Documentof The WorldBank FOR OFFICIAL USEONLY ReportNo. 47352-PK PAKISTAN JOINT IDA-IMP STAFF ADVISORY NOTE ON THE SECOND POVERTY REDUCTIONSTRATEGY PAPER(PRSP-11) February19,2009 Economic Policy andPoverty Group SouthAsia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Rank authorimtion. FOR OFFICIAL USE ONLY THE INTERNATIONALDEVELOPMENT ASSOCIATION AND INTERNATIONALMONETARY FUND THE ISLAMIC REPUBLIC OF PAKISTAN Joint StaffAdvisoryNote on the SecondPovertyReductionStrategy Paper Prepared by the Staffs o f the International Monetary Fund(IMF) and the International DevelopmentAssociation (IDA) Approved by Juan-Carlos DiTata and Anthony Boote (IMF), and Isabel Guerrero (IDA) February 19,2009 I. OVERVIEW 1. The Governmentof Pakistancompletedits second full PovertyReduction Strategy Paper (PRSP-11)inDecember 2008. InMarch2008, a new democratically elected government came into power, which inthe fall o f 2008 embarked on the finalization o f the draft strategy inheritedfrom the previous administration. This Joint Staff Advisory Note (JSAN) providesthe advice o f the staffs o f the International Monetary Fund(IMF) and the InternationalDevelopment Association (IDA) for strengtheningthe PRSP-I1andits implementation. 2. PRSP-I1buildson the first PovertyReductionStrategy Paper (PRSP-I), which was adoptedin December2003, but is shaped by recent politicaland economic developments. PRSP-Iprovided a broadpolicy framework outlining the road map for accelerating economic growth andpoverty reduction in Pakistan. Its implementation resulted insteadyprogressineducation andhealth outcomes, and inaccessto drinkingwater. The economy grew at about seven percent a year on average during 2003/04-2006/07, and the poverty headcount decreased from 34.5 percent in2001/02 to 22.3 percent in2005/06. However, in 2007/08, large external terms o f trade shocks-the sharp rise ininternational commodity prices-in combination with policy inaction and internal political turmoil, ledto rapidly growing macroeconomic imbalances. Inthe absence of adequate remedial policy measures to address these imbalances, economic activity slowed down and inflation rose sharply-hindering progress inpoverty reduction, and balance o f payments pressures intensified. This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. 2 3. Against this background,PRSP-I1focuses on regainingmacroeconomicstability andthe growthmomentumof 5-7 percenta year, while protectingthe poor and vulnerable-objectives that are supportedby the Fund's Stand-byarrangementand the World Bank's proposedPovertyReductionandEconomicSupportOperation.To steer Pakistan back on a path o fbroad-based growth, createjobs, and reduce poverty, a prolonged period o f macroeconomic stability, financial discipline and sound policies i s required. Government's strategy aims to create adequate employment opportunities, and to improve income distribution and competitiveness through economic liberalization, deregulation and transparent privatization. To mitigate poverty, it aspires for pro-poor growth, with more emphasis than under the previous strategy on agriculture and manufacturing, as well as on services. It also seeks to strengthen the social safety net to protect the poor and vulnerable. The strategy i s consistent with the Millennium Development Goals (MDG). 4. The strategy consists of ninepillars,rangingfrom macroeconomicstability and real sector growthto social protectionand governance. Inaddition, empowering o f women andreducing gender disparities is a cross-cutting theme, which is woven through the strategy. While the strategy is comprehensive, identification o f core priorities would be helpfulgivenconstraints inresource andimplementationcapacity. 11. STRENGTHENING LINKS BETWEENPRSP-I1ANDDOMESTIC PROCESSES A. ConsultationProcess 5. The preparationof the PRSP-I1hasinvolvedconsultationsat differentstages of the process. Consultations onthe strategy started towards the endo f2005, and continued untilits launch. In2005-06, inadditionto federal andprovincial levelworkshops, the authorities consulted communities, parliamentarians and civil society; commissioned research studies andpoverty and social impact assessments; and constitutedtechnical working groups on various topics. A draft Summary o fthe PRSP-I1was circulated at the Pakistan Development Forum inApril 2007 for feedback, and final consultations on the full strategy with different parts o f government, civil society, parliamentarians and development partners were conducted inNovember-December 2008. Owing to parliamentary elections initially scheduled for the fall o f 2007, but eventually carried out inFebruary 2008, the completion o fthe full strategy took longer than expected. B. Coordinationwith ProvincialStrategiesandPlansandMedium-Term DevelopmentFramework 6. PRSP-I1is a strategyof the federalgovernment.While itrefers to provincial initiatives and programs, inparticular inthe areas o f health and education, it i s not systematically coordinated with provincial strategies and plans, or the coordination i s not 3 clearly spelled out. Ideally, PRSP-I1 would reflect boththe provincial and federal development strategies, andbuild on the provincial ones. This would enable the authorities to eliminate any possible overlap and duplication o fprograms, ensure that federal and provincial programs complement each other, share the key priorities, and exploit synergies. The authorities would be well-advised to develop the PRSP process inthis direction. 7. The Medium-TermDevelopmentFramework(MTDF)andthe PRSP-I1would also benefitfrom closer coordination.The PlanningCommission o f Pakistan launched in 2005 a five-year MTDF for 2005-10, which outlines the federal Public Sector Development Program (PSDP) for the period. However, the framework was neither coordinated with PRSP-I nor properly linked to the budget.Looking forward, since the PRSP-I1covers the period up to 2010/11 and the MTDF expires in2010, the Pakistanauthorities would have a uniqueopportunity to merge the two documents into a single nationaldevelopment strategy linkedto the medium-termmacroeconomic framework and the annual budget in2010111. 111. STRENGTHENING PRSP-I1ANDENHANCING IMPLEMENTATIONITS A. PovertyDiagnostics 8. PRSP-I1providesa good summaryof the trends andspatialpatternsof poverty. The poverty diagnostics follows the official methodology definedinPRSP-I: it is conducted basedonthe official poverty line anda series o f householdsurveys carried out by the Federal Bureau o f Statistics. The analysis confirms a significant poverty reduction since 2001/02, and puts it ina historical perspective by showing the longer-term trends since 1987/88. It also rightly points out the limitations o f the 2005/06 poverty estimates for assessing the impact o f the recent economic crises. 9. The diagnosticsprovidesrichprofilesof the poor by linkingthe povertystatus with varioussocio-economic indicatorsandhouseholddemographics.Itshowsthat the educational attainment o fthe household head, agricultural landholding, and the household size remain key correlates o fpoverty. Such identificationo f characteristics o fthe poor will be useful when designing the targeting o f social safety nets. Also, the analysis provides close links betweenpoverty and access to facilities, such as hospitals and schools. Inaddition, it highlights the need to further improvethe access to services, while taking into account service quality. 10. Additionalstudies wouldbe usefulto guidethe implementationof the strategyin some areas. First, although the diagnostics mentions the importance o f accessto finance, it lacks empirical evidence supporting this statement. Since there has been substantial expansion inaccess to finance, the staffs recommendthat the authorities undertakea more detailed analysis o f its poverty impact. Second, the analysis o f gender issues inrelationto poverty i s limited, notwithstanding that gender mainstreamingremains a cross-cutting theme 4 ofthe PRSP-11. Gender breakdownsof school enrollment and health outcomes are included inthe document,buttheir links with poverty are not discussed.Finally, an analysisofthe impact of social safety nets on the poor and vulnerable would bewelcome. B. MacroeconomicFramework 11. PRSP-I1providesa broad overview of macroeconomictrends since early 2000. It rightly points out that the pickup inaverage real GDP growth to about 7 percent a year during 2002/03-2006/07 is inpart explained by heavy reliance on external financing andan expansionary fiscal stance, while tax revenue remained low andnational savings stagnated. This development model made Pakistanvulnerable to the external shocks (higher food and oil prices) that buffeted the economy in2007/08. The paper further explains that againstthe background of political instability and a deteriorating security situation, the government did not passthrough to consumers and producershigher energy and food prices. This ledto a significant increaseinthe budget deficit, whichwas mainly financed by the State Bank o f Pakistan(SBP). The increasing import bill and buoyant domestic demand widenedthe current account deficit to an unsustainable level (8.4 percentof GDP) at a time when capital inflows declined, inpart reflecting the global slowdown, leading to a reduction in international reserves to less than 1monthof imports by end-October2008. The paper could have also mentioned that increasingly negative real interestrates accompanyingthe buoyant domestic demandhadcontributed to arise inCPI inflationto 25 percent inOctober 2008 (comparedwith 9.3 percent inOctober 2007) and to sharply widening external imbalances. 12. The short-term macroeconomicframework is consistentwith the key objectives of the Fund-supportedprogramunder the Stand-By Arrangement (SBA). The strategy appropriately targets a significant reductionininflationand external imbalancesthrough a tightening of macroeconomic policies, inorder to lay the foundations for sustainable low-inflation growth. 13. The key elementof the government's strategy is to reducethe fiscaldeficitfrom 7.4 percent of GDP in2007/08 to 4.2 percentin2008/09 and 3.3 percentin2009/10, with an expandedand effectivesocial safety net to protectthe poor and vulnerable groups. This fiscal adjustment will be achievedthrough a significant reduction inenergy and food subsidies, a better prioritizationof development spending, andrevenuemeasures. Giventhe significant cuts insubsidiesandthe still highinflation, expenditure on social protection programs is envisagedto increaseto 0.9 percent of GDP in2008/09, from 0.3 percent in 2007/08, andthe government is finalizing its preparatory work on scaling up social safety net spending. While a more comprehensive and better-targetedsocial safety net i s being designedand rolled out, the staffs recommend that these additional finds be allocated either to existing programs, such as the Bait-ul-Mal, or launching complementary programs for income-generation, such as skills development, that the government is considering. 5 14. Whilethe need for a tight monetarypolicyis broadly acknowledged,the analysis of monetaryand exchange ratepolicy issues couldbe strengthened.Inparticular, it is importantto stress that maintaining atight monetary policy is critical to protect the country's international reserve position, ensure the targeted placement o ftreasury bills with commercial banks, and reduce inflation. The importance o f improving the liquidity management framework and strengthening SBP independence should also be reflected. The strategy rightly emphasizes the merits o f exchange rate flexibility, but could also mentionthe commitment (under the SBA) to remove restrictions on current transactions, andphase out the SBP allocationo fforeign exchange to oil importerswhich is already taking place. 15. The feasibility o fthe medium-term macroeconomic frameworkcrucially depends on the effective implementationo f medium-term reform measures. The strategy focuses on tax policy and administration reforms, a significant improvement indevelopment expenditure management, financial sector reforms, and further efforts to improve competitiveness. The recent economic crisis has highlightedweaknesses inpublic debt management, whichthe government i s committed to strengthen, and should also be covered inthe PRSP-11. A clearly articulated medium-term debt strategy is crucial for sound debt management and the development of an effective government securities market. The finalization of the reform agenda inthese areas and its steadfast implementation are essential to achieve the targeted increase inreal GDP growth to 7 percent a year by 2012/13, from the projected 3.4 percent in 2008/09,while undergoing a gradual reduction inthe current account deficit to 3% percent o f GDP andraising gross official reserves to $14.5 billion (2.6 months ofimports). 16. The strategycouldhaveusefullyanalyzedthe mainrisks to the baseline medium-termoutlookand elaboratedon appropriatepolicyresponses.The impact o fa moreprolonged slowdown intrading partner countries' growth, lower remittances from the GulfCooperation Council countries, lower FDI, anda delayedresumption o fportfolio inflows are key downside risks meriting consideration. At the same time, the recent decline inoil import prices ishaving a significantpositive impact by helpingto reduce the external current account deficit. The strategy could have also indicated areas inwhich additional donor financing should be allocated. C. SectoralPolicies 17. PRSP-I1establishes a comprehensiveframeworkto promotePakistan's economic competitiveness by identifyingmacroeconomic stability, infrastructure, humanresources and stronginstitutionsas the key buildingblocks; and productivityat the firm level as the key outcome. A set o fpolicy commitments to implement the framework i s listed, including the establishment o f a trade competitiveness forum; open product markets and removal o ftrade related bottlenecks; labor law reform; continuation o f a vigorous privatization program; and elimination o f barriers to entry, exit and domestic trade. The strategy also rightly limits direct government interventions to public goods, such as quality systems, knowledge flows, export promotion, and safety nets. 6 18. However, there is too muchemphasis on steeringpoliciesand programstowards specific productgroups andfirms of specific size-particularly small andmedium-sized enterprises(SMEs). The strategy rightly recognizes the small firm size (about 95 percent of firms inPakistan are SMEs) as an impediment to Pakistan's competitiveness, but the proposed policy framework directed at SMEs inthe areas o f finance, business regulation, landallocation, industrial programs, direct grants for product development, upgrading, training, and marketing, as well as the proposal for an SME Act to legislate a business environment specifically for SMEs should be carefully designed to be cost-effective and efficient to reap the intended growth enhancing benefit. The PRSP-I1appropriately seeks a productivity-basedexport strategy, but proposing to promote specific product groups might introduce distortions. The playing field should be level for all product groups and for firms o f all sizes. Therefore, the staffs recommendthat the authorities revisit these plans. Specific policy and program actions could be strengthened inareas which are seen as barriersto entry and growth, such as landmarkets, creditor right enforcement, animprovedjudiciary and strengthened competition policy. 19. PRSP-I1covers key issues on access, governanceand quality of education,taking intoaccount the provinciallevel educationalprogramsandinterventions.Education expenditures increased steadily during 2002/03-2006/07 and, looking forward, it would be important to retain this trend. 20. While the strategyfocuses onthe rightprioritiesinhealth,the relatedfinancing andcapacity buildingrequirementsneedto be assessedandthe monitoringframework strengthened.The programmatic priorities onmaternal andneonatal health, family planning, nutrition andthe control o f communicable infection diseases (including TB, HIV-AIDS, hepatitis and malaria) are appropriate and inline with the country's epidemiological profile. The mainthrust o f the strategy i s on strengtheningthe supply o f services, but demand side interventions are also planned. Organizationalreforms aim at strengthening managemento f primary health services through expansion o fthe People's Primary Health Initiative, improvementsinhospitalmanagementand governance, strengthening o f stewardship functions o fthe Ministryof Health; and innovations, such as health community financing schemes. However, the cost o f enhanced and newprogrammatic interventions would needto be estimated carefully as they could be considerable. Also, the authorities are encouraged to developfurther the indicators andinstrumentsto be usedto monitor progress, with indicators preferablydisaggregated by expenditurequintilesand by districtdregions, as well as the criteria for evaluating the health financing pilots. The staffs recommend that regular health facility surveys are made part o fthe monitoring framework. 21. The staffs welcome the detailedarticulationof social protection,especiallysafety netsfor the poor andthe vulnerable,as an importantpillarof PRSP-11.While social protection was not a fully developed focus area inPRSP-I, a National Social Protection 7 Strategy was completed in2007. Since then, the current governmenthas doubled the budget for safety nets by launching the Benazir Income Support Program (BISP), partly inresponse to high food inflation in2008. The need to protect the poor andvulnerable is evenmore urgent given significant fiscal adjustmentandthe global financial crisis that canbe expected to further dampenPakistan's growth prospects and increasethe vulnerability ofthe population. Recognizing suchrisks, the government has committed to further increasingthe BISP budget. This commitment is an encouraging start. The government also recognizes that the existing targeting ofBISPhasto beimprovedto ensure that the intendedbeneficiaries are servedby the program. 22. Movingforward, the staffs recommendthat the governmentmoves decisively toward realizing the vision that is espoused inPRSP-I1to ensure that: (i) targeting is BISP improved; (ii) programswith similar objectives are streamlined; and (iii) income generation opportunities are createdto helpthe poor andvulnerable to graduate from social assistance to better lifetime opportunities. The immediate priority would be to implement an improved targeting system for BISP that is to cover 7 million families in2009/10. The staffs welcome the government recentdecision to adopt an objective andtransparenttargeting mechanism- a so called poverty scorecard-and have it gradually replace the existing targeting system. However, for this intention to be realized, institutional capacity at all tiers of government would needto be createdand strengthened. Streamlining other federal programs, suchas Bait-U1-Mal, and provincialprograms, such as the Punjab Food Support Program, which serve similar objectives as BISP, would also be essential. Inthe mediumterm, the governmentwould needto (a) move from universal subsidies(such as wheat) to targeted ones; (b) ensure that programs such as stipends for education are aligned to a soundtargeting base createdthrough the poverty scorecard; and (c) buildarobust program that helpsthe poor graduate from safety net to income generation. 23. The proposedway forward to increaseenergy generationand strengthen infrastructure is broadly appropriate and focuses on the key priorities, but the requisite legal framework and institutional capacity for managing fiscal risks needs to be in place. Inlight of Pakistan's current energy crisis, enhancingenergy generation and efficiency i s urgent. At the same time, the availability o f affordable infrastructure (dams, roads, highways, and other transport) is essentialfor the promotion of private sector activity and competitiveness. The strategy has emphasizedthe role of Public-Private Partnerships (PPPs) infulfilling these large investmentneeds. While PPPs cancontribute to creating fiscal space, improvingthe quality and scope of service delivery, andprovidingbetter value for money, realizingthese gains hinges crucially on developing a legal and regulatory framework and institutions capable of managingthe fiscal risks associatedwith PPPs. Boththe regulatory framework and institutions need to be put inplace and should be given priority. PPPs should be subjectedto value for money analysisbased on a public sector comparator, andthey should not be usedto bypass budgetary spending controls (i.e.' to move public investment off budget). The PPP-policy framework should give the Ministry of Finance a strong role in 8 approving PPP projects because o f its mandate to formulate fiscal policy and evaluate the possible budgetary implications o f PPPs. PPPs inthe transport sector could have been given more emphasis. The list o f roads to be undertaken under PPPs, which i s presented inthe annex o fthe strategy, should be useful inguidingPRSP-I1implementationinthis area. The strategy also rightly identifies the limitedaccessto rural roads as an issue affecting a large partofthe population, but recommendations to addressthis problemare needed. Inthe view o fthe staffs, this is an area inwhich the federal government, inconsultation with the provincial and local governments, would be well-advised to look into. D. Governance 24. PRSP-I1recognizes the importanceof good governance for developmentand povertyreduction,but proposes a limitedreformagenda to strengthenit inPakistan. The strategy does not analyze the successes and failures on governance duringthe PRSP-I period to define priorities for the way forward. Some analysis o f the implementation experience o f decentralization, for example, would be useful inthis regard. The strategy appropriately explains why public financial management, civil service reform, tax administration, andjudicial and public procurement reform are all good things to pursue, but insome cases-for example, inthe case o fpublic procurement andjudicial and civil service reform-little i s said about what is proposed for the coming years and how this will be attained. The authorities would be encouraged to focus on these issues and strengthen this parto fthe strategy. Inaddition to tax administration andpublic debt management, there is a needto substantially strengthen public expenditure management (at all levels o f government) to enable better budget execution, monitoring and evaluation. Efforts should include introducing systematic and credible commitment control systems, and improving fiscal reporting. Ongoing efforts-including strengthening the government's cash management- could also be highlightedinthe report. Staffs recommendthat PRSP-I1specify an action plan with detailed timetable to guide efforts inthis area. E. Costing,Budget,FinancingandTargets 25. The strategy emphasizes that PRSP-I1implementationwill be prioritized throughthe medium-termexpenditureframework(MTEF), whichis updatedannually inthe contextofthe budgetprocess.Sectoral expenditures will needto be embedded inthe MTEF,which inturnshould be consistent withthe medium-termmacroeconomic framework. This will ensure that expenditures reflect the policy priorities o f PRSP-11, and that the cost o f PRSP-I1implementation i s consistent with the available resources andthe maintenance o f macroeconomic stability. PRSP-I1does not include costing for the entire strategy, but only for three sectors-education, health, water and sanitation-and, within these sectors, only for the Millennium Development Goal (MDG)-related expenditures. The strategy also provides detailed year-by-year comparisons o fprojected PRSP expenditures and MDGcostingestimates linkedto explicit quantitative MDGtargets for education, health and 9 water and sanitation; and stresses the limitations o fthe costing exercise inview o fthe strong assumptions used to derive the cost estimates and large standard errors owing to the evolving economic and fiscal environment. 26. WhilePRSP-relatedexpenditureson education,healthandwater andsanitation are projectedto increasefrom 2.9 percentof GDP in2007/08to 3.2 percentof GDP in 2010/11, Pakistanplansto spend onthese sectors less thanwhat the MDG costing estimates would call for duringthe PRSP-I1period.Itwould be importantto clarify whether andhow the resource gap will bebridgedduring2008/09-2010/11 ,especially since it is unclear whetherthe MDGcostingestimates derived in2005/06 are still accurate for the PRSP-I1period. For example, in2006/07 the net primary enrolment rate inPakistan was only 56 percent against the MDGtarget o f 100 percent by 2015. Clearly, to meet the MDGtarget, will require substantial public andprivate resources. Over the longer term, however, spendingon education and health is projectedto increase substantially as a percent o f GDP, while spendingon water and sanitation is not projectedto increase. 27. Inlightof Pakistan'sdeterioratedfiscal and economicoutlook, itwould be importantto bringthe MDGandpoverty reductionagenda inlinewith the available fiscal envelope. Currently, the MDGcosting estimates are not aligned with the needed fiscal rationalization. Given the limitedfiscal space, unless the targets are adjusted, any resource gap would need to be filled by mobilizing additional donor and private resources. However, for example, inthe case o f education Pakistan's recent experience suggests that the public sector has to be the main provider inrural areas and for poor households, where the enrollment gaps are the largest. Hence, moving forward, the staffs would urge the authorities not only to take measures to increase the efficiency o fpublic spending, but also to revisit the allocation o f funds across sectors with the aim o f re-allocating spendingto priority areas. F. IndicatorsandMonitoring 28. Significantprogressindata collectionhas beenmade since PRSP-I.This includes the implementation o f multi-rounds o f the Pakistan Social-economic Living Standard Measurement (PSLM) survey, which was launched in2004/05 and has been fielded annually since then. The PSLM survey data will helpmonitor PRSP-I andPRSP-I1outcomes both at the national, provincial, and district levels. The latter is particularly useful for enhancingthe district governments' capability o f implementing evidence-based policy making. Also, implementation o f other surveys, such as the Pakistan Demographic Survey (PDS), has made the monitoringand evaluation (M&E) system inPakistan more comprehensive. 29. PRSP-I1identifiesweaknesses inthe existingM&E system andproposesa reformplanto address them. The staffs sharethe view that improving data compilation in the Management Information System (MIS), creating poverty relatedindicators at the district level, and enhancing the quality and timeliness o f data are critical for strengthening M&E. 10 Also, as PRSP-I1reports, it would be useful to clarify the mechanisms through which the M&Efindings will provide timely feedback into the policy process. 30. As PRSP-I1reports, the new Statistical Law will be key for implementing the M&Esystem and the institutionalarrangements. The newStatistical Lawaims to strengthen autonomy and functioning o fthe national statistical system and proposes a new statistical agency, the Pakistan Bureauo f Statistics (PBS), which integrates several existing agencies (Federal Bureau o f Statistics, Agriculture Census Organization, PopulationCensus Organization, and the Technical Wing). The strategy could have highlighted how autonomy will be strengthened and explainedthat the proposed law will also establish a legal framework for PBS, specifying governance processes and an organizationalplan for the senior management. Once the Statistical Law is approved, it would be useful for the PRSP Secretariat to hold close consultations with the new agency on the institutional arrangements o fthe M&E system. 31. There is an urgent needfor strengtheningthe technical capacity of poverty measurementand review the institutional arrangements. While the government has given the Center for ResearchonPoverty Reductionand IncomeDistributionthe institutional responsibility to estimate official poverty headcount rates, delivery has been slow at times. For example, the poverty estimates for 2005/06 were published only in2008. Such a lag lessensthe informationvalue o fthe estimates for policy makers. Also, the recent erosion o f analytical capacity inCRPRID i s a concern. It would be critical to review the current institutional framework for poverty measurement and rebuildan effective and reliable poverty monitoring instrument. Iv. CONCLUSIONSAND ISSUES FORDISCUSSION 32. PRSP-I1provides a comprehensiveframework for Pakistan's efforts to stabilize the economy and bringit back to a higher growth path. Inthe view o fthe staffs, the main priority areas for strengthening the strategy and its implementation are as follows: (i) develop a detailed tax policy andtax administration reform actionplan to ensure that the ambitious revenue mobilization targets are met; (ii) conduct further work on costing the proposed programs and measures, including on health, and, ifnecessary, revise the targets in light o fthe fiscal constraints; (iii) implement the envisaged social safety net reform agenda, while streamlining social protection programs with similar objectives; (iv) further develop the reform agenda on governance and public financial management, including on public debt management; (v) establish the appropriate legal framework for PPPs and develop institutional capacity to manage the financial risks associated with PPP financed infrastructure investment; (vi) lessenthe emphasis on directed programs at SMEs and focus the efforts on strengthening the overall investmentclimate; and (vii) strengthen the technical capacity for poverty measurement andanalysis. 11 33. Implementationof PRSP-I1faces severalrisksthat needto be managed.These include (i) a further deterioration inthe world economy and international financial markets, which could complicate the stabilization efforts by weakening Pakistan's export prospects, lowering capital inflows, limitingeconomic growth andreducing flexibility for economic reforms; (ii) a deterioration inthe security situation, which could shift the government's focus away from economic matters; and (iii) delays inthe implementation o f reforms because o f institutional capacity constraints. 34. D o the Executive Directors concur with the priority action identified by the staffs? Do they agree with the recommendations made bythe staffs? Poverty Reduction Strategy Paper (PRSP) - I1 Government of Pakistan Finance Division ABBREVIATIONS AND ACRONYMS AAOIFI Accounting andAuditing Organization for Islamic Financial Institutions ACP Automated ClearanceProcedures ADB Asian DevelopmentBank ADP Annual DevelopmentPlan AEDB Alternative Energy DevelopmentBoard AHAN Aik Hunar Aik Nagar AJK Azad JammuKashmir ANC Anti Natal Care API Agricultural Policy Institute APO Asian Productivity Organization ASF Agribusiness Support Fund ATMs Automated Teller Machines ATOM Activity to Output BasedMonitoring BCC Budget Call Circular BCG Bacille Calmette-Guerin BCO Banking CompaniesOrdinance BDS Business Development Services BHUs Basic Health Units BISP Benazir Income SupportProgramme BMR Balancing, Modernization andReplacement BOD BurdenOf Disease BOTS BuildOperate andTransfers B-PfA Beijing Platform for Action BTU British Thermal Unit Cab. Div. Cabinet Division CAD Computer AssistedDesign CAM Computer AssistedManufacturing CCBs Citizens Community Boards CCP Competition Commission of Pakistan CCSSC Cabinet Committee for Social Sector Coordination CCT Conditional Cash Transfer CDC Central Depositary Company CDNS Central Directorate of National Saving CDWA Clean Drinking Water for All CDWI Clean Drinking Water Initiative CDWP Central DevelopmentWorking Party CED Central Excise Duty CEDAW Convention on Elimination of all form of DiscriminationAgainst Women CFIs Commercial Financial Institutions CFCs Common Facility Centres CFC Chloro-Flouro-Carbon CFS Continuous Funding System CGA Controller General ofAccounts CGE Computable General Equilibrium CIET Community Information, Empowermentand Transparency CIDA CanadianInternational DevelopmentAgency CIRC Corporate& Industrial Restructuring Corporation CLIS Crop Loan InsuranceScheme CLTS Community LedTotal Sanitation CMP Crop MaximizationProject CNG CompressedNatural Gas COT Carry-Over Trade CPAR Country ProcurementAssessment Report 11 CPPA Central Power Purchase Agency CPR Contraceptive Prevalence Rate CPRSPD Centre for Poverty Reduction and Social Policy Development CPS Contraceptive Prevalence Survey CrPc Code 01 Criminal Pi.ocedure CSF Competitiveness Support Fund CSP ChildSupport Programme CSR Corporate Social Responsibility CWIQ Core Welfare Indicators Questionnaire CYP Couple Year Protection DAK Dera Adam Khel DAMEN Development Action for Mobilization and Emancipation D A P Di-Ammonium Phosphate DDMAs District Disaster Management Authorities DFIs Development Financial Institutions DFID Department For International Development DFSD Development Finance Support Department DGPC Directorate General o f Petroleum Concession DHIS District Health Information System DHQs District Headquarters DISCOS Distribution Companies DOH Department Of health DOTS Directly Observed Treatment, Short-course (for TB) DPS Deposit Protection Scheme DPT Diphtheria, Pertussis and tetanus DSP Decentralization Support Program DTCE Devolution Trust for Community Empowerment ECIB Electronic Credit Information Bureau ECNEC Executive Committee o fNational Economic Council ECP Election Commission o f Pakistan EEF Elementary Education Foundation EFA Education For All EFR EnvironmentalFiscal Reform EIA Environmental Impact Analysis E M C EnergyManagement and Conservation EMIS Education Management Information System EmOC Emergency Obstetric Care ENERCON National Energy Conservation Centre EOBI Employees' Old Age Benefit Institution E&P Exploration and Production EPA Environmental Protection Agency EPI Expanded Program on Immunization EPZs Export Processing Zones ERC Emergency Relief Cell ERRA Earthquake Reconstruction and Rehabilitation Authority ES Economic Survey Est.Div. Establishment Division ESP Energy Security Plan EU European Union FANA Federally Administered Northern Areas FA0 Food and Agriculture Organization FATA Federally Administrated Tribal Area FBR Federal Board o f Revenue FBS Federal Bureau o f Statistics FDI Foreign Direct Investment FED FederalExciseDuty FEPB Federal Export Promotion Board ... 