaluations with other donors and third party validations of various programme sub-components are foreseen. Government of Khyber Pakhtunkhwa will be responsible to settle Auditor General of Pakistan s audit observations (audit paras) through the Departmental Accounts Committee Communication and visibility The EU will ensure visibility through: i) engagement with government, donors, media and other partners in the context of policy dialogue and aid effectiveness, as well as ii) other means such as the Delegation s website. The Communication and Visibility Manual for EU External Actions will be applied by the programme beneficiary. It is proposed that the Government of KP convenes a formal high-level annual review of the macro-economic, fiscal and PFM situation in the second quarter of FY 2013/14 before the programme is implemented. This will ensure that discussions between the joint donors and Government take place at the appropriate level and promote high visibility of the programme. Communication and visibility activities will be coordinated by the E&SED. - 12

13 ANNEX II of the Commission Decision on the Annual Action Programme 2013 in favour of Pakistan Action Fiche for Citizens Justice and Peace Programme in Khyber Pakhtunkhwa 1. IDENTIFICATION Title/Number Citizens Justice and Peace Programme in Khyber Pakhtunkhwa CRIS number: DCI-ASIE/2013/ Total cost Total estimated cost: EUR 14,000,000 Total amount of EU budget contribution: EUR 14,000,000 Aid method / Method of implementation DAC-code Project Approach Direct centralised management; procurement of services Joint management with United Nations Development Programme Sector Security System Management and Reform Legal and Judicial Development 2. RATIONALE AND CONTEXT 2.1. Summary of the action and its objectives The overall objective of this project is to contribute to strengthening Khyber Pakhtunkhwa (KP) state responsiveness to citizens' security and justice needs and restoring trust between KP citizens and the state. It will do so by strengthening KP security governance and organizational structure through the Home and Police Departments management and policy reform processes and by developing and strengthening the performance of existing mechanisms for police accountability and police-community engagement and the delivery of justice Context Country context Economic and social situation and poverty analysis For several years in a row Pakistan s economy shows an annual low GDP-growth of around 3.5%, a relatively high population growth of 1.8% and almost double-digit consumer price inflation. The depletion of foreign reserves and the large fiscal deficit weaken the economy. The human development outlook is also bleak. Pakistan has the second highest Multidimensional Poverty Index 13 (MPI) value in South Asia with 49% of the population living in multidimensional poverty, while Pakistan's rank on the Human Development Index remains in the lower tier, although its ranking has improved from 165 to 146 since Wealth distribution in Pakistan is highly uneven, with the bottom 10% of the population 13 Human Development Report

14 earning only 4.1% of national income. 14 Other human development indicators, especially those for women, notably in education, fall significantly below those of countries with comparable levels of per-capita income. The economy of KP has long been constrained by chronic factors such as geographical inaccessibility, limited investment in human capital (especially women), controversial and disputed frontiers and a policy environment that is not conducive to private sector investment. Pakistan s role in the "War on Terror" has had important consequences for economic and social indicators. 15 The explosion of Pakistan's law enforcement budget meant shaving off resources from other areas around the country, in particular in the Federally Administered Tribal Areas (FATA) and KP. The social impact of Pakistan's involvement is evident in the high levels of unemployment in affected areas, while displacement and impoverishment have depleted the social fabric of the country. Maintaining adequate spending levels for effective peace building under the new Government and its austerity drive will be challenging. The population of KP is around 25.3 million, mainly ethnic Pashtuns. With 30% of the male population between the ages of 15 and 29 years 16 and precious few employment opportunities vulnerability to militant recruitment, or simply criminal involvement, is high, requiring urgent economic and social solutions National and provincial development policies For the first time in Pakistan s history, one democratically elected Government has succeeded another, despite severe insecurity as well as acute economic and energy crises, deep social inequalities, corruption, and human rights violations. Democratic reforms initiated by the previous legislature are being deepened. In particular, devolution as enacted in 2010 by the 18 th Constitutional Amendment has received further impetus through a substantial increase in federal budgetary allocations for the provinces 17. At federal level, the previous Government had introduced a major redirection of public sector planning and policy-making with the 2011 Framework for Economic Growth 18, which focused on reforming governance, improving service delivery and promoting market openness but failed to provide a comprehensive policy to address Pakistan s insecurity and social fractures. Measures introduced over decades to address corruption and lack of accountability are ineffective 19 and corruption indicators remain high 20, particularly in the police. The new Government is formulating a development strategy that ticks all the boxes in terms of economic and democratic good governance. Yet it is to be seen if this policy will address deeper issues that destabilise Pakistan, including corruption, which it has pledged to root out. In KP, where militants exploited decade long frustrations resulting from weak governance, corruption and wide ranging socio-economic deficits, the previous provincial Government responded strongly in terms of policy development, but lagged behind in their implementation. Since 2008, an extensive package of development frameworks has been formulated. Policy priorities set out in the Comprehensive Development Strategy (CDS), the 14 And the top 10% earning 27.6%. WEALTH.html 15 Pakistan Poverty Reduction Strategy Paper II, International Monetary Foundation Country Paper 10/183, June 2010, last accessed 13/06/ KP Comprehensive Development Strategy, 17 The Budget in Brief has a 20.5% increase between revised estimated budget and estimated budget Pakistan is party to the Anti-Corruption Convention since 2007, has adopted several anti-corruption laws and policies and established a National Accountability Bureau (NAB). However, NAB is a dysfunctional institution Transparency international corruption perception index ranks Pakistan 139 out of 176, while the 2011 World Bank indicator for rule of law ranks Pakistan on and

