A Roadmap for Reform – Strengthening Pakistan’s Governance

This report highlights the required reform for Pakistan to become a resilient upper middle-income nation through better governance in the years to come.

To achieve this, (with emphasis on governance and the mismanagement of successive administrations) this report highlights the following:

  • Devolution and the 18th
  • Civil Service Reforms
  • Reforming State Owned Enterprises (corporate governance)
  • Enhancing Investment

Collectively, the aforementioned are the areas this research will focus on to offer policy-makers actionable steps for a more vibrant, fiscally sound, institutionally stable Pakistan which gets its house in order and its economy in shape. – Author

 

Introduction

In March 1948, Quaid-i-Azam established a standard of renewed excellence for civil servants and government officials, and in one fell swoop elevated the quality of public service and public sector governance in Pakistan. The youthful democracy had hardly secured independence, however, with Quaid’s unmatched vision, the zeitgeist of the moment mandated a renewed mission: “unity, faith, and discipline”. This seven-decade commitment and the nation`s resilient spirit is more relevant now than ever before, and must further guide Pakistan’s aspiration to the status of an upper middle-income frontier market as the years unfold.

Less developing countries, across our planet, exemplified progress under much more tenuous circumstances than Pakistan. From Singapore and Malaysia to Rwanda, South Africa, Japan, and Vietnam— evolving nations have had to master comprehensive economic, geographic, and demographic hurdles, and transcend crippling conflict.

Today, the above markets have beckoned the spirit of nationhood, renovated their governance structures, and are strategically perched to transform most shortcomings into ingredients for beneficial innovation.

Singapore, under the ablest velvet glove and the iron fist of Lee Kuan Yew, has become a growth center¹, a financial powerhouse, a magnet for cryptocurrency, and an inspirational shadow of its ominous start. Rwanda, under the leadership of Paul Kagame, is waving goodbye to its ominous history of genocide and sectarian strife primarily because of an emphasis on an investment-friendly developmental state model. Nuclear-struck Japan and war-ravaged Vietnam rose like a phoenix from the ashes and embraced development with quality and an ‘economy first’ mandate. In all these nations, governance and institutional evolution were key. If these countries can achieve all this, despite and against all odds, so too can Pakistan.

Progressive Pathways for Pakistan

None can deny the economic, financial, and political mayhem afflicting Pakistan. It has caused unprecedented political instability and polarization in an election year² with democracy on the precipice. Yet, the nation’s decision-makers seem insular and primarily focused on political point-scoring and optics rather than making tough decisions to rein in an economy at the brink of default.
Since Pakistan’s economy is fraught with debt and volatility, and the political top brass is focused on the forthcoming elections ³, it is time to review the country’s administrative and governance structures to recommend actionable initiatives in the hope that the incoming government can leverage them to rebuild confidence of domestic markets and foreign investors and restore the nation’s growth trajectory.

If Pakistan aspires to enhance its stature and standing—nationally, regionally and globally—the nation has to concentrate on improving its governance policies, or the road ahead will be excruciatingly long and winding.

To harness swift institutional transformation, Pakistan must circumnavigate some rigid barriers. Policymakers would have to deal with a bloated public sector workforce including many untrained staff in lower cadres, especially at State Owned Enterprises (SOE) which are bleeding an economy already on the ventilator. Furthermore, Pakistan also has to revamp the energy sector, modernize its civil service, broaden revenue and tax collection, etc. to widen the state’s capacity to seamlessly finance and scale its programs across multiple sectors and markets.

The elite in Pakistan disproportionately influence public policy outcomes with their lobbying, leading to unfavorable outcomes for the masses. The elite capture⁴ by the one percent (ashraafiya) who control a disproportionate amount of influence and wealth and reign over various segments of the economy and society are impeding the state and economy’s ability to perform basic functions. The top 1% suffocates the remaining 99%. Miftah Ismail, referred to the elite capture as the ‘One Per Cent Republic’⁵ that stifles governance as it favors the status quo which benefits nobody but itself.

There are three ways of identifying elites: positional, identified by virtue of official or formal position; decisional, identified by possessing authority to take and influence decisions; and reputational, identified by recognition of elite membership by other elites and qualified observers.⁶ Analysts like Matthew McCartney and S Akbar Zaidi, in their book, New Perspectives on Pakistan’s Political Economy (2019), describe elites as “exclusive members who decide (and capture) the fate of nation”.
This elite capture deeply weakens the nations’ bottom-up decentralized decision-making, welfare enhancing policy decisions, tackling the problem of tax evasion, reining in loss-making state-owned enterprises and improving public sector performance through civil service reforms.

Elite capture is especially debilitating given the rising poverty and a potential erasure of the middle class in Pakistan. A society is (primarily) judged by its demography and economy. Pakistan’s population is growing at speeds untenable for an economy already in tatters.

As of 2023, the World Bank forecasts that poverty is expected to reach an alarming 37.2 percent ($3.65 /day). The rate is slightly below the last observed measure in 2018, which stood at a troubling 39.8 percent; however, when accounting for population growth, there are almost 3 million more poor people in the country than in 2018.

The World quantified the poverty impact of the devastating 2022 floods in Pakistan. Nine million people in Pakistan were pushed into poverty due to the cataclysmic floods. The intensity of poverty increased, with about seven million more citizens living more than 20% below the poverty line. Flood-hit districts were already poorer than the national average.

To nip elitist capture and the resulting state sabotage in the bud, Pakistan must tackle the state capture by clamping down on patronage interests and networks. In-efficacious incentives and subsidies for industrial stakeholders and the lack of enforcement in tax collection with an inability by the state to marshal difficult but necessary reforms is a product of state capture.

Collectively, meaningful reform and restructuring must kickstart to enhance institutional value, strengthen governance, support the commercial and investment sectors and revamp accountability.