111 FESCO FaisalabadElectric Supply Company FI FinancialInstitution FIA FederalInvestigationAgency FIP FinancialInclusionProgram FOs Farmers' Organizations FOB Freighton Board/Freeon Board FP FamilyPlanning FPIRH FamilyPlanning/ RuralHealth FPI ForeignPortfolio Investment FRDLA FiscalResponsibilityandDebtLimitationAct FSPMS FoodSupport ProgrammeManagementSystem FSP FoodSupport Programme FWC FamilyWelfare Centre FY FiscalYear GAP GoodAgriculturalPractices GBG Gender BasedGovernance GCI Global CompetitivenessIndex GCR Global CompetitivenessReport GDP Gross DomesticProduct GDR GlobalDepository Receipt GEF GlobalEnvironmentalFacility GENCOs GenerationCompanies GEPCO GujranwalaElectric Power Company GER Gross EnrolmentRate GhG GreenhouseGas GIS GeographicalInformationSystem GMP GoodManufacturingPractices GNP GrossNationalProduct GRAP Gender ReformActionPlan GRB Gender ResponsiveBudgeting GRBI Gender ResponsiveBudgetingInitiative GST GeneralSales Tax GTZ DuetscheGesellschaftfiuTechnischeZusammenabeitlGermanTechnical Cooperation HBFC House BuildingFinanceCorporation HBL Habib Bank Limited HCES HouseholdConsumptionExpenditureSurvey HDIP HydrocarbonDevelopmentInstitute ofPakistan HEC HigherEducationCommission HESCO HyderabadElectric Supply Company HIES HouseholdIncome andExpenditureSurvey HIViAIDS HumanImmunodeficiencyVirusiAcquiredImmuneDeficiency Syndrome HMIS HealthManagementInformationSystem HRD HumanResourceDevelopment IBBs Islamic BankingBranches IBIS Islamic BankingInstitutions IBP Instituteof BankersPakistan ICAO InternationalCivil AviationOrganization ICAP Instituteof CharteredAccountantsPakistan ICPD InternationalConferenceon PopulationandDevelopment ICT IslamabadCapital Territory IDBP IndustrialDevelopmentBank of Pakistan IEC Information Educationand Communication IESCO IslamabadElectric Supply Company IFC InternationalFinanceCorporation IFSB Islamic FinancialServicesBoard IIFM InternationalIslamic FinancialMarket ILO InternationalLabour Organization iv IMF International Monetary Fund IMR lnfaiit Mortality Rate INGOs International Non-Governmental Organizations INGAD Inter-agency Gender and Development Group IPCC Intergovernmental Panel on Climate Change IPDF Infrastructure Project Development Facility IPEM Inter-Provincial Education Ministers IPFF Infrastructure Project Financing Facility IPI Iran-Pakistan-India IPO Initial Public Offer IPP Independent Power Project IRAF InstitutionalRisk Assessment Framework IT Information Technology I T N S Insecticide Treated Nets ITS Intelligent Transport System IPR Intellectual Property Rights IUCN International Union for Conservation o f Nature IWARSI International Water logging and Salinity Research Institute I Y S International Year o f Sanitation JICA Japan International Cooperation Agency KB Khushali Bank KESC Karachi Electric Supply Company KMI KSE-Meezan Index KPF Khushal Pakistan Fund K S E Karachi Stock Exchange kWh Kilowatt-hours LARMIS Land Administration & Revenue Management Information System LDDB Livestock and Dairy Development Board LEAD Leadership for Environment and Development LESCO Lahore Electric Supply Company LEWs Livestock Extension Workers LFA Literacy For All LFS Labour Force Survey L G O Local Government Ordinance LHVMurse Lady Health Visitor/Nurse LHW Lady Health Worker LITMIS Literacy Management Information System L&J Div. L a w and Justice Division LLWS Lady Livestock Workers LNG Liquefied Natural Gas LPG Liquefied Petroleum Gas LSCG Livelihood Support Cash Grant Program L U M S Lahore University o f Management Sciences LZC Local Zakat Committees M A C P Mountain Areas Conservancy Project MAF MillionAcre Feet MDGs Millennium Development Goals M&E Monitoring and Evaluation MEPCO Multan Electric Power Company MFB Microfinance Bank MFIs Microfinance Institutions MINFAL Ministry o f Food Agriculture andLivestock M I S Management Information System MNA Members National Assembly MNCS Multinational Corporations MNCH Maternal and Child Health MoCom Ministry o f Commerce V MoEnv. Ministryo fEnvironment M o E Ministryo fEducation M o F Ministryo fFinance M o H Ministryo fHealth MolPSI Ministry o f Industries, Production and Special Initiatives M o L G R D MinistryofLocal Government andRural Development M o L M Ministryo fLabour and Manpower MoPW Ministryo f Population Welfare MoPet Ministryo f Petroleum MORA Ministryo f Religious Affairs MOUs Memorandum o f Understandings M o W D Ministry o f Women Development M o W P Ministry o f Water andPower M S U Mobile Service Unit MTBF Medium Term Budgetary Framework MTDF Medium Term Development Framework MTEF Medium Term Expenditure Framework MTOE Million Tons Oil Equivalent MW Mega Watt NAB National Accountability Bureau NADRA National Database and Registration Authority NAP-NCD National Action Plan-Non-Communicable Diseases NARC National Agriculture Research Council N A V T E C National Vocational and Technical Education Commission NBFC Non-Bank Finance Corporation NBFIs Non-Bank Financial Institutions NCBs Nationalized Commercial Banks NCCPL National Clearing Company o f Pakistan limited NCDs Non-Communicable Diseases NCHD National Commission for Human Development NCSA National Capacity SelfAssessment NCSW National Commission on the Status o fWomen NDMA National Disaster Management Authority NDMC National Disaster Management Commission NEAS National Education Assessment System NEIMS National Environmental Information Management System NEMIS National Education Management Information System NEP National Environmental Policy NEPRA National Electric Power Regulatory Authority NEQS National Environmental Quality Standards NER Net Enrolment Rate NFLC National Freight and Logistics Chamber NGOs Non-Governmental Organizations NHA National Highway Authority NHIP National Highway Improvement Programme NHIRC National Health Information Centre NIB National Investment Bank NIBAF National Institute o f Banking And Finance NIDs National Immunization Days NIDA National Institute o f Design and Analysis NIPS National Institute o f Population Studies NIPS National Industrial Parks NIPDMC National Industrial Parks Development and Management Company NIRM National Institute o f Rehabilitation Medicine NLC National Logistic Cell NMTPF National Medium-Term Policy Framework NORAD Norwegian Royal Agency for Development vi NPA National Plan o f Action NPFP&PHC National Programme on Family Planning and Primary Health Care NPO NationalProductivity Organization NRB National Reconstruction Bureau NRSP National Rural Support Programme N-S North-South NSPS National Social Protection Strategy NTC National Trade Corridor NTCIP National Trade Corridor Improvement Programme NTDC National Transmission and Dispatch Company NTMP National Transport Master Plan NWC National Water Council NWFP North West Frontier Province NWP National Water Policy ODF Open Defecation Free OGDCL Oil and Gas Development Company Limited OGDCL-SPO Oil and Gas Development Company Limited-Secondary Public Offering OGRA Oil and Gas Regulatory Authority OPP Orangi Pilot Project ORS Oral Rehydration Salt PAMCO Punjab Agri-Marketing Company PAMP Protected Areas Management Project PARC Pakistan Agricultural Research Council PASDEC Pakistan Stone Development Company PBA Pakistan Banks' Association PBM Pakistan Bait-ul-Mal PCA Prevention o f Corruption Act PCAP Pakistan Clean Air Programme PCP Pakistan Centre for Philanthropy PCRET Pakistan Council o f Renewable Energy Technologies PDMAs Provincial Disaster Management Authorities PDMCs Provincial Disaster Management Commissions PDS Pakistan Demographic Survey PDHS Pakistan Demographic & Health Survey PEC Pakistan Engineering Council PEPA Pakistan Environmental Protection Act PEPCO Pakistan Electric Power Company PERN Pakistan Educational Research Network PESCO Peshawar Electric Supply Company PESR President Education Sector Reform PFC Provincial Finance Commission PFD Provincial Forest Department PFIs Participating Financial Institutions PFM Public Financial Management PFSS Punjab Food Support Scheme PGJDC Pakistan Gems and Jewellery Development Company PHA Pakistan Housing Authority PHC Primary Health Care PHC People's Housing Cell PHSADC Pakistan Hunting and Sporting Arms Development Company PIA Pakistan International Airlines PICG Pakistan Institute o f Corporate Governance PICIC Pakistan Industrial Credit and Investment Corporation PIFRA Project for Improvement in Financial Reporting andAuditing PIHS Pakistan IntegratedHousehold Survey PM25 Particular Matter 25 PMHP Prime Minister's HousingProgramme vii P M I U Project Management Implementation Unit P M N Pakistan Microfinance Network P M U Project Management Unit PNC Post Natal Care PO Post Office PPAF Pakistan Poverty Alleviation Fund PPHI Peoples' Primary Healthcare Initiative PPIB Private Power and Infrastructure Board PPP Public Private Partnership PPR Public Procurement Rules PPRA Public Procurement Regulatory Authority PPSOS Public Private Sector Organizations PR Pakistan Railways PRs Prudential Regulations PRP People's Rozgar Programme PRS Poverty Reduction Strategy PSCBP Public Sector Capacity Building Project PSDP Public Sector Development Programme PSIA Poverty and Social Impact Analysis PSIC Punjab Small Industries Corporation PSLM Pakistan Social and Living Standards Measurement Survey PSO Pakistan State Oil PSPE Pakistan Special Police Establishment PTCL Pakistan Telecommunications Corporation Ltd P W D Population Welfare Department PWP People's Works Programme QESCO Quetta Electric Supply Company QOC Quality o f Care RBM&E Results-BasedMonitoring and Evaluation R&D Research and Development RE Renewable Energy REITs Real Estate Investment Trusts RFI Road Freight Industry RHC Rural Health Centre RHSC Reproductive Health Services Centre RSP Rural Support Programme RSPN Rural Support Programme Network RTGS Real Time Gross Settlement RTIs Regional Training Institutes SACOSAN South Asian Conference on Sanitation SAFWCO Sindh Agricultural and Forestry Workers Coordination Organization SBBCW Shaheed Benazir Bhutto Centres for Women SBP State Bank o f Pakistan SBP-BSC State Bank o f Pakistan Banking Services Corporation SBSF Small Business Support Fund SCB Standard Chartered Bank SDCs Skill Development Centres SDP Sustainable Development Plan SEC Securities and Exchange Commission SECP Securities and Exchange Commission o f Pakistan SEZs Special Economic Zones %GAD Services and General Administration Department SLTS School-Led Total Sanitation SMCs School Management Councils SME Small and Medium Enterprises SMEDA Small and MediumEnterprise Development Authority SNGPL Sui Northern Gas Pipelines Limited viii SPEIP Support to Private EducationInstitutes Programme SPS Sanitary and Phyto-Sanitary SRSP Sarhad Rural Support Programme SSGCL Sui Southern Gas Company Limited SSHE School Sanitation and Hygiene Education STEP Strengthening Teacher Education inPakistan STIs Sexually Transmitted Infections s w c s Social Welfare Complexes SWD Social Welfare Department TBA Trained BirthAttendant TB Tuberculosis TB DOTS Tuberculosis Directly Observed Treatment, Short-course TDAP Trade Development Authority o f Pakistan TDM Tools, Dies and Mould TFP Total Factor Productivity THQs Tehsil Headquarters TLP Total Literacy Programme TORS Terms Of Reference TPR Trade Policy Review TRDP Thardeep Rural Development Programme TUSDEC Technology Up-gradation and Skill Development Company TVET Technical and Vocational Education and Training TVS Targeted Vulnerability Survey TWGs Technical Working Groups UAE UnitedArab Emirates UBL United Bank Limited UBL-GDR United Bank Limited-Global Depositary Receipt USMR Under Five Mortality Rate UGS Underground Gas Storages UIN Universal IdentificationNumber UN United Nation UNDHR United Nations Universal Declaration on Human Rights UNDP United Nation Development Programme UNEP United Nations Environment Programme UNESCO United Nations Educational, Scientific and Cultural Organization UNFPA United Nations Population Fund UNHCR United Nations High Commissioner for Refugees UNICEF United Nations International Children Emergency Fund UNIDO United Nations Industrial Development Organization UPE Universalization o f Primary Education USAID UnitedStates Agency for International Development VAT Value-Added Tax WAPDA Water and Power Development Authority WB World Bank WBIC Women Business IncubationCentre WDCs Women Development Centres WEs Women Entrepreneurs WHO World Health Organization WSDCG Water and Sanitation Sector Donor Coordination Group WSP-SA Water and Sanitation Programme-South Asia WSSD World Summit on Sustainable Development WTO World Trade Organization WWF Workers Welfare Fund ZTBL Zarai Taraqiyati Bank Limited ix LIST OF TABLES Table 1.1: Cost of `War on Terror' to Pakistan........................................................................................... 3 Table 2.1: Performance of key economic indicators (FY 2004-08) ........................................................... 15 Table 2.2: Decline in the poverty headcount FY 2000101-2004105.......................................................... 16 Table 2.3: Adult literacy rate (aged 15 years and above)............................................................................................. 17 Table 2.4: Primary enrolment ingovernment schools as percentage of total primary enrolment....................... 19 Table 2.5: Number o f functional public schools (percent) FY 2006107..................................................... 20 Table 2.6: Pregnant women visiting health facility for pre andpost natal consultation................................... 21 Table 2.7: Percentage distribution of health consultations in past two weeks by type o f health providericonsulted during FY 2006107........................................................................ .22 Table 2.8: Type ofpractitioner consulted for diarrhea treatment................................................... 23 Table 2.9: Health facilities usedfor pre natal consultation............................................................................. 24 Table 2.10: Main sources o f drinkingwater inPakistan................................................................................... 25 Table 2.11: Distribution of household by type of housing and electricity use ................................... 26 Table: 2.12: PRSP expenditures (FY 2002-08) ........................................ 28 Table: 2.13: PRSP current & development expenditures (FY 2002-08) ...............29 Table 2.14 (a): Household satisfaction by facil Table 2.14 (b): Households' perception o f their economic situation in F Y 2004105 compared with that in FY 2003104 Table 3.1: Decline in the poverty headcount F Y 2001/02-2005106 Table 3.2: Population distribution by householdexpenditure per adult equivalent.. ..................45 Table 3.3: Urban-Rural breakdown of poverty statistics inFY 2005106 Table 4.1: Growth. savings and investment FY 2008-13 ..... ....... 59 Table 4.2: Pakistan: Consolidated Fiscal Framework FY 2008-1 3.............................................................. 61 Table 4.3: Pakistan's Balance o f Payments outlook F Y 2008-13 ............................................................................... 65 Table 5.1 (a): Direct transfers and beneficiariesFY 2001102-2008109 ....................................................... 68 Table 5.1 (b): Direct transfers and beneficiaries 2001102-2008109 ............................................................ 69 Table 5.2: Coverage and beneficiaries of Employees' Old Age Benefit Institution ...................................... 76 Table 6.1: Performance o f components to GNP growth at constant factor cost (FY 199912000)......................... 88 X Table 6.2: Employed labour force by major industry sectors.................................................................. 91 Table 6.3: Pakistan's growth potential in agriculture ............................... .92 Table 6.4: Community participation inagriculture Table 6.5: Agriculture (FATA SDP budget 2006-15) Table 7.1: Annual energy consumption Table 7.2: Electricity consumption by economic groups.. . Table 7.3: Total installed generation capacity.............................. ............. 124 Table 7.4: Investment plans of GENCOs for the PRSP-I1period (2008-1I). ...................... 124 Table 7.5: Costing details ofpower distribution enhancement project o fNTDC (2008-11)............................... 125 Table 7.6: Power projects planned for the PRSP-I1period. .................................................................. 126 Table 7.7: PRSP rural electrification allocations up to 2006-08.. ........................................................... 127 Table 7.8: Village electrification (number ofvillages) .................................................................................... 127 Table7.9: Estimates for drilling inthe E&P sector during the PRSP-I1period.. .......................................... 129 Table 7.10: Power generation plan (2005-30) ..................................... 131 Table 7.11: Expected investment inIPPs innext 3 years (2008-1 1) Table 7.12: Energy mix and demand projections (2005-2030). .... Table8.1: Project details of `Aik Hunar Aik Nagar' (AHAN)... Table 9.1: Education financing.. ................................................................ Table 9.2: Educationbudget as percentage of total government budget......................................... Table 9.3: Final outcome targets o f PRSP-11................................................................................... 174 Table 9.4: Ongoing programmes in literacy and non-formal education.. ................................................. .176 Table 9.5: Plants installed under `Clean Drinking Water Initiative' (CDWI) Project.. ................................ ..201 Table 9.6: ProvinceiRegion wise number of water filtration plants to be installed under `Clean Drinking Water for All' (CDWA) Project................................................................................. 201 Table 9.7: Number of assembly seats allocated to women. ...................................... 216 Table 9.8: Province wise incidents of honour killing ............................. 227 Table 10.1: Per capita water availability 1951-2025 .......................................................................... 228 Table 10.2: Water demand and availability 2004 and 2010 ..................................................... 230 Table 10.3: Salient features ofproposed large dams ...................................................................... 230 Table 10.4: Salient features ofproposed mediumsized dams................................................................................... 233 xi Table 10.5: Investmentplans of hydropower projects under WAPDA..................................................... 237 Table 10.6 (a): Costing structure of Gwadar linkagesunder NTC.......................................................... 237 Table 10.6 (b): Costing structure of Karakoram Highway upgradingunderNTC........................................ 237 Table 10.7: Costing structure of expressways and motorways underNTC................................................ 239 Table 10.8: Distributionof housingunits under the Prime Minister's Housing Programme: 2008 andbeyond.....247 Table 11.1a: Structure of financial sector 1990....................................................................................................... . 257 Table 1l.lb: Structure of financial sector. 2008....................................................................................................... 258 Table 11.2: Public. private and foreign assets of banking sector 2000-06 ............................................................... 261 Table 11.3: Distributionof borrowersby sector 2002-08......................................................................................... 267 Table 11.4: Key Statistics ofNBFIs FY 2008 Table 11.5: Assets Structure of mutual hnds FY 2008 Table 12.1: Provincial share of net proceeds from taxes & duties for the PRSP-I1period (2008-11) Table 13.1: Distributionof sectors by pillars............................................................................ Table 13.2 (a): Poverty monitoring matrix........................ Table 13.2 (b): Monitoring matrix............................................................................................................................. 314 Table 13.3: ProjectedPRSP budgetaryexpenditures (FY2009.FY2012) .................................................. 323 Table 14.1: Pro-poorbudgetaryexpenditure:FY 2006107 2010111........................................................................ . 331 Table 14.2: Pro-poor (development and non-development) budgetary expenditure on education: FY 2000-08 ............................................................................................................................................................... 332 Table 14.3: Education Sector: ProposedPRSPAllocations. MDG Costing Estimatesand ResourceGap...............332 Table 14.4: Education Sector: GrandTotal o f ProposedPRSPAllocations. MDG Costing EstimatesandResource Gap for PRSP-I1Period.......................................................................................................................... 332 Table 14.5: Pro-poor (development andnon-development)budgetaryexpenditure on health: FY 2000-08............333 Table 14.6: Health Sector:ProposedPRSPAllocations. MDG Costing Estimatesand ResourceGap.................... 333 Table 14.7: Health Sector: Grand Total of ProposedPRSPAllocations. MDG Costing EstimatesandResourceGap for PRSP-I1Period (2008-2011)............................................................................................................ 333 Table 14.8: Pro-poor (development and non-development) budgetary expenditure on water supply & sanitation: FY 2000-08............................................................................................................................................ 334 Table 14.9: Total Allocations and Revenuefor Water and Sanitation....................................................................... 335 Table 14.10: Water and SanitationSector: Grand Total of ProposedPRSP Allocations. MDG Costing Estimates and Resource Gap for PRSP-I1Period (2008-2011) ........................................................................... 335 Table 14.11: Total ProposedPRSP-I1Allocations. MDG Costing EstimatesandResource Gap on Social Sectors....................................................................................................................................... 336 xii Table 14.12: Total Proposed PRSP-I1Allocations, M D G Costing Estimates and Resource Gap on All Three Social Sectors During PRSP-I1(2008-201 1) ...................................................................................... 336 Table 14.13: Allocations to social sectors as percentage o f GDP inPRSP............................................................... 337 LIST OF FIGURES Figure 2.1: Literacy rate (FY 2005 - FY 2007) ..................... 17 Figure 2.2: Percent o f children aged 12-23 months immunized pre and post natal care 21 Figure 2.3: Percentageo f age wise unemployment rate.. .............,........................................................27 Figure 3.1: Poverty headcount rate inPakistan FY 1987188-FY 2005106..................................................44 Figure 3.2: Distribution o f consumption expenditure per equivalent adults FY 2001102 and FY 2005106.............45 Figure 3.3: Growth incidence curvesbetween FY 2001102 and F Y 2005106... .......46 Figure 3.4: Household size and poverty rate FY 2005106........................................................... 47 Figure 3.5: Agricultural land ownership (inrural areas) by rural consumption quintiles FY 2005106..................47 Figure 3.6: Poverty rates by minutes to the nearest facility inF Y 2004105 Figure 6.1: National MediumTerm Priority Framework (NMTPF) for 2007 2010 - Figure 7.1: Organizational structure o f the energy sector in Pakistan.. ...................................... Figure 7.2: Power sector market in Pakistan .,...,.......................,.................,122 Figure 7.3: WAPDA - Overview of performance.... ........ 123 Figure 7.4: Projected composition and utilization o f energy sources 2005-2030 (MTOE). ................ 135 Figure 8.1: Problem tree illustrating main competitiveness issues faced by Pakistan.. ......,..........................,147 Figure 10.1: Water availability andpopulation growth, 1951-2025 (cubic meters). ....................................226 Figure 10.2: NTCIP recognizes trade supporting logistics as a wide domain.. ............ Figure 13.1: Structure o f the results-based M&Eprocess.. ....... ...........,....................................302 Figure 14.1: Steps involved inMDGCosting.. ...............,.,,.,.,.......,................,.................,.............329 xiii Poverty Reduction Strategy Paper-I1 Table of Contents Chapter 1.Introduction: Challenges.opportunitiesandstrategy.............................................................................. 2 Chapter 2 .Outcomes ofthe PRSP-I....................................................................................................................... 14 Chapter 3 - Povertydiagnostics........................................................... ...................43 Chapter 4 - Pillar I:Macroeconomicstability andreal sector growth.................................................................... 56 Chapter 5 Pillar 11:Protectingthe Poor andthe Vulnerable.................................................................................. - 67 Chapter 6 Pillar 111:IncreasingProductivity andValue AdditioninAgriculture... - ........................................ 87 Chapter 7 - PillarIV: IntegratedEnergyDevelopmentProgramme...................................................................... 118 Chapter 8 - Pillar V: MakingIndustryInternationallyCompetitive................................... Chapter 9 Pillar VI: HumanDevelopmentfor the 21st Century ........ - ............................. 168 Chapter 10- PillarVII: RemovingInfrastructure BottlenecksthroughPublic PrivatePartnerships(PPPs).........224 Chapter 11 - PillarVIII: CapitalandFinancefor Development................... ................................................. 257 Chapter 12- PillarIX: Governance for a Just andFair System............................................................................. 283 Chapter: 13 - Results-BasedMonitoringandEvaluationofPRSP-I1.................................................................... 301 Chapter 14 - CostingofMillenniumDevelopmentGoals(MDGs)....................................................................... 324 ANNEX I ....................................................................................................................... ........................ 339 ANNEX I1 .................................................................................................................................................... 344 ANNEX I11(a) ........................................................ ................................................................................. 345 ANNEXrn(b) .................................................................................................................................................... 346 ANNEX m(c) ANNEX (4 ................................. ......................................................................................................... 351 ANNEX IV .................................................................................................................................................... 353 ANNEX V .................................................................................................................................................... 370 ANNEX VI ................................................... .......................................................................................... 372 ANNEX VI1 ......................................................................................................... 1 Poverty Reduction Strategy Paper-I1 Chapter 1 - Introduction: Challenges, opportunities and strategy Chapter 1 - Introduction: Challenges, opportunities and 1.1 The new Poverty Reduction Strategy Paper (PRSP-11) draws upon lessons learnt from PRSP-I' and takes into account recent political, economic and social events, both domestic and international, which have adverse impacts for Pakistan. To steer Pakistan back on the path of sustained and broad-basedeconomic growth and to createjobs and reduce poverty, Pakistan requires a prolonged period of macroeconomic stability, financial discipline and consistently transparent policies that place poverty reduction at the centre of the country's overall economic policies. Linking the economic growth-poverty reduction nexus are the very elements that the new PRSP focuses on, which has been extensively chalked out inthe entire document. Meanwhile, this chapter aims primarily to set the stage for the subsequent discussion by presenting a broad overview of the programme and underscores the main points that underpinthe Strategy. 1.2 Settingthe Stage for the Strategy 1.2.1 Economic Environment: During the five years ending in FY 2006/07, Pakistan's economy more than doubled in size with an annual GDP growth rate averaging 7 percent. With relative price stability, the debt burden had reduced to one-half, foreign exchange reserves were sufficient to provide import cover for almost six months, stock market was one of the best performing inemerging markets; foreign direct investment touched close to 6 percent of GDP, and Pakistan successfully launched sovereignbonds of maturity ranging from 5-30 years in the international capital market with manifold oversubscription reflecting strong vote of confidence of global investors. However, the last fiscal year, i.e. 2007/08 has caused turmoil for Pakistan's economy with several political and economic events, both on domestic and external fronts, occurring unexpectedly. The country suffered a series of shocks since the eruption of the judicial crisis in March, 2007. The then government went into policy inaction, delaying important decisions that were needed to face these challenges. Root causes o f macroeconomic instability included delay inpassing the effect of the oil price hike to the consumers, resulting in a very high budget deficit which was financed by excessive borrowing from the State Bank o f Pakistan (SBP). For this reason, monetary growth is projected at close to 19percent during the first halfof the PRSP-I1term, further fueling the already high inflation. Domestic political and economic instability has led to GDP growth plummeting from as high as 7.5 percent to barely 5.8 percent in FY 2007/08 and an expected growth of 3.4 percent in the current fiscal year (2008/09). 1.2.2 Three main structural weaknesses can be identified for the current economic difficulty: (i) government spending in excess of revenue (fiscal deficit); (ii) imports in excess of exports (trade deficit); and (iii)inadequate social services to allow the poor and the vulnerable to fully participate in times of economic stability and prosperity and be protected during Performanceduringthe PRSP-Iperiodis reviewedinChapter 2. 2 Poverty Reduction Strategy Paper-I1 Chapter 1 - Introduction: Challenges, opportunities and strategy shocks. More recent reasons for the prevailing macroeconomic instability include domestic law and order situation, an unprecedented global increase in prices of oil, food and other essential commodities, instability in international financial markets and, most importantly, bearing the direct and indirect costs being a frontline state in the `War on Terror'. As a result of these issues, Pakistan i s currently facing major challenges including growing fiscal and current account deficits; rising inflation; growth deterioration; and depleting foreign exchange reserves. 1.2.3 Pakistan's Role in the Universal War on Terror: One important aspect that has severely dented development in Pakistan is its role in the `War on Terror'. Pakistan has sustained immense socio-economic costs of being a partner in the international counter terrorism campaign. The anti-terrorist campaign, which followed the 9/11 event inthe United States in2001, over-strainedPakistan's budgetas allocations for law enforcementagencieshadto be increased significantly which meant erosion of resources for development all over Pakistan, particularly in FATA and nearby NWFP areas in addition to human sufferings and resettlement costs. Several development projects, started earlier in the affected areas are afflicted with delays which would ultimately result in large cost over-runs. Since the start of the anti-terrorism campaign, an overall sense of uncertainty has contributed to capital flight, as well as, slowed down domestic economic activity making foreign investorsjittery. It is apprehended that Foreign Direct Investment, which witnesseda steep rise over the past several years may be adversely affected by the on-going anti-terrorism campaign in FATA and other areas of NWFP in addition to an excessive increase in the country's credit risk, which has made borrowing from the market extremely expensive. Pakistan's sovereignbonds have alos under-performed owing to similar reasons. 1.2.4 Above all, Pakistan's participation in the anti-terrorism campaign has led to massive unemployment in the affected regions. Frequent bombings, worsening law and order situation and displacement of the local population have taken a toll on the socio-economic fabric of the country. The costs to the economy, both direct and indirect, have been estimated in Table 1.1. The estimated cost of the `War on Terror' to Pakistan was around Rs 484 billion during FY 2007/08. This cost is projected to increase to Rs 678 billion during FY 2008/09.The government i s in the process of devising a strategic policy to overcomethe menaceof terrorism which has capturedthe entire country. 2004105 2005106 2006107 2007108 2008109 Direct Cost 67.103 78.060 82.499 108.527 114.033 Indirect Cost* 192.000 222.720 278.400 375.840 563.760 Total 259.103 300.780 360.899 484.367 677.793 3 PovertyReduction Strategy Paper-I1 Chapter 1- Introduction: Challenges, opportunities and strategy and an increase of 150 percent inwheat prices. A review o f price trends o f essential items inPakistanduringFY2007/08, indicates that the major portiono ffood inflationduringthis period stemmed from hike in the prices o f wheat, flour, rice, edible oil, fruits, vegetables, pulses, poultry and milk, etc. However, prices o f other important food items like sugar, potatoes and moong pulse have decreased owing to improved availability o f these items in the market.2 1.2.6 Social Protection: Despite all efforts at job creation, training, and so on, there will always be individuals who for one reason or another are unable to benefit from the country's economic growth. In March, 2008 the Prime Minister laid out a series o f future commitments (100 Days' Agenda) to benefit the poor during the PRSP-I1 period and beyond. The coming o f a new era o f democracy inPakistanhas thus immediately resulted in promising opportunities for people belonging to the lower middle class and poor segments o f society. Salient initiatives pledged by the government include: increased employment generation with the help o f a new Employment Commission planned to facilitate creation o f jobs in the public and private sectors and to provide employment to one member o f every poor family from 50 percent ofthe districts inthe country, revision of labour laws as per the requirements o f the International Labour Organization (ILO) (minimum wage of labourers will be fixed at Rs 6000 per month: see chapter 8), amendments in the Civil Service Regulations (June, 2008), `Article 474 B Public' for eligibility of public servants who become disabled during service to get full benefits o f retirement, with ten years service condition being lifted immediately; development at union council level; low cost housing; provision of medical insurance o f Rs 15,000 - 20,000 per year to the poor; cases o f political prisoners in the country to be reviewed under the National Reconciliation Ordinance (2007) by a Committee headed by the Attorney General o f Pakistan; poor people to be provided free national identity cards; and provision of financial assistance/scholarships to widows and children of innocent victims who lost their lives in terrorist attacks. In context with the last commitment, an aid agenda has been issued to all Provincial Governments and Finance Division with the approval o f the Prime Minister for implementation. The Government of Sindh inthis regardallocated an amount o f Rs 50 million in budget estimates for FY 2008/09. The government has also launched the "Benazir Income Support Programme (BISP)" to provide direct cash transfers to the poor, details o f which are covered later inthe discussion. 1.2.7 The overall vision of PRSP-I1 is thus to regain macroeconomic stability and Pakistan's growth o f 5-7 percent per annum over the next five years; create adequate employment opportunities; improve income distribution and global economic competitiveness through economic liberalization; deregulation; and transparent privatization. To ensure that macroeconomic difficulties do not further slow down the pace o f job creation and hence, ultimately adversely effect poverty reduction, the government has taken and will continue to undertake a series o f fiscal, monetary and exchange rate measures to stabilize the economy. Inthis light, Pakistan has recently reached an agreement with IMF for a U S $7.6 Economic Adviser's Wing, FinanceDivision, Governmentof Pakistan, 2008 4 PovertyReductionStrategy Paper-I1 Chapter 1- Introduction: Challenges, opportunities and strategy billion package with interest rate varying from 3.51 to 4.51 percent spread out over a period of 23 months. For the first time, IMF has accepted Pakistan's own proposals/programmes which have two main objectives: (i)to restore the confidence of domestic and external investors by addressing macroeconomic imbalances through tightening of fiscal and monetary policies; and (ii) protect the poor and preserve social to stability through awell-targeted and adequately funded social safety nets. 1.2.4.1 In this light, the PRSP-I1 endeavours not only to address growth per se but pro-poor growth, which is essential for improving the life of the common man. It is in this perspectivethat PRSP-I1emphasizescommodity producing sectors namely, agriculture and manufacturing, alongside services. High employment intensity sectors such as housing & construction; and Small & MediumEnterprises (SMEs) will also receive greater attention, as will skill development and higher education. Tackling the energy crisis to avoid stifling of growth by rapidly adding more power while simultaneously conserving energy will be another top priority. Ensuring the implementation of policies and reform programmes to achievethe desiredresults as set out inPRSP-I1is a critical task. Support from bilateral and multilateral institutions will play an important role inachieving these targets. 1.2.4.2 The Poverty Reduction Strategy covers the three-year PRSP-I1 period of FY 2008/09- 2010/11 but also provides a framework for thinking well beyond this timeframe. It should, therefore, be viewed as an approach to a long-term national economic strategy that has its main focus on reduction of poverty. 1.2 Buildingup the Strategy 1.3.1 Pakistan's PRSP is a fully participative process, incorporating the views and suggestions of all stakeholders - parliamentarians, line ministries, development partners, civil society, media and the poor communities. Consultations are an integral element of the PRSP process. PRSP welcomes participation at various stages of the overall processenabling it to become representative of all stakeholder interests increasing the transparency of the formulation process, ultimately, ensuring sustained ownership and successful implementation of the Strategy. The PRSP-I1 has been compiled incorporating all such feedback. Comprehensive consultations for PRSP-I1 started towards the end of the year 2005 and have continued till the launch o fthe Paper inlate 2008. This participatory process has included national stakeholder workshops, regular meetings with all partners and informal sharing of the draft for review/feedback. The PRSP-I1 Draft Summary was launched at the platform of the Pakistan Development Forum, Islamabad in April, 2007. The Draft Summary and the periodic PRSP expenditure reports are available at the Ministry of Finance's web~ite.~Details of the entire consultative process are discussedin the next chapter. For further details please visit: www.finance..eov.pk 5 Poverty Reduction Strategy Paper-I1 Chapter 1- Introduction: Challenges, opportunities and strategy 1.4 The Strategy for Poverty Reduction 1.4.1 The Strategy consists of the following nine pillars: (i)Macroeconomic Stability and Real Sector Growth; (ii) Protecting the Poor and the Vulnerable; (iii) Increasing Productivity and Value Addition in Agriculture; (iv) Integrated Energy Development Programme; (v) Making Industry Internationally Competitive; (vi) Human Development for the 2lSt Century; (vii) Removing Infrastructure Bottlenecks through Public Private Partnerships; (viii) Capital and Finance for Development; and (ix) Governance for a Just and Fair System. Inaddition, the government is putting inplace a stringent results-based system to monitor and evaluate the progress of the Poverty Reduction Strategy. Moreover, the government is continuouslly determined to empower women and to reduce gender disparities. This, inaddition to environmental sustainability, is a cross-cutting theme and is regardedas an integral part of the programme which is woven throughout the PRSP-11. The following discussiongives abroad overview of the pillars. 1.4.2 Pillar I:Macroeconomic Stability and Real Sector Growth \ 1.4.2.1 First and foremost, the government's top priority is regaining macroeconomic stability, which will act as an umbrella over all other government policies. It is on the basis of the macroeconomic framework that assumptions and targets of all policies will be set. The government's newbroad-basedprogramme for economic stabilization has already ensuring adjustment in petroleum prices to reduce burden on the budget; significant cuts in expendituresto curb the rising burdenof subsidies; tight monetary policy to fight inflation; and further cuts indevelopment spending, etc. Details are discussed inchapter 4. 1.4.3 Pillar 11: Protectingthe Poor and the Vulnerable 1.4.3.1 Social safety nets that provide at least minimal safeguard for the poor and the vulnerable which must form an essential element of any poverty reduction strategy. Pakistan has a fairly elaborate network of direct and indirect social protection mechanisms. Direct provisions include employment based guarantees (such as Employees' Old Age Benefit Institution, Workers' Welfare Fund and provincial social security benefits), direct transfers (Zakat and Pakistan Bait-ul-Mal) and market based interventions (microfinance). Indirect provisions includethe provisionof the minimumwage, lifeline tariff on electricity, subsidy on the price of flour and food subsidiesthrough the Utility Stores Corporation of Pakistan. 1.4.3.2 Funding o f specific safety net programmes has traditionally been insufficient given programme objectives and target populations. As a result, safety net programmes are fragmented and often duplicative; have limited coverage and are poorly targeted with small benefit levels relative to household income and the poverty gap; payments are infrequent and irregular; administrative arrangements are inadequate; and Monitoring and Evaluation (M&E) capacity is not up to the mark, which negatively impact programme efficiency and quality of service delivery. Consequently, these programmes have limited impact on poverty and vulnerability. 