15 Malakand Comprehensive Stabilisation and Socio-Economic Development Strategy and the Post Crisis Needs Assessment (PCNA) Peace Building Strategy for Khyber Pakhtunkhwa and FATA identify these priorities: 1) improved governance, public accountability and public finance management; 2) security and rule of law; and 3) restoration of trust between citizens and the state and community participation in delivery of services. In response to the first priority, in 2011 the KP Government, with Department for International Development's support, developed a Public Finance Management reform framework that includes Output Based Budgets (OBBs) and a Monitoring and Evaluation Framework for Integrated Policy Planning and Budget Process, whose main goal is to effectively rationalise and monitor spending according to development policy priorities. The OBB exercise has been applied to all provincial departments, each one generating its own indicators based on its policies and plans. However, those of the Home and Police Departments are based on poorly formulated and prioritised development plans and lack longterm vision for institutional and professional development The new Government is expected to continue using and improving some of these policies and budgetary instruments, such as result-based budgets. KP leading party Pakistan Tehreek-e- Insaf (PTI) has emphasised its intention to decentralise governance, empower communities to promote economic activity and to pursue non-political redistribution of public funds and has announced its intention to tackle corruption, abuse, politicisation and inefficiency of police stations at community level. PTI also aims to reform the civil service by encouraging functional specialisation. This is particularly relevant in the context of improving police effectiveness, as is evident below Sector context: policies and challenges Pakistan's insecurity and weak rule of law is exacerbated by a dysfunctional law enforcement and justice system. Laws governing criminal and civil justice mostly date from the colonial era and are applied erratically. Legal amendments have resulted in confusion, while attempts at policy reforms did not produce the intended results. The military regime introduced the Police Order 2002 to professionalise the Police force and transform it into a "Police Service" accountable to the public and under democratic control. Despite subsequent diluting amendments and only partial implementation, in September 2011 the Supreme Court declared the original version of Police Order as federal law. Meanwhile, policing and public order were devolved to the provinces. Since 2009 a strong impulse to reform has come from the judiciary. The National Judicial Policy Making Committee (NJPMC) has produced an annually reviewed National Judicial Policy. Important measures include use of Alternative Dispute Resolution (ADR) and the focus on human rights and gender equality. The independence of the judiciary has improved in the last four years, allowing it to provide effective checks and balances on the executive, although it remains hampered by poor resources, especially at district and sub-district level, and the absence of protection mechanisms in an environment of fear and targeted killings. On the ground, to counter rising militancy, the size of KP security forces has been vastly increased over the last decade and between financial years and KP public spending on law and order increased more than fivefold 21. However, the expansion of financial and human resources has not delivered increased security. In fact, the focus on countering terrorism has diverted resources from fighting ordinary crime and protecting citizens and has damaged community-police relations. 21 KP Police strength counts police officers and 9375 special counter terrorism officers. KP Government White Paper ;