DEVOLUTION AND THE 18TH AMENDMENT

Real Status of Devolution in Pakistan

Federalism has been the bedrock underlying the genesis of Pakistan. Though it seems to be implemented in letter, devolution has not been executed in spirit. The state has often been ill receptive to the requests of the provinces and has only glued together the federating units via a fragile (often ignored and overlooked) legal structure.

Pakistan’s unique ethnic-federal position, with its socio-cultural diversity, proves to be a huge challenge to the nation’s socio-political and geographical unity and integration. For an emerging market like Pakistan ‘national integration’ is a centripetal social force that develops a sense of oneness amongst different individuals.

One of the most inflammatory debates remains the distribution of political power and economic resources among federal units. East-west wing quarrels, bouts of radical extremism internecine civil wars, political turbulence in various provinces throughout history and control from the center are part and parcel of a tumultuous journey since 1947.

Historically, this issue and the ensuing anguish equipped numerous regional and political groups in Pakistan with an excuse to intensely jostle for power and capture the narrative. The changeover from military rule to democracy in 2008 greased the wheels for announcing the Seventh National Finance Commission Award followed by the ratification of the 18th Amendment to the  Constitution. These developments had a key impact for governance in Pakistan. Financial powers of the provinces grew, catalyzing institutional changes. Except for the Constitution of 1962, the other two Constitutions furnished a federal form of government in theory, but in practice, a centralized form of government triumphed in the country. The Eighteenth Amendment enhanced the legislative authority of provincial assemblies on various policy matters, including taxation. With authority over the financial, administrative and legislative domains, the center has kept the provinces disgruntled, bringing about polarization, ethno-nationalism and sectarian strife. The federal government has not been able to mitigate the profound income inequalities that flow from regional discrepancies of economic advance. A sentiment of social scarcity and denial has been given birth to amongst the smaller provinces.

The commitments rendered under the 18th Amendment12 were not restricted to a decentralization of political, administrative, and economic decision-making, but also to help provinces with capacity building to leverage opportunities which sprung from additional funding.

There are currently no structured and systematic methods which encourage the provinces to generate revenue13. However, this self-financing capacity must be built by the provinces, districts and local government so that local governments are not fully reliant on the federal government.
Concomitantly, provinces are financially hamstrung and administratively dependent on the center for the long term. The federal government issues funds for rural development, roads, allocations and compliance of SDGs, and welfare initiatives like Ehsaas/ Benazir Income Support Program (BISP). Responsibility and resources must be transparently devolved to each tier of government for spending efficiency and income raising opportunities at the local level.

The huge malaise for Pakistan is that it was not allowed to become an actual de facto federation by factions backing a very centralized state set-up. The Federal government kept on paying a deaf ear to the requirements and political sensibilities of citizens across provinces, while the provinces felt that the federal government did not tolerate dissent and wanted to rule the province with an iron fist rather than a velvet glove.

Divergence between the center and the provinces nurtured deep-seated obstacles in addressing numerous economic and political predicaments. At this crucial juncture in Pakistan’s ongoing economic tumult, there is yet again a huge distinction between the center and the provinces, with each blaming the other for mishandling resources and funding. Since provinces vary in economic funding (Punjab tends to capture the lion’s share) advancement towards decentralization of capacity building and service delivery at the provincial level is uneven. As per the federal budget for 2022-2023, Punjab receives the largest share of the federal funding, leaving a reciprocal amount to be distributed among the three remaining provinces. In the outgoing financial year, Punjab got the bulk of funding totaling Rs 1.74 trillion. Sindh’s portion was Rs. 873 billion, followed by Rs. 575 billion for Khyber Pakhtunkhwa (KP hereafter) and Rs 322 billion for Balochistan. A 2021 report by the Pakistan Institute of Development Economics (PIDE) on the State of Poverty in Pakistan, illustrates that though poverty has gradually reduced in Punjab, it has been volatile in the remaining three provinces. In Punjab, poverty stood at 16.3%, Sindh at 24.6%, KP at 27% and Balochistan at an alarming 40.7%, explaining a lot of the unrest faced by the restive province. Such inequality shows that, despite resource availability for provinces in lieu of the 18th Amendment, the disparities that have plagued this country since its genesis hauntingly persevere.

Pakistan has consistently, de facto, remained a centralized federation, with the federal government retaining broad powers to collect and disburse revenues. This leaves provinces with depleted and downgraded means for income generation. This implies that the provinces are permanently in dire need of financial succor. The federal government disburses this out of the excess funds collected at the center. This also erodes the capability of provinces to generate funds from promising indigenous sources.

Strengthening Decentralization and the 18th Amendment

Despite valid critique, the 18th amendment which brought about devolution was a landmark legislation in Pakistan’s 1973 Constitution, integrating the federating units and enhancing the state and federation. Shifting from a Presidential to a Parliamentary government set-up fortified the federation.

The 18th amendment offers a vigorous platform to magnify financial, administrative and political activities at the local milieu. However, the guarantee of the 18th amendment is only half fulfilled as federal to provincial devolution still has to be followed by provincial to local level decentralization. Also, some fine-tuning is required in the 18th amendment itself to live up to its full potential.
It is high time to strengthen local based entities via far-reaching trickle-down devolution to ensure mandatory service delivery and administrative responsibilities to uplift citizens, re-establishing their centrality in political discourse. Devolution also necessitates easing networking throughout provinces and districts, hence facilitating the shifting of resources and finances to all government levels. In addition, protracted trials like capacity challenges, ineffective performance management, uneven and discriminatory opportunities, and negligible political empowerment of local entities must be dealt with. Current institutional measures for result-oriented cooperation on policy design and progress at the federal and provincial levels are inadequate and underused.