6 Poverty Reduction Strategy Paper-I1 Chapter 1- Introduction: Challenges, opportunities and strategy 1.4.3.3 Inresponse to these challenges a National Social Protection Strategy (NSPS)4 was drafted in2007, building upon a detailed sectoral review and upon inputsprovided by all relevant actors inthe sector, both at the federal and provincial levels. The NSPS aims to develop an integrated and comprehensive protection system, covering the entire population especially the poorest and the most vulnerable. The NSPS comprises a range of programmes and policies such as social insurance and assistance; income transfers to the very poor; support to vulnerable households to manage risks; and investment in human capital and physical assets to strengthentheir resilience. 1.4.3.4 With the aim to provide relief to the economically stressed segments of the society inthe face of spiraling prices of the essential commodities, the government has launched "Benazir Income Support Programme (BISP)" with an initial allocation of Rs 34 billion to be disbursed amongst the target households. The programme envisages cash grant of Rs 1000 per month to each qualifying household through banks/post offices. The vision of BISP i s to ensure the government's role in amelioratating the conditions of the poorest of the poor by directly accessingthemthrough supplementingtheir sources of income. 1.4.3.5 Similarly, the Government of Punjab has announced a Punjab Food Support Scheme (PFSS), originally designed to provide food stamps to the poorest households, now converted into a cash grant programme of Rs 1000 per household per month. The scheme covers both, rural and urbanareas with total subsidy inthe scheme amounting to Rs 21.60 billion (at Rs 1.8 billionper month) for 1.8 million families (at 6 personsper family). 1.4.4 Pillar 111: IncreasingProductivityand Value AdditioninAgriculture 1.4.4.1 Agriculture contributes the largest share in the country's GDP. Agriculture will receive high priority in the PRSP-I1as the bulk of the poor are concentrated in rural areas. Self- reliance in commodities, food security through improved productivity of crops as well as development of livestock and dairy are being supported through: (i) development of new technologies; (ii) more productive use of water through precision land leveling and high efficiency irrigation systems; (iii) promoting production and export of high value crops; (iv) accelerating the move towards high-value activities, such as livestock rearing, dairy production, fisheries, and horticulture; (v) creating necessary infrastructure; and (vi) ensuring availability of agricultural credit. 1.4.5 Pillar IV: IntegratedEnergy DevelopmentProgramme 1.4.5.1 Ensuring energy security and energy efficiency will be amongst the government's top priorities in order to tackle the current energy crisis and enable sufficient supply o f energy for domestic as well as commercial use. Rapid urbanization in Pakistan has brought tremendous challenges as cities absorb higher populations. Promoting energy efficiency, fuel diversity and interventions that take climate change into consideration transcend the boundaries of energy policy and have a direct impact on the poor. Policies concerning the development and sustenance of transportation, technology, environment, finance, Preparedby PlanningCommission, now transferredto Ministry of Social Welfare, Government of Pakistan, 2008. 7 Poverty Reduction Strategy Paper-I1 Chapter 1- Introduction: Challenges, opportunities and strategy competition, and investment have an important role to play.5 It must be noted, however, that unless the power sector is put on a financially sound footing, sustainable development of the sector will not happen. Pakistan projects annual growth in energy at 7.2 percent by 2010 and 8.8 percent thereafter, whereas, the demand for power i s expectedto increase by 8.5 percent for the period 2008-10 and 7.7 percent for the period 2010-15.6 Pakistan'stotal energy requirementsby 2030 will be 361 MTOE (Million Tons Oil Equivalent) compared with 60.4 MTOE in FY 2006/07.7 The links betweensustainable development and energy requires even greater efforts for long term energy security. The government approved the Energy Security Plan (ESP) 2005-15 in February 2005. Salient features of ESP include: increasing exploratory efforts to significantly enhance annual production levels of gas and oil; diversifying the energy mix by expanding the share of coal, nuclear and renewable energy (such as wind and solar); and promoting energy conservation and demand managementmeasures. 1.4.6 PillarV: MakingIndustryInternationallyCompetitive 1.4.6.1 The government realizes the need to improve the general business environment to provide a conducive platform for efficient economic activity. Largely as a result of the inward- looking trade policies that Pakistan followed until the 1990s, the country's share of world trade remained less than 1 percent. The progressive liberalization of world trade and the country's shift to a more outward-looking trade strategy has created opportunities for Pakistan to become integrated into the global trading system and to fully exploit its comparative advantages. Pakistan will have to upgrade its technological capacity and increasethe focus on skills development. Studiesby international agencies have found that policy changes since 2000 have improved the business climate inseveralrespects but many business-unfriendly legacies remain. Key policy related areas will include raising investment levels; attraction of Foreign Direct Investment (FDI); and encouraging private sector involvement in all spheres of the economy coupled with improvement in education and health sectors to create a skilled and healthy labour force. This will ultimately lead to improvements in the business environment through increasing competition, firm level productivity and expansionand diversification of exports. 1.4.7 PillarVI: HumanDevelopmentfor the 21SfCentury 1.4.7.1 The overarching philosophy informing the government's growth strategy is that the country's productive structure must be responsive to the market, which is the most effective means of ensuring that the country i s able to meet fierce international competition to which it will increasingly be exposed. Pakistan must seek to employ its entire labour force, both male and female as income generation from employment constitutes the most effective weapon in tackling poverty. Labour market dynamics reflect that with no major change over the years inthe overall labour force participation rate, it has grown rapidly because of large cohorts of new entrants joining the market. The gender gap o f more than 50 ADB & DFID, Energy Efficiency and Climate Change Considerations for On-road Transportation in Asia, (Philippines, 2006). 6Ministry of Water andPower, Power Wing, GovernmentofPakistan, Islamabad,2008. ' 'Ministryo f PetroleumandNaturalResources, Governmentof Pakistan, Islamabad, 2008 8 Poverty Reduction Strategy Paper-I1 Chapter 1 - Introduction: Challenges, opportunities and strategy percentage points inthe labour force participation rate in Pakistan i s much higher than the average gap o f 35 percentage points in South Asia. Inthis context, it will be important to ensure gender equality in accessing social service and labour markets since neglecting provision o f equal access to women would forego the potential contribution o f half o f its humanresources. 1.4.7.2 The demographic transition, commonly referred to as the `demographic dividend', results ina smaller populationat young dependent ages andrelatively more peopleinthe adult age groups, who comprise the productive labour force. The period o f the dividend is not infinite but will come to an end as the working-age population grows older ultimately expanding the number o f dependants. Moreover, the dividend will not be repeated. However, the event i s a unique opportunity, which can, however, easily turn into a `demographic liability' if appropriate policy measures are not taken to fully utilize the expanding labour force. This will depend crucially upon putting in place market-driven policies (including open trade policies and incentives to generate capital formation and higher savings) that will expand the number o f meaningful jobs and increase economic efficiency to produce more and also provide the wherewithal to care for the elderly as the population inevitably ages. 1.4.7.3 The government has, therefore, adopted human resource development as a priority area. In this light, the country's Poverty Reduction Strategy envisages massive investment in strengthening its human resource base to produce a skilled and competent workforce that can respond to the increasing demands o f a steadily growing economy. To achieve these outcomes, the National Education Policy emphasizes the need for educational reforms addressing financing for the sector, which despite increasing, falls short o f the requirements. Significant reforms include: strengthening the planning and implementation capacity o f the government improved utilization o f resources by educational institutions; improving governance for greater accountability o f education service providers to the community; capacity building o f district and local level institutions; and strengthening the role o f communities through school committees. The health strategy has been constructed on the key principles o f equity, universal access to essential health care, timeliness, results, accountability, strong leadership and strategic coordination o f the overall effort. The Strategy envisages addressing special needs o f the vulnerable population, especially women and children particularly in the rural areas o f Pakistan. Simultaneously, the programme under the umbrella o f Population Policy 2002 i s striving hard to achieve universal access to safe family planning methods by 2010. The Policy also aims to achieve population stabilization by 2020 with the aim to reduce population growth rate from 1.9 to 1.3 percent per annum. 1.4.8 PillarVII: RemovingInfrastructureBottlenecksthroughPublic-PrivatePartnerships 1.4.8.1 The government's vision for economic growth and poverty reduction sets ambitious targets, which will require massive investment in quality and affordable infrastructure (roads and highways, dams, energy, transport) to sustain high rates o f private sector led growth, enhance economic competitiveness and optimize Pakistan's locational advantage. 9 Poverty Reduction Strategy Paper-I1 Chapter 1 Introduction: Challenges, opportunities and strategy - This will be a primary objective during the PRSP-I1 period and beyond. The magnitude o f the investment i s such that this will only partially be funded from the Budget. The large part of financing will be leveraged through Public Private Partnerships.The government, with the assistance o f mainly the World Bank and the Asian Development Bank (ADB), launched a major strategic initiative in 2005 to improve the trade and transport logistics chain along the north-south corridor linking Pakistan's major ports with its main industrial centres and neighbouring countries. With a disbursement o f U S $6 billion envisaged over the MTDF period (2005-2010), the major focus areas of the `National Trade Corridor Initiative Project' (NTCIP) include: (i)Ports & Shipping (ii)Trade Facilitation (iii) Highways Modernization (iv) Trucking Modernization (v) Railways Restructuring and Modernization (vi) Energy Logistics; and (vii) Aviation andAir Transport Modernization. 1.4.8.2 The Housing sector i s recognized as a hugely productive economic activity. This sector contributes to inter-sectoral linkages which specify development in the construction industry. Huge employment potential in construction and housing industry provides a rationale for the government to establish it as one o f the key policy sectors inthe PRSP-11. Affordable housing for low-income groups also contributes to poverty alleviation, income redistributionand promotes individual productivity and household savings. The strategy for Housing aspires institutional strengthening in support o f the development o f a commercially based system o f housing finance for land and house purchase; upgrading existing towns and cities with better city planning through improvement o f infrastructure; creation o f employment opportunities; and affordable housing under a phased programme for the low-income population through community participation and squatter-settlement regulation. 1.4.9 Pillar VIII: Capitaland Finance for Development 1.4.9.1 Financial institutions allocate resources to the most efficient utilization ensuing rapid accumulation o f physical and human capital and technological progress, which in turn leads to higher economic growth - a prerequisite for poverty alleviation. Financial sector development has helpedmeet growing financing requirements o f productive sectors, while generating consumption demand. Key financial sector strategies include: focus on development finance to serve the underserved markets; introduction o f new products while increasing the geographical spread o f existing ones; further strengthening o f the supervisory regime & strengthening risk management; managing volatility and encouraging greater depth and breadth in equity markets; and expansion o f the financial sector through SME financing, Islamic bankingand microfinance. 1.4.10 Pillar IX: Governance for a Just and Fair System 1.4.10.1 Governance i s the manner in which public institutions and officials acquire and exercise authority to shape public policy and provide public goods and services. It is a critical pillar o f Pakistan's Poverty Reduction Strategy, because it i s the poor that especially suffer from lack o f security, empowerment, and opportunities. In this connection, devolution reforms were designed to move from a system managed by bureaucracy to a system where decisions are made through a political hierarchy. This has put political representatives 10 Poverty Reduction Strategy Paper-I1 Chapter 1 - Introduction: Challenges, opportunities and strategy incharge o f service delivery at local levels. The functioning o f local governments has been kept under review and studies indicate that three broad issues must be addressed: (a) resources o f local governments are poorly aligned with their responsibilities; (b) power regarding personnel matters remains fragmented; and (c) respective roles o f the provincial and local governments in development matters must be further clarified. The efficient working o f Provincial Finance Commissions, Local Government Commissions, Offices o f the ZiEa Mohtasib, Zila Mushawara? Committees, Accounts Committees, and Monitoring Committees i s an important pre-requisite for strengthening the decentralization process. The Federal Government has also constituted a Committee to examine the Local Government Ordinance inview o fthe performance o fthis system. 1.4.10.2 According to the Global Competitiveness Report prepared by the World Economic Forum, 2008, consistent military coups, political instability, corruption, volatile law and order situation, and inadequate infrastructure also have an adverse impact on Pakistan's business environment. The report also identifies crime and theft, tax and foreign currency regulations, inadequately trained workforce and poor public health as having adverse impacts on the global economic standingo f Pakistan. 1.4.10.3 The Poverty Reduction Strategy recognizes the importance o f strengthening institutions. To this end, police reforms were introduced to protect the rights o f citizens especially o f the poor and the vulnerable. The promulgation o f Police Order, 2002 was a major step towards transforming police into a professionally competent, politically neutral, non-authoritarian, and publicly accountable organization. In cooperation with international agencies, the government commenced a review o f the legal system under the "Access to Justice Programme" in2002. Taking into consideration the useful findings o f this extensive reform project, the objective o f legal reforms will continue to include cutting down the caseload o f judges, lessening the time spent on deciding each case (particularly in the commercial judicial system), and reducing the costs o f accessing justice. Institutions that have received greater government attention over the years with a view to reform include the system o f taxation; regulations to facilitate fair and competitive business behaviour; fiscal decentralization for transfer o f funds; and transfer procedures with a view to making them simpler and transparent. Further improvement will continue in on-going, as well as, new initiatives. 1.4.10.4 Closely allied i s further strengthening o f the tax administration, public procurement and public financial management reforms. The implementationo f the Medium Term Budgetary Framework is an important development which concentrates on government spending, within the available resources in defined priority areas to achieve national goals and to improve the quality o fpublic spending. DistrictOmbudsman DistrictConsultation 11 PovertyReductionStrategy Paper-I1 Chapter 1- Introduction: Challenges, opportunities and strategy 1.5 Monitoringand Evaluation(M&E) of PRSP-I1 1.5.1 Success in poverty reduction depends on the availability of resources, effective implementation of the strategy, continuous Monitoring & Evaluation (M&E) of its impact and regular feedback to policymakers for appropriate adjustment in policies. The PRSP M&E framework aims to ensure improved capacity to formulate and implementpro-poor policies, efficient and effective spending aimed at poverty reduction and an integrated system, which will enable precise comparison of past achievements with future objectives. The PRSP constitutes a set of input, intermediate and output indicators in seventeenpro- poor sectors formulated through extensive consultations. These indicators have been refined over the years with continued interaction with all stakeholders. To measure the progressof implementation of the PRSP-I1an M&E system has been designed, the purpose of which is to put inplace a sustainable systemto deliver timely and reliable data against a set of well-defined indicators, which feeds into the policy process and engages national and sub-nationallevels. 1.5.2 A new project `Strengthening Poverty Reduction Strategy Monitoring', ajoint initiative of the Ministryof Finance and UNDP, with a total budget of US $6.487 million covering the period 2008-12 is the right step in this direction. The PRS Monitoring Project has revised the M&E framework identified during the PRSP-I term (2003-06). Being the most current feature of the consultative process, six Technical Working Groups (TWGs) were formed to identify monitorable indicators so as to regularly keep track of the progress of PRSP initiatives well beyond the PRSP-I1timeframe. It includes focus group discussions on six key areas of PRSP-11, including health, education, labour/employment, environment/water & sanitation, gender and social safety programmesfrom August, 2008 onwardsto enhance monitorable indicators from the relevant policy-makers. 1.6 MediumTerm ExpenditureFramework(MTEF) of PRSP-I1 1.6.1 Given the significant resources requiredfor its funding, the government will prioritize the Poverty Reduction Strategy through the Medium Term Expenditure Framework (MTEF), which provides the `linking framework' that allows projected expenditures to be driven by policy priorities reflected in the pillars laid out above and disciplinedby budget realities. Still a rather recent phenomenon, conceptually the MTEF can be an ideal tool for translating PRSPs into public expenditure programmes within a coherent multi-year macroeconomic and fiscal framework. This expenditure framework will adhere to the Fiscal Responsibility and Debt Limitation Act (FRDLA) 2005 and will list projections in the shape of seventeenmediumterm budgetary pro-poor expenditures, initiated inPRSP-I (2003) and refinedfor PRSP-11. These cover: Market access and communityservices: (i) roads, highways and buildings; (ii) supply and sanitation; Humandevelopment: (iii) water education; (iv) health; (v) population planning; (vi) natural calamities, Rural development: (vii) agriculture; (viii) land reclamation; (ix) rural development; (x) rural electrification (People's Works Programme-11); Safety nets: (xi) subsidies; (xii) social security and welfare including Benazir Income Support Programme; (xiii) food support programme including Pakistan Bait-ul-Mal and Punjab Food Support Scheme; (xiv) Peoples' Works Programme; (xv) low cost housing; Governance: (xvi) administration of 12 Poverty Reduction Strategy Paper-I1 Chapter 1- Introduction:Challenges, opportunities and strategy justice; and (xvii) law and order. Non-budgetary PRSP expenditures include: Zakat, Pakistan Bait-ul-Mal, Employees' Old Age Benefit Initiative (EOBI) and micro-credit disbursement.During FY 2007/08, budgetary expenditure on pro-poor sectors amounted to Rs 573 billion, representing5.46 percentofthe GDP. 1.7 Costing 1.7.1 The costing framework of PRSP-I1has largely beenbasedon the MillenniumDevelopment Goals (MDGs) Costing Report, resulting from the findings of a studyjointly undertakenby Ministry of Finance and UNDP (2007). The MDG costing exercise in Pakistan went through an intensive process of training on costing techniques, which was provided during December 2005. Three social sectors, education, health and water and sanitation were selected to project the cost of achieving the proposed goals. The United Nations MDGs, agreed at the Millennium Summit held in New York in September 2000, are linked to Pakistan's MTEF, while the key focus of PRSP-I1is also intertwined with the achievement of MDGs. 1.8 Pakistan i s a rich country in terms of both natural and human resources. However, it is unfortunate that the country continues to find itself as a borderline case interms of human development as well as economic growth indicators: Over one half of the population is unemployed and a little less thanhalf of it remains illiterate. Clearly, Pakistanhas not fully exploited its potential. In the light of this scenario, the PRSP-I1will pick up from where PRSP-I left to ensure that clear cut priorities andpro-poor sectoral programmesare inplace that will provide the government an appropriate strategic framework to effectively reduce poverty. The PRSP-I1attemptsto bringrelated challenges and opportunities together within an integrated and holistic strategy to achieve the vision of a prosperous and poverty free Pakistan. 13 Chapter 2 - Outcomesofthe PRSP-I Poverty Reduction Strategy Paper-I1 Chapter 2 Outcomesof the PRSP-I - 2.1 The Poverty Reduction Strategy Paper-I provided a broad policy framework outlining the road map for accelerating economic growth and poverty reduction in Pakistan. The strategy was woven around four pillars, including (i) accelerating economic growth while maintaining macroeconomic stability; (ii) improving governance; (iii) investing in human capital; and (iv) targeting the poor and vulnerable. The Strategy launched a multifaceted attack on poverty that combined macroeconomic stabilization, reduction in debt burden, fundamental structural reforms and improved governance. 2.2 An exhaustive review of the outcomes of the PRSP-I specifically in sectors intrinsically linked with poverty reduction is presented below in order to highlight the economic and social sector policies behindimproved outcomes on the one hand and to build the PRSP-I1 around the lessons learnt from implementationo f PRSP-I, on the other. 2.3 The chapter is divided into two parts where first portion presents evidence on improvements in the economic environment o f the country during PRSP-I period and the progress made in achieving social sector outcomes. The second part contains lessons distilled from consultations with various stakeholders including line ministries, provincial departments, international development partners, civil society, and incorporates an assessment o f the perceptions o f common people collected during a series o f workshops in the community about issues of social sector service delivery andeconomic well-being. Section I - 2.4 Macroeconomic Outcomes 2.4.1 The broad macroeconomic framework formulated under PRSP-I put Pakistan on a high growth trajectory. A comprehensive reforms agenda revamped considerable parts o f the financial sector; capital market, reform o f the tax administration; fiscal transparency; reforms in the privatization programme; governance reforms particularly with respect to devolution and capacity building; and agricultural reforms mainly with regard to agriculture pricing, movement of commodities and introducing private sector in wheat operations. Most importantly, the Fiscal Responsibility and Debt Limitation Act (FRDLA) 2005 passed unanimously by both houses o f the Parliament increased the transparency o f fiscal operations and injected firmer discipline into the government's borrowing and debt strategies. 2.4.2 These reforms led to improved economic indicators, moving real GDP growth from 3.1 percent in FY 2001/02 to 9.0 percent in FY 2004/05 surpassing PRSP targets for the said years and maintaining a striking average growth rate o f 7.0 percent over the five years period (2004-07). Table 2.1 shows the performance o f key economic indicators against the figures as projected in PRSP-I. The performance remained on track in almost all sectors and exceeded targets for growth in GDP in the Manufacturing and Services sectors; and investment, etc till FY 2006/07. This growth momentum, however, witnessed disturbances 14 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomesofthe PRSP-I in FY 2007/08 due to several reasons including a judicial crisis, productivity shocks, in addition to external factors such as the War on Terror and rising oil, food and other commodity prices. However, the GDP still registered a robust growth o f 5.8 percent inFY 2007/08 as against 6.8 percent in the previous year. A point o f concern though was the rate o f inflation which has remained higher than projected since FY 2004/05. 2.4.3 An overall sustained macroeconomic environment led to improvements in the living standards o f the people in Pakistan during the PRSP-I period which shows a steady progress in outcome indicators for sectors like education, health, access to drinking water, housing and labour markets. As a result, the crucial figure o f the Poverty Headcount in Pakistan fell from 34.46 percent o f the population in FY 2000/01 to 23.9 percent in FY 2004/05. This decline was in marked contrast to the rapid increase during the 1990s until the turnofthe century. Table 2.1 elaborates this sharp fall. Items FY 2003104 FY 2004105 FY 2005/06 FY 2006107 FY 2007108 Foreign Savings (incl. Official 3.5 -1.3 2.5 1.6 1.5 4.5 0.5 5.1 -0.5 7.6 Transfers) Memo Items ICOR I 2.7 I I 2.7 1 I 2.7 I I 2.7 I I 2.7 I ource: Economic Survey of Pakistan, FY 2007108, FinanceDivision, Government of Pakistan. 2.4.4 The decline occurred in both rural and urban areas o f the country. Rural poverty dropped faster than urban (although it still remained proportionately higher) thus narrowing the 15 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomesof the PRSP-I difference between the two. The Planning Commission's computation o f the poverty line takes into account bothfood and non-food expenditures, such as health, education, housing, transport, and recreation, amongst others. The results o f the Pakistan Social and Living Standards Measurement (PSLM) Survey" FY 2004/05 show that between FY 2001/02 and FY 2004/05, household and per capita expenditures increased in real terms by 15 and 19 percent respectively. The increase in consumption expenditure by rich households was relatively higher than among the poor but the poorest households (lowest 40 percent) also increased their consumption expenditures significantly. Overall Source: Planning Commission, Governmentof Pakistan. 2.5 Social Sector Outcomes 2.5.1 The PSLM Survey enables an in-depthassessment of the performance o f the social sectors for the PRSP-I since its inception. Sector wise analysis of outcomes and intermediate variables i s presented below. The analysis i s limitedto the sectors where data for indicators is available without many gaps. 2.5.2 (1)Education 2.5.2.1 Literacy: Between FY 2001/02 and FY 2006/07, overall literacy increased from 45 to 55 percent while missingthe target o f 59.5 percent set inPRSP-I for the same year. As shown inFigure2.1, Male literacy increased from 65 percent inFY 2004/05 to 67 percent inFY 2006/07, while the corresponding marginal increase in female literacy was from 40 to 42 percent. lo The PSLM, a new data series of the FederalBureau of Statistics (FBS), has two integrated but standalone components. The first is the Core Welfare Indicator Questionnaire(CWIQ) methodology basedPSLM, with a large sample of more than 70,000 households, representative at the district level. This component, named hereafter as CWIQ-PSLM, has collected data on a relatively small (selected) number of social sector indicators, covering education, health, water-supply and housing sectors, and also the utilization of basic services. The second component of the PSLM is designed to provide data on household consumption expenditures, commonly used for poverty estimation. It is representativeat the national and province levels, and its results are likely to be available at the end of this year. This section has used data from the CWIQ-PSLM component to assess the progress in the social sector, with a special reference to the PRSP and MDG targets. The CWIQ-PSLM results have been compared with the PIHS FY 2001102. Interms ofrepresentativenessas well as definition of different indicators, the PIHS i s comparable with the CWIQ-PSLM. However, for employment this section has used the data from the last two labour force surveys carried out inFY 2001102 and FY 2003/04. 16 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomes oftlie PRSB-I Figure2.1: Literacy rate(FY 2004/05 FY 2006/07) - (percent) ,- - _. 65 65 67 53 54 55 BPSLM 2004/05 PSLM 2005/06 , 1I UPSLM2006/07 1 Male Female Both Source: Pakistan Social and Living Standards Measurement (PSLM) Survey, various editions, Federal Bureau of Statistics, Government of Pakistan. 2.5.2.2 Female literacy rates vary widely between provinces, ranging from a low of 17 percent in Balochistan to 43 percent in Punjab. Moreover, female literacy rate is only improving steadily inPunjab while witnessing fluctuations inthe rest ofthe country as showninTable 2.3. This encouraging performance by Punjab can be conveniently attributed to enhanced focus on Girl Education and to overall efforts being made by the provincial government under a comprehensiveEducation Sector ReformProgramme. Source: PSLM Survey, various editions, FederalBureau of Statistics, Government of Pakistan. 2.5.2.3 Primary, Middle and Secondary Education: The two commonly used indicators for measuring changes inprimary andmiddle schooling are the Gross Enrolment Rate (GER)' and Net Enrolment Rate (NER).I2 The primary-level GER for children 5-9 years old, excluding katchi13 class, according to the PTEIS, was 72 percent in FY 2001/02. Sound "Totalenrolmentinprimaryeducationregardlessofage, expressedasapercentageoftheeligibleofficialprimaryschool-age population ina given school-year Net primary enrolment rate in primary education ISthe number o f children of officiat primary school age (according to ISCED971) who are enrolled in primary education as a percentage ofthe total children of tlie official school age population Total net primary enrolmentrate also includes children of primary school age enrolled in secondary education 13Katchiclass is un-admitted class, nhichis consideredas Earl) Childhood Education 17 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomes ofthe PRSP-I progress has been made so far in improving both GER and NER and i s evident when the comparison is made between 2000-2001 and FY 2006/07 based on PSLM. The PSLM results are encouraging in many aspects. The overall increase in primary school GER i s impressive inPRSP period, from 72 percent inFY 2001/02 to 91 percent inFY 2006/07. 2.5.2.4 The second most important indicator for measuringimprovements at primary level is NER. The PRSP target was 58 percent for FY 2005/06. A long term target of 100 percent NER by 2015 has been set by the Pakistan MDG Report 2004. Pakistan seems to have made goodprogressinorder to achieve the MDGtarget as the NERat the primary level (age 5-9) has increased from 42 percent inFY 2001/02 to 56 inFY 2006/07. 2.5.2.5 The PRSP projected target for the middle-level GER of 53 percent in FY 2005/06 was missedby a small margin. The middle-level GER increased from 46 percent inFY 2004/05 to 51percent inFY 2006/07. The increasefor males was 57 percent comparedto females at 44 percent. The middle-level NER has remained constant at 18 percent since FY 2004/05. At the matriculation level, the GER was 48 percent inFY 2006/07 registering an increase of 4 percent from FY 2005/06. Provincial disaggregated analysis o f GER and NER for Primary andMiddle schooling i s given inAnnex I. 2.5.2.6 Gender Disparities inEducation: Gender disparity ineducation i s a major challenge. The disparityincreased to 28 percent by FY 1998/99, as literacy amongmales grew muchfaster than among females. Since then, however, the gap has begun to shrink, albeit very slowly. The only available dataon gender di~parity'~ i s for FY 2004/05 based on PSLM survey. 2.5.2.7 There has also been good progress in closing the gender gap in urban enrolments at primary, middle and secondary levels. The data regarding gender disparities is only available from PSLM FY 2004/05 and shows an overall decline in the gender gap in the GER at the primary level, from 22 percent in FY 2001/02 to 17 percent in FY 2004/05. This decline resulted from the relatively greater increase in the female GER compared to the male GERbetweenFY 2001/02 andFY 2004/05. 2.5.2.8 The gender gap15 in NER at the primary level remained unchanged at the country level between FY 2001/02 and FY 2004/05. The gender gap in GER at the primary level declined during the same period (as discussed above) implying thereby that the number of overage children attending primary school is quite substantial. The gender gap inthe NER at the primary level is low in urban areas. However, it remained unchanged between FY 2001/02 and FY 2004/05. Provincial disaggregated analysis of gender gap is given in Annex I. l4Since PSLM FY 2005106 & FY 2006107 does not containthe data on Gender Gap in GER. Also, the data on Gender Gap in Literacyis not available in PSLM FY 2005/06 and FY 2006107 therefore it is not beingreported. 15 This section has been taken from PRSPAnnual ProgressReportFY 2004105, since PSLM FY 2005106 & FY 2006107 does not containthe data on Gender Gap in NER. Also, the data on Gender Gap in Literacy is not available in PSLM FY 2005106 and FY 2006107 therefore, it is not beingreported. 18 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomesofthe PRSP-I 2.5.2.9 Increasing Role of the Private Sector in Primary Education: The role o f the private sector in primary education has increased overtime. O f the total primary level GER o f 87 percent in FY 2005/06, the government school GER was 57 percent and private school GER 30 percent. The government school GER increased by 15 percent between FY 2001/02 and FY 2005/06 period while the private school GER increased by 33 percent during this period. It suggested, on the one hand, that new enrolment has taken place in both public and private schools. On the other hand, the relatively higher increase inprivate school GER suggested some shifting of children from public to private schools. However the PSLM shows that the coverage of the public school system increased to 69 percent in FY 2006/07 compared to 65 percent inFY 2005/06 but witnessed an overall decline from 72 percent inFY 2004/05 to 69 percent inFY 2006/07. 2.5.2.10 Inurban areas almost half o f the total primary enrolment was currently in private schools. However, in rural areas, private school enrolment, as a share o f total primary enrolment, increased from 18 percent in FY 2004/05 to 20 percent in FY 2006/07, suggesting that in rural area, where the majority of the poor live, public schools remain the main source for primary education and thus need special focus regarding improving access and quality. This seems true for all provinces, although in rural Punjab 24 percent o f the enrolled children were inprivate schools. Table 2.4: Primary enrolmentin governmentschools as percentageof total primary enrolment Source: Pakistan Social and Living Standards Measurment (PSLM) Survey, various editions, Federal Bureau of Statistics, Government of Pakistan. 2.5.2.1 1 Intermediate Indicators for Education: Education intermediate indicators include functional public schools, basic facilities in public schools, posts filled against sanctioned strength in public schools and percentage o f trained teachers in these schools. Regarding the number o f functional public schools, their total number declined from 146,3 16 in FY 19 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomes of the PRSP-I 2001/02 to 144,558 inFY 2006/07 (Table 2.5). At provincial levels, it is encouraging to see an overall increase of 4 percent in the number o f functional schools during the period in Balochistan and similar trends in NWFP as these are the provinces with comparatively lower figures o f GER and NER. Data regarding provision o f basic facilities and teachers posted against the sanctioned strength is given inAnnex I. Source: Pakistan Social and Living Standards Measurement (PSLM) Survey, various editions, Federal Bureau of Statistics, Government of Pakistan. 2.5.3 (2) Health 2.5.3.1 The PSLM provides useful information regarding some o f ealth sector final outcomes and intermediate indicators on self-reported sickness, use of health services, child immunization coverage, use of Oral Rehydration Salts (ORS) during a diarrhoea episode, pre- and post-natal care and drinkingwater supply and sanitation. Some of these indicators are discussed inthe following sections. 2.5.3.2 Immunization reduces child malnutrition as well as mortality. Accordin to the World Health Organization (WHO) guidelines, a child should receive a BCG1.Fvaccination to protect against tuberculosis, three doses o f DPT17to protect against diphtheria and tetanus, three doses of polio vaccine, and a measles vaccination. The increase (in full immunization) was particularly impressiveinrural areas, from 46 percent inFY 2001/02 to 73 percent inFY 2006/07. Underthe `record' method, full immunization rate was low at 50 percent in 2006-07 compared to 76 percent under the `recall' method. However, there had been an improvement in record-based immunization rate, from only 27 percent in FY 2001/02 to 50 percent inFY 2006/07. l6Bacille Callmette- Guerin. "Diphtheria,pertussisandtetanus. 