Localizing the Sustainable Development Goals (SDGs) is also possible through devolution of subnational governments (SNGs). Empowering the Council of Common Interests, an organization including delegates from the federation and provinces would be a welcome development. Subject matter under the Council include water, construction of hydro-power projects and oil and gas.
Fortifying the Council of Common Interests and setting in motion the Inter-Provincial Coordination objective between the center and the provinces is essential to reap the rewards of devolution and assist in establishing a broad-based stakeholder-driven national consensus for thorough devolution and development.

Rethinking Devolution in Pakistan

A contrarian view espoused by certain economists reasons that the 18th amendment deepened and salted the economic wounds of Pakistan.

According to present financial arrangements the federal government retains 42.5% of the funding pie whereas provincial governments receive 57.5% of revenues from the federal consolidated fund. Therefore, the federal government has 42.5% of total revenues from which it has to service internal and external debts, keep up defence costs, cater to higher education and tech, handle government expenditures and the steep costs of pensions and salaries of the federal government employees and bear the losses of State Owned Enterprises (SOE). The new budget is around the corner, yet such insufficiency of funds at the federal level makes it very arduous for Pakistan to service its never ending debt.

As per the 2021-2022 budget, cumulative federal government expenses stood at Rs.7,523 billion, from which the government had to pay a staggering Rs.3,059 billion for mark-up on total debts. Interest payments were 40.6% of total federal expenditures17. From the remaining, Rs.1,370 billion (18.2%) is allocated to defence which, according to some analysts, cannot be lessened due to the geo-political
risks Pakistan bears.

The federal government, argue certain economists, does not have ample financial wherewithal to meet such costs from only 42.5 percent of total revenues and thus has to perennially borrow from internal and external sources like the IMF, whose onerous conditionalities enforce a bitter pill of austerity to citizens who are struggling to make ends meet. If Pakistan has to get economic independence, it must manage its expenditures from within the country through more efficient budgeting, public private partnerships, judicious privatisation and broad-based tax collection. The percentage of share distribution could be (temporarily) overhauled, yet Article 160 (3A) does not permit the lowering of provincial share, which is why provincial governments must be trained on entrepreneurial ways to economically generate income and self sustain.

Environmental Governance: Another structural challenge pertaining to environmental governance stares Pakistan in the face. In the 18th amendment, climate change matters were shifted to the provinces. While the National Disaster Management Authority (NDMA) is under the federal government. Climate change is an emergency at the national level that necessitates urgent national policy to lower the side-effects of a changing climate which Pakistan witnessed firsthand – from flash floods to monsoon rains. Similarly, the quantity of water gushing down from the Himalayan Mountains ebbed to its lowest point ever. No meaningful hands-on training has been given on climate change or disaster risk management from the federal to the provincial bodies. 2022’s scorching heatwaves and overwhelming floods are a stark reminder that climate change-induced disasters dramatically set back Pakistan’s development aspirations and its ability to lower poverty.

The World Bank’s Country Climate and Development Report (CCDR) confirmed that such unmitigated disasters spawned more than 1,700 deaths and displaced over eight million citizens. The crushing and costly damage to infrastructure, assets, crops, and livestock was also huge, with more than $30 billion in damages and economic losses. The World Bank reaffirmed that Pakistan requires fundamental changes in its development path and policies18, with heavy investments in people-centric climate resilience, that requires global support19.

On the one hand, there is water scarcity, on the other, deadly rains and floods claimed thousands of lives, abolished infrastructure including homes of the poor incurring damage to the agriculture sector. What was the state’s response? Blame games and finger-pointing. The provincial government pins the blame on the federal government while the federal government questions the provincial ability. More coordinated capacity building between federal and provincial units are urgently required to strengthen governance.

Health and Education: Domains such as health and education are devolved to provinces under the 18th amendment. However, there is a lack of harmony and accountability in these areas. UNICEF reports that amongst children aged 5-16, 22.8 million children are out of school, violating Article 25 (Universal right to education). ‘Ghost schools’ are on the rise where corrupt officials line their pockets while reporting non-existent schools to their cashrich donors. Better auditing (especially of cash trails in rural remote areas) and donations to provincial and local organizations is absent but long overdue. Donors can further enhance their audit trails and conditionalities linked to local government assistance programs. Children from less-developed areas are at a crippling disadvantage due to education funds being misappropriated. Children with better quality of education are also at a disadvantage when the ‘quota system’ is introduced for government jobs and scholarships at the cost of merit.

The health sector fares no better. When Covid-19 struck the nation, each province adopted conflicting policy options as health was under provincial auspices. Then World Health Organization posed tough questions which the then-government had to develop and execute to mitigate Covid-1920. After a lack of federal to local co-operation, military institutions stepped in and established the National Command and Operation Center (NCOC) under a federal government that coordinated with internal and external stakeholders. The NCOC could have regularly carried on training and resourcing provincial organizations. Such colossal mismanagement also occurred with polio (which only Pakistan and Afghanistan are afflicted by).

In KP and Punjab, patients receive health insurance via the Health Card in Sehat Sahulat Programe yet citizens from Sindh and Balochistan are deprived of this fundamental human right and government health facility.

Uneven Treatment of the Provinces: The KP government faced a huge financial fiasco as the coalition government withheld Rs. 60 billion in the account of Net Hydel Profit (NHP) and postponed the compensation of a whopping Rs. 30 billion for the recently merged districts vis-à-vis the 3% National Finance Commission (NFC21 hereafter) award.

KP province received only Rs. 8 billion out of Rs. 17 billion for tribal area development projects, and the KP government kept on paying Sehat Sahulat Card programme expenses in tribal areas from the provincial exchequer.

Since January 2023, Rs 233 billion overdue have not been paid to KP by the federal government, despite consistent formal requests and reminders. Up to Rs 20 billion are overdue from the previous year in multiple sectors in the newly merged districts which are still pending.

Rs. 25 billion in budgetary losses and Rs. 41 billion in development funds should have been disbursed for the current fiscal year (2022-2023), but only Rs. 5.5 billion has been issued. The provincial government spent 10 billion rupees from the provincial exchequer on the merged districts. It is the constitutional responsibility of the federal government to spend on the merged districts as long as the NFC Award has not been announced. Furthermore, the province’s NFC share is being held up and hindered with excuses of being paid later. KP has been bearing the brunt created by the federal government for financial flows to smaller provinces. Up to Rs 50 billion in development funds for newly merged districts were not released in one fell swoop. KP is paying operational expenditures and salaries from its own reserves to the newly merged districts. The budget of newly merged districts is less than the Rs 37 billion. Citizens of the recently merged districts have been left distressed owing to the slashing of budgets. The financial arrangements of the ex-FATA were not changed in the 25th amendment, even though its area and population were handed over to KP. The financing flow stayed with the federal center. The NFC23 Award has become infructuous. It lacks legal status. It should be revisited, and the newly merged districts have to be accommodated and updated in it. The promises made to ex-FATA during the merger can be fulfilled by better communication and co-ordination with the province. The NFC Award is still based on the 1998 Census, despite the 2017 Census, which is another jolt to smaller provinces, skewing official statistics against them.

After the cataclysmic floods of 2022, the federal government announced to disburse Rs 10 billion in funds to KP, yet not a single coin was paid. If such uneven treatment continues, aspirations for devolution would be gridlocked in a tenuous federation.

Recommended Devolution Initiatives

To transform devolution to its logical conclusion the forthcoming governance initiatives, with a decentralized and local governance focus,
must prioritize:

• A more frequent, efficient, transparent, and citizen-centered approach to governance.
• Promote peaceful, diverse, equitable and inclusive societies in alignment with Sustainable Development Goals (SDGs).
• Training and development of provincial and local bodies by the Skills Development Council, Business Incubation Centers (BIC) the Technical and Education Vocational24 Training (TVET) centers to boost decent local jobs and promote thousands of rural apprentices with hands-on training to ensure local stakeholders meet the demands of a swiftly evolving digital labour market.
• Climate change sensitization and renewable energy alternatives with full help from federal organizations, especially in the domains of social security, livelihood, health insurance to offer social safety for large numbers of districts, tehsils and units. Federal assistance for state and civil society initiatives to bolster basic education and health services, especially on the border with Afghanistan with an aim of fostering stability in a restive region.

Seamless communication across all tiers of government, better information-sharing, devolved health and education capacity building policies are sorely lacking across Pakistan`s decentralized network.

No word is the final verdict. No scheme is pitch perfect. The 18th amendment requires fine-tuning. Revisiting the 18th amendment with a view to reform is no sin. Policymakers must exhibit the maturity required to work on a more even, better balanced devolution where skill-sets and know-how trickle down rather than merely lucrative funding.

CIVIL SERVICE REFORMS

Modernizing the Civil Service – Reinventing Public Service

Since the emergence of Pakistan, consistent political crises and stumbling blocks in democracy have cemented the bureaucracy`s status as a stable and resilient pillar in the state machinery, stubbornly resistant to any reform made at its behest. Whilst being a robust pillar, the bureaucracy is also one of the root causes of the ills in the governance structure of Pakistan. Civil service reforms in Pakistan are a Herculean feat on which many have dug a grave for their career. Dr Ishrat Hussain was the exception to this rule. As former Advisor to the Prime Minister on Institutional Reforms, he discarded 71,000 redundant government jobs, stopped the intake of lateral entrants, reduced and streamlined government institutions from 400 to 334, aligned promotions to actual key performance indicators (KPIs) and ranked every officer’s performance on a bell curve ratings system (with the bottom 20% getting no salary increment and top 20% getting twice the increment). Such promising initiatives are
taking place at present. However, Dr Hussain’s ambitions were much more wide-ranging and the majority of his proposed initiatives for reform did not materialize. So there is ample scope for innovation and reform. The civil service is frozen in time and many of its limbs are dormant entities. The whole value chain of the civil service from induction and recruitment to training to performance evaluation, career progression and compensation, benefits and retirement merits streamlining. Such an ambitious feat requires a restructuring of the entire federal government. It is high time to introduce a specialist (technocratic) culture in the Civil Service rather than stick to the generalist approach whereby Jacks of all trades are hired to key ministries. For instance, the Pakistan Administrative Services (PAS since 2018 formerly known as DMG) which is the most powerful and sought after Ministry in Pakistan is still resourced by generalists. Senior most positions are given to them whereas a specialist culture manned by sector experts in finance, customs and income tax would be able to deliver more solid results. Dr. Ishrat’s reforms sound fantastic on paper yet have encountered defiant intransigence within the bureaucracy (too much change) along with scathing critique from the outside (too little change). The time is ripe to usher in generational reforms to an outdated red-tape burdened bureaucracy whose age-old traditions and attitudes have not changed much since the era of the British Raj. Be it corruption, red tapism, or irregularities in law enforcement, Pakistan`s bureaucracy comes under the glaring microscope of critique. The civil service should undertake rigorous automation and Business Process Re-engineering (BPR), which includes automatic, electronic tracking systems replacing physical files moving within different ministries so multiple-stakeholders keep a real-time progress track whereby everyone knows which ministry is sitting on what as well.

This level of transparency will reduce the opportunity to veil lethargy, malpractice and corruption.
Pakistan’s Ministry of Planning, Development & Special Initiatives (MPD & SI) shared a proposal for civil service reform with the Federal Secretaries for Establishment, Health and Education, the Cabinet Division Rector of the National School of Public Policy and Member Governance, Chief Governance. MPD & SI’s Ahsan Iqbal chaired the meeting where he recommendations included public sector improvements.

The specifics included an option of sitting the CSS exams in Urdu, making it bi-lingual, removing language as an obstacle to entry for talent. A minimum of sixteen years of education would be required for appearing in the CSS (at present it is 14 years). Dividing the CSS into three clusters: general, finance and economics, and information.