20 Poverty Reduction Strategy Paper-I1 Chapter2 - Outcomesofthe PRSP-I Figure 2.2: Percent of children aged 12-23 months immunized pre and post natalcare 94 83 86 74 0 Basdon Rccdll Basedon Record PIHS2001102 PSLM 2004105 PSLM2005106 PSLM2006107 Source: Pakistan Social and Living Standards Measurement (PSLM) Survey, various editions, Federal Bureau of Statistics, Government ofPakistan. 2.5.3.3 Quality pre natal care can contribute to the prevention o f maternal mortality by detecting and managing potential complications and risk factors, including pre-eclampsia, anemia and sexually transmitted diseases. Pre natal care also provides opportunities for women to learn the danger signs of pregnancy and delivery, to be immunized against tetanus, to learn about infant care, andbe treated for existing conditions such as malaria and anemia. 2.5.3.4 High maternal mortality in Pakistan can be reduced through quality prenatal care. The PSLM shows that the proportion of married women who had given birth during the last three years and had attended at least one pre-natal consultation increased from 35 percent inFY 2001/02 to 53 percent inFY 2006/07 (Table 2.6). Punjab hadthe highest attendance rate and Balochistanthe lowest. 2.5.3.5 Compared to pre-natal, the post-natal consultation rate was low i.e. 24 percent in FY 2005/06. However, it improved considerably during the PRSP period, rising from only 9 percent in FY 2001/02 to 24 percent in FY 2006/07 with consultation rates higher inurban than rural areas. Table 2.6: Pregnant women visiting health facility for pre and post natal consultation (percent) IRegion I I I I I 21 Poverty Reduction Strategy Paper-I1 Chapter 2 Outcomesofthe PRSP-I - Source: PSLMFY 2006/07, GovernmentofPakistan. 2.5.3.6 Utilization of Health Services: Utilization of health services include information on the use of different types o f health services during recent self-reported illnesses, diarrhea episodes among children, and pre and post natal consultations by married women who had givenbirthduringthe last three years. 2.5.3.7 The largest proportion (69 percent overall, 74 percent urban areas and 66 percent rural areas) o f sick people consulted a private doctor/dispensary/hospital. Around one-fifth o fthe sick population consulted a public dispensary/hospital in urban as well as rural areas. A very small proportiono f the sick population consulted other health providers, such as Rural Health Centremasic Health Units, Hakeem"herbalist and homeopath. However, in the NWFP a relatively larger proportion o f sick people consulted a chemist/pharmacy according to the CWIQ-PSLM". Table 2.7: Percentage distributionof health consultations in past two weeks by type of health NWFP 50 23 3 2 1 19 0 Balochistan 44 39 8 2 0 2 5 0 Source: PSLMFY 2006/07, FBS, GoP. 18Traditional herbal practitioner. 19Core Welfare Indicators Questionnaire, FederalBureauof Statistics, Government of Pakistan. 22 Poverty Reduction Strategy Paper-I1 Chapter2 - Outcomes of the PRSP-I 2.5.3.8 In case of diarrhea among children, it i s encouraging to see a considerable increase in the use o f ORs, an effective way of preventing dehydration. The use o f ORS increased to 76 percent in FY 2006/07 as compared to 71 percent in FY 2005/06. The increase in use o f ORS was greater inrural areas (75 percent inFY 2006/07 as compared to 68 percent inFY 2005106) than in urban areas (79 percent in the same time period). No gender differential was found. More than two-thirds o f children suffering from diarrhea consulted private doctorshospitals. The use of public dispensarieshospitals for diarrhea treatment declined between FY 2001/02 and FY 2006/07 to 13 from 59 percent (Table 2.8) and a persistent increase in use of Private dispensaries and hospitals was witnessed during the respective time span. Only a small proportion o f respondents reported the use o f RHCBHU, LHW, LHVNurse, chemist or hakeemhomeopathherbalist for diarrhea treatment. This data provides basis for concrete policy actions by the government to increase the service delivery in rural areas and more specifically in geographically poorer areas as prices are higher inprivate sector and leads to increase inincidence o fpoverty. Hakeem/Homeopathic/Herbalist I Other 3 2 1 1 1 Source: PSLMFY 2006107, Government o f Pakistan. 2.5.3.9 The proportion o f marriedwomen who attended at least one pre and post-natal consultation has been reported earlier. The three most commonly consulted sources for pre-natal care were private hospital/clinic, government hospital/clinic and home-trained birth attendants (TBA) (Table2.9). However, there seems to be either a data reporting problemor a serious concern regarding health services delivery in the public sector. The PIHS data for FY 1998/99 and FY 2001/02 show that around 40 percent of women attended some government facilities such as hospitals, clinic, RHC or BHUfor pre-natal consultation. The CWIQ-PSLM shows a decline o f 25 percent in FY 2006/07. It i s hard to explain this reduction inpre-natal consultation from public hospitals, clinics, and RHCs. As inthe case o f pre-natal care, the three most commonly cited sources o f post-natal care in both rural andurbanareaswere private hospitals/clinic, government hospitals/clinics, andhome TBA. 23 Poverty Reduction Strategy Paper-I1 Chapter 2 Outcomes ofthe PRSP-I - Source: PSLM FY 2006/07. Government o f Pakistan. 2.5.4 (3) Drinking Water and Sanitation 2.5.4.1 Sources of Drinking Water and Sanitation: Access to safe drinking water, an indicator ofthe PRSP and MDGs, is at the top of the government's policy agenda. The PRSP-I clean drinking water target was not achieved. The PRSPdefinition of the sources of safe drinking water includes tap water, hand pumps, and motor pumps inside or outside the house. Hand pumps2oand motor pumps21together provided 56 percent of households with drinking water in FY 2005/06, which decreased to 51 percent in FY 2006/07, whereas the percentage of households using tap water22has shown a slight increase. However, this change appears to be mainly a change inconvenience sincethere seems to be a substitution from handpumps and motor pumps.Moreover, the percentageof householdsdependingon lower water sources i.e. dug from wells, etc. i s either increasedor slightly decreased. 2.5.4.2 Tap water has increased from 34 percent in FY 2005/06 to 36 percent in FY 2006/07. Sindh has highest value of this indicator at 47 percent followed by NWFP at 44 percent, Balochistan at 37 percent, and Punjab at 29 percent in FY 2006/07. In FY 2000/01, 44 percent of households had access to hand pumps inPakistan, which declined to 30 percent in FY 2006/07, probably due to tap water availability to households. In FY 2000/01, 17 percent of households had access to motor pumps, which increased to 21 percent in FY 2006/07 (Table 2.10). 20Handpump includeshandpumpsboth insideand outsidehouse. 21Motor pump includesmotorpump andtube well insideand outside the house. 22Tap water consistsof bothtap water insideand outsidehouse. 24 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomes of the PRSP-I pump 22 14 17 22 14 18 25 23 24 24 20 21 Dug well 2 10 7 2 9 6 2 7 5 1 6 4 Other 3 10 7 3 16 10 3 8 6 4 10 8 Total** 100 100 100 100 100 100 100 100 100 100 100 100 2.5.4.3 The overall proportion o f households with a flush toilet23 facility increased by 14 percentage points to 58 percent in FY 2006/07 compared to FY 2001/02. The use o f flush toilets was 92 percent for the urban households, Punjab with 93 percent - the highest; and Balochistan with 78 percent - the lowest. About 15 percent o f households in FY 2006/07 had non-flush toilet and 27 percent do not have any toilet. This varies greatly between urban and rural areas i.e. 4 percent of urban households have no toilet compared to 39 percent o f rural households. Proportion o f households with a flush toilet in FY 2006/07 in Punjab, Sindh, NWFP and Balochistan stood at 64, 55, 52 and 25 percent, respectively. Rural Punjab had the highest proportion of households reporting no toilet at all i.e. at 44 percent while rural Sindhhadthe lowest, at 27 percent. 2.5.5 (4) Housing 2.5.5.1 Adequate housing i s a key determinant o f human welfare. According to the PSLM FY 2004/05 nearly 87 percent households in Pakistan owned a dwelling in the survey year. There were 86 percent households in Pakistan who own a dwelling in FY 2006/07 (87 percent inFY 2005/06), while 7 percent o f households had rented dwelling units and about 6.12 percent had rented free houses but a small number o f 0.96 percent households were on subsidized housing units. 2.5.5.2 Congestion inhousing i s another importantindicator o f poverty. InPakistan, the PSLM FY 2004/05 indicates that about 24 percent o f households had one room while 69 percent had 2-4 rooms. In rural areas, 27 percent o f households lived in one room, compared with 20 23Flush refers to flush connectedto public sewerage; flush connectedto septic tank; andflush connectedto open drain. 25 Poverty Reduction Strategy Paper-I1 Chapter2 Outcomes ofthe PRSP-I - percent in urban areas. According to the PSLM survey-CWIQ, there were 24.33 percent dwelling units with one room and 69 percent with 2-4 rooms during FY 2006/07. The Survey indicates that 6.62 percent of households had five and more living rooms in their dwelling units. Inrural areas the proportion of dwellings with one room (27 percent) were greater than inurbanareas (19.5 percent). 2.5.5.3 Electricity has become a necessity of life. In Pakistan in FY 2006/07 there were 86.6 percent households who used electricity for lighting. At the provincial level, NWFP province had the highest proportion of households (91 percent) and Balochistan has the lowest (65 percent) which use electricity for lighting. Inurbanareas 97 while, inrural areas 81 percent households used electricity for lighting while the remaining households used gadoil or candle for lighting. Table 2.11: Distributionof householdby type of housingand electricityuse (percent: RCC/RBC Housing Region and Owned Used for Units with PercentageHouseholdsUsing Province Households Roof One Room Electricity for Lighting Urban Areas 75.67 60.77 19.47 97.58 Punjab 76.71 57.54 21.53 97.84 Sindh 75.49 68.6 17.24 97.05 NWFP 69.14 54.8 16.18 98.31 Balochistan 72.11 39.38 14.35 97.44 RuralAreas 91.28 16.98 26.89 80.82 Punjab 91.29 18.65 25.17 86.36 Sindh 92.35 12.34 40.82 61.53 NWFP 90.23 20.13 19.07 90.04 Balochistan 90.47 3.61 20.55 55.65 Punjab 86.52 31.36 23.98 90.11 Sindh 83.93 40.44 29.04 79.27 INWFP I 86.62 1 26.07 I 18.57 I 91.46 I IBalochistan 86.18 12.02 19.09 65.47 2.5.6 (5) Employment 2.5.6.1 EmployedLabourForce: Employment is central to reducing poverty. For monitoring the labour market, the PRSP tracks two indicators: the `total employed labour force' and the . `unemployment rate.' Trends inthese are discussed as follows: The LFS computes the labour force by multiplying crude activity rate by total population. The former increased from 29.6 percent in FY 2001/02 to 30.4 percent in FY 2003/04. During this period the total population of the country increased consequently increasing the total labour force from 43 million in FY 2001/02 to 50.30 million in FY 2006/07. Open unemployment in Pakistan decreased from 8 percent in FY 2001/02 to 7.48 percent in FY 2006/07 while this corresponds to the period when 26 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomes ofthe PRSP-I overall poverty decreased. The number of employed persons also increased-from 38.88 million inFY 2001/02 to 47.65 million in FY 2006/07 surpassing the PRSP-I target of 42.03 million in FY 2005/06. This increase affected gender, provinces, inboth rural and urban areas. Since the economy was able to create more jobs than the increase in the labour force, the volume of unemployed fell from 3.51 million inFY 2001102 to 2.65 million during FY 2006/07. 2.5.6.2Unemployment: Overall unemployment decreasedfrom 8.3 percent inFY 2001102 to 5.27 percent in FY 2006/07, mainly because of a steep decline in women unemployment from 13 to 9 percent than men Le. from 6.6 to 5.4 percent evenly across the areas. Age specific rates for teens to early fifties experienced decline again more for women than men. The rates for later fifties and beyond scaled up, however, due to men exclusively. Among males, this decline was nominal -i.e. from 6.7 to 6.6 percent (Figure 2.3) Figure2.3: Percentageof agewise unemployment rate _ . . . . . . . . . . . . . . . . 30 7 ............................... -2005-06 +2003-04 -, 2.5.6.3 Changes in the unemployment rates varied between rural and urban areas. The female unemployment rate declined in rural (from 10.9 in FY 2003/04 to 7.7 in FY 2005/06) as well as urban areas (from 19.8 in FY 2003/04 to 15.8 inFY 2005/06). The rate for males fell modestly inrural areas, but in urban areas it increased from 8.4 percent in FY 2003/04 to 6.9 percent inFY 2005106. 2.5.6.4 This decline could be due to two reasons: females were able to getjob opportunities or they withdrew from the labour force mainly because of discouragement. But female participation in the labour force increased considerably between FY 2001/02 to FY 2003104 in rura1 areas, and there was a modest decline of 0.6 percentage point in urban areas. It thus appears that female unemployment fell primarily because of an expansion in job opportunities. It has been suggestedthat microfinance facilities, focusing on women in rural areas, may be amajor factor helping to reduce female unemployment rate. 27 Poverty ReductionStrategyPaper-I1 Chapter2 - Outcomes ofthe PRSP-I 2.5.6.5 Employment in the Informal Sector: Inconsonance with often-held contention, informal sector accounts for 73 percent of the employment inmainjobs outside agriculture sector. In the same vein, percentageof employed (75 percent) inrural areas was higher than that of urban areas (71 percent). As expected, formal sector activities were more concentrated in urbanareas (29 percent) as comparedto rural areas (25 percent). Male workers were more numerous relatively in urban while females in rural. The profiles of comparative surveys are analogous which indicates structural rigidities. Informal sector's employment surged from 70 percent inFY 2003/04 to 73 percent inFY 2005/06, across gender and areas. 2.6 Pro-poor Expenditures 2.6.1 Assessing qualitative as well as quantitative aspects of PRSP expenditures i s central to the PRSP process; and the government has attached critical importance towards their regular monitoring, analysis and transparency. Since the initiation o f I-PRSP in 2001, pro-poor expenditureson 17 sectors have been reported regularly on a quarterly and annual basis. This section gives an overview o f the expenditures incurredsince FY 2001/02. Table 2.12 presents data on sector-wise PRSP total expenditures in absolute numbers from FY 2001/02 to FY 2007/08. Table: 2.12 PRSP expenditures (FY 2002-08) I I I Expenditure(Rs million) Sectors 20011 20021 20031 20041 20051 20061 20071 02 03 04 05 06 07 08 Roads, Highways& Bridges 6,340 13,145 22,746 35,181 53,248 60,003 84,825 Water Supplyand KhushalPakistanFund I I * 1,420 800 800 590 78 20 Low Cost Housing 0 0 423 318 305 299 597 JusticeAdministration 1,98 1 2,196 2,437 3,116 5,642 5,081 7,820 Law and Order** 31,004 36,293 39,370 47,416 1,115 2,088 2,429 Total Budgetary 167,280 208,528 261,301 316,243 376,139@ 426,680@ 572,620 28 Poverty Reduction Strategy Paper-I1 Chapter 2 Outcomes of the PRSP-I - Total Non- 7,669 12,119 10,461 11,619 14,831 @ 18,734@ 27,985 budgetary*** Total beneficiaries 1,810 2,078 3,654 3,632 6,390 @3 5,120@ 5,563 (000) ofnon-budgetary transfers Total (Budgetary and non-budgetary) 174,949 220,647 271,762 327,863 390,970 445,414 6009605 2.6.2 Pro-poor budgetary and non-budgetary expenditures gradually increased from Rs 174,949 million inFY 2001/02 to Rs 600,605 million inFY 2007/08, while pro-poor expenditure as a share of GDP increased sharply from 3.8 percent in FY 2001/02 to 5.46 percent in FY 2007/08 as shownintable 2.13. I2007/08* I301,935 I 270,685 I 572,620 I 2.88 2.58 Source: Civil Accounts provided by Accountant General's Office. * Based on actual expenditure Note 1: GDP (mp) for FY 2006/07 and FY 2007/08 in Rs. Million amounts to 8,723,215 and 10,478,194 respectively. Source for GDP: Economic Adviser's Wing, FinanceDivision, 2008 Section I1 - 2.8 ParticipatoryProcess inPRSPFormulation 2.9 The Poverty Reduction Strategy Paper (PRSP) approach is a promising way to design poverty reduction strategies that command broader discussions within a country with numerous governmental and non-governmental organizations, and external development partners through a comprehensive consultative process. The PRSP process recognizes the participation of the poor as a critical element in the formulation of a Poverty Reduction Strategy. 2.10 During the formulation process of the second generation Poverty Reduction Strategy, a comprehensive and widely spread round of consultations at federal and provincial levels, 29 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomesofthe PRSP-I andwith communities all over Pakistanwas held. The objective of the participatory process was to engage parliamentarians, line ministries and departments, development partners, civil society, and above all the poor communities in policy formulation and to build ownership for the reform programme. The aim of the government was to build Poverty Reduction Strategy Paper (PRSP)-I1 on the outcomes of PRSP-I and understand expectations of the stakeholders. For this purpose, the consultative process was initiated at two levels: consultations at the district, provincial and national levels; and consultations with the communities all over Pakistan, the lessons drawn from which are compiled in subsequent paras as `Voices ofthe Poor.' 2.11 A comprehensive process of consultations was initiated in2005 including research studies, seminars, poverty and social impact analysis (PSIA) and workshops to discuss various elements of the evolving PRSP issues like poverty measurement, education, health and population sector intermediate indicators, gender mainstreaming, environment, employment and pro-poor growth policies. In addition, the World Bank and other key development partners including Asian Development Bank, Department for International Development (DFID), INGAD, UNDP, UNFPA, ILO, UNICEF, WHO, JICA, CIDA, USAID, EU, GTZ, NORAD, etc remained actively involved in the PRSP-I1process and contributed towards policy design, implementation, and evaluation. DFID helped in carrying out a PSIA in Microfinance sector of Pakistan. The study examined the impact of policy and programmes in the PRSP-I time period and assessed the impact of proposed policy and programmes ex-ante on poverty. As part of the assessment, a Financial Services Survey was also conducted which, investigated the formal and informal financial instrumentsused by poor households in general, and the impact of microfinance services on beneficiary households inparticular. The total number of participants at all consultative workshops are listedinAnnex 11. 2.12 Federal Levelworkshops 2.12.1 A series of workshops have been heldat national and provinciallevels for consultations on the PRSPI1which are listedbelow: Consultation with Academicians, Researchers and Civil Society (December 12th,2005) Consultation on Globalization, Unem loyment, Gender, Inequality in income distributionand Environment (May 5th- 6` ,2006) ! Consultation on Health, Education and Governance(July 24`h -26`h ,2006) Consultation on MDG Costing at the national level (September 1gfh,2006) Launch of PRSP-I1Draft Summary at the Pakistan Development Forum (April 25th- 27th,2007) National Workshop on `Competitiveness', `Infrastructure' and `Financial Sector Development' (July 17th,2007) Meeting ofthe Technical Working Group on Health (August 12`h, 2008) 30 Chapter 2 - Outcomesofthe PRSP-I Poverty Reduction Strategy Paper-I1 . Meeting of the Technical Working Group on Education (August 12th,2008) Meeting ofthe Technical Working Group on Labour (August 29`h, 2008) Meeting of the Technical Working Group on Environment/ Clean Drinking Water and Sanitation (September29*, 2008) Meeting ofthe Technical Working Group on Gender (October 1Oth, 2008) Meeting ofthe Technical Working Group on Social Safety Nets (October 15th, 2008) 2.13 ProvincialWorkshops 2.13.1 Following provincial workshops were arranged in the four provinces with the aim to identify vulnerable areas where incidence of poverty is the highest and to conduct urban and rural poverty comparisons: . Balochistan (July 29th, 2006 -Quetta) Sindh(3 lSt2006 Karachi) July, - Punjab ( 7 August, 2006 - Lahore) ~ NWFP (gthAugust, 2006 - Peshawar) 2.14 ResearchStudies 2.14.1 Several exclusive studies have been carried out by consultants, covering some of the key areas of the PRSP-11. Keeping inview the crucial linkages betweenemployment generation and poverty reduction, a study on `Employment Generation Strategy for PRSP 11' was carried out. The outcomes of this study strongly emphasizedthe importance of employment as a crucial factor in attaining economic growth in Pakistan and its role in eradicating poverty. The study also provided a detailed analysis of the tremendous scope of various service sectors (trade, transport, non-farming sectordmeat-processing, floriculture, dairy, fisheries, fruits, etc. housing & construction) to employ a large number of people. 2.14.2 Another study on `Globalization and its impact on Poverty in Pakistan' suggests key strategic steps necessary for the country to maximize its growth and poverty reduction, in order to fully benefit from globalization. 2.14.3 The study on `Income Inequalities in Pakistan and a Strategy to Reduce Income Inequalities' undertook an in-depth review of income inequalities in the country. It suggested various measures for a more equitable income distribution for incorporation in the poverty reduction strategy. 2.14.4 A study on `Reducing the Gender GapEngendering PRSP 11' was also conducted which highlighted the existence of gender disparities in Pakistan and lists certain key areas identified by PRSP for effective integration of women in the economy. `Environmental Sustainability' was another study that developed the crucial linkages between environmental sustainability andpoverty reduction. 31 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomesofthe PRSP-I 2.14.5 Inputfrom Ministries 2.15.1 To ensure that every government department relevant to the PRSP is fully engaged in the formulation and implementation o f the strategy to reduce poverty, all Line Ministries and departments provided their strategic road maps with regard to related policy parametres envisaged for the next three years. Exclusive brainstorming sessions to discuss the medium term policies were held with Ministries o f Education, Health, Food Agriculture & Livestock, Commerce, Population Welfare, Petroleum & Natural Resources, etc. 2.16 TechnicalWorking Groups 2.16.1 An effective Monitoring and Evaluation (M&E) framework i s the key to the successful implementation o f any strategy. Keeping in view the importance o f this critical issue Technical Working Groups (TWGs) on Health, Education and Labour/Employment, Gender, Environment, Water & Sanitation and Social Safety Nets have been constituted under Strengthening Poverty Reduction Monitoring Project. The TWGs consist of sector specialists from diverse backgrounds and includes officials from concerned ministries/departments, experts from international development organizations, civil society and academia. As mentioned above, six meetings o f TWGs were held which critically analyzed the monitoring indicators conceived during PRSP-I and developed new indicators for the PRSP-I1M&E framework. The TWGs also provided input for finalizing the data sources and baseline for PRSP output and outcome indicators. The suggestions synthesized from these technical meetingshave been made part o f PRSP-11's M&E framework. 2.18 FinalRoundof Consultationsfor Finalizationof DraftPRSP-I1 2.18.1 Embodied in the PRSP framework i s the expectation that participation by national stakeholders and international development partners in developing and implementing the poverty reduction strategies will create broad-based ownership. Translating these expectations into operational recommendations the PRSP framework advocates participation o f the poor inpoverty analysis; prioritization o f public actions to be addressed in the Strategy; and monitoring the government's delivery of the commitments made. Recognizing that the participation o f various stakeholders inthe PRSP process needs to be further bolstered for the strategy to become more effective, a final roundo fconsultations to finalize draft Poverty Reduction Strategy Paper (PRSP)-I1 was held at three levels in November - December, 2008 including: (a) Consultation with national stakeholders; (b) Consultations with international development partners; and (c) Consultation with Parliamentarians. 2.18.2 National Workshop for Sharing Draft PRSP-11: To further deepen the sense o f local ownership o f the PRSP process, and to institutionalize participation o f national stakeholders including government ministries/departments, academia, civil society, youth and beneficiaries at community level, a workshop for sharing the Draft PRSP-I1 was held on November 14th,2008 at the National Library Auditorium, Islamabad. The workshop was conducted with the aim that it i s vital for the public officials and representatives o f civil society, as well as the public in general, to have a greater voice in making and 32 Poverty Reduction Strategy Paper-I1 Chapter 2 Outcomes of the PRSP-I - implementingpolicies like the PRSP, so that the fruits of prosperity are distributed more equitably. 2.18.2.1 The participantswere divided into the following three groups based on various pillars o f the draft poverty reductionstrategy andtheir sectoral linkages: Group I Pillar 11:Protectingthe Poor & the Vulnerable Pillar VIII: CapitalandFinancefor Development Pillar IX: HousingandLandManagement Pillar X: Governancefor a Just & Fair System Group I1 Pillar 111: IncreasingProductivityandValue additionInAgriculture Pillar IV: IntegratedEnergy DevelopmentProgramme Pillar V: MakingIndustryInternationallyCompetitiveness Pillar VII: RemovingInfrastructure Bottlenecks (PPPs) Group I11 II Pillar VI: HumanDevelopment for the 21St Century: Education; Health; Access to CleanDrinking Water & Sanitation; PopulationProgramme;and Women Empowerment 2.18.2.2 The participants deliberated on the Draft PRSP-I1 and analyzed the document from different perspectives. The officials from line ministries, provincial departments, civil society, and academia examined the text in view o f their previously contributed input regarding sectoral policies, proposed interventions and targets given for the PRSP-I1 period. They also verified the data and sources given in the document for effective monitoring and evaluation of the PRSP's output and outcome indicators. The participants also scrutinized the document with a view to identify missing interventions, errors and omissions. Their recommendations and submissions were carefully recorded and at the end ofthe day were presented inthe plenary session o fthe workshop. 2.18.3 ConsultativeWorkshop to Share Poverty Reduction Strategy Paper (PRSP-11) with the InternationalDevelopmentPartners:The global consensus on the importance of the Millennium Development Goals (MDGs) brings the discussion o f poverty reduction strategies to the centre stage o f the international development efforts. The development partners play not only a key role in sustained efforts for poverty reduction as outlined in their specific country assistanceplans and strategies but also provide guidance inthe light of their international experiences in poverty reduction. It is imperative that development strategies and programmes of development partners must reflect the wishes and aspirations o f the people to build consensus and ownership. Foregoing in view, a consultative workshop to share the Draft PRSP-I1 with international development partners was organized onNovember 1gth, 2008 at the Finance Division, Islamabad. 2.18.3.1 This full-day workshop was attended by a large number of representatives from international development community including the World Bank, IMF, ADB, EU, USAID, DFID, UNDP, UNFPA, UNHCR, UNESCO, UNICEF, UNIDO, UN World Food Programme, WHO, JICA, CIDA, SDC, and FAO, etc. Representatives from line ministries anddepartmentswere also present. 33 PovertyReduction Strategy Paper-I1 Chapter 2 - Outcomesofthe PRSP-I 2.18.3.2 The participants deliberated on the various pillars of PRSP-I1 and synthesized their comments and suggestions into presentations. These presentations based on recommendationswhich were thenpresentedinthe plenary session ofthe workshop. 2.18.4 ConsultativeWorkshop to share PRSP-I1 with the Parliamentarians:Involving the elected representativesof the people inthe consultative process of poverty-reduction i s not only necessary for sustainability of the process, but parliamentary oversight of the PRSP can ensure long-term ownership of the strategies and generate the support necessary to sustain reforms. Parliament is an institution where the voices and preferences of the public andparticularly of the poor can be heard. Parliamentarians' outreachto their constituencies on issues of PRSP i s particularly relevant in this context. Greater parliamentary involvement in the poverty reduction process helps to ensure that a country's poverty reduction strategy is generated, implemented and evaluated through national institutions with the legitimacy to ensure ownership and sustainability. Parliamentarians also have a significant role to play in influencing the government's poverty alleviation programmes through the budgetaryprocess. 2.18.4.1 To institutionalize the role of Parliamentarians in formulation of PRSP-11, a consultative Workshop to share the Draft PRSP-I1was heldon December 4th,2008 Islamabad. 2.18.4.2 During the workshop, the Parliamentarians stressed the need for legislative oversight of government policies in general and of the budget process in particular to ensure that government is effectively working towards poverty reduction. They unanimously maintained that agriculture is the engine of growth needs to be specially highlighted inthe strategy for poverty reduction. Inaddition, focus on key areas of humandevelopment while giving utmost importance to education health and access to clean drinking water for the marginalized. The government's efforts inprovidingthe poor relief inthe form of Benazir Income Support Programme in face of rising inflation were lauded. Parliamentarians overwhelmingly supported government's efforts to improve governance and institutional development. They were ofthe view that by instituting accountability and good governance in the administration and management of pro-poor activities and programmes, we can effectively continue the crusade againstpoverty. 2.19 PRSP-I1CommunicationStrategy 2.19.1 The government firmly believes that the process of designing and updating the PRSP-I1 remains inclusive so as to ensure that all voices (including those of the poor) are heard. In order to further ensure general public participation and ownership of the Strategy, the PRSP-I1has beenplaced on the Website of Ministry of Finance (www.finance.gov.pk). 2.19.2 The PRSP Secretariat i s working towards developing an all-inclusive communication strategy to ensure ownership through sharing and dissemination of PRSP-I1at all levels of society. This would not only ensure accountability, participation and transparency in the implementation process but will also provide food for thought and input for future 34 Chapter2 - Outcomesofthe PRSP-I Poverty Reduction Strategy Paper-I1 strategies. Communication interventions would utilize diverse channels inaccordance with audience needs including electronic and print media, workshops and seminars, translation o f PRSP into national and regional languages, and special supplements innational dailies. 2.20 Voices of the Poor 2.21 This section summarizes results from consultations held with poor communities all over Pakistan on the outcomes of the PRSP-I. It expresses the perspectives o f the poor on poverty reduction strategies adopted by Pakistan during the past few years, and their opinions on how far they considered these strategies to have been successful. It thus helps to frame policies for the future. 2.22 In late 2005, the Rural Support Programme Network was asked to organize community consultations for formal feedback on the people's views about the on-going PRSP24.The consultations with rural poor were intended to ascertain whether they thought PRSP had made any difference intheir lives and, ifso, through what interventions and by how much. 2.23 During February 2006, 54 dialogues were held in 21 districts, with a total o f 1,214 participants. The dialogues were held separately with a total o f 646 male and 568 female participants. An effort was made to include as diverse a group o f participants as possible, including small farmers, daily wage labourers, employees o f ublic and private sectors, unemployed members o f the labour force, M~stuhiqs~~ o f ZukuP 6,people engaged in small enterprises, students, etc. A summary o f these dialogues - highlighting the perceptions o f the people on what has worked and what has not, as well as their suggestions on how to improve matters - is presented below. 2.24 Employment: A consensus emerged that the employment situation had improved slightly inthe formal sector during the last few years though the change was not substantial. The improvement had resulted particularly from public sector development initiatives especially at the village and Union Council levels. In general, people related access to employment opportunities with education and with having the right contacts. They felt that merit was often not the determining factor. There was a growing trend for women to seek jobs including in non-traditional areas. The jobs mainly sought by women were in the social sectors especially those o f lady health workers and school teachers. 2.24.1 Highunemployment persisted among young people and lack o f technical education cited as a major reason for the difficulty in finding employment. In the construction sector, work opportunities were more easily available than earlier. Salaries as well as daily wage rates o f skilled and unskilled labour had risen substantially. However, majority o f those consulted believed that the rise in salaries and wages had been offset by increasing prices o f daily necessities and consumption goods. Participants in the dialogue emphasized that since the 24The consultations were conductedwith support from DFID. 25Mustahiqis a personwho is eligibleto receiveZakat. 26Zakat is the Islamic concept of tithing and alms. It is an obligation on Muslims to pay 2.5% of their wealth to specified categoriesin society when their annualwealth exceeds aminimum level (nzsab). 35 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomes ofthe PRSP-I majority o f rural population was engaged in farm-related work, a flourishing agriculture and expanding agribusiness were crucial to increasing rural employment opportunities. 2.24.2 The participants recommended that policies and programmes for education and training should take into account current and future employment opportunities. Technical education and vocational skills training could give more people opportunities to contribute. Effective promotion o f self-enterprise and SMEs would provide many additional employment opportunities. 2.25 Small Enterprise Development: Participants stressed that SMEs needed assistance in making links with market centers; i.e. they lacked knowledge about market preferences. Overall, it appears that in the view o f dialogue participants, little progress had been made in facilitating small enterprise development, particularly in the area o f skill development andestablishing market linkages. 2.26 Micro-credit: During the last few years, access to micro-credit had considerably improved, but the geographical coverage remained very limitedrelative to that required by the populationandwhat couldpotentially be achieved. 2.26.1 Recommendations included the expansion o f geographical coverage o f micro-credit institutions to cover the entire country in addition to an increase in loan ceilings from micro-credit institutions and for loaning to be tailored to client needs, for instance, repayment schedules should be consonant with the cash flows o f their clients' businesses. Demandfor new credit products to cater to client needs, such as, consumption loans was also highsuch as insurance for agriculture and livestock. 2.27 Agriculture: The entire rural economy is directly or indirectly dependent upon agriculture (including livestock). Most participants in the dialogues believed that there had not been much improvement in this sector during the last few years. The general view was that, despite higher prices for produce, profitability in this sector had not improved as costs o f production had increased. Services and facilities for small farmers continued to lack. Agricultural inputs were expensive and in many places were not o f good quality or were completely spurious. 2.27.1 The National Programme for Improvement o f Watercourses was widely appreciated. Many participants thought that it was productive and would have long lasting benefits. However, the prerequisites asked of small farmers and the procedures to be followed for such schemes such as those relating to disbursement o f funds by the government needed to be streamlined while the amount o f community contribution neededto be lowered. 2.27.2 The seasonality o f the canal system was a major cause o f concern. Growing scarcity o f water was affecting agricultural production both in rain fed and irrigated areas. Furthermore, many small farmers believed that they did not get their fair share o f irrigation water, which they believed was usurped by influential farmers in collusion with the 36 Poverty Reduction Strategy Paper-I1 Chapter2 - Outcomesofthe PRSP-I IrrigationDepartment. 2.27.3 In general, participants were not happy with the extension efforts o f the Agriculture Departments. The results o f agricultural research, new and innovative techniques, and seed/crop varieties, were not being effectively disseminated among the farming communities. The management o f natural resources had improved in districts where areddevelopment programmes had been working; people were more aware about improved farm practices but more efforts were needed. Participants suggested that the government needed to further facilitate farmers in the marketingo f produce as well as in storage. The dialogue participants had not experienced any change in tenancy rights. The landless tenants remained at a disadvantage and were prone to exploitation. 