In addition, it was recommended that relevant officials (such as trade, commerce, diplomacy, engineering) should be at the helm of related ministries, departments and divisions as Secretary/Directors. Senior Leadership courses to enhance training and recruiting faculty members of the National School of Public Policy (NSPP) and other high-caliber training institutions via competitive process would attract high-caliber talent; better remuneration modalities will help retain them.

Other suggestions for enhancing the civil service included establishing a National University of Public Policy & Administration (NUPPA)—along the National Defence University format—introducing data sciences with an increased use of communication technologies for decision-making and citizen engagement and introducing training programs for staff grades 1-16.

Strengthening the Federal Public Service Commission (FPSC) by adding additional members, incubating digital platforms, and spearheading campaigns to lure civil servants from under-privileged groups, especially in remote areas was articulated. A heightened role for the Establishment Division with specialist HR Management, career progression and organizational development, the appointment of seasoned HR managers at major ministries along with annual performance agreements between the ministries and PM office were expressed.
The inculcation of a Citizen’s Charter as a modality for time sensitive public service delivery to the citizens of Islamabad along with the creation of a Capital Health Authority and Capital Education Authority in Islamabad was envisaged. Participants of the meeting have initially endorsed the recommendations. The committee constituted for addressing technical issues will finalize its findings.
There is still ample scope for overhaul. Much more can be streamlined in terms of governance and function of over 4 million civil servants in Pakistan: 1 million reside in the federal capital and 3 million are employed by provincial governments.

As per a statement issued by the ministry, Ahsan Iqbal30, during the meeting, stated that in lieu of the emerging digital revolution31 catalyzing citizen empowerment, the public sector must reinvent itself, to optimize quality service delivery. There is a broadening trust deficit between the state and the citizens owing to worsening standards of service delivery. Such trust deficits must be bridged. The public sector has to be nimble, agile and forward-thinking to counter this century’s manifold challenges.

The thorny issues in the bureaucracy of Pakistan are not in its function but in its formation32. Meaningful reforms suggested by others include a four-tier bureaucracy comprising of the All-Pakistan Services, Federal Services, Provincial Services, and District Services. The introducing of a specialized recruitment process, job security, increasing the ACR weightage for promotion, and augmenting the Compensation and Benefits (C & B) packages have also been suggested. The value of institutional execution must be enhanced to back the state’s governance initiatives and bring forth efficiency. This necessitates merit-based recruitment of skilled professionals with matching pay scales to attract and retain high-performance talent into the civil service.

The priority must be on benchmarking performance indicators. Reforming the civil services requires deep-seated strategic overhaul in the recruitment process and functions of the bureaucracy. The FPSC must conjure an updated contemporary syllabus that encourages creative lateral thinking whilst discouraging rote exam memorization.

The interview weightage in the CSS could be increased. This empowers the FPSC Commission to cherry-pick candidates with stellar leadership personalities required to deal with public issues.
After the amendment of the CSS Syllabus in 2016, the rote system has corrupted the core of the recruitment process. Now, only those applicants rise to the top who have bagged excellent marks in the written paper. Over-weightage to the written marks renders the applicant’s personality less relevant. Later on in their careers and in the services, such candidates have failed to deliver where it matters most: in the field.

The psychometric evaluation should also be given more weightage in deciding the final allocation of the candidate. In the function of bureaucracy, a major setback in its execution is understaffing. The overburdened bureaucrats33 are incapable of delivering efficient public services, which is discernible in Pakistan’s lacking quality of governance. Such understaffing is due to a technical reason. The FPSC undertakes the annual competitive exam on the recommendation of the Establishment Division. For recruitment of each candidate through the competitive exam, the Establishment Division pays Rs 18,000 to the FPSC. However, after the final recommendation of the allocated candidates, half of the qualified candidates are not given any seat, sending them home and unallocated. Despite the deficiency of officers, the state exchequer is ripped off its money.

The quota system must also be streamlined. In the 1973 Constitution, the provincial quota for recruitment in civil services was defined for four decades. This law lapsed in 2013. Currently, the quota34 system is being extended through a Statutory Regulatory Order (SRO) from the PM’s Office. Every year, half of the advertised seats go vacant despite the availability of persons qualified for the vacant seats. Technically, once the provincial seats get filled on merit, the empty quota seats could
be converted into open merit seats.

Without ushering tactical recruitment reform, the bureaucratic hierarchy remains deeply entrenched and non-amenable to change. The present stranglehold of a mighty bureaucracy will resist any step taken against it, bringing challenges for elected governments. Gradually, however, rethinking the civil services by bringing reforms at each stage, starting from the recruitment process, is required to make it more receptive and responsive to the public needs of a discerning 21st century citizenry.
New skills on effective implementation, monitoring and tracking, outcome based objectives, result based goals, citizen interfacing and client services have to be integrated into the civil service`s DNA to modernize and innovate the public sector.

Civil servants must provide citizen-friendly service delivery and leadership qualities to usher in service-oriented bureaucratic best practices which, over time, should be fully documented and codified. Reinforcing digital and technical skillsets of the public administration via modernization, forward-thinking and technology diffusion is imperative to upgrade and revamp the quality-of-service delivery and to turn the public sector into a growth driver (and even a profit center at times).

STATE OWNED ENTERPRISES

Reforming Pakistan’s SOEs

Now that the economy is on a ventilator and an IMF program has (momentarily) been put on brakes, it will be an even greater challenge to lure long-term, high-quality investors, perhaps even domestic ones. The federal government set up a Central Monitoring Unit (CMU) in the Finance Division to maintain an electronic database of the financial and operational performance of State Owned Enterprises (SOEs) under the proposed SOEs (Governance and Operations) Bill, 2021. The CMU36 will also keep tabs on (a) SOE statements of corporate intent; (b) business plans; (c) half-yearly and annual reports. Critics argue that despite the CMU mechanism there still lacks adequate oversight when it comes to SOEs. A policy perspective accessible to decision-makers is to take a principled resolve to get the government out of any business for which a competitive market exists. This would occur via privatisation and would yield a cost cutting of over Rs 1,000 billion per annum which our SOEs are hemorrhaging and would accompany economic efficiencies. The prospect of saving a trillion rupees annually would offer Pakistan key competitive advantages in a cut-throat global marketplace.

One only has to examine the privatized banks (Allied Bank, Muslim Commercial, Habib Credit & Exchange) or the growth of the telecom sector after the privatization of Pakistan Telecom Corporation Limited (PTCL) to verify this. Yet, this policy isn’t being opted for. Consecutive governments in Pakistan fail to appoint qualified experts on the SOE boards. Political imperatives, nepotism, and low board fee structures are the prime reasons for not luring in the most seasoned professionals. Any board is mandated to offer strategic direction to the entity, appoint proven CEOs and top management, green-light initiatives for driving the company`s growth, restructure if needed, and keep senior management answerable for their performance.

If the quality of the board is compromised so too will the bottomline results and profitability of the company. However, seldom has a truly top-quality board been allotted by the government. Exceptions exist, but they are exceptions rather than the rule. Another ill-fated reality is that rarely have the best in industry been elevated to the position of CEOs of SOEs. Even if the government transcends the contagious political compulsions and cronyism, the most seasoned practitioners are not seduced by the salaries offered to them.

Management Position (MP-1) scale offers a monthly salary of about Rs 900,000 and Special Professional Pay Scale (SPPS) Rs 1.6 million. All top-tier management cadre of SOEs should be given market-based compensation, with clear Key Performance Indicators (KPIs). Contrast these remunerations to those in competitor industries and in the private sector and one comprehends why top professionals are not heading such loss-making entities, which in most cases are much larger than their counterpart private-sector companies. The pressures on these CEO`s and top management from the political and bureaucratic bosses for unsavory favours and imminent fears of sanction from the National Accountability Bureau (NAB) is a huge disincentive. Another alternative to recruiting from the private sector is appointing management from the civil or military bureaucracy as CEOs. This has rarely ever produced desirable results as they are non-experts in that domain.

SOEs most often have to abide by the Public Procurement Regulatory Authority (PPRA) rules for all procurements of goods and services. This often leads to poor quality of procurement, with excessive time-lags. How are they expected to compete with organizations that can procure the best quality of goods and services from the open market at the most competitive cost, delivered at the earliest moment?38 Such restrictions should be removed for the SOEs so their focal point remains their yearly financial performance. Procurement policy would be better developed by the boards, with such boards remaining accountable to the government for the financial results of the companies.

Privatizing SOEs will facilitate corporate governance in many ways. The process lays the groundwork for sectoral ecosystem overhaul for a decentralized deregulated market. Alterations in the regulatory systems, for instance relaxed licensing and tariff regulations, could not only reduce the barriers to market entry, but also attract foreign investors as easier licensing and lower tariffs improve Pakistan’s ranking in the Ease of Doing Business Index (EOBI). Pakistan is ranked 108 among 190 economies in the latest ease of doing business World Bank annual ratings. The rank of Pakistan improved to 108 in 2019 from 136 in 2018. Source: World Bank

Regulatory governance reform for entities like National Electric Power Regulatory Authority (NEPRA), Oil and Gas Regulatory Authority (OGRA) the Pakistan Telecommunications Authority (PTA) and Pakistan Engineering Council (PEC) is a welcome prospect that can meaningfully improve entire economic sectors, making them more market accessible, competitive and dynamic.
Privatisation prospects will also catalyze corporate governance restructuring of the SOEs via legislation and implementation of pre-privatization restructuring. To empower the Privatisation Commission (PC) to initiate an instrumental role, the Privatisation CommissionOrdinance postulates that the commission’s directions to any enterprise or management of an SOE on the list of privatizations are legally binding on the SOEs.

Another key stakeholder is the Parliament. The parliament’s responsibility crucially shapes the privatisation trajectory. Whenever a consequential effort is undertaken at privatizing a non-performing, nonprofitable SOE, parliamentary committees swiftly deliberate the issue under the guise of securing the country`s assets from being sold for pennies and to safeguard employees. The parliament`s role in derailing the privatization of Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) is well documented since 2015. SOE infrastructure companies (PIA, Railways, National Highway Authority, Post Office) showed net losses of Rs. 267 billion and power companies’ losses of Rs 117 billion in 2022.

Their lobbying and last-minute filibusters ruin promising prospects. Legislators must let ago of an antiquated notion that SOE’s ‘are too big to fail’.

The parliament has to decide whether SOEs are national assets or recruitment offices to staff with cronies, and whether a debt-saddled government is able to keep throwing money at inefficient SOEs forever. Throwing money at problems is, at best, a short-term fix, especially when your government (from April 2023 to June 2026) has to repay $77.5 billion in external debt alone. For a $350 billion economy, this is an excruciatingly hefty burden42.

Most employees in any given SOE are usually untrained, not qualified and non-essential, who have usually been recruited on the basis of political favouritism. It is high time that such employees be rigorously trained or ‘upskilled’43 for their smooth transition into other organizations (or even industry) once they are ‘let go’. Employees are still chained to a low-level skills trap,44 affecting competitiveness.

Making them market-ready, digitally savvy and vocationally sound helps them reintegrate into today`s extremely demanding cut-throat job market. The Privatisation Commission Ordinance, 2000 allows multiple modalities to structure privatisation deals. Section 25 of the ordinance permits for: (a) sale of assets and business; (b) sale of shares through public auction or tender; (c) public offering of shares through a stock exchange; (d) management or employee buyouts by management or employees of a state owned enterprise; and (e) lease, management or concession contracts, etc45.

If the government and parliament are of the view that employees are more essential than the company itself, the PC can be directed to put together a transaction structure to enable an employees’ buyout as a first option, and if that does not transpire only then to opt for alternative modalities. However, merrily carrying on with huge losses is no longer a policy option. Privatizing for the sake of generating money is not (always) the best reason for selling off state assets. Yet, augmenting profitability of the existing performing companies while stopping the bleeding of those in the red is sound fiscal reasoning. Financial and social gains would be immense if privatization is conducted in a judicious, fair and accountable manner. A nation mired in debt and steeped in financial quicksand can ill-afford to obstruct urgent remedial rectification, such as privatizing loss-making behemoths like Pakistan Steel Mills (PSM), PIA, the five Electricity Distribution Companies (DISCOs) whose privatization has been deliberated for over 30 years, amongst multiple others. However, the SOE decay will stop only if the government, once and for all, makes up its mind that it won’t be in the business of conducting business in every field for which a competitive market exists. There will honestly be hardly any difference in the life of an ordinary citizen if the government doesn’t control PTV, Radio Pakistan,PIA, PSM, make cement, cornflakes and other commodities. Would the insurance industry not be better off with the privatization of State Life Insurance Corporation, and many more SOEs like it? Wouldn’t the depth of the stock market improve if it were done? Shouldn’t the money saved from the SOE losses be used for debt retirement and poverty mitigation, especially of the 55 million citizens or 24.4% Pakistanis who live Below the Poverty Line (BPL)46.

The Privatisation Commission (PC) Ordinance, 2000 stipulates that the PC is the only federal government organization responsible for privatizing government assets. Yet it is frequently observed that unhealthy intrusion takes place by multiple ministries with contradicting agendas and covert lobbyists. The finger is often (wrongly) pointed at the PC. Not only do ministries intrude and derail privatisation but often lack the needed transaction expertise. This is not just legally dubious but yields substandard results. SOEs are deemed as ministerial fiefdoms to extract pounds of financial flesh, hence, it is difficult to let go of them.

The PC’s board is handcuffed by the appointment of regular government officials, mostly without sector specialization or corporate competence. The PC must be shepherded by a minister with a reputable track-record in finance or economics, and a strong and senior professional, who can cut across the anti-privatization bias and mobilize resilient political capital to back privatization initiatives. The PC presently solely coordinates the recruitment of Financial Advisory Consultants, who conduct due diligence on an SOE and make suggestions pertaining to the privatization deal-making sequence and structure, and market the sale, while the relevant ministries call the tactical and operational shots. They maintain the files and carry ‘the stick and the carrot’ for SOE management. This leads to SOEs adhering to the ministries’ directives instead of the Privatisation Commission’s47.
It is suggested that once an SOE is positioned on the privatization programme, all pertinent files and ministry personnel be repositioned under the purview of the commission. Only with the aforementioned suggestions will the PC be empowered to pursue a truly instrumental role.

Public Private Partnerships: The government set up a public-private authority, by enacting the Public Private Partnership Authority (Amendment) Act, 2021 “to create an enabling environment for public private partnership by streamlining the project approval process and providing an effective framework for policy guidelines”. Public private partnerships (PPP)48 can modernize SOE`s and allow broader stakeholders to jointly partake in economic development. The PPP Act has been used in Pakistan to outsource airports.

The PPP Act is an understandable initiative as it basically aims at facilitating green-field projects (where no construction has taken place, project teams begin from scratch, initiating new projects and services) while the PC deals with brown-field projects (where land has previously been built on, where projects are ongoing).

A simple PPP example is a hospital building financed and constructed by a private developer subsequently leased to a hospital authority. The private developer then assumes the role of landlord, offering housekeeping and other non-medical services, while the hospital itself provides medical services.

The government also promulgated an Inter-Governmental Transactions Act, 2022 “to provide for a mechanism to carry out a commercial transaction under an inter-governmental framework agreement to promote, attract and encourage foreign states to have economic and business relations with Pakistan”. This Act seeks to empower individual ministries to conduct sales with foreign governments, when, de facto, it’s commercial entities of foreign governments (rather than the governments themselves) who are the relevant buyers.

Privatization is a time-bound strategy and should not be an option in perpetuity. Many SOEs have been on the privatization list for three decades, like the DISCOs. This indecisiveness has seen most of our SOEs go from profitable enterprises to an in-distress state, where they can’t continue operations without heavy subsidies. How long can the government continue with this? Will potential investors, or even quality financial advisers continue to be interested?

Enhancing Investment in Pakistan

When the former government warmed the seats of power in 2018, a flurry of wealthy Gulf rulers, Chinese investors, the Turkish president and the PM of Malaysia visited Pakistan, along with scores of key CEOs of their global companies with back-to-back business to business meetings in Pakistan. Despite all this fanfare, scarcely any investment materialized. Hardly any investment of note materialized which could significantly boost the country`s foreign exchange reserves.

The Board of Investment (BOI hereafter) is located with the Prime Minister’s Office. Its mandate is to market investment opportunities to global and local investors and facilitate them in creating and managing national projects. It is also responsible for creating Special Economic Zones (SEZ`s). The BOI produced no regulatory modernization.

The chairpersons of the BOI and PC should be marketing business opportunities and stimulating investments, while the minister should be expediting the deals through the cabinet sub-committees, like ECC (Economic Coordination Committee), Competition Commission of Pakistan (CCoP), & Cabinet Committee on State-Owned Enterprises (CCoSOEs)50. A politically astute minister could also get buy-in from relevant ministries. This option is seldom available to professional chairpersons who are usually outsiders to the political and bureaucratic systems.

There is an urgent requirement to transform the BOI into a ‘one-stop shop’ for lucrative investors who must be salvaged from our tiresome protocols of needing approvals for everything. Assigning a dedicated investment officer from the BOI to the potential investor for swift completion of all the paperwork is value-addition. Having senior level representation on the Board of the BOI from the Ministry of Energy, FBR, and chairpersons of the provincial BOIs could be a mechanism for quick resolution of issues under one roof, so that the investor is not given the customary run around.

The BOI is tasked with establishing SEZs (Special Economic Zones) in the country. Why has there hardly been any improvement here? Nearly all the SEZs were to be established in the provinces, therefore, the land accessibility, acquisition and development of such zones is conducted by the provinces, whereas the federal government is in charge of financial incentives to the property developers and industrialists, as well as the availability of utilities. Hence, the speed of SEZ development and the quality of development greatly depends on the provinces.

It is also contingent upon the relations of a provincial government with the federal government. This places the timely completion and industrialization of SEZs in peril. The industrial plots of land are ‘sold’ to prospective buyers, who are often real estate speculators and not always bona fide industrialists and entrepreneurs. This converts it into a kind of shady property deal instead of smoothening investment for genuine industrial purposes. A much more judicious method would be to lease out such land to reduce the project costs for promising industrialists and entrepreneurs.

There is the issue of a complicated overlapping multiplicity of special economic or industrial zones. There are SEZs, then there are federal industrial parks, software technology parks, special technology zones authority (STZA), and export processing zone authorities (EPZA).

To add to the confusion all these identities are placed with different ministries, whereas their vision is nearly identical. For instance, the National Industrial Parks Authority and the Export Processing Zones Authority are under the Ministry of Industries, the Special Technology Zones Authority (STZA) is with the Cabinet Division, the SEZs is with the BOI. It is recommended that all such various authorities be placed under the BOI`s purview. This is necessary not only because they have similar objectives, of investor facilitation for industrial promotion, but also to develop synergies between them.

The two major legal acts to enhance investments are: (i) the Public Private Partnership Authority (PPPA), under the Ministry of Planning & Development; and (ii) the Inter-Governmental Commercial Transactions (IGCT) Act, 2022, which doesn’t mention which ministry would be responsible for implementing transactions under it, but one can presume every ministry would process their transactions through the cabinet’s sub-committee set. Though no transaction has yet been processed under this Act. It is proposed that the PPPA and the IGCT be placed under the auspices of the PC. Since both the BOI and PC are proposed to be under one ministry, there would be synergy in realizing all such investments.

Finally, there is an immediate requirement to establish a Land Bank (such as in the US and the Philippines) for Pakistan. All public (federal and provincial) and private landowners willing to offer land for industrial purposes, like the tourist industry54, should be facilitated to promote their land through a dynamic portal and apps to be developed and monitored by the BOI. This would salvage the recurrent humiliation of the government where investors have interest but land for projects remain unavailable.

Concluding Thoughts

This report addressed just some of the governance measures that would help strategically streamline and re-energize our decision making, civil service and economic and investment landscape amongst
and between various authorities and agencies where reform has, since long, been way overdue. As always, these suggested administrative, civil service, SOE, devolution, and privatization measures are contingent upon the political will of the government. With dwindling investor interest, toxic levels
of debt, a non-compliant inelastic tax base and elite capture of state institutions, society and the economy are gravely struggling just to stay afloat. The government can ill-afford any further delay in reforming its vital structures and processes.

The extent and intensity of the reforms cited in this paper now depends on the political capital and goodwill of a future government, where differences must be cast aside, and a new social contract forged with governance firmly cemented for the sake of 220 million citizens. All the recommendations cited must be broad-based and stakeholderdriven, forging a national consensus for thorough and consistent development where local and provincial based entities can no longer sit on the sidelines but must play a key role with far-reaching, trickledown devolution. The current centralized top-to-bottom development and decision-making model must be abandoned in favour of a bottomtop, participatory, diverse, inclusive, grassroots led paradigm – for the people, by the people and of the people. For this to transpire provincial governments must be trained on entrepreneurial ways to economically generate income and thereby self-sustain.

What is clear is that outdated state enterprises, regulatory authorities, overlapping economic and tech zones and an age-old civil service must radically reform and transform themselves, especially in light of a digital revolution catalyzing citizen empowerment. With the assistance of the private sector, public enterprises must reinvent themselves to optimize customer-led quality service delivery.

All the above mentioned requires timely due diligence, efficient budgeting, new public private partnerships, judicious privatisation, energy and environment renewal and broad-based tax collection to have meaningful and lasting effects.Given the mammoth task of building and strengthening institutions and governance models, decision-makers must work collectively across and within burdensome bureaucratic contours to radically simplify and overhaul such antiquated systems. In time such efforts will pay off and bring forth a workable actionable modality in service of the 99% rather than the elite 1%.

At this crucial juncture, Pakistan is at the crossroads and leading statesmen must look ahead, invite all those who subscribe to the vision of a “Better Pakistan” to partake unreservedly in this long-term process, leading the overhaul of our institutions so that any future digressions are dealt with relevantly, thoughtfully and without bias or nepotism, and create the sort of collective momentum which is the requirement for any transformational change in a society on its path to becoming one nation, driven by a shared vision of the future.

Fixing the challenges highlighted in this research is a Herculean feat. All these challenges necessitate calibrating the aspiration for political stability while increasing stakeholder ownership and accountability. Pakistan must be both an answerable democracy – where democratic decision-makers are held responsible for their performance, for service delivery and for corruption—and a resilient one, where democratic leaders perform their duties without constantly being cautiously edgy and walking on eggshells. This is a tricky balancing act in the easiest of times, as the history of institutional reforms and governance is replete with reversals.

This, however, is doable in light of the painstaking but positive experiences of other nations that have been able to mobilize the backing of their political class, decision-makers, policy analysts and, last but not least, their citizens to spawn an unyielding commitment for reform and long-term growth for all.

Hastening the pace of growth will necessitate long-term political goodwill and steadiness with the type of ethos that Muhammad Ali Jinnah envisioned 75 years ago.

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The author is a Senior Consultant, geo-strategist, writer and trainer and can be reached at [email protected] and tweets @OzerKhalid

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