2.28 Livestock: Livestock was an important source o f income in the rural areas. In most dialogues, participants believedthat livestock-related services had not improved markedly during the last 3-4 years. They expressed a need for technical services for improving livestock breeds and for disease prevention and treatment. The majority also felt that few people could actually avail o f such services through the Livestock Department. Nevertheless, in parts o f the NWFP, participants thought that the services o f the Department o f Livestock and Dairy Development had indeed improved. 2.28.1 Some of the women participants said that in their areas they had received training in poultry farming through a government department. With the provision o f Livestock Extension Workers (LEWs), now livestock medication and vaccination services were available which were previously not available. However, in most villages, veterinary facility and access to qualified veterinary doctors was not available. That gap was filled by quacks. It was suggested that the network o f veterinary hospitals/dispensaries be expanded and the presence o f qualified staff be ensured. Moreover, since females were actively involved in livestock and poultry keeping, more women veterinarians should be inducted by the Livestock Department. This also strengthened the need for further village-based LEWs. 2.28.2 Awareness about improved practices had risen in districts where aredrural development programmes had been working, in particular and communities were socially organized. Participants stressed that proper marketingfacilities for dairy products were largely absent. Participants felt that dairy activities offered a huge potential and should be supported in rural areas by linking small farmers to commercial dairy businesses. 2.29 Governance: The general consensus on the devolved system was that the concept was well-founded but was not being implementedinits true spirit. One o fthe mainreasons why most ordinary rural people appreciated the devolved setup was that it had improved access to government institutions and their services. However, participants complained that in many cases funds were allocated on the basis o f allegiance to political parties. Some felt that the elected representatives didnot listen to the poor and cooperated with the influential and with their own relatives. Participants complained o f a lack o f coordination between 37 Poverty Reduction Strategy Paper-I1 Chapter 2 Outcomes of the PRSP-I - local elected representatives and government functionaries. Initially there was considerable confusion about role, responsibility, and authority. The participation o f women as elected representatives at the local level was so far seen as more symbolic than substantive. However, despite the current limitations, most people were glad that some at least among them had access to power structures that could assist inresolving issues. 2.29.1 The general view was that accessing justice and curtailing corruption in the public sector had not noticeably improved in the last few years. Rural people were especially .unhappy with what they had to go through in dealings with the police, revenue and with irrigation departments. Court cases continued to be lengthy and costly. The legal system took years before cases were concluded andjudgments implemented. 2.29.2 People felt that most government departments had an uncooperative and occasionally even hostile atmosphere unless they agreed to pay bribes or had a `reference.' Some o f the participants did feel that problems in dealing with the police and other government departments had been somewhat eased with the help o f elected representatives. However, most participants felt that the efficiency and effectiveness o f public servants had not improved significantly duringthe period under consideration 2.30 Education: Participants generally agreed that during the last few years, access to primary level schooling had improved for both girls and boys. Beyond the primary level, access was often more difficult, especially for girls, the distances involved and because o f deficiencies in schools' infrastructure particularly of boundary walls and toilets. Many schools, both, for boys and girls lacked adequate facilities for providing clean drinkingwater. 2.30.1 Recruitment of teachers on contract by district governments had helped bridge the shortage o f teaching staff. Teacher absenteeism had been checked to a large extent during the last few years. The free education policy o f the government had enabled many poor families to enroll their children. The provision o f free books, waiver o f school fees, and scholarships to girls had significantly improved girls' enrolment inschools. 2.30.2 In the opinion of most participants, the quality o f education had largely remained unchanged. School Management Councils (SMCs) existed but inmost cases were dormant and did not play an active role in school management. Government schools often lacked even the minimum requirements o f laboratory facilities and other equipment. Technical education centers were located inbig towns and Tehsil/District headquarters making access to them especially difficult for girls. 2.30.3 Private sector education was a growing and widespread trend. People preferred private schools. In the view o f some participants, government schools only served the poor as those who could afford sent their children to private schools. 2.30.4 It was suggested that there should be a formal system for adult literacy with adequate facilities and properly paid staff. Some participants expressed satisfaction with the current 38 Chapter 2 - Outcomesofthe PRSP-I Poverty ReductionStrategy Paper-I1 adult literacy programmes initiated by the government (e.g. through National Commission for Human Development) and by NGOs. In none o f the dialogues did anyone express knowledge o f any specialized education or training facilities for disadvantagedspecial children. 2.30.5 It appeared from the dialogues that there had been no improvement in higher education. Access to higher education (beyond matriculation) was especially difficult for people in m a l areas as higher education institutions were usually located in towns or cities. This made them more expensive because o ftravel time and transportation costs. 2.31 Healthcare: In the dialogues there was general agreement that during the last few years there had been very little improvement in healthcare facilities besides some special initiatives. Government hospitals (including at Tehsil/District levels) lacked doctors, paramedic staff, lifesaving drugs, and diagnostic equipment. Since larger specialized hospitals were located in urban areas, the rural population had to travel there to seek secondary-level medical care which entailed a huge cost as well as inconvenience with particular difficulties for women. People were forced to seek private healthcare facilities for better service. Majority o f the dialogue participants felt that the needy never got any financial assistance incivil hospitals. 2.31.1 In the rural areas, in general, Basic Health Units (BHUs), Rural Health Centres and Dispensaries were not fully functional and did not provide an acceptable level o f service. Participants stressed that life-saving medicines ought to be available free at BHUs. Some participants mentioned the Punjab Chief Minister's Initiative for Primary Healthcare under which a Public Private Partnership had been initiated for managing BHUs. It was claimed that subsequent to this initiative, primary healthcare facilities had improved during the last three years, doctors and other staff were now present and the supply of required medicines had improved. This could be a model for wider replication. 2.3 1.2 One o f the new initiatives that people thought a definite improvement during the last few years was the Lady Health Workers (LHWs) programme. The LHWs were available where needed in the villages, and they extended timely and effective services. People were generally satisfied with immunization services for children and, in particular, were quite happy with the anti-Polio immunization programme. Participants suggested that free and easily accessible healthcare treatment be givento poor and marginalized families. 2.32 Water Supply and Sanitation: The dialogues revealed that in many locations the situation had improved in this sector. In particular, many district governments had taken steps to resolve water and sanitation issues invillages and towns. However, in remote and isolated villages things had not changed. Even areas where progress had been made in sanitation lacked a proper system for disposing o f solid waste. Clean (safe for human health) drinking water was not available for a majority o f the rural population. Participants in the dialogues emphasized that there was a tremendous need for more (safe for human health) drinking water schemes. 39 Poverty Reduction Strategy Paper-I1 Chapter 2 - Outcomesofthe PRSP-I 2.33 Social Safety Nets: Some participants estimated that as much as 25 percent o f the community might deserve financial support through safety nets, but perhapsjust 15 percent o fthe deserving got any assistance. Memberso f the Zakut Committees were nominated by the government. There was a general perception that the selection o f the deservingby the Committees is not transparent. Some people said that the members o f Zakat Committees usually gave benefits only to their relatives and friends or on the basis o f political affiliation or b i r ~ d e r iParticipants thought that the process o f obtaining social safety net . ~ ~ assistance was lengthy and complicated. The majority felt that the Guzara (living) allowance provided through Zakat was insufficient for even subsistence living. 2.33.1 In some dialogues in the NWFP, participants said that in their area Zakut was now more easily available to the deserving, however, the scheme still needed improvement. Majority o f the people recommended that the coverage o f social safety nets must extend to all those who merit assistance. The amount o f Guzara allowance ought to be increased to ensure subsistence. Besides the monthly financial living allowance, social safety nets ought to include skills training, credit for setting up self-owned enterprises, basic healthcare for family members, and support for children's education. The participants felt that the Zakat find should be administered in a fair and transparent way and be easily accessible to the deserving. People need to be fully aware about what assistance is available for the deserving and the Mustahiq ought to be able to receive what is due without hurdles and delays. 2.33.2 In general, the dialogues revealed that socially mobilized communities were better able to participate inand to access services and facilities that were available. They were also better able to convey their needs and priorities to decision makers and to implementingagencies. This applied inthe economic field, e.g., micro-credit and agriculture; inthe social sectors, e.g., school management and oversight; and to social safety nets. 2.34 Satisfaction with Basic Services 2.34.1 The recently conducted CWIQ-PSLM, covering over 70,000 respondents all over the country, substantiates most o f the reflections coming out o f the dialogues with the poor reported above. The CWIQ-PSLM, for the first time, generated information on the satisfaction from schooling, health facilities, family planning, veterinary hospital, agriculture, and the police. Perception about health and education services based on this data set is discussed here. The survey reported that 59.8 percent o f respondents were satisfied with schools in FY 2004/05 (Table 2.14a). The highest level o f satisfaction from schooling (67 percent) was found in the NWFP, while the lowest (48 percent) was in Balochistan. The level o f satisfaction from schooling was higher in urban areas than in rural. However, only 36 percent o f the population was satisfied with basic health units. Satisfaction with the services o f basic health units was more or less the same in all provinces, except the NWFP, which recorded a higher level (52 percent). Rural areas 27Kinship 40 Poverty Reduction Strategy Paper-I1 Chapter 2 Outcomesof the PRSP-I - expressed greater satisfaction with the services of basic health units than did urban. Table2.14(a): Householdsatisfactionby facilitiesand services use (percent) 2.34.2 The CWIQ-PSLM FY 2004/05 for the first time assessed a qualitative aspect regarding households and changes in their economic situation during the year preceding the survey. An answer to this question does not, o f course, substitute for poverty estimates based on income or consumption data, however, it does provide useful insight. In both rural and urbanareas, halfthe households perceivedno change intheir economic situation during the year, however, 27 percent o f households in urban areas and 23 percent in rural areas reported an improvement intheir economic situation compared to the previous year (Table 2.14b). Proportionately more households in the Punjab and the NWFP reported improvement intheir well-being than households in Sindh and Balochistan. One-quarter o f the rural households reported a worsening o f their economic situation in the one-year period suggestingthey had not benefited from the highagricultural growth. Table 2.14(b): Households' perceptionof their economic situationin FY 2004/05 compared with 41 Poverty Reduction Strategy Paper-I1 Chapter2 - Outcomesofthe PRSP-I NWFP 4.99 23.31 I 42.39 26.71 2.18 0.42 100 BalochistanI 3.42 II 17.3 1 62.28 II 15.19 I1 0.97 0.85 II 100 2.34.3 These voices o f the poor provide important feedback for fine-tuningthe Poverty Reduction Strategy and ensuring its better implementation. From the dialogues, it became evident that the participants' dissatisfaction was chiefly with inadequacies in implementation and not with the Strategy itself. 42 Poverty Reduction Strategy Paper-I1 Chapter3 - Poverty diagnostics Chapter 3 Povertydiagnostics - 3.1 This chapter provides a brief review of the level and the correlates of poverty in Pakistan, which will form an empirical basis for the discussionofthe strategy and policy measuresto tackle poverty laid out in subsequent chapters. Most of poverty related data in this chapter are drawn from a key poverty monitoring instrument,i.e. a series o fthe PakistanIntegrated Household Survey (PIHS) and the Pakistan Social and Living Standards Measurement Survey (PSLM). This chapter pays special attention to the PRSP period, i.e. since FY 2001/02 and often compares major poverty statistics between FY 2001/02 and the latest available survey year.28 3.2 Poverty has many dimensions in Pakistan. The poor have not only low incomes but they also lack access to basic needs such as education, health, clean drinking water and proper sanitation. The latter undermines their capabilities, limits their opportunities to secure employment, results intheir social exclusion and exposes them to exogenous shocks. The vicious cycle of poverty i s accentuated when the governance structures exclude the most vulnerable from the decision making process. These issues are discussed in detail in different chapters of the report; strategies to address them constitute the mainpillars of the PRSP-11. 3.3 Poverty Trend 3.3.1 A long-term trend of poverty in Pakistan is shown in Figure 3.1. Poverty, measured in terms of the headcount of the poor (the proportion of the population with consumption below the official poverty line ,shows a mixed trend throughout the 1990s until it peaked at 34.5 percent inFY 2001/02.19 3.3.2 However, it can be seen from Figure 3.1 that there was a large turn-around in the poverty trend in FY 2001/02. Poverty in the country declined by more than 12 percentage points betweenFY 2001/02 and FY 2005/06 andreached 22.3 percent - its lowest level during the PRSP period. 3.3.3 The overarching objective of the PRSP-I1is to reduce poverty. This requires that existing poverty estimates reflected in PRSP-I1 are realistic and based on surveys. The poverty estimates are worked out at the national level using the PSLM data compiled by the Federal Bureau of Statistics. The latest PSLM data is available only for FY 2005/06. The Planning Commission considers that a Poverty Reduction Strategy based on FY 2004/05 or FY 2005/06 datawould underestimatethe extent ofpoverty. 3.3.4 The Planning Commission is of the view that no reliable data exist for estimating poverty inrecent years. Significant changes inthe growth pattern; and an increase infood and fuel ** I-PRSPand full PRSPwere completedin2001 and2003, respectively. Here, the PRSPperiodrefers to the periodsince 2001. 29 See the endofthe chapter for the methodologyused for poverty line estimation. 43 Poverty Reduction Strategy Paper-I1 Chapter 3 - Povertydiagnostics prices have occurred since 2005 adversely affecting the poor. The Planning Commission will undertake a comprehensive estimate o fpoverty trends over the next three years after it receives the PSLM data for FY 2007108 from the Federal Bureau o f Statistics, which is likely to be available by January/February 2009. 3.3.5 Inthe meantime, aPanel ofEconomistsset upbythe PlanningCommissionhas provideda preliminary estimate of poverty (based on informed judgment) for FY 2008/09 that indicates an `addition o f 6 percentage pointsto poverty incidence since FY 2004/05.' ~ Figure 3.1: Poverty headcount rate in Pakistan FY 1987/88-FY 2005/06 (percent of population) 40 35 30 25 s 20 15 10 5 0 1987-88 1990-91 1992-93 1993-94 T996-97 1998-99 2001-02 2004-05 2005-06 Source: Pakistan Economic Surveys, FY 2001102 & FY 2007108,Finance Division, Government ofPakistan. 3.3.6 Poverty declined both in rural and urban areas (Table 3.1). Urban poverty declined more than 40 percent between FY 2001/02 and FY 2005/06 from 22.7 percent to 13.1 percent, while rural poverty declined slightly more than 30 percent from 39.3 percent to 27 percent. As a result, the urban poverty is now less than half o f the rural poverty in FY 2005/06. However, in terms o f percentage point decline, rural areas experienced a larger decline (12.3 percentage points) than urbanareas (9.6 percentage points). Region FY2001/02 FY 2005/06 Percent decline Overall 34.5 22.3 35.4 Urban 22.7 13.1 42.3 Rural 39.3 27.0 31.3 44 PovertyReductionStrategy Paper-I1 Chapter 3 - Povertydiagnostics 3.4 Distributionalimpactof economicgrowth 3.4.1 The Pakistan economy took off Figure3.2: Distributionof consumptionexpenditureper since FY 2003/04 and the GDP equivalentadults, 2001/02and 2005/06 (Rs at 2005/06 growth rate jumped to 7.5 prices) percent and remained high till FY 2006-07. An important question i s whether the growth benefittedthe poor as well. This section focuses on the distributional impact o f the recent upward trajectory of economic growth. 3.4.2 Figure 3.2 shows the distribution of population ranked by household expenditure per adult equivalent for both FY 2001/02 -----2001-02 -2005-06 and FY 2005/06. It clearly shows 1Source: the proportion o f poor population PIHSFY 2001/02 and PSLM FY 2005/06 has declined and the proportion o f middle income class increased. This suggests that the benefits from the recent economic growth have spread widely over different income groups. Also, the concentration o f population near the poverty line declined substantially, which indicates that a small shock inincome and expenditure likely to have less impact on the poverty headcount rate. 3.4.3 Table 3.2, which follows the classification of the PRSP, reinforces the observations from Figure 3.2. The proportions o f the extreme poor, the ultra poor and the poor all declined substantially since FY 2001/02. On the other hand, the proportion o f the rich, including both `Quasi non-poor' and `Non-poor', increased noticeably. 2001- 2005- Poverty Category 02 06 Extremely Poor 50% ofpoverty line or less 1.1 0.5 Ultra Poor 50% - 75% 10.8 5.4 Poor 75% 100% - 22.5 16.4 Vulnerable 100% 125% - 22.5 20.5 QuasiNon-Poor 125%- 200% 30.1 36.3 Non-poor 200% of poverty line or above 13.0 20.9 3.4.4 To see the growth impact by different income groups in more detail, growth incidence curves are shown in Figure 3.3. These curves map the average annual growth rate o f per 45 Poverty Reduction Strategy Paper-I1 Chapter 3 Poverty diagnostics - adult equivalent consumption expenditure for each centile over the period FY 2000/01 to FY 2004/05. The figure shows that almost all income groups enjoyed a similar rate of growth inrural areas, while the rich enjoyed a higher growth rate inurbanareas. Although there are some variations in growth rates, it is noteworthy that all groups recorded more than3 percent annual growthrates. Figure3.3: Growth incidencecurves betweenFY 2001/02 and FY 2005106 National (01-02to 05-06) Urban (01-02 to 05-06) Rural (01-02to 05-06) N 1 i 0 ~ ) 3 0 4 ! 1 5 0 m r o m w i m o o ?a 4!1 percentile of population 70 211 304!1 50 percentile of population m 70 m sotm i o 211percentile 50 of population 50 70 m mica Source: PIHSFY 2001/02 andPSLM FY 2005/06 3.5 Poverty profiles 3.5.1 Profiling the poor is often useful to identify where the poor live; who they are; and what they are doing; which are essential in designing poverty alleviation strategies. This section overviews the poverty profiles. 3.5.2 Urban-Rural breakdown 3.5.2.1 The poor are overwhelmingly concentrated in rural areas. As stated above, the poverty headcount rate in rural areas is 27 percent, more than double the size of urban areas. Furthermore, 80 percent of the total poor population lives inrural areas. Urban Rural Headcountrate (Percent) 13.1 27.0 Share ofpoor population (Percent) 20.5 79.5 3.5.3 Poverty and demographics 3.5.3.1 Poverty is highly correlated with household size. Larger households and households with highdependency ratios are likely to be much poorer than smaller households (Figure 3.4). For example, no household with one member is poor while more than 35 percent of households with 10 or more membersare poor. 46 PovertyReductionStrategyPaper-II Chapter 3 - Poverty diagnostics 'igure3.4: Household size and povertyrate FY 2005-06 10 or above 9 m a ;7j 7 E 6 c 0 0 5 4 0 3 I 3 I I 2 1 0 10 20 30 40 Poverty Headcount Rate (%) Source: PSLMFY 2005/06. Government of Pakistan 3.5.4 Agriculture and Poverty 3.5.4.1 Pakistan i s an agrarian country where about two-third o f the population still lives in rural areas. Not surprisingly, rich households in rural areas were more likely to own agricultural landthan poor households inFY 2005/06. The richest 20 percent o f rural households were on average more than 3.5 times likely to own agricultural land than the poorest 20 percent o f rural households (Figure 3.5). Also, the richest 40 percent o f rural households owned agricultural land that was on average about 4 times larger than that owned by the poorest 60 percent. Poverty Figure3.5: Agricultural landownership(in ruralareas) 3.5.5.1 Educational attainments and by rural consumption quintilesFY 2005/06 occupations o f household heads AgriculturalLand Ownership(in RuralAreas) by Rural appear to be highly correlated ConsumptionQuintiles,2005106 with poverty incidence o f the 20 , 189 households. For example, 18 16 according to PSLM FY 2005/06 14 data, educational attainment o f T -312 household heads differs starkly f310 between the rich and the poor. $ 8 Among the poorest 20 percent of however, among the richest quintile, only around 20 percent o f household heads did not complete class 1. On the other hand, almost no heads in the poorest quintile completed class 11 or more, while more than 30 percent o f heads in the richest quintile completed class 11 or more. 47 Poverty Reduction Strategy Paper-I1 Chapter 3 - Poverty diagnostics 3.5.5.2 Also, occupational status i s clearly different between the rich and the poor. InFY 2005/06, nearly 40 percent o f household heads in the poorest quintile held so-called "elementary occupations" while less than 20 percent of heads inthe richest quintile held the elementary occupations. 3.5.6 Service delivery and Poverty 3.5.6.1 Access to key community services i s strongly associated with a household's poverty situation. Using the PSLM FY 2004/05, which has rich data on access to key facilities and infrastructure, Figure 3.6 shows the relationship between the distance to some basic community services, such as the nearest primary school, hospital/clinic, family planning facility, or public transport, and poverty. It shows that households closer to the basic community services are ingeneral richer than those isolated from these services. 3.5.7 Other important factors 3.5.7.1 Needless to say, other factors are also important. Poor and vulnerable households tend to lack access to jobs, assets, savings, insurance products, institutional credit, and assistance options. Due to this, they are often compelled to resort to desperate measures to cope with chronic stress and shock, often with tragic outcomes. Patterns o f multi-generational poverty traps can be identified, whereby poverty incurred by one generation i s transferred to subsequent ones, with no apparent hope o f escape. A prime example is offered by the effects o f the educational attainment o f the household head on that of the family - children in families o f which the household head i s illiterate, tend to be illiterate. Since literacy is correlated with poverty, this tends to perpetuate poverty by transferring it across generations. Another instance i s provided by borrowing or the sale of assets, which results , in the depletion o f already scarce resources. Selling or mortgaging land, house, and productive assets occur with disturbing frequency. Another consequence i s economic inefficiency - self-insurance against risk can have high opportunity costs and stifle innovation and investment, as households choose to maintain liquid and low-risk, low- returnassets. These factors needto be studied further. Figure 3.6: Poverty rates by minutes to the n west facility in FY 2004/05 Nearest Primary School Clinichospital 48 PovertyReduction Strategy Paper-I1 Chapter 3 - Povertydiagnostics Familyplanningclinic Public Transportation M1 "1 49 PovertyReductionStrategy Paper-I1 Chapter 3 - Povertydiagnostics ANNEX: METHODOLOGY OF POVERTY LINEESTIMATION Among the many approaches and definitions in the theoretical literature and adopted by various developing countries, the Planning Commission o f Pakistan has used the following definition for estimating the poverty line. "Calorific requirement approach wherein all those households (or individuals) are classified as poor who do not have income sufficient to allow a consumption pattern consistent with minimum calorie requirements. It is also assumed that the households earning incomes equivalent to poverty line not only have sufficient food to meet the minimumnutritionrequirements but also the non-food requirements". It is to be noted that the current (FY 2005/06) estimates of poverty status (headcount ratio, poverty gap and squared poverty gap) are updated by Consumer Price Index (CPI) from the revisedpoverty estimates o f FY 2000/01. The methodology of revisedpoverty estimates o f the FY2000/01 involvedthe following steps: I.ConstructingConsumptionAggregate The Aggregate Consumption Function (ACF) is constructed as follows: .' Aggregate the various sub-components; Adjust for cost of living differences; and Adjust for household composition. The Sub-components o fACF can be classifiedinto four categories: 1. .. Food items; . 11. ... Non-food items; 111. Consumer durables; and iv. Housing. (i)FoodItems It includes food consumed from all sources and needs data on the total values alongwith the quantity o f various food items consumed inthe reference period: .Foodpurchased inmarketplace; ' Home producedfood; ' Food items receivedfrom the employer as payment inkindfor services rendered; and Food items receivedfrom other household as gift or remittances. **`Tobacco is not a food item The whole o f food consumption is transformed into a uniform reference period: .' 1month = 2.71 * fortnights 1year = 12months 50 Poverty Reduction Strategy Paper-I1 Chapter 3 - Poverty diagnostics There are some households that report zero quantities consumption but non-zero values o f the expenditure on few items. In such cases, prices for the data from other households are constructed and medianprice paid by other households inthe same cluster is usedto come up withthe quantities. (ii)Non-FoodItems The non-food items are heterogeneous in nature and hence data on values is available only; quantities data i s absent except in case o f fuels. Following non-food expenditures have been excluded from the non-food sub-aggregate: .Expenditureontaxedlevies; . Purchases on financial assets, interest payments, and debts; and Lumpyexpenditures such as marriages/funerals. (iii)ConsumerDurables Appropriate measure o f consumption o f durable goods is the value o f services that the household receives from all the durable goods inits possession over the relevant time period. It is a tedious process and requires a lot o f data which is not captured by HIES. Therefore, all durable goods are excluded from ACF except Services and Repair Charges o f household effect, etc. (iv) Housing It is the most problematic o f all sub-aggregations. It includes utilities (electricity, gas, water) and the value o f rent paid by the household. The rental value is not always reported, especially in the rural areas. In such cases, implicit or imputed rental value is calculated by using `Hedonic Housing Regression.' For regressionpurpose, consider all the households that report a paymenthenefit from the rent. Regress this variable on some o f the household characteristics that can affect the value o f rent such as: Numberofrooms, ifmissingusemediannumber ofrooms Availability o f electricity; dummy variable : 1 ifyes, 0 ifnot Availability o f gas; dummy variable : 1ifyes, 0 ifnot Availability o ftelephone; dummy variable : 1ifyes, 0 ifnot Availability o f water; dummy variable : 1 ifyes, 0 ifnot Availability o ftoilet; dummy variable : 1ifyes, 0 ifnot Availability o f garbage collection; dummy variable : 1ifyes, 0 ifnot Location: dummy for strata inthe survey: urban, rural, and provinces 51 Poverty Reduction Strategy Paper-I1 Chapter3 - Poverty diagnostics Take logarithm o f the dependent as well as the independentvariables for regression. Parameter estimates from this model are usedto calculate rent for the other segment o f population. 11.Adult EquivalenceScale Nutritionbased adult equivalent scales which differentiate between households on the basis o f sex and age are also used for transforming the number o f persons in a household to adult equivalents. The application o f nutrition based equivalent scales to any expenditure other than food expenditure i s questionable from a methodological point o f view. The "revised estimates" are based on a simple equivalent scale that weights 0.8 to individuals younger than 18 years old and 1 for all other individuals. The adult equivalent scale o f PlanningCommission i s based on calorie requirements and therefore, applicable only to food consumption expenditure. Moreover, food expenditure represents only about 50 percent o f the total consumption expenditure, therefore, an adult equivalent scale (0.8 for younger than 18 years old and 1 for others) has been usedto adjust the total householdconsumption expenditure. 111.MethodologyofPovertyLineEstimation: Poverty line i s estimated from a regression o f per adult equivalent monthly consumption expenditure (food and non-food) against estimated daily per adult equivalent calorie intake. This methodology implicitly assumes that those households that reach the minimum requirement o f calorie also consume necessary nonfood items, otherwise they would have increased calorie intake. The regression is run for the first three quintiles so that expensive and luxury consumptionhabits ofthe richmay not overestimate the poverty line. RegressionEquationForm The regression equation is as under: LnY =a +bX u + Where: Y =Monthly per adult equivalent consumption expenditure (food and non-food) X =Dailyper adult equivalent calorie intake Results LnY =(6.112+(2.019E-4*2350)) =Rs723.40 (Updated Estimates) RZ= 0.195 Standard error o fthe estimate = 0.2112 Assumptions: . There exists specifically defined amount o f calories that is considered essential. Here, this per adult equivalent minimum calorie requirement (X) is 2350 calories per adult equivalent per month; 52 Poverty Reduction Strategy Paper-I1 Chapter 3 - Poverty diagnostics . In case the minimum calorie requirement is achieved, then implicitly, the nonfood essential items are also achieved; Same goods basket i s consumed inall the provinces.; and The first three per adult equivalent consumption expenditure quintiles are used in the regression equation estimating the poverty line so that the consumption pattern o f the rich does not affect the determination o fthe poverty line. IV. MethodologyofPovertyIndicesEstimation Povertyindices Once the decision has been made regarding the choice o f poverty line there i s then choice o f aggregator. This can range from a simple count o f individuals below poverty line to more complicated measures which take account o f the distribution o f income amongst the poor. We use the poverty measures proposed by Foster, Greer, and Thorbeck (1984) that are the headcount ratio (PO), average poverty gap (P') and the squared poverty gap (P2). Headcountratio (Po) The headcount ratio is defined as the proportion o f people below the poverty line. This measure i s easy to calculate but it has some disadvantages. It takes no account o f the depth o f poverty. Someone just below the poverty line has the same weight as the very poorest o f the poor. It also fails to obey the principle o f transfers i.e. a transfer o f income from a poorer person to a richperson does not increase headcount ratio. Indeed, ifthe recipient o fthe transfer i s just below the poverty line and the transfer raises himjust above the poverty line then the transfer will have reduced poverty. This gives rise to the situation where the most effective means o f the reducing poverty i s to target the comparatively best-off the poor. Despite these drawbacks, the headcount ratio i s still perhaps the most widely usedpoverty measure. Headcount: I if wi 0 Wherez is the value o fthe poverty line, Wi is theper adult equivalent consumption expenditure o f the individual i, andN is the total population. For all the indices, when the individual values are summed up they are multiplied by the household size and properly weighted to represent the whole population. PovertyGap (PI) Poverty gap i s the product o f incidence and average distance between the incomes o f the poor and the poverty line. It reflects the average shortfall o f the incomes o f the poor expressed as a 53 Poverty Reduction Strategy Paper-I1 Chapter 3 Poverty diagnostics - share o f the poverty line. Poverty gap does take account o f the depth o f poverty but it does not take account of the distribution of income amongst the poor. Poverty gap: Squared poverty Gap (P') The squared poverty gap measure of poverty is sensitive to the distributionamong the poor as more weight i s given to the poorest below the poverty line. It corresponds to the squared average distance o f income o f the poor to the poverty line. Hence moving from Potowards P2, more weight i s givento the poorest inthe population. Severity of poverty: V. Updating the Poverty lineto FY2005/06 Following steps were undertaken to update the poverty line and estimate poverty status from the household data contained inthe PSLMFY 2005/06 survey: Total household consumption expenditures innominalterms inFY 2005/06 prices were reducedto common denominator o fa single month. In arriving at total household consumption expenditure, prices prevailing in 1100 Primary SamplingUnits(PSUs) and across the twelve monthperiod (July 2005 to June 2006) were standardized to conform to a consistent consumption welfare concept. These were divided by household size adjusted for children less than 18 years o f age. For example, if there were 5 children under 18, these were treated as 4 adults. This adjustmentyielded consumption expenditure per adult equivalent per month. The poverty line o f Rs 878.64 obtained inFY 2004/05 was raised by 7.48 percent CPI inflation during FY 2004/05 and 2005/06 to arrive at the new inflation adjusted line of Rs944.47 per adult equivalent per month.30 30Note in order to arrive at poverty-status for FY 2004105, the poverty line of Rs 723.40 obtained in FY 2001102 by methodology described above was adjusted by CPI inflation of 21.46 percent during the period to obtain poverty line of Rs 878.64 inFY 2004105. 54 Poverty ReductionStrategy Paper-I1 Chapter 3 - Poverty diagnostics . By comparing the per adult equivalent per month expenditure of each sampled individual with the FY 2005/06 poverty line of Rs 944.47, the above indicators on povertystatuswere calculated. 55 Poverty Reduction Strategy Paper-I1 Chapter 4 - Pillar I:Macroeconomicstability andreal sector growth Chapter 4 - Pillar I:Macroeconomic stability and real sector growth 4.1 The study o f global and regional poverty as well as Pakistan's own experience from the PRSP-I period suggest that a country's economy must grow rapidly over a prolonged period in order to reduce poverty. At the macro level, economic growth implies greater availability o f public resources to improve the quantity and quality o f education, health and other services. At the micro Ievel, economic growth creates employment opportunities, increases the incomes o f the people, and therefore reduces poverty. Many developing countries have succeeded in boosting economic growth for brief periods, but only those that have sustained high growth over substantial periods (say, two or more decades) have seen a lasting reduction in poverty. East Asian countries such as Korea, Malaysia, China, Taiwan, Singapore, and Hong Kong offer clear examples o f the effects o f economic growth on poverty alleviation. It i s also evident from the experience o f these countries that growth does not come automatically -it requires policies. Macroeconomic stability i s the key to sustain higheconomic growth for longer periods. The persistence o f high economic growth and not a short sequence o f bust and boom that characterized the Pakistan economy over the years is the besthope for poverty alleviation. 4.2 The distribution o f poor population inPakistan suggests that almost 75 percent o f the poor are clustered around the poverty line. Thus a slight rise in the mean income pulls many people above the poverty line whereas one crop failure or economic shock may send millions below the poverty line. Pakistan has historically posted higher economic growth too often in its checkered history o f sixty years. The volatility in economic growth due to macroeconomic forces is the basis o f the asymmetric growth in Pakistan and played an important influence on income distribution. The effects o f income growth and the distributive effect associated to structural change were positive on reducing poverty but the evolution o f relative prices and wage policies avoided a real income growth o f urban and rural low skilled labours. The volatility o f the income has proved very costly for the poor. The economy experienced longer spell o f slower economic growth only in the 1990s and the poverty level reached as highas 34 percent ofthe populationin2001. 4.3 The economy moved to a higher growth trajectory in the vicinity o f 6-7 percent real GDP growth during FY 2002-07 and resultantly the poverty declined substantially in FY 2004/05. However, the growth strategy relied heavily on external financing and use o f sale proceeds from some public sector assets to meet a growing current account deficit. The poor resource mobilization efforts within the country remained hallmark o f the economic policy inthis period and exacerbated vulnerabilities to external shocks. 4.4 The domestic factor behind higher growth during 2002-07 was a consumer boom on the back of enhanced access to credit. The services sector and production of durables in the manufacturing sector spearheaded the move to higher growth trajectory. The agriculture sector and small and medium industry were largely ignored. These two areas were the best 56 Poverty Reduction Strategy Paper-I1 Chapter 4 - Pillar I:Macroeconomic stability andreal sector growth hope for poverty reduction. Financial businesses and telecommunication were the major attractions of foreign investors andthese two sectors registereddouble digit growth feeding into higher growth inthe services sector. The minimal potential ofjob creation and lower level of forward and backward linkages has given rise to a `jobless andjoyless' growth. 4.5 The productive capacity of the economy remained alien to this higher growth and new industrial capacity was hardly added to the economy. The agricultural policy was not announced during the last eight years. The input prices of agriculture escalated at a faster pace while output prices remained almost stagnant up to 2006 and it was only in the last two years the output prices witnessed upsurge. Poor water resource management was another area of concern and no serious efforts were made to augment smooth supply of the irrigation water. The agriculture sector faced acute water and input shortagesduring the last eight years butno consciouseffort was being done to bridge demand-supply gap. 4.6 Severe macroeconomic pressure impacted economic activity in Pakistan in FY 2007/08. Beside other factors, Pakistan has had to face significant costs during the last few years being a frontline state in the `War on Terror', thereby neutralizing buoyancy in capital inflows. The law and order situation in certain parts of the country has deteriorated alarmingly. Pakistan, with the rest of the world felt the force of a steep rise inthe prices of petroleum andprimary products. 4.7 The fiscal year 2007/08 was a volatile year for Pakistan's economy both on domestic and external fronts. Number of unfavourable and unexpectedevents occurred during the years, which include: political unrest; law and order situation; supply shock; rising oil; food and other essentials prices; and crisis in the international financial market together with shortcomings in economic management. All these events have adversely affected the key macroeconomic fundamentals of Pakistan. The economy suffered a setback as GDP registered a growth of 5.8 percent against the target of 7.2 percent and a growth rate of 6.8 percent in FY 2006/07. The major sectors, agriculture and manufacturing, performed poorly. Services sector was the saving grace of economic growth in FY2007/08 which primarilystemmed from better thanexpectedperformance achieving 8.2 percent as against 7.6 the previous year. 4.8 The FY 2007/08 saw the fragility of the growth model adopted by Pakistan during the last several years. Surging oil, food and commodity prices accompanied by the turmoil in international financial markets and the disturbed domestic political conditions had an adverse impact on Pakistan's budgetary position. Furthermore, over a year of policy inaction on account of political expediency for addressing the challenges, accentuated the budgetary imbalances. Expenditures greatly exceeded their budgeted amounts, mainly because of subsidieson oil, power, fertilizer, wheat and other foods. 4.9 The mismanagement of wheat operations led to an unanticipated import of 1.7 million tons of wheat at high prices, despite a bumper wheat crop (23.3 million tons) in 2006/07. This imposeda burden of Rs 40 billion on the government as payment for differential between 57 PovertyReduction Strategy Paper-I1 Chapter 4 Pillar I:Macroeconomic stability and real sector growth - the cheaper price inthe domestic market and imported cost. Ina similar fashion, the higher cost o f furnace oil used in power generation was not allowed to pass through to domestic consumers o f electricity. Therefore, against the budgeted subsidy o f Rs 52.9 billion the projectedpower subsidy stood at Rs 113 billion-a slippage o f Rs 60 billion. 4.10 The fiscal deficit surpassed the target by 3.4 percentage points o f GDP. The combined impact o f subsidies to the budget on account o f oil and commodity shocks was estimated at nearly 3.6 percent o f the GDP. Itmeans the overrun o fthe fiscal deficit was entirely driven by the subsidies. Belated attempts to obtain savings from reductions in the development expenditures were unsuccessful. The efforts to curb the fiscal deficit within the target were further undermined by the huge overruns in interest payments. In the wake o f major disruptions like domestic food and energy shortages and a plummetingexchange rate with high inflation, and exceptionally high macroeconomic imbalances, the required contingency plan was missing. 4.11 With the beginning o f the new fiscal year (2008/09), Pakistan economy faced four major challenges: decelerating growth; rising inflation; growing fiscal deficit; and the widening gap in merchandise trade leading to a sharp depletion o f foreign exchange reserves and a plummeting exchange rate. 4.12 The high price o f food in the global arena threatens to push millions into poverty. Rising food prices have pushed up overall inflation not only in Pakistan, but across the region, particularly during 2007 and mid 2008. This i s worrisome, because food price inflation i s the most regressive o f all taxes, hurtingthe poor and fixed income groups the most. 4.13 The recent upsurge in inflation is unprecedented in Pakistan and the victim o f this hike is the lowest income group where incidence o f inflation i s the highest among all income groups. Downward adjustments in fuel prices will be neutralized by upward adjustment in energy prices but increase in support price o f wheat will also play a role. Inflation has edged up due to massive borrowing from the SBP for budget financing and the government has, therefore, committed itself to restrict SBP financing to zero (on net basis) in order to stabilize inflation. 4.14 MacroeconomicFramework 4.14.1 Macroeconomic imbalances are inimical to longer-tern growth and macroeconomic stability. The longer the imbalances persist, the greater the subsequent adjustment will be needed. Macroeconomic stability is, therefore, found to be absolutely vital for improving the investmentclimate and takingthe economy at higher growth path on a sustained basis. The objectives o f Pakistan's stabilization programme are to reduce the `twin deficits' (fiscal and current account) to restore macroeconomic balance, to bring the balance o f payment to a viable position, and to build up foreign exchange reserves with a view to strengtheningshock absorbing capacity o fthe economy. 58 PovertyReductionStrategyPaper-I1 Chapter 4 - Pillar I:Macroeconomic stability and real sector growth 4.14.2 Empirical evidence suggests that macroeconomic instability has generally been associated with poor growth performance and the consequent rise inpoverty. The persistence o f large fiscal and current account deficits and the attendant rise in public and external debt have been the major source o f macroeconomic instability in Pakistan in the 1990s and the last fiscal year (2007/08) proved once again that these imbalances vitiated a stable macroeconomic environment which can not be conducive for investment and growth. Indeed, Pakistan witnessed its investment rate decelerating, economic growth slowing, employment opportunities shrinking, poverty level rising, debt burden reaching alarming proportions, and foreign exchange reserves plummeting in the past as a result o f macroeconomic imbalances. 4.14.3 Against this backdrop the government has taken a series o f steps to stabilize the economy. The government's Economic Stabilization Programme includes a combination o f stabilization measures and structural reform. The former is aimed at restoring macro- economic balance by bringing the level o f demand and its composition in line with the output capacity o f the economy and a sustainable external current and fiscal account position. The latter comprises microeconomic and institutional reforms directed at fostering an efficient allocation o f resources and removing obstacles to optimize savings and investment. The ultimate objective of the stabilization programme is to harness long-term growth potential o fthe economy for more inclusive growth. 4.14.4 The macroeconomic stabilization is, unfortunately, likely to slow down economic growth, cause unemployment and push poverty rate up in the short run. Therefore, the central element inthe government's strategy is to protect the poor and vulnerable from the adverse effects o f the adjustment by increasingthe allocations for social safety nets. Inthe long run economic stabilization will benefit the vulnerable segments o f society. The macroeconomic framework for PRSP-I1 has beenprepared with a view to steering the economy to a higher growth trajectory in a stable macroeconomic environment. Growth, investment, and inflation aspects o f the macroeconomic framework are shown inTable.4.1. Benchmark Projections Items Unit 2007/08 2008/09 I2009/10I 2010/11 12011/12 I 2012/13 Agriculture YO 1.5 3.0 3.4 3.8 4.0 4.3 - Major Crop Y O -3.O 3.5 4.0 4.0 4.0 4.5 - Livestock % 3.8 3.2 3.5 4.0 4.3 4.5 Manufacturing YO 5.4 1.5 4.0 5.1 5.7 6.9 - Large Scale Manufacturing YO 4.8 0.0 4.0 5.3 6.0 7.5 Services YO 8.2 4.2 5.8 6.1 6.7 7.8 - Wholesale & Trade YO 6.4 4.5 4.8 5.O 5.5 7.2 - Financial Businesses YO 17.0 3.O 12.0 11.0 12.0 13.0 Real GDP Growth YO 5.8 3.4 5.0 5.5 6.0 7.0 Inflation (CPI Based) Y O 12.0 23.0 13.0 7.0 6.5 5.0 Nominal GDP Growth YO 20.0 27.2 18.6 12.8 12.9 12.3 59 Poverty Reduction Strategy Paper-I1 Chapter4 - Pillar I:Macroeconomic stability andreal sector growth GDP (Current mp) Rs. Billion 10,478 13,384 15,880 17,926 20,237 22,736 AS% of GDP IInvestment I % I 21.6 I 19.9 1 21.3 I 23.8 I 24.5 I 24.8 I - FixedInvestment YO 19.9 18.4 19.8 22.3 23.0 23.3 - Public Investment Y O 5.7 3.O 3.8 5.5 5.9 6.2 - PrivateInvestment Y O 14.2 15.4 16.0 16.8 17.1 17.1 National Savings YO 13.3 13.4 15.6 19.2 20.5 21.2 Foreign Savings % 8.4 6.5 5.7 4.6 4.0 3.6 Memo Items NominalExchangeRate Rs/ $ 62.5 82.0 92.7 97.3 101.6 104.7 us$ NominalGDP Billion 167.5 163.2 171.3 184.3 199.2 217.3 Population Million 161.0 163.8 166.6 169.3 172.1 174.8 Per Caoita GDP us$ 1040 997 1029 1089 1158 1243 4.14.5 Higher economic growth -which i s indispensable for reducing poverty -will depend on the ability o f the country to unlock the creative energies o f the people. This requires investmentinhumancapital and higher spending on social sector. Going forward, Pakistan will have to allocate substantially large resources for strengtheningthe country's physical and human infrastructure to sustain the growth momentum. However, with low domestic savings rate and low foreign direct investment, a key policy question i s how to finance growth in the medium term. Pakistan has heavily relied on foreign saving in the form o f international borrowing in the past to finance development. The growth model based on foreign savings has increased vulnerability o f the economy in recent past and we have to reverse the recent downward trend indomestic saving. 4.14.6 To mobilize an adequate quantum o f household savings, we should provide appropriate incentives so that households invest in financial assets with higher returns instead o f putting money into physical ones such as land, housing, dollars and gold. One such instrument i s contractual savings which has potential to fill in the demand gap for saving instruments with medium and long term maturity not only for individual but also for institutional investors. The effectiveness o f contractual saving vehicles, such as pension funds, mutual funds, insurance companies, etc. in helping to increase savings has been established. Development o fthe debt market for government securities and corporate bonds i s equally important in order to address medium and long term mobilization o f saving, the development o f institutional investors, the diversification o f financial intermediation from commercial banks, and the introduction o f advanced financial instruments. 4.14.7 Pakistan has traditionally mobilized modest national savings to GDP ratio which i s hardly sufficient to finance investment need o f the economy. The fiscal deficit and its financing patterns explain more o f poor domestic savings ratios inthe country than any other factor. The easy access to external resources to finance the deficit and creation o f base money at will are two main causes o f the poor domestic savings ratios in the country. The government has emerged as a major dissaver over the years. 60 PovertyReduction Strategy Paper-I1 Chapter 4 - Pillar I:Macroeconomic stability and real sector growth 4.14.8 The government had committed itself to fiscal discipline where the revenue deficit had to be eliminated by end o f fiscal year 2008 under Fiscal Responsibility and Debt Limitation Act 2005. However, the extraordinary situation prevalent in the country forced to default on this clause. Under the new stabilization plan, the government i s likely to generate savings by end o f fiscal year 2010 after another year of default in FY 2008/09. Additionally, the economy has to create incentives for household and corporate savings through financial sector improvement, development o f insurance sector, installing new pensionfunds, corporate bond markets and so on. 4.14.9 Table 4.2 documents trends in public finance. Total revenue i s projected to increase from 14.3 percent of GDP in FY 2007/08 to 17.8 percent in FY 2012/13. Total expenditure between these two dates remains more or less constant at around 20 percent o f GDP thereby leading to a reduction inthe overall deficit. The key to the creation o f fiscal space during the PRSP-I1 period will be a sharp increase in the tax-to-GDP ratio. This will require a reform of the tax system; the World Bank i s currently preparing a study that will help the government in this area. The government has also initiated a programme o f strengthening tax administration, which will include simplifying tax compliance and minimum interaction between the taxpayer and the tax official. To this end, a full description o f required reforms in the area o f tax administration, including an action plan for harmonizing the GST and income tax administration, will be prepared and the draft legislative amendments will be submitted to the parliament to harmonize the income tax and GST laws and reduce exemptions. The government will initiate a process to implement a full value-added tax (VAT) with minimal exemptions, to be administered by the Federal Board o f Revenue (FBR). Draft legislation for the VAT i s expected to be ready for public debate by end-2009. Table 4.2: Pakistan:ConsolidatedFiscalFrameworkFY 2008-2013 1 1Benchmark 1 61 Poverty Reduction Strategy Paper-I1 Chapter4 - Pillar I:Macroeconomic stability andreal sector growth CurrentExpenditure 17.7 15.8 15.0 13.7 13.6 13.6 Developmentexpenditure* 4.3 3.0 3.9 5.4 5.9 6.3 Net lending -0.3 0.0 0.0 0.0 0.0 0.0 Primarybalance -2.7 0.8 1.7 0.5 0.7 0.5 Overall balance -7.4 -3.9 -3.0 -2.8 -2.2 -2.0 4.14.10 For the government to remain fiscally responsible and prudentwe need more revenue. With current undoubtedly narrow tax base, it will be difficult to generate enough resources to finance infrastructure development. The government will therefore make efforts to extend the tax base to hitherto untaxed or under-taxed sectors. Broadening the tax base will also ensure a fairer distribution o f the tax burden among various sectors o f the economy. The overall services sector, including wholesale and retail trade as well as agriculture, are potential candidates for broadeningthe tax base. 4.14.1 1 Mediumterm fiscal consolidation will be supported by strong tax policy and administration measures, and the medium-term fiscal framework assumes a further increase intax revenue o f at least 2.5 percentage points o f GDP. The government will reduce exemptions underthe GST and harmonize the income and GST laws in the context o f the 2009/10 budget discussions. Finally, a new draft VAT law will be submittedfor public debate by end 2009. The full revenue impact ofthis law will materialize over the mediumterm. 4.14.12 The government plans to use the ongoing review o f the FBR to modernize the tax administration and bring it to high international standards. Improving the coverage and working ofthe GST to makeit a proper VAT andtaxes consumption rather than the narrow sectoral focus that has resulted in erosion o f the base and operation o f the GST. Similarly, the income taxes need to be fully implementedwith a global treatment o f income. The fiscal adjustment will be achieved primarily by phasing out energy subsidies, better prioritizing development spending, and implementing tax policy and administration measures. The historical level o f tax-to-GDP ratio will keep Pakistan into a vicious circle o f fiscal deficit, financing problem and debt trap. FBR i s tasked to come up with more innovative strategies to expand its tax mobilization efforts to under-taxed and un-taxed sectors. The consolidated fiscal framework envisages enhancing tax-to-GDP ratio from its low level o f 10.4 percent of GDP in2007/08 to 14.3 percent in2012/13. 4.14.13 The government's objective i s to increase tax revenue by at least 3.5 percentage points of GDP over the medium term. This is based on strengthening the tax administration and taking parallel tax policy measures. An integrated tax administration organization on a functional basis at FBR level will report to the Chairman. This will also integrate the Income Tax and Sales Tax organizations by end 2009. A risk-based audit strategy will be implemented. On the policy side, the government will harmonize the income tax and GST laws, to facilitate joint functioning o f the new administration to be included in the Budget 2009/10. Following the tax policy review in mid December 2008, the government will initiate a process to implement a full VAT with minimal exemptions, to be fully administered by FBR. The exemptions on various sectors have to be eliminated. It will 62 PovertyReductionStrategy Paper-I1 Chapter 4 - Pillar I:Macroeconomic stability andreal sector growth enable the government to reduce marginal tax rates which will help further stimulate investment and production and will promote voluntary tax compliance. It will also ensure the fair distribution o fthe tax burdenamongvarious sectors ofthe economy. 4.14.14 Investmenti s the key driver o f economic growth. In order to achieve the desired growth, investment rate i s projected to move from 21.6 percent o f GDP in FY 2007/08 to 24.8 percent in FY 2012/13. Private investmentwill take the lead in reinvigorating directly the production sectors -rising from 14.2 to 17.1 percent betweenthe two dates, while public sector investment will focus on human and infrastructure development. National savings are projected to increase from 13.3 percent o f GDP to 21.2 percent over this period. The savings-investment gap is therefore projected at 6.5 percent of GDP inFY 2008/09 and 3.6 percent of GDP inFY 2012/13 (Table 4.1). This shows that reliance on foreigner's savings will be reduced with the passage of time and the investment demand for higher growth would be financed from domestic savings. 4.14.15 The dynamics of macroeconomics o f the country have undergone substantial change in recent years. The strategy o f financing growth through higher current account deficit is seen to have failed, and the focus on production sector has to be enhanced for more inclusive growth. The people at the bottom o f the pyramid need more share o f opportunities in the process of economic development. Pakistan i s introducing second generation o f reforms with a greater focus o f inclusion o f people at the bottom o f pyramid by creating morejobs and opportunities. The strategy will focus on small businesseswhich will helpinresolvingthe problem o fincome distribution. 4.14.16 These are all included in the stabilization plan. In implementing its new broad-based programme for economic stabilization, the government has already taken the following actions: ... raised petroleum prices to reduce burdenon the budget; significantly cut expenditures,particularly on subsidies; .. tightenedmonetary policy to fight inflation, as interest rates were raised by nearly 350 basis points (bps); depreciated exchange rate by nearly 20 percent betweenMarchand December, 2008; .. introduce additional measures (such as curbing forward booking of foreign exchange) to cool off import demand; putrestrictions on the use o fforeign exchange; committed to remove all subsidies on oil and electricity by end December 2008 and June 2009; .. . eschewed hrther borrowing from the State Bank (on a net basis); imposedregulatory duties on non-essential imports; and Cut developmentspending to adhere to the fiscal deficit target of 4.3 percent of GDP. 63 Poverty Reduction Strategy Paper-I1 Chapter 4 - Pillar I:Macroeconomic stability and real sector growth 4.14.17 Inorder to cushion the impact of this programme on the poor, the government initiated the Benazir Income Support Programme (BISP) with an allocation o f Rs 34 billion (this i s discussed in detail in the next chapter). The new macroeconomic framework reinforces commitment to target vulnerable segments of the society and an increase of 0.6 percentage points o f GDP in FY 2008/09 in the social safety net spending to 0.9 percent o f GDP, in order to protect the poor and cushion the impact o f the elimination o f subsidies on vulnerable groups. 4.14.18 The consolidated fiscal framework strikes a balance between resource availability and expenditure spree. The latter are made to decline from 21.7 percent o f GDP to 19.9 percent inthe mediumterm. The compositionwill shift towards growth-enhancing components - current expenditurewill fall from 17.7 percent of GDP to 13.6 percent, while development expenditure i s projected to rise from 4.3 percent o f GDP to 6.3 percent. To keep the fiscal deficit at a sustainable level, greater emphasis i s placed on additional resource mobilization. The fiscal deficit is envisaged to be reduced from 7.4 percent o f GDP in FY 2007/08 to 2.0 percent inFY 2012/13. 4.14.19 A credible and prudent fiscal policy comprised of: (i) a balanced tax structure based on rational and affordable rates with minimal exemptions covering a broad range o f taxpayers; (ii) expenditurepolicythataimstomoderategrowthinnon-developmental expenditure an and adequately accommodative for pressing social and infrastructure needs o f a developing economy; and (iii) a prudent debt managementpolicy. 4.14.20 The Fiscal Responsibility and Debt Limitation Act (FRDLA), 2005 binds the government to achieve revenue balance (total revenue minus total current expenditure) by the end ofthe fiscal year 2007/08. This target was not achieved because o f extraordinary developments in the year, caused mainly by higher food and oil subsidies. The fiscal aspect of the macroeconomic framework adheres to the limit set by the Act, and accordingly a revenue surplus is maintained throughout the period of the Medium-Term Macroeconomic Framework. Within this framework, current expenditures decline from nearly 17.7 percent o f GDP in FY 2007/08 to 13.6 percent in FY 2012/13. This restraint i s largely brought about by decliningpaymentsfor interest. 4.14.21 Pro-poor expenditures will be prioritized through a Medium Term Expenditure Framework (MTEF)that will beconsistent withthe FRDLAct, 2005 which stipulates that expenditures on social sectors would be 4.5 percent o f GDP in any given year and that allocations for health and education would double as a percentage o f GDP over the next 10 years ending inFY2013. The targets for keymacroeconomic aggregatespresentedinthe Framework are the broad direction over the medium term and are indicative; they are not intended to preempt any future adjustments that may be required to achieve the desired targets. As a consequence o f the divergent movements in revenues and expenditures, public debt i s 64 Poverty Reduction StrategyPaper-I1 Chapter 4 Pillar I:Macroeconomic stability and real sector growth - projected to decline from 56.3 percent o f GDP in FY 2007/08 to 45 percent by the end o f 2013. The path o f the country's debt burdeni s consistent with the FRDLAct, 2005. 4.14.22 On the external side the macroeconomic framework projects a drastic reductioninthe trade gap from U S $15.3 billion in FY 2007/08 to US $13.7 billion in FY 2012/13 that would enable reduction inthe current account deficit from U S $14.0 billion to U S $7.9 billion in this period (Table 4.3). As a percentage of GDP the current account deficit is projected to decline from 8.4 to 3.6 percent o f GDP duringthis period. The reduction inthe trade deficit is mainly on the back o f drastic compression of non-essential imports as well as stabilization o f prices o f crude and edible oil along with commodity prices. Exports are expected to grow at their long-term average o f 14-20 percent inthe mediumterm. With the declining trade deficit, the current account deficit will also fall and thus necessitates external debt reduction from 27.3 percent of GDP inFY 2007/08 to 21.9 percent by the end o fthe macroeconomic framework period. 4.14.23 The overall vision of PRSP-I1 is, therefore, to steer Pakistan's economic growth back inthe range o f 5-7 percent per annum by stimulating growth prospects in the production sector; creating adequate employment opportunities; improving income distribution; and 65 Poverty Reduction Strategy Paper-I1 Chapter 4 Pillar I:Macroeconomic stability and real sector growth - harnessing the country's economic competitiveness through economic liberalization, deregulation and transparent privatization. 4.14.24 The most crucial part o f the Poverty Reduction Strategy is to regain macroeconomic stability and establish an enabling environment for investment. The risk to macroeconomic stability emanates from the security situation and from the turmoil in the world economy. The structural reforms to be implemented in Pakistan during the next five years should make higher domestic savings and investment a permanent feature. To ensure that macroeconomic problems do not impede the pace o f job creation and poverty reduction efforts, the government will continue to review fiscal, monetary and exchange rate policies to harmonize them with stabilization goal. The country's growth prospects would be further enhanced by a more externally driven growth process, and by an acceleration o f structural reforms to further improve productivity and investment climate. Inthis light, the PRSP-I1 will also endeavour to make growth more inclusive and with a humanface, which is essential for improving the life o f the common man. The PRSP-I1 will revolve around this macroeconomic framework. 66 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11: Protectingthe Poorandthe Vulnerable Chapter5 Pillar 11: Protectingthe Poor and the Vulnerable - 5.1 Assisting the poor and vulnerable i s the key objective o f a Poverty Reduction Strategy. Broadly speaking, Pakistan's Strategy intends to achieve its objectives inthree ways. First, it seeks to create productive employment by expanding the demand for labour through a rapid growth o f GDP. Second, it concentrates on the development o f the country's human resources so that the largest possible number can participate in and benefit from the enlarged job offerings. However, third, the strategy recognizes that despite best efforts there will always be sections o f the population that require additional support. A humane society will try to ensure that special measures are devised to deal with the problems o f the disadvantaged. A particular urgency to expand existing programmes and to institute new measures has beenprovided by the rapid escalation infood prices in FY 2007/08, which i s likely to have pushed significant numbers below the poverty line. Special measures are also required to deal with the results o f natural disasters - such as earthquakes, floods, prolonged drought -which Pakistanhas suffered inrecent years. 5.2 Other chapters in this report deal with the first two elements o f the poverty reduction strategy. This chapter takes up the third element, namely, the strategies and methods o f providing special protection. It should, o f course, be understood that the chapter covers only the most significant policies that inform the strategy and the institutions that will implement it. It must also be remembered that a considerable amount o f social support i s provided by private philanthropies, and the description o f these is beyond the scope o f this paper. 5.3 The social protection network 5.3.1 Over the years, a substantial safety net o f direct and indirect social protection mechanisms has evolved. The direct provisions include direct transfers such as Zakat and the Pakistan Bait-ul-Mal (PBM); employment-based guarantees o f income such as by the Employees' Old Age Benefit Institution (EOBI), the Workers Welfare Fund (WWF); and provincial social security benefits. Indirect provisions include subsidies on electricity, price o f flour, other food items and housing. In addition, there are special programmes to construct elements o f the infrastructure using labour-intensive methods, which both generates income for the poor and increases the productive capacity o f the country by adding to its capital stock. 5.3.2 Between FY 2002/03 and FY 2007/08 the total expenditure on non-budgetary/social safety programmes, directly targeting the poorest and the most vulnerable segments o f the society increased from Rs 16 billioninFY 2002/03 to Rs 62 billion inFY 2007/08, andthe amount projected to be spent on these programmes in FY 2008/09 is more than Rs 148.6 billion3' (about 1.1 percent o f GDP and 3.74 percent32o f total budgetary expenditures for this year) 31 The projectedamountexcludesMicrofinanceandtwo componentsof Zakat 32 "Includes Pakistan Bait-&Mal, Benazir Income Support Programme, Punjab Food Support Scheme, People's Works Programmeonly. 67 PovertyReductionStrategyPaper-I1 Chapter 5 - Pillar 11:Protecting the Poor and the Vulnerable -morethandoublethatofthepreviousyear(Table5.1).TheNationalSocialProtection Strategy (NSPS) also envisages doubling the number of beneficiaries during the five years 2007-12. Moreover, social care services are to be provided to about 100,000 persons with disabilities and vulnerable groups. As the system improves and more fiscal space becomes available, the programmeswill be expanded. Table 5.1 (a): Direct transfers and beneficiaries,2001/02-2008/09 Programme Disbursement 2002- 2003- 2004- 2005- 2006- 2007- 2008- /beneficiaries 03 04 05 06 07 08 09 Projected Zakat Amount 8,009 5,330 3,692 4,520 4,611 4,090 5,724* disbursed (million Rs) Total 1,754 1,639 1,370 2,373 2,494 2,007 beneficiaries (000) PakistanBait- Amount 2,335 3,159 3,270 3,838 3,911 5,521 7,965 Ul-Mal(all disbursed programmes) (million Rs) Total 1,315 1,614 1,671 3,130 1,460 2,129 2,045** beneficiaries (000) Benazir Amount 34 Income disbursed Support (billion Rs) Programme Total 3,400 beneficiaries (000) Punjab Food Amount 21.60 Support disbursed Scheme (billion Rs) Total 1,800 beneficiaries (000) Workers Amount 2,236 1,944 2,006 2,609 2,791 7,840 27,975 WelfareFund disbursed (million Rs) Total 60 63 94 161 166 169 23 beneficiaries (000) Peoples Amount 844 3,681 2,828 2,981 2,197 1,896 4,420 Works disbursed Programme-I (million Rs) Total 52,079 24,830 44,613 60,000 beneficiaries (000) Peoples Amount 1,064 6,588 4,031 9,900 19,998 17,255 7,184" Works disbursed Programme- (million Rs) I1 68 Poverty Reduction Strategy Paper41 Chapter 5 - Pillar11:Protecting the Poor andthe Vulnerable Total beneficiaries (000) Micro- Amount 2,518 3,034 5,431 6,655 9,947 14,147 credit*** disbursed (million Rs) TotalClients 216 286 470 606 906 1,154 2,528 (000) EOBI Amount 1,592 1,742 1,929 2,899 3,446 4,227 7,464 disbursed (millionRs) Total 108 115 121 281 260 273 300 beneficiaries (000) Programme Disbursement/ 2003 2004 2005 2006 2007 2008 2009 beneficiaries Actual Projected Peop1e's Amount 27 4,958 2,337** *** Rozgar disbursed Programme (millionRs)* Total 1 65 13 101 beneficiaries (nnm* I I I I I I I Source: Ministry of Finance, Internal Finance Wing. * Part of the above table, the data is based on the calendar year of National Bank of Pakistan. ** Up to June 2008. *** Projected allocation for FY2008/09 is Rs32.250 billion 5.3.3 For FY 2008/09, the government i s finalizing a comprehensive social protection programme in response to the escalating food prices. The major change that has occurred this year i s a steep increase in the targeted social protection allocations. In addition to the existing Zakat and Pakistan Bait-ul-Mal, the Benazir Income Support Programme (BISP), as described below, initiated by the Federal Government and the Food Support Programme (FSP) o f the Punjab Government have together allocated Rs 56 billion for this purpose. This presents a trend break -qualitatively and quantitatively -in terms o f government commitment to social protection. The intended scale o f these programmes sends out a clear signal of changed priorities. The introduction o f these programs also necessitates the re- visitation o f existing programs to ensure a coherent strategic vision for social protection in Pakistan. 33Islamic schools. 69 PovertyReductionStrategyPaper-I1 Chapter 5 - Pillar 11:Protectingthe Poorandthe Vulnerable 5.4 Pakistan's social protection net 5.4.1 Pakistan's safety net developed largely as a series o f adhoc responses to problems thrown up by particular circumstances. It is, therefore, not surprisingthat it contains duplicating and overlapping programmes. Moreover, since it has grown up over a considerable number o f years, combines the interests o f many different constituencies, and incorporates several institutions, it would be unrealistic to expect that the different elements could be merged into a seamless entity ina short period. 5.4.2 The intention, however, i s to start working towards an overall social protection strategy that i s both efficient and well-targeted, and minimize duplication and overlaps o f programmes. It is also intendedto make poverty interventions more gender-sensitive; the emphasis in developing future programmes i s to ensure that they do not neglect but empower women. The ultimate aim o f the government i s to strengthen the safety net programs through better targeting and devise programmes that also support graduation from safety net to income generation and sustainable livelihoods. 5.5 The National Social Protection Strategy 5.5.1 In response to the challenges, a National Social Protection Strategy (NSPS) was drafted, building on detailed sectoral reviews as well as on inputs provided by all the relevant actors, both at the federal and provincial levels. The NSPS provides a framework for addressing poverty alleviation that i s consistent with the PRSP, the MTDF, the Vision 2030, and other strategic documents. The vision for the Social Protection Strategy i s to bringthe poor and vulnerable elements o f the population andthe backward regions into the mainstream o f development, thus reducing existing inequalities. 5.5.2 The .Social Protection Strategy complements other strategies and action plans that pertain, directly or indirectly, to social protection. National policies and action plans already exist for specific vulnerable groups, for example, persons with disabilities, child labourers, children at risk o f trafficking, bonded labourers, and the most vulnerable in disaster- affected areas. The NSPS seeks to complement these initiatives and to address poverty and vulnerability broadly, wherever it exists. It also seeks to coordinate implementation o f all these plans. 5.5.3 One o f the main objectives o fthe strategy i s to provide a roadmap for the development o f a minimum social protection package for the poor and vulnerable. For this purpose the document identifies priority areas for policy action and outlines a broad reform agenda aimed at improving programme targeting, coverage, implementation and monitoring. These . priority actions are to: Increase access to economic opportunities among the working and entrepreneurial poor: Policies and interventions to be considered in this area are: (i) programmes aimed at employmenthncome generation (or active labour market programmes) such as traininghkill development for vulnerable groups (disabled, youth drop-outs, and adult 70 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11:Protectingthe Poorandthe Vulnerable workers), microfinance programmes, reduction in constraints to access product markets, and public works; (ii)support for labour market institutions (e.g. unions, collective bargaining, minimum wage, social security regulations, severance programmes) that protect the poor, while ensuring labour market flexibility and facilitating formal sector growth. ' Prevent individuals (poor and nonpoor alike) from falling into poverty from income shocks. Policies and interventions to be considered in this area are: (i)social security programmes to help individuals for longevity, and to insure against disability, sicknesshealth, or unemployment; (ii) other programmes that provide insurance for the informal sector, such as micro-insurance, workfare, and social pensions. Provide basic needs for the chronic poor, and those unable to work. Policies and interventions to be considered in this area are: (i) social assistance/income support to the poor, including stipend programmes and conditional cash transfer programmes that provide incentives for human capital accumulation among the poor; (ii) programmes that increase access to basic healthhutrition and education services/early childhood development; and (iii)social welfare services (e.g., community-based rehabilitation, foster/adoptive care, street children programmes). 5.5.4 Many o f these needs are strongly linked and need to be addressed holistically -unless health services are improved, the incidence o f ill health will continue to rise; unless educational retention i s improved, children will never be able to exit from poverty because they will be concentrated in low-return employment or remain unemployable. It is, therefore, important to address primary needs via social protection, while simultaneously focusing on the mechanisms that ensure that the exit from absolute poverty is permanent for the majority o fthe vulnerable and a large proportion o fthe chronically poor. 5.6 The strategy 5.6.1 Indiscussing a strategy for social protection, it is more relevant to examine the issues that such a strategy aims to address than to catalogue the different institutions that implement the strategy. Since it i s now widely recognized that poverty is a multifaceted state, comprising not only low incomes but also the absence o f capabilities that enable a person to lead the sort o f life o f life that he or she values, Pakistan's poverty reduction strategy encompasses a number o f different aspects. Within the overall strategy, efforts to provide special protection to the vulnerable are directed to five key elements: (1) income support; (2) nutrition support; (3) human resource development; (4) natural disaster management; and (5) facilitating the role o fthe non-government and private sector. 5.6.2 (1)Income support 5.6.2.1 The strategy envisages three main avenues for supporting the income o f the indigent: (a) direct income transfers; (b) pensions and similar social benefits; and (c) programmes to boost employment. Each o fthese measures i s supported by one or more institutions. 71 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11: Protectingthe Poor andthe Vulnerable 5.6.2.2 (a) Directincometransfers 5:6.2.3 Four institutions comprise the major agents for direct income transfers: Zakat; the Pakistan Bait-ul-Mal (PBM); the Benazir Income Support Programme (BISP); and the Punjab Food Support Scheme. 5.6.2.4 Zakat: The institution o f Zakat plays a significant role in mitigating the sufferings o f the poor segment o f the society, and derives from the injunction to Muslims to donate one- fortieth o f their wealth to charity. It is a key instrument for social rehabilitation and reducingvulnerability to exogenous shocks. About 25 percent o f the Zakat budget is given through institutions while the remaining 75 percent i s disbursed directly to individuals through Local Zakat Committees (LZCs). 5.6.2.4.1 Zakat i s disbursed under different programmes, such as: financial assistance (Guzara Allowance), educational stipends, health care, Eid grant, assistance to leprosy patients, national level health institutions, and marriage assistance. A total o f Rs 4.1 billion was disbursedamong 2 millionbeneficiaries inFY08. 5.6.2.4.2 Inorder to overcome tendency o f permanentreliance on Zakat, rehabilitation schemes and technical education stipends have been introduced to support the move towards self- reliance. For example, under the Permanent Rehabilitation programme, grants of Rs10,OOO-50,000 for starting a small business are provided. According to a Gallup Survey, the first phasehad a successrate o fmore than90 percent. 5.6.2.4.3 Technical educational stipends have also helped increase the capacity o f the poor. Reportedly, 88 percent o f the beneficiaries o f this scheme get employment or are engaged inself-employment. 5.6.2.4.4 The Zakat system is being computerized which will help ensure better control, monitoring and reformation of both collection and distributionsystems of Zakat. Objectivity has been assured by subjecting families to a computer-based verification process. This process has been entrusted to NADRA, which will apply software to screen out those not eligible according to the specified criteria, and will transmit the final list of recipients electronically to Pakistan Post. Work i s under way to develop a `smart card' system that will ultimately become the mediumfor disbursementfor the programme as well as for other supports that the government is contemplatingto launchindue course. 5.6.2.4.5 An internal monitoring mechanism is being put in place to verify actual delivery o f exact amount to the designated families. A proposal i s under consideration to place the list o f recipients on the website to enable instant, round-the-clock Independent Third Party Validation to verify that the families receiving the payouts do fulfill the specified criteria. 5.6.2.5 The Pakistan Bait-ul-Mal (PBM): The Pakistan Bait-&Mal has made a significant contribution towards poverty reduction by providing assistance to destitute widows, orphans, invalids, the infirm and other needy persons. The P B M disburses to the needy 72 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11: Protectingthe Poor andthe Vulnerable under a wide variety of programmes that encompass food support, child support, rehabilitation of child labour, vocational training, support to medical centres, and others. The PBM, which disbursed Rs 6 million to 25,000 beneficiaries in its initial year of existence (1992), disbursedRs 5.52 billion in2007/08 to around2 million households, with an increase of only 3.5 percent inadministrative cost. 5.6.2.5.1 The Pakistan Bait-ul-Mal has taken important steps towards better targeting, administration andmanagement. It has a Monitoring and Evaluation Wing, which carries on the spot visits to the different districts throughout the year. The organization has developed a computerized Food Support Programme Management System (FSPMS) which ensures efficient and transparent delivery of the subsidy. PakistanPost also monitors the programme through . its Vigilance Cell. Similarly, the PBM's Child Support Programme (CSP) i s monitored monthly and quarterly to ensure that inputs are being delivered and work schedules are complied with. The follow-up and monitoring mechanism help in preparing monthly reports containing information on quantitative and qualitative efficacy of the programme. The World Bank is also providing technical assistance to PBM on strengthening of the monitoring and evaluation system for cash transfers. The PBM has assigned the task of impact evaluation of the CSP to Gallup Pakistan. The impact of the programme will be evaluated in the current financial year. If the evaluation shows a successful operation, it will be scaledup inaphasedway during the period ofthe PRSP-11. The PBM has developed a database of its beneficiaries that is the only available computerized information of people living below poverty line. This information can also be helpfulfor formulating other Poverty Alleviation Programmes.The network has beenexpandedto all the districts. 5.6.2.5.2 A review of existing safety net programmes indicates that the vehicle with the highest potential for scaling up is the PBM. During the PRSP-I1period, steps will be taken to: (i) enhance the rate of subsidy and coverage; (ii)build on existing PBM programmes to improve design, selection, poverty targeting and coverage; (iii) institute formal, systematic procedures for the review of entitlements and the exit of beneficiaries from the programmes; and (iv) reduce leakages and improve targeting in Zakat programmes, particularly in rural areas. Obviously, given the recent launch of the Benazir Income Support Programme (BISP), all these planswill needto be carefully vetted and coordinated withthe BISPplansto avoid duplication and overlap. 5.6.2.6 The Benazir Income Support Programme (BISP): The government is conscious of the cost being imposed on poor families from the sharp escalation in food prices. The 73 Poverty Reduction Strategy Paper-I1 Chapter5 Pillar 11:Protectingthe Poor andthe Vulnerable - government is committed to a policy that combines macroeconomic stability and the stability o f family budgets. An important new programme is the Benazir Income Support Programme (BISP), whose objective i s to provide cash grants to the poorest families inthe country. 5.6.2.6.1 The programme has been allocated Rs 34 billion for the fiscal year 2008/09. It is the third largest allocation inthe current budget, constitutes 0.25 percent of GDP, and will cover up to 12-14 percent o f the population in low income brackets in the entire country, including FATA, Northern Areas and Azad Jammu Kashmir. Special attention has been accorded to remote areas, including those in Balochistan, Chitral, North and South Waziristan, Kohistan and Tharparkar. The next year's budget for BISP is expected to be expanded to Rs 84 billion and intendsto increase coverage to 7 million families. 5.6.2.6.2 The BISP i s intended to compensate economically vulnerable families for the erosion o f their purchasing power. A multipurpose survey is being planned to ensure that the disbursement goes to the right person; to check the impact o f the assistance on the lives o f poor by the change in their nutritional intake; and to test the impact on the intra-family distribution o f resources. Its unique feature i s that the payment will be made only to the female head o f the family. Impact on female empowerment i s likely to be decisive, particularly in the context o f social development. The payout i s not claimed to be able to remove a family's poverty, but it should certainly serve to protect its nutritional intake to a large extent. 5.6.2.6.3 The programme will disburse Rs 2000 every alternate month to around 3.4 million families, at least for the remainder o f the fiscal year 2008/09, that have a monthly income o f less than Rs 6000. The impact could be quite significant. For families earning, say Rs 5000 per month, a payout o f Rs 1000 will amount to a 20 percent increase intheir current purchasing power. Families in low income brackets spend between 50-70 percent o f their income on food. At current flour prices, Rs 1000 a month amount will be sufficient to finance 20-25 days o f flour needs for a 5-6 member family. 5.6.2.6.4 At present, the BISP uses a combination o f two methods for targeting. Beneficiaries must apply through forms distributed by local MNAs. Forms require applicants to provide information on a number o f socio-economic characteristics, such as income, employment, formal sector employment/pensions, disability, asset ownership, and household members abroad, etc. which match the targeting criteria for the scheme. This information is verified by the nominator and by the information held for or provided by the applicant to the NADRA. 5.6.2.6.5 Selected beneficiaries must possess a NADRA National Identity Card, which will be provided free o f cost and expeditiously incase a beneficiary does not possess a card. Plans are underway to incorporate a question in the forthcoming survey that will provide information on the economic status o f each household, through which a clear picture o f the intended beneficiaries can be seen. If all of the BISP beneficiaries are amongst the poor, 74 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11:Protectingthe Poor andthe Vulnerable the scheme will cover around 6 percent of the national population, and upto a quarter of those below the poverty line. 5.6.2.6.6 All membersof Parliament have been provided equal opportunity to recommend deserving families, based on specified criteria. A serious attempt has been made to ensure maximum objectivity and transparency inthe programme by separating the programme management, recipient selection, verification, and disbursementprocesses. 5.6.2.6.7 However, the government i s aware that despite the safeguards, there i s still the possibility of funds being misdirected.The authorities recognize that the design of the programme and measures for its implementation need to be monitored and strengthened and are working on ways to improve the current system to ensure that the poor are not excluded from the programme. They intend to further refine the design by switching to an objective and transparent targeting tool (such as the well-tested `Poverty Scorecard'). With the new targeting tool rolled out/launched in December 2008; the scorecard will be the way the poor andvulnerable are identified inthe country for the purposeof social protection. 5.6.2.7 Punjab Food Support Scheme (PFSS): The Punjab Food Support Scheme (PFSS) is a provincial programme, also initiated in 2008. It was originally designed to provide food stamps for the poorest households, but has now beenconverted to a cash grant of Rs 1000 per householdper month. Inthis sense it is exactly like the BISP, except runfor the Punjab Province. The targeting relies on local government officials (district and union councils) andpolitical appointeesto proposeaninitial list ofbeneficiaries. The subsidy is aimed at: .. .. Householdsthat do not have a bread-earner; Widows, orphans, andthe destitute; Chronically sick and/or disabled persons; Elderly persons who have beenabandonedby their family; The poorest of the poor segments ofthe society with marginal income. 5.6.2.7.1 The scheme covers both rural and urban areas, with a total estimated subsidy o f Rs 21.6 billion for 1.8 million families. The first two phases of the scheme have covered about 1 millionbeneficiaries. 9 5.6.2.7.2 The programme is being monitored in three ways: A strong database has been developed by the Punjab Government to distinguish between various categories of beneficiaries included in the scheme. The Pakistan Post Office has monitoring teams to ensure the transparency in the disbursement process, plus district monitoring teams set up by the DCOs provide a further check on implementation. Finally, an audit will be conductedby a firm of goodrepute inaccordancewith international standards. 5.6.2.7.3 The government recognizes that targeted subsidies of all kinds, especially for food, are more efficient than universal subsidies. However, while it i s the government's intention to move in this direction, a prior condition is that the targeting mechanism be improved. In 75 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11:Protecting the Poorand the Vulnerable this connection, as mentioned earlier, the government is open to refining the targeting of BISP, while also learning from the current experience in its implementation. Furthermore, there is ample room to align and streamline all safety net programs to ensure that (a) the poorest are reached and served, (b) duplication across programmes is minimized, and (c) appropriate exit options are devised so that the poor and vulnerable can graduate from cash transfers to livelihoods and income generation. As targeting improves it will be possible to move from universal to targeted subsidies that promise to create the fiscal space for such programmes. Therefore, building the required information base to support a social policy platform that can align all social protection programs will be a medium term goal for building a robust and sustainablesysteminthe country. 5.6.3 (b) Pensions andsimilar social benefits 5.6.3.1 Employees' Old Age Benefit Institution (EOBI): The Employees' Old Age Benefit Institution (EOBI) established under EOB Act 1976, maintains the Employees' Old Age Benefits Fund. It provides old age benefits to insured persons employed in industrial, commercial and other organizations in the private sector. The sources of revenue for the fund are the contributions and any other payments made by the employers, income from investment of the money of the institution and donations. An insuredperson with 15 years of contribution i s entitled to a monthly old-age pension - over 60 years for men and over 55 years of age for women. 5.6.3.2 The Act currently applies to establishments employing 10 or more workers. It has registered 2.7 million workers from 56,632 industries/establishments. The EOBI is providing old age pension to 209,649 individuals; invalidity pension to 7,246 individuals; survivors' pensionto 89,429 beneficiairies; andold age grant to 10,901 retirees (Table 5.2). DuringFY 2007/08, a sum of Rs.4.2 billionwas disbursedto around 273,000 beneficiaries. No. of industriedestablishmentsregistered 56,632 No. of workers registered 2,753,907 No. of Pensions granted 317,225 Old-AgePension 209,649 Invalidity Pension 7,246 Survivors Pension 89,429 Old-AgeGrant 10,901 5.6.4 (c) Employment 5.6.4.1 The strategy seeks to increase the income of the poor by special efforts to create additional employment. These efforts comprise programmes to boost employment directly by harnessing workers to create public assets through largely labour-intensive methods (the Public Works Programme), and others to indirectly increase employment by improving access to micro-credit. 76 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11:Protectingthe Poor andthe Vulnerable 5.6.4.2 PublicWorks Programme: The government has revived the People's Works Programme (PWP) of small development schemes that would cover such basic areas as: provision of electricity, gas, farm to market roads, and water supply. The programme would serve the dual purpose ofprovidingemployment and improving infrastructure. 5.6.4.2.1 The Ministry of Local Government and Rural Development coordinates the implementation of the PWP-I, for which Rs 4420 million were provided in the Public Sector Development Programme (PSDP) for FY 2008/09. The PWP-I1 is a special programme launched by Prime Minister's Secretariat for funding development schemes. The programme supplements the government's development efforts by executing small schemes in roads, electricity, education, health, water supply, sanitation, and other fields. These projects are identified by local communities according to their needs. During FY 2008/09, an amount of Rs 22 billion has been allocated under PWP-11. Year-wise expendituresunderthis programme from FY 2002/03 to FY 2008/09 are given inTable 5.1 (a). 5.6.4.2.2 During FY 2006/07, 3590 schemes costing Rs 2197 million under PWP-Iwere funded, out of which, 2729 schemes have been completed. Similarly, during FY 2007/08, 2021 schemes were funded, costing Rs 18967 million, out of which 878 have been completed. Projects in electrification and roads accounted for about three-quarters of the funds, and these will remain the priority sectors, followed by drinking water supply, during the period of the PRSP-11. 5.6.4.3 Microfinance: The microfinance industry grew at over 40 percent a year during the period of the PRSP-I. By March 2008, the sector had reached more than 1.7 million savers, and had a clientele of almost 1.6 million borrowers, of which nearly half were female. The provision of these loans to businesses and individuals for economic purposes helped to create additional employment in different parts of the country - microfinance service providers are present in 105 districts, includingsome of the most far-flung, such as FATA. 5.6.4.3.1 Six specialized microfinance banks currently provide microfinance services, with a major share of their advances going to the livestock sector, followed by micro-enterprises and agricultural inputs. Several NGOs also provide microfinance services to marginalized communities. The sector continues to grow rapidly and plans to reach 3 million borrowers by 2010 and 10millionby 2015. 5.6.4.3.2 The private sector is very active in the provision of microfinance. The Pakistan Microfinance Network (PMN) i s a network for organizations engaged inmicrofinance and i s dedicated to improving the outreach and sustainability of microfinance in the country. It also aims to establish performance measures, enhance the capacity o f retail microfinance institutions through specialized training, and promoting the financial transparency of such institutions. The PMN is well-positioned with 95 percent of the total microfinance coverage and with the 20 leading microfinance institutions andbanksas its members. 77 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11:Protectingthe Poor andthe Vulnerable 5.6.4.3.3 An important player inthis regard i s the Pakistan Poverty Alleviation Fund(PPAF) which has aligned itself with the evolving microfinance landscape inthe country. The cumulative outreach of PPAF has extended to around 85 districts of the country. About 800,000 persons have been disbursed credit, with a considerable percentage o f PPAF loans going exclusively to women (375,000). Upto September 2008, the PPAF had disbursed a total amount of Rs27.5 billionto over 1.7 million borrowers. 5.6.4.3.4 The PPAF also helps to deal with special problems. Thus, in the wake of the October 8, 2005 earthquake, an amount of Rs 300 million was diverted from PPAF's existing programme to the relief effort. During the rehabilitation and reconstruction phase, the PPAF was assigned responsibility of 34 union councils in AJK and NWFP by the Earthquake Reconstruction and Rehabilitation Authority. As of September 2008, an amount of Rs 14.6 billion had been disbursed for housing reconstruction; Rs 404 million for rehabilitation of infrastructure, and Rs 392 million for reconstruction of education and healthfacilities. 5.6.4.3.5 Another important player is the People's Rozgar Programme (PRP). Creation of self- employment opportunities has to form part of any programme for employment generation. For this purpose, the government has made arrangements for the unemployed to have access to credit to enablethemto start auseful business. 5.6.4.3.6 The Government of Pakistan has extended its support to the scheme inthe form of interest rate subsidy (6 percent), credit loss sharing (up to the first 10 percent of total credit loss), life/disability insurance, and other means. The National Bank of Pakistan has disbursed an amount of Rs 6.059 billion in 42,382 cases up to June, 2008 under the Scheme. Microfinance is discussed further inchapter 11on the financial system. 5.6.5 (2) NutritionSupport 5.6.5.1 For nutritional supportto the poor the strategy relies on three major institutions: 5.6.5.2 Food Support Programme of the PakistanBait-ul-Mal: The Food Support Programme (FSP) ofthe PakistanBait-ul-Mal (PBM) i s a social safety net that targets the poorest ofthe poor in order to provide relief from the increase in wheat prices that has occurred since August 2000. Since its inception, the programme has disbursed about Rs 23 billion. The PBM has taken important steps towards better targeting, administration, and management and has set up a monitoring and evaluation system which carries on-the-spot visits to different districts throughout the year. The programme is also monitored through the PakistanPost Office. 5.6.5.3 The Punjab Sasti Rod4 Programme: Hunger is an important part of poverty. The Government of the Punjab has put inplace a programme to provide bread at prices that the 34Cheap bread 78 PovertyReductionStrategy Paper-I1 Chapter 5 - Pillar 11:Protectingthe Poor andthe Vulnerable poor could afford. This requires providing flour to participating breadmakers at subsidized prices. Out of about 13,000 bread makers surveyed in the Punjab, over 5500 joined the programme. The government intends to help set up more than 30,000 subsidized bread making sites. 5.6.5.4 The programme will be monitored right down to the level of tehsils and rn~hallahs~~. District governments intendto utilize services of Revenue, Cooperative, Health, and Union Council staff inthe monitoring process. 5.6.6 (3) HumanResourceDevelopment 5.6.6.1 A number of institutions support the safety net by providing additional programmes for education and health. The PBM i s one such institution, and provides finance to vocational training centre, hospitals and medical centres in addition to extending scholarships and stipendsto poor students. 5.6.6.2 The Government of Pakistanandthe provincial governments are preparing plans to provide medical insurance of about Rs 15,000-20,000 per year to the poor. The Government of Sindhhas set a target of about 100,000 households to be given health insurance inthe first phase. The Sindhgovernment is also launching a scheme to provide free medical treatment for poor orphans and widows inall its districts. The Government of the Punjab is preparing similar projects. 5.6.7 (4) Natural DisasterManagement 5.6.7.1 In recent years Pakistan has suffered a series o f natural disasters, such as powerful earthquakes in2005 and 2008, andmajor floods in2007. These calamities killed thousands and were responsible for destroying the homes, animals, farms, and other assets of hundreds of thousands. Since Pakistan is situated on major fault lines inthe Earth's crust, the likelihoodof similar tragediesinthe future remains significant. 5.6.7.2 A reactive emergency response remained the country's predominant way of dealing with disasters. These events were dealt with mainly under the Calamity Act of 1958, which was concernedmostly with organizing an emergency response. The country lacked a systematic approachtowards managing the effects of natural disasters. The Government has therefore, established agencies namely: (a) the Earthquake Reconstruction and Rehabilitation Authority (ERRA); and (b) the National .Disaster Management Authority (NDMA) to provide reliefto the affectees. 5.6.7.3 (a) Earthquake Reconstructionand Rehabilitation Authority (ERRA) 5.6.7.3.1 The ERRA was established on October 24, 2005. The mandate of the ERRA i s to plan, monitor, and regulate reconstruction and rehabilitation in earthquake-affected areas. The Social Protection Strategy (July 2006-June 2009) formulated a three-year plan of action to support the most vulnerable groups. The aim of ERRA's Social Protection Strategy is to 35Sectors. 79 PovertyReductionStrategy Paper-I1 Chapter 5 - Pillar 11:Protectingthe Poor andthe Vulnerable ensure that the vulnerable in the earthquake affected areas are provided basic social services, livelihood assistance, and support for rehabilitation, primarily within their own families and communities and to establish linkages with the mainstream social welfare structures and services. 5.6.7.3.2 The ERRA launched massive rescue and relief operations and has initiated the following programmesto protect the poor inthe earthquake-affectedareas. . Livelihood Support Cash Grant Programme (LSCG): LSCG was implementedin all nine affected districts of NWFP and AJK from May 2006 to October 2007. LSCG was further extended for six months for a total of 22, 2007 most vulnerable families. . Monthly support of Rs 3,000 per monthhas benefited267,402 families. ERRARuralLandlessProgramme:The Project hasbeenplannedto provide package of Rs. 250,000 to eachverified landlesshousehold. The Project i s being implementedin two hases. Phase-I concluded on May 15, 2008 and Phase-I1started on July 22, 2008 till March 2009. Total Project cost (Phase I&11) is US $50 million (Rs 3 billion) . funded by USAID as grant and project implementation cost of US $1.72 million is providedby DFID. MedicalRehabilitationofPersonswith Disabilities:The Project involves: . Institutional strengtheningof NIRM(National Institute of Rehabilitation Medicine) . Islamabad and DGQs/THQs at Battagram, Shangla, Bagh, Oghi, Atthmuqam, and HattianBala; . Construction of 50 bed Rehabilitation Centers for persons with disabilities (PWDs) at Muzaffarabad and Abbottabad; and Establishment of Community Based Rehabilitation Centers in Muzaffarabad, Bagh . Shanglaand Mansehra. Project implementation is underway. Legal Aid Centres: This project is funded by ADB at the cost of US $512,900 which aims to provide free legal assistance to vulnerable groups in the earthquake affected areas. Under this project 18 Legal Aid Centres have been established at Tehsil level providing assistance in the cases related to documentation, administration and courts. Till November, 2008 26,321 cases have been received out of which 20,5 19 cases have . beenresolved and 5,802 cases are pending at various stages. TargetedVulnerability Survey (TVS):ERRA has conducted"Targeted Vulnerability Survey" with a total cost of Rs. 40.237 million to identify the vulnerable population in earthquake-affected areas of the NWFP & AJK. Affecters have been categorized according to their basic socio-economic demographic details into four vulnerable groups i.e. Orphans, Female Headed Households, Persons with Disabilities and the Elderly. Inthis survey, a total of 459,467 individuals and households were identified in the four categories (NWFP: 247,744 andAJK: 211723). Social Welfare Complexes (SWCs) and Women Development Centres (WDCs): ERRA has initiated establishment of SWCs and WDCs in all the nine affected districts 80 PovertyReductionStrategy Paper-I1 Chapter5 - Pillar 11: Protectingthe Poor andthe Vulnerable o f AJK& NWFP with the aim to strengthen Social Welfare Departments andto provide appropriate services to the vulnerable categories in an efficient and effective manner. SWC will house District level Social Welfare Offices which will undertake the following activities: existing SWD managed facilities (Kashana, Dar-ul-Aman, Darulfalah etc); will provide new initiatives (old people's home, hostel for orphans and vulnerable women, psychosocial support, legal assistance, child protection services; vocational training programmes; Special Education; referrals; basic medical care and community re-integration o f the vulnerable groups. The WDCs will offer support and services for women in distress. It will provide vocational skill development that would create opportunities for sustainable income through skills enhancement production and marketing o f goods; legal aid, psychological counseling, basic medical care, and short term residential facilities. Total estimated cost o f SWUWDC projects amount to U S $15.607 million. The construction o f SWC/WDC Muzaffarabad would be functional in the first quartero f2009. 5.6.7.4 (b) NationalDisaster Management Authority 5.6.7.4.1 The Government is establishing an appropriate legal, institutional, and policy structures under a strategy to minimize the vulnerability of the population to natural catastrophes. A Natural Disaster Management Ordinance (2006) has been promulgated, which provides appropriate institutional and policy structures. These structures have been created at the federal, provincial, and district levels. They encompass responsibility for coordinating at and betweenthese administrative levels; for monitoring hazards and risks within districts, provinces and regions; for integrating disaster risk management issues into sector development plans; for implementing policies formulated under the National Disaster Management Framework (see below); and for setting and ensuring compliance with hazard and safety standards. 5.6.7.4.2 The strategy for responding to natural disasters has been laid out in the National Disaster Management Framework. This guides the work o f the entire system and has been developedthrough wide consultationwith stakeholders at the local, provincial, and national levels. A national plan o f action i s beingdeveloped and will be finalized during the period o f the PRSP-11. This plan will cover the entire spectrum o f disaster management, including mitigation, prevention, preparedness, response, recovery and rehabilitation aspects o f disaster management. Disaster management plans for the provinces have been finalized, as have those for 12 o f the most vulnerable districts; plans for the other districts are being formulated and will be finalized during the PRSP-I1 period. The Framework will also include contingency plans for industrial and chemical disasters. 5.6.8 (5) Role of non-government and the privatesector 5.6.8.1 The efforts o f the government will be supplementedby: (a) NGOs; and (b) elements inthe private sector. The government will work to facilitate the work o f these organizations and attempt to forge partnerships where necessary to ensure that these programmes complement the government's efforts. 81 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11: Protecting the Poor and the Vulnerable 5.6.8.2 (a) RuralSupportProgrammes 5.6.8.2.1 The Rural Support Programmes (RSP) are the largest, non-government rural development organizations in Pakistan, working currently with 2 million rural households in 3165 rural union councils in 95 districts. These households have been mobilized into more than 130,000 Community Organizations; about 77,000 employment creation infrastructure schemes worth Rs 8.9 billion have been financed; almost one million community members received training intechnical, vocational skills, and leadership; and micro-health insurance has beenprovided to more than 960,000 persons. Communities have accessed a cumulative micro-credit portfolio of Rs 35 billion, benefiting 2 million clients. 5.6.8.2.2 The RSP network has developed a five year, comprehensive Union Council Poverty Reduction Plan, which proposes to mobilize and identify the poorest households. The plan complements the objectives of the PRSP-I1 in the areas of a People's Works Programme, employment generation, social safety net, vocational training, micro-health insurance, and micro-finance for the poorest. The critical element of the plan is its methodology to identifythe various bands of the poor, through household-wise poverty ranking, with PRSP inputsrelevant to each band. 5.6.8.2.3 The plan's key component i s its poverty targeting through the Grameen Foundation's Poverty Score Card, a census method of ranking all households in a union council. A database of ranked 900,000 households has already been created. The plan gives importance to gender balances, with a parity of 50 percent between men's and women's social mobilization. The key element of this plan i s the institutional mechanism of grassroots organizations of the poor, through which the proposed plan inputs will be channelized and managed. The mechanismensures widespread inclusion and participation, thus ensuringthat the poor retain avoice indecisionsthat affect their future. 5.6.8.2.4 The PPAF has also commenced implementation of a World Bank (US $75 million) supported programme that focuses on social mobilization and community empowerment that concentrates on the 25 poorest districts of the country. This is a part of Pakistan's MediumTermDevelopment Framework. 5.6.8.3 (b) The privatesector andphilanthropy 5.6.8.3.1 The government of an emerging country, such as Pakistan, does not have the resources to develop an adequate safety net on its own. Fortunately, the country possesses a lively tradition of private philanthropy - exemplified by organizations such as the Pakistan Centre for Philanthropy -that supplementsthe government's efforts. 5.6.8.3.2 The Pakistan Centre for Philanthropy is an independent, non-profit, support organization. It was established in August 2001 to lead the promotion of philanthropy in Pakistan. Central to this promotion, remains the effort of mobilizing resources from the private sector, in particular the corporate sector for development initiatives. In doing so, the Centre also 82 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11:Protectingthe Poor andthe Vulnerable supplements the government's poverty reduction agenda.36The Centre does not engage in direct philanthropy; instead, it seeks to facilitate such efforts o f others through support services.37 Key stakeholders include corporate and individual philanthropists, citizen organisations, communities and the government. 5.6.8.3.3 The Centre's mission i s to increase the volume and effectiveness o f philanthropy for social development inPakistan. Its long term vision i s to link the primary actors in development, i.e. the government, business, and civil society in a strengthened partnership for increased social investments. The Centre's objectives and developmental activities o f raising broad societal understanding through communications and advocacy; creating an enabling environment and influencing public policy through evidence-based research; bridging the information and credibility gap between grant-makers and grant- seekers; and providing philanthropy support services through public-private partnerships in education flow out o f its broader vision and mission, which ultimately supplement government's poverty reduction and development efforts. The Centre has made important contributions to poverty alleviation through support to the government's education sector reforms, to disaster relief and management (after the 2005 earthquake, the PCP mobilized over US $1.2 billion international philanthropy), and by providing inputs into the government's poverty reduction policies. 5.7 Towards a medium term strategy 5.7.3 The foregoing sections have described the main elements in the social protection strategy that will be important during the period o f the PRSP-11. However, the strategy will be implemented flexibly with improvements and adaptations introduced as experience i s gathered. This may be particularly likely for new initiatives, such as the BISP, or where existing programmes are significantly scaled up. Inmost cases, the effort will be to reduce the amount o f unnecessary overlap and duplication. The process will begin during the period o f the PRSP-11, but reforms will continue beyond the end o f the period. The strategy will pay especial attention to two issues: the need for improved targeting, and the need to improve coordination between the different levels o f government. 5.8 Need for improved targeting 5.8.3 The new social protectionprogramme aims primarily at improving the targeting system, so that a social platform with a comprehensive database can be created on which all programmes are built and to which they are aligned. The overall objective i s to move towards a well-integrated social protection systemto provide social security to the poor and vulnerable. 5.8.4In order to fulfill their mandate, the existing social protection programmes need to strengthen their targeting to ensure that they efficiently reach the intended beneficiaries. It i s proposed to approach the main short term objective o f reaching the poorest by: (i) 36Pleasevisit: w\?.w.Dakistan.eov.DWfinance-division/informationandservices/~ove~~-reduction.html 37For more information on services offered by PCP, pleasevisit their website: www.pcg.org.nWservices.htm1 83 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11: Protectingthe Poorandthe Vulnerable keeping the current benefits working and effecting a transition to better and more comprehensive systems; (ii) introducing new means testing and development o f databases through some pilots across chosen rural and urban areas; (iii)scaling up successful pilots across the country following assessment and generation o f lessons learned; (iv) extension of the current level o f benefits to the target population o f the poorest o f the poor; (v) introduction o f pilot Conditional Cash Transfer (CCT) programmes; and (vi) scaling up successful pilots to the whole target population. 5.8.5 The government is currently in the process o f (i)revising the NSPS to better reflect the priorities o f the new administration (including the creation o f the BISP), and (ii) creating an institutional structure for the implementation and monitoring o f the strategy. A revised strategy, together with a proposed institutional framework, should be ready by January 2009 and would then be presented for discussion and ratification by the Cabinet. 5.8.6 Given that the creation o f the BISP i s fully aligned with the priorities identified under the NSPS, especially in what regards the provision o f income support to poor and vulnerable households, it is not expected that significant changes will be required to the document's strategic framework. However, more significant revisions will have to be considered to the institutional arrangements currently governing the sector to reflect the creation o f the new implementation agency. 5.8.7 Although the BISP, Zakat, and PBM share a similar objective o f providing basic support to the poorest households, they have different histories, target groups and financing methodologies and their coordination and integration will needto be improved. Moreover, numerous cash, conditional cash and in-kindtransfer initiatives flourishing invarious areas o fthe country needto be integrated. 5.8.8 Interms o f the number o f beneficiaries, a small fraction o f those below the poverty line are covered. There are some important implications that arise from this comparison. First, the increase in fiscal commitment to targeted schemes will require more resources. Second, duplication o f beneficiaries between the BISP and FSP must be avoided. The Federal and Punjab governments will require to coordinate through sharing each others' lists to minimize this occurrence. Lists o f both schemes are likely to be made public so that independent third party verification can take place. Third, given fiscal constraints, it i s not possible for targeted cash grants to reach all poor individuals or households. This implies that the resources will have to be rationed amongst the poor. This makes the task o f targeting all the more pressing, and will require transparent and verifiable criteria. 5.8.9 The success and credibility o f a targeting system depends on the ability o f the state to: (a) identify the poorhlnerable in a credible, reliable, transparent and verifiable manner; (b) reach the target group efficiently and cost-effectively; and (c) maintain the ability to monitor progress so as to graduate those who do not need help any more and to enroll those who may have fallen into bad times. Pakistan does not as yet have a comprehensive data base that identifies each household as poor or non-poor, nor a system o f regular and 84 Poverty Reduction Strategy Paper-I1 Chapter 5 - Pillar 11:Protectingthe Poor andthe Vulnerable independent verification o f recipients (the PBM has had occasional external checks, but these are not built into the design o f the programme). Identifying the poor has been a problem for all social protection programmes so far. Given this tenuous base o f targeted provisions, the new government has increased allocations and attempted to rectify some o f the arbitrary methods adopted inthe schemes. Currently the government i s exploring ways to support the creation o f a comprehensive database through a refined poverty scorecard that can help to create a sound platform for (a) identifying the poor, and (b) aligning its targetingo f cash and other transfer programmes to this single unifieddatabase. 5.8.10 Well-implemented social protection reforms are likely to bring significant benefits in human welfare and in productivity, both in the short and long run. Although each o f the individual initiatives in this proposal can be implemented at its own scale and speed, the overall package put forward in the strategy i s designed so that its parts jointly make a reasonable social protection system that would result inhigher and more stable incomes for poor and vulnerable households; enhanced food security; a significant increase in school enrolment, attendance, and completion, and reduction in child labour; reduced rural to urbanmigration; andmoderately lower income inequality. 5.9 Coordination betweenfederal, provincial and local governments 5.9.3 The foregoing discussion highlights the importance o f better coordination between the different executors o f a social security system in order to make it efficient and equitable. This emphasizes the need to clarify the roles of the federal, provincial, and local governments and to improve coordination between them. 5.9.4 The strategy sets out to provide an effective institutional mechanism. The overall policy guidance is provided by the Cabinet Committee for Social Sector Coordination (CCSSC), as social protection i s a cross-sectoral initiative. The SSCC will submit an annual report to the parliament. The day-to-day implementation and coordination will be managed by the concerned federal, provincial and local governments in consultation with the stakeholders. The main responsibility for implementation will rest with the provinces, in collabouration with districts, Bait-ul-Mal, Ministry of Religious Affairs, line departments, NGOs, community groups, and the private sector. The monitoring will be carried out with national and provincial data banks as the baseline for information, and through use o f information and communication technology. The evaluation of the programmes will rest with outside andnongovernmental agencies besides the PlanningCommission. 5.9.5 The federal government generally formulates strategies and policies, monitors and evaluates the implementation o f the strategy (including reporting back to elected and other bodies). The role o f the provinces, the districts and tehsil governments will be that o f implementation and, at the lower levels o f government, beneficiary identification, local- level monitoring, and evaluation o f specific interventions. Given the number and different types o f stakeholders, well thoughtout, strong institutional coordination at the provincial level between all stakeholders will be an important feature o f the implementation o f the strategy. 85 Poverty Reduction StrategyPaper-I1 Chapter 5 - Pillar 11:Protectingthe Poor andthe Vulnerable 5.9.6 The provinces will also play a major role indeveloping and formulating different strategies and programmes. Some o f these programmes are financed and implemented in collaboration with the federal government while others are undertaken with the cooperation o f development partners. The success o f these programmes depends crucially on the targeting tool used for beneficiary selection, the quality o f implementation o f the programme, the disbursement mechanism o f the income support (to facilitate auditing and transparency), well definedentry and exit criteria, and regular monitoring. 86 Chapter 6 - Pillar 111:IncreasingProductivityandValue Addition inAgriculture PovertyReductionStrategy Paper-I1 Chapter 6 - Pillar 111: Increasing Productivity and Value AdditioninAgriculture 6.1 Being the single largest sector in the economy, agriculture plays an important role in Pakistan's growth and forms the major source of foreign exchange earnings. Over three- quarters of the Pakistan population are in rural areas and are dependent mainly on agriculture. About 69.5 percent of the country's labour force belongs to rural areas, out of which 43.6 percenti s employed inthe agriculture sector.38 6.2 While it i s clear that Pakistan i s capable of adding significant value to agricultural raw materials, demographic data show that much of the resources might not be available for significant value-added processing, because it is needed for direct consumption by the local, poor population who produce it. As the population grows, local demand for unprocessed or semi-processed agricultural raw materials will increase, placing price pressure on raw materials and reducing opportunities for food manufacturing and export. The solution adopted by the government is to increase productivity in both crops and livestock to ensure an adequate raw material supply and to combine this with increased value-added in downstream food processing. The main objectives of agricultural development during the PRSP-I1period will beto ensure food security, improve the quality of agricultural commodities andachieve productivity of crops. 6.3 These objectives are driven by a longer-term strategic vision. The vision of the agriculture strategy is to raise productivity and profitability of the farming community; to enhance the living standards of rural masses; to protect the natural resourcebase by protecting land and water and countering situations of short water supply or drought; and to ensure food security, especially for the rural and urban poor. Achieving pro-poor economic growth policy through Public Private Partnerships in promoting agri-business, trade and investment will also be part of the core strategy. The need is to innovatively increase agricultural productivity with improved technologies and appropriate practices which also ensure environmental sustainability andthe health & safety of consumers and produceRs 6.4 The current development of agriculture is based on 19* and 20th century models of development and these models which were built on the natural resource base and exploitation of natural resources of a country. The fact now is that the previous envisaged models are no longer tenable because of the increasing depletion of natural resources on the one hand and the increasing population that have to be fed. The existing system requires a complete overhaul. 6.5 Notwithstanding its declining share in GDP, agriculture is still the single largest economic sector having contributed 20.9 percent to the GDP during FY 2007/08. Growth 38Boardof Investment(BOI) andMinistryofFood, Livestock& Agriculture (MINFAL), Government ofPakistan, FY 2006-07. 87 Chapter 6 - Pillar111:IncreasingProductivityandValue AdditioninAgriculture Poverty ReductionStrategy Paper-I1 performance o f components to GNP at constant factor cost (FY 1999/2000) is stated in Table 6.1 below. Note: R*: Revised, P**: Provisional Source: Economic Survey of Pakistan, Economic Adviser's Wing, Ministry of Finance, Governmentof Pakistan, 2008. 6.6 Pakistan faces a formidable challenge o f tackling the dual issues o f economic growth and poverty reduction in rural areas where the great majority o f people live. Most rural people depend either directly or indirectly on agriculture for their livelihoods. Poverty i s also considerably higher in rural areas as compared to urban areas. Social uplift and economic development o f the rural population would be possible through improving performance o f the agriculture sector, which has strong potential to create jobs and self-employment opportunities. The existing situation demands that farming as well as other rural communities may be facilitated with financial and other resources through supply o f rural credit, human resource development and setting up o f associations around income generation activities. Such planned efforts would help improve the performance o f agriculture and help reduce rural poverty. This would need major re-orientation o f the macro-policy framework in favour o f small farmers and other disadvantaged segments in rural communities. Farm to market roads will be improved to provide easy access to the farmers to market their produce. A growing agriculture sector would not only serve the purpose o f rural livelihood but would also enable the urban poor easy access to cheaper food and other agricultural goods and services. 6.7 Realizing the productivity gap 6.7.1 Both non-farm employment levels and the productivity o f rural non-farm employment depend critically on the performance o f the agricultural sector. Three related factors have tended to push up non-farm employment and productivity growth. One is the adoption o f improved technologies in agriculture which directly increase local demand for modern inputs and services as well as increasing farm incomes. The second is the impact o f rising farm incomes on the structure o f local consumer demand, which shifts in favour o f `superior' foods and non-farm goods and services. The third is access to improved agricultural infrastructure, such as irrigation, electric power and market roads, which by reducing farm costs per unit o f output and raising farm incomes, also leads to higher productivity in non-farm sector enterprises. Evidence suggests that infrastructure development can be described as the prime mover in facilitating the generation o f more productive employment opportunities in rural areas. It tends to reduce poverty by 88 Poverty Reduction Strategy Paper-I1 Chapter 6 Pillar 111:Increasing Productivity and Value Addition inAgriculture - increasing labour productivity in both farm and non-farm sectors by stimulating non-farm sector development, andthereby pushing upreal wage rates. 6.7.2 The public sector National Productivity Organization (NPO) endeavours to promote socio- economic development in the country through productivity (see chapter 8 on competitiveness). In collaboration with the NPO, Pakistan Agricultural Research Council (PARC) has hosted 4 projects covering food safety, Intellectual Property Rights (IPR) in agriculture, technology transfer and commercialization, and value addition of fishery products; and two training courses covering organic farming and post-harvest of horticultural crops.39 6.7.3 Over the years agriculture has been a beneficiary of massive investments and most of these investmentshave not delivered the expected results. The need is to focus on small farmers so that they may have a tradable surplus from their assets. This will depend not only on the input prices but also on the pricing of outputs of the farmer. The small farmer will also require assistance to benefit from new technological developments pertaining to the efficient utilizationof factor inputs. Inparticular, the farmer will require assistance inusing water more economically, in distinguishing the type of fertilizer (organic or chemical) that would be optimal for his soil, and inchoosing the correct pesticide. At the moment he sells short and buys expensive. Input factor prices are usually at international retail prices while the inelastic output prices are basedonwholesalebasis. 6.7.4 Farmer Friendly schools established with the help of Food and Agriculture Organization (FAO) have enabled small farmers to embark on an integrated pest management system. This has caught on and the two intandem; organic fertilizer and bio-pesticide should work to the advantage of farmers.40 6.7.5 Similarly, the Punjab Government has revived the Green Tractor Scheme during the current financial year (2008-09) to facilitate small farmers. A subsidy of Rs 2.0 billion is to be provided on 10,000 locally manufactured tractors.41Eligibility criteria includes the fact that landis self-cultivated by the applicant with landholding not to be less thanfive acres in a Tehsil; not more than 25 acres in case of irrigated area; and not more than 50 acres in case of bamd2area inthe whole of Pakistan. 6.7.6 Such a scheme has also been approved at the federal level where it entails provision of 20,000 locally manufacturedtractors with Rs 0.2 million subsidy, per unit. 39Ministry of Industries,Production&Special Initiatives,GovernmentofPakistan, October, 2008. 40PakistanAgriculturalResearchCouncil, Islamabad,December,2008. 41Summary approvedby the Government ofPunjabinAugust, 2008. 42Rain-fed. 89 PovertyReductionStrategyPaper-I1 Chapter 6 - Pillar 111: IncreasingProductivityandValue Addition inAgriculture 6.8 NationalMedium-TermPolicyFramework(NMTPF) 6.8.1 The National Medium-Term Policy Framework (NMTPF) 2007-2010, prepared by the Ministry of Food, Agriculture & Livestock43with the assistance of Food & Agriculture Organization (FAO) of the UnitedNations (UN), is the government's main strategic tool to facilitate resource mobilization of external technical assistance for Pakistan's agriculture sector. Pakistan i s one of the eight pilot countries where the ONE UN System Reform is being implemented. The government perceives the NMTPF as a strategic planning and resource mobilization tool for developing partnership programmes with UN and non-UN agencies, the private sector, NGOs, civil society as well as other relevant organizations and financial institutions. The NMTPF was prepared through a highly participatory and consultative process with a wide range of stakeholders. The NMTPF will contain technically sound systematized and categorized Strategic Priority Areas (SPAS) which would requireexternal technical assistance based on an integrated and coherent conceptual framework for an Agricultural Development Strategy (ADS) to assist Pakistan's poverty reduction process coupled with economic growth. Figure6.1: NationalMedium Term Priority Framework (NMTPF)for 2007 2010 - Conceptual Frameworkfor Agri. Dev. Strategy in Assisting PAKISTAN'S: Poverty Reduction -Increased -Quality Human Development in Nat. & Global Economy\ through Entrepreneurship Optimizing Disaster among SME & Management & Resource-poor Emergency Agri. Labor-force Environmentally- Sustainable Agri. & Consumer Safety Providing Quality Client-CareISupport "Tacit"Knowledge Sharing for Agricultural Sector PCS: Priority CORE Strategy PSS: Priority SUPPORT Strategy Source: National Medium-Term Priority Framework (NMTPF) for 2007 - 2010 for Pakistan's Agriculture Sector, Ministry of Food, Agriculture & Livestock (MINFAL), Government of Pakistan and Food & Agriculture Organization(FAO), UnitedNations, October, 2007. 6.8.2 The PRSP-I1highlights that economic growth must emanate from sectors that have greater potential to generate employment. In addition, it recognizes the need for targeted interventions for quick relief through creation of short-term employment opportunities. The 43 As of November, 2008 this Ministry has now been bifurcatedinto two separate entities:(i)Ministry of Food& Agriculture; and (ii) Ministry of Livestockand Dairy Development. 90 PovertyReduction Strategy Paper-I1 Chapter 6 - Pillar 111:IncreasingProductivityandValue Addition inAgriculture table below illustrates the share o f employed labour force by major sectors reflecting the highest increasing share in agriculture followed by the financial sector. For example, in agriculture which, contributes the largest share to the country's GDP; self reliance in commodities; food security through improved productivity o f crops; and development o f livestock and dairy - all employment and income augmenting - are being supported through: i)development o f new technologies; ii)efficient use of water-precision land leveling and a high efficiency irrigation system; iii)promoting production and export o f high value crops; iv) creating necessary infrastructure; and vi) ensuring availability of agricultural credit. Source: Labour Force Surveys FY 2003/04, FY 2005/06 & FY 2006/07, Federal Bureau of Statistics, Government of Pakistan. 6.9 Value additioninagriculture 6.9.1 After they leave the farm, agricultural raw materials pass through three main stages: primary processing (divided into post-harvest storage, handling, and transport); extraction of the valued ingredient (e.g., edible oil from cottonseed); and finally, to the third stage o f manufacturing food items for sale to the public. Each stage has its individual concerns that will be addressed by the government, by research institutions, and by the private sector. Primary value-added inthe food processing chain is done by the farmer, who adds a variety o f inputs to land. These inputs, e.g. seed, fertilizer, water, and labour are o f major importance for the success o f the value-addition process because the ultimate quality o f a food product depends on the quality o f the primary ingredients. All these inputs require improvement and the government will encourage public-private linkages between research institutions, extension agencies and agribusiness companies that will allow agricultural support enterprises to flourish. Table 6.3 illustrates Pakistan's agricultural growth potential. To increase competitiveness, agricultural crops and livestock must pass into a value chain and be considered as part o f an integrated manufacturing system. 91 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111: IncreasingProductivityandValue Addition inAgriculture Produce Annual Growth Production *Milkproduction (34.06m tonnes) 5.4% Meat production (2.73m tonnes) 4.2% Fish& shrimps(0.604 tonnes) 4.8% Fishexport(0.128m tonnes) U S $159mto U S $1000m Fruit& vegetable production 5.5% 6.9.2 Agricultural (farm) costs o f production are an essential factor in determining tile overall competitiveness o f the final food product, and the government's target is to reduce these costs compared with Pakistan's competitors. A productive and quality conscious agricultural sector producing high quality raw materials will work with agencies that preserve this value through the processing chain. High productivity o f desired agricultural raw materials will be determined by the systematic needs o f the food industry (i.e. demand driven), not by the fact that certain conditions may make it possible to grow a particular crop. Post-harvest losses will be reduced by removal o f distortions through crop insurance to small farmers (discussed later) and greater public and private investment in innovation and improved technology. 6.9.3 The Poverty Reduction Strategy aims at forging an alliance with civil society and private sector to reduce poverty and accelerate growth. The government will continue to support public-private initiatives that connect crop and animal production with final product markets both at home and overseas. Such interventions will include promotion o f contract farming, large-scale, vertically integrated agribusiness, and the development o f innovative technology solutions adapted to Pakistan's conditions. New enterprises will be encouraged to locate near the source o f raw materials. Close relationships between farmers, intermediate processors, and final manufacturers will be encouraged through industry associations and strategic working groups. At the tertiary i.e. final stage o f the value chain, the government will emphasize the importance o f presentation o f food products on the supermarket shelf to consumers. 6.10 Food security and inflation 6.10.1 Hunger or discomfort caused by lack o f food i s a consequence o f the current global food crisis, which has impacted Pakistan in the form o f a price hike in food prices, including over 100 percent increase in the price o f oil in the international market since April 2007, over 200 percent increase inthe price o f palm oil, and 150percent increase inwheat prices. A review ofprice trends of essential items inPakistan duringFY 2007/08 indicates that the major portion o f food inflation during this period stemmed from prices o f wheat, flour, rice, edible oil, fruits, vegetables, pulses, poultry and milk, etc. However, prices o f other 92 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar111:IncreasingProductivityandValueAddition inAgriculture important food items like sugar, potatoes and rnoong pulse have decreased owing to improved availability ofthese items inthe market.44 6.10.2 Inorder to deal with this problem, the governmenthas adopteda threefold strategy. First, it seeks to boost production by increasing the support price of key commodities. Thus, for example, the government increased the support price for wheat from Rs 425/40 kg to Rs 625/40 kg for the wheat season FY 2007/08 and Rs 925/40 kg in FY 2008/09; this should both encourage the farm to grow more wheat and also discourage hoarding of the commodity. Second, imports have been liberalized to improve the supply situation of essential commodities. Thus, the government has allowed duty-free imports of wheat and essential consumer items to augment their supplies and reduce their prices. Third, in order to ensure competition and fair play inthe market, the Competition Commission of Pakistan (CCP)45has been empowered to prevent non-competitive behaviour in all markets.46The prices of essential commodities will be regularly monitored by a Secretaries Committee chairedby the Minister of Finance. 6.10.3 Ensuring food security inthe long-run can be met from the southern areas of Sindh andthe province of Balochistan. Palm oil inSindhand Balochistan planted inFY 1993/94has now been very successfully cultivated and is ready for oil extraction. To the traditional edible oil crops can be added a number of other varieties to increase employment in the rural areas. Chagai in Balochistan has a great future as it has 4.5 million hectares of land ready for mono cropping of wheat right away. Lower down is Kharan district which again has substantial land available and water that can be harvested sensibly. With Mirani dam coming innear Gwadar the scene particularly looks promising for Balochistan. The Kacchi canal andthe pat feeder as also the water from the drainage canal can be used.47 6.11 Crop Maximization Project 6.11.1 The Ministry of Food, Agriculture and Livestock (MINFAL) and the Rural Support Programme Network (RSPN) signed a Rs 428 million contract inMarchto maximize crop production in over 1,000 villages across the country as part of a national food security project. Under the contract, the ministry and the RSPN will implement the social mobilization component of the Special Programme for Food Security and Productivity Enhancement of Small Farmers in 1,012 villages under the Crop Maximization Project (CMP-11). The project is being implemented in 27 districts with the aim of ensuring adequate food supply through increased production of food and cash crops. The project i s expected to generate employment and provide sustainable livelihood and income in the food-insecure areas. The project will be implementedby the RSPN over a period of four years (April 2007 and beyond) inpartnershipwith its six rural support programmes-the Aga Khan Rural Support Programme (AKRSP), National Rural Support Programme (NRSP) and the four provincial Rural Support Programmes (RSPs). A pilot project, 44FinanceDivision, EconomicAdviser's Wing, Governmentof Pakistan,2008. 45Previouslyknownas the MonopolyControlAuthority (MCA). 46FinanceDivision, EconomicAdviser's Wing, GovernmentofPakistan, 2008. 47PakistanAgricultural ResearchCouncil, Islamabad,December,2008. 93 PovertyReductionStrategy Paper-I1 Chapter 6 - Pillar 111:IncreasingProductivityandValue Addition inAgriculture popularly known as the Sargodha Model, was implemented in three districts with results found to be quite encouraging. 6.12 Livestock and poultry sectors 6.12.1 While livestock accounts for 52.2 percent o f agriculture and 11 percent o f GDP, its importance can be gauged by the fact that the livelihoods o f about 30-35 million people in the rural areas depend directly or indirectly on livestock and dairy sectors.48The livestock sector is highly labour-intensive and hence, has enormous potential to generate income for small farmers as well as for the landless and for rural women. The following areas will be . infocus on during the PRSP-I1period: Micro-credit programmes covering provision o f goats, sheep and dairy animals on personal guarantee without any formal collateral. Support to livestock producers inthe . shape o f input supply. Livestock producers would be provided with improved animal feed and artificial insemination facilities; Improving feed and fodder resource base, which i s under great stress and continuously . depleting. Similarly, knowledge o f fodder grasses and fodder will be disseminated; The present animal marketing system i s misleading since the market hctionaries and middlemen exploit livestock producers. Therefore, a system o f sale o f live animals on meat weight basis will be introducedwhich will be backed with necessary legislation. 6.13 Meat sector 6.13.1 Pakistan has not been able to exploit its large livestock population to become a major player inthe international meat trade. Major reasons for this include: non-development o f specific indigenous meat breeds, absence o f modern meat processing plants and the low priority which was accorded to this sector by policy makers in the past. Protein consumption is low by international standards. There are very few large-scale animal slaughterhouses and meat processing plants. During the PRSP-I1 period, the government will address these issues by strengtheningprogrammes for health and nutrition awareness, removing distortions and improving hygiene in meat marketing, and by encouraging the production o f halal meat and products for export to Muslim communities overseas. The government has recently announced a `Livestock Development Policy', which is in the process o f adopting a legal framework and suggests strategies and action plans for improving per animal productivity. Under this policy, the import o f dairy and livestock machinery, not manufactured locally, i s allowed duty free. The policy will also encourage the establishment o f slaughterhouses in the private sector and allows access to credit to small farmers. Quality o f the animal herd has considerably improved, thanks to better veterinary services. To further realize Pakistan's added advantage o f exporting halal food products, a Halal Certification Board will be set up under the Ministry o f Science and Technology to devise and enforce halal standards and certification mechanism for export o f halal food. Inaccordance with the Trade Policy for FY 2008/09, the available markup at 6 48 Boardof Investment (BOI) andAnimal HusbandryCommission, Ministry of Livestock& Dairy Development, Government ofPakistan, 2008. 94 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111:IncreasingProductivityandValue Addition inAgriculture percent support on loans for setting up slaughterhouses i s being increasedto 8 percent or 50 percent ofthe markup, whichever is lower.49 6.13.2 Ifsensibly handledandprojected inworld markets, potential meat producing animals could improve the quality of life of the herders in Balochistan. For example, cows in Bajaur, by natural selection and by virtue of the surrounding harsh area are nutrient efficient and have the ability to produce more milk than cows in other regions. Similarly, sheep breeds are under investigation inCholistan which have potential to provide good meat and wool; thus enabling greater income generationpossibilities for the population inthat area.50 6.13.3 A Livestock & Dairy Development Board (LDDB) has been established as a private sector- led government guaranteed not-for-profit company under the Ministry of Livestock and Dairy Development inPublic Private Partnership. The company has undertakentwo mega projects inmeat production and milk collection respectively: The LDDB is implementing a project on "Livestock Production and Development for Meat Production" which is of 5 years duration (2005-10). The objectives include establishment of 2590 feedlot fattening farms by private farmers (1040 beef and 1550 mutton); eight slaughterhouses and 20 butcheries inthe private sector along with capacity building of all stakeholders, awareness raising and legislation. The company has established its offices in all provinces mobilizing private sector investment in livestock and cattle farming; establishment of modem slaughter houses and butcheries; and increase inoutreachof milk c~llection.~' 6.13.4 Poultry meat contributes 19 percent o f the total meat production in the country. Current investment in the poultry sector is about Rs 200 billion. The poultry sector has shown a growth of 8-10 percent annually. This sector has faced a tough challenge on account of Avian Influenza (AI) outbreak in the country. The government has provided additional incentives to increase livestock and poultry production in the country. Recent regulatory measures of the government include allowing import of high yielding animals, semen and embryos for crossbreeding, modernization of laboratory facilities to diagnose and treat livestock diseases, introduction of mobile animal health services at the doorsteps of farmers, and duty free import of veterinary dairy and livestock machinery/equipment. Construction of Animal Quarantine Facilities at various places including Northern Areas, Wahga Border, Lahore and Khokrapar, costing Rs 336 million, is a five year project (2006- 2011). The project is aimed at improving quarantine facilities and establishing new entry/exit points to facilitate trade of animals and animal products.52The government has allowed import of incubators, brooders, evaporation cooling pads, grain storage silos for poultry, and milk and meat processingmachinery not manufactured locally at zero percent custom duty. The private sector imported milk and meat processing equipment worth Rs 285 million during July-March, 2007/08. Sales exemption has been allowed for uncooked poultry meat; processed milk, yogurt, cheese flavoured milk and butter cream. Inaddition, 49Ministry of Commerce, Governmentof Pakistan,2008. PakistanAgriculturalResearchCouncil, Islamabad, December, 2008. '*AnimalHusbandryCommission, 5' HusbandryCommission, Ministry of Livestock& Dairy Development,GovernmentofPakistan, December, 2008. Animal Ministry of Livestock& Dairy Development,Governmentof Pakistan, December, 2008. 95 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar111:IncreasingProductivityandValue Addition inAgriculture poultry vaccines and feed additives used inpoultry feed manufacturing have been allowed at zero percent custom duty. 6.13.5 In terms of specific provincial initiatives, the following new livestock projects will be undertaken in Sindh during the PRSP-I1 period: (i)establishment o f cattle colonies with district & private participation, Phase-I (Rs 3329 million); establishment of Centre of Excellence for Modern Technology in Animal Breeding, Sindh at Red Sindhi Cattle Breeding Farm in Tando Muhammad Khan (Rs 1466 million); construction of Taluka Veterinary Dispensaries, Phase-I (Rs 500 million); and public-private participation for developing livestock and dairy farming (Rs 500 million).j3 6.14 Dairy sector 6.14.1 Pakistan is the fifth largest producer of milk inthe world. Pakistan produced about 42.199 milliontonnes of milk inFY 2007-08, with 55.1 percent of this production was contributed by the province of Punjab. The rural sector provides 71.1 percent o f total annual milk production. 6.14.2 Only 3.5 percent of the total milk production is processed and marketed through formal channels. However, despite significant recent increases in total production, milk prices have still trended upwards (showing a 25 percent increase in the last 5 years). Although Pakistan is one of the world's larger producers of milk, it currently imports over Rs 3 million worth of powder milk. Countrywide, per capita milk availability is about 215.5 litres per annum, higher than most of the developing countries.54While milk output is relatively high, the channels by which milk reaches the consumer are rudimentary. Thus much of the productivity increase at the farm level is lost in post-farm handling and marketing. Dairy farming practices are very old and traditional and need overhauling. Furthermore, the production of processed and packaged milk (e.g. UHT milk) lags behind countrieswith equivalent milk supplies. 6.14.3 The government has attempted to tackle deficiencies in milk production by working with the processing industry to overcome bottlenecks (e.g., by establishing milk collection networks and promoting use of cooling tanks at the farm level). Inthis regards, the LDDB of Ministry of Livestock & Dairy Development is currently implementing a project entitled `Milk Collection Processingand Dairy Production & Development Programme (2005-10)'. The project i s targeting to establish milk collection and marketing network for small and landless farmers in 500 villages through provision of 300 Milk cooling units in 500 villages; to provide support to 10,000 market-oriented rural dairy farmers for production of quality breeding animals and to strengthen/ initiate progeny testing programme in Punjab and Sindh for production of progeny tested bulls o f indigenous buffalo and dairy cattle breeds." 53Governmentof Sindh, PlanningandDevelopmentDepartment, November, 2008. 54Animal HusbandryCommission, Ministry ofLivestock& Dairy Development, Government of Pakistan,December,2008. 55Animal HusbandryCommission,Ministry ofLivestockand Dairy Development, Government of Pakistan,November 2008. 96 Poverty ReductionStrategy Paper-I1 Chapter 6 - Pillar 111:IncreasingProductivityandValue Addition inAgriculture 6.14.4 To finalize and improve the industry, a private sector led Pakistan Dairy Development Company has emerged with guarantee backup of the government. The government has launched the `White Revolution' scheme/`Dhoodh Darya', which aims to modernize the dairy industry with a view to increasing milk supply and ultimately improving the living standard of the rural population. This scheme intendsto generate 3 million additional jobs inthe formal economy andto provide an estimated Rs 350 million per day incashflow to farmers inthe sector. 6.14.5 The government has initiated a project to improve reproductive efficiency of cattle and buffaloes in smallholders' production system for the period 2007-2012 for Rs 495.15 million.The centrewill produce 5000 embryosper year for farm use and supplyto others. 6.15 Communitybased approaches: the case of Halla milk56 6.15.1 The struggle to remove poverty cannot be undertaken solely by the government. It will also require active participation by the community. One example of community partici ation effort is of women farmers who are part of a cooperative run by Idara-I-Kissan?'This idara has 25000 female membersof whom 44 percent are landless. It has been running for the last 38 years. Under the brand name Halla, this programme has now beenreplicated in district Leiah and over 500 villages are now providing milk to the idara. Programme activities explaining the difference and social responsibility that this initiative has shown are displayed below: Women development Livestock extension Mother & child care-free Goat given free Education- health Vocational I schooldfamily development I planning 6.15.2 ..The impact of these interventions includes: Job opportunities and economic activity at the village level; Regular and automatic marketing systemfor the farmers; 56PakistanAgriculturalResearchCouncil, Islamabad,December,2008. 57Institutefor farmers. 97 Chapter 6 - Pillar 111:IncreasingProductivity andValue Addition inAgriculture Poverty Reduction Strategy Paper-I1 .....Low rate o f disease prevalence and higher price o f animals then the surrounding areas; Better price o f milk for the farmers; Improvement inhealth and education andincome generation o f the farmer's family. Rural development that is sustained; Consumers get quality products cheaper than the other market players - Multinational Corporations (MNCs), surrogates, bakeries; and Halla is cheaper for the consumer, milk paid to the farmer i s the same as the MNCs and the cost of production and selling is less than the MNCs resulting in a win-win situation betweenthe farmer, the consumer andthe managers. 6.16 Fisheries sector 6.16.1 The fisheries sector accounts for 0.3 percent o f GDP. It witnessed a growth o f 11percent in FY 2007/08 against 0.4 percent during FY 2006/07. Components o f fisheries such as marine and inland fishing contributed to an overall increase in value addition in the fisheries sector. New projects to be undertaken in the fisheries sector in Sindh during the PRSP-I1period include: strengthening and improvement o f fish and shrimp hatcheries (Rs 784 million); model village for fisherman at Dabla Para in Badin (Rs 481 million); rehabilitation and renovation o f Karachi Fish Harbour (Rs 290 million); establishment o f meat, fish and vegetable market at Qasimabad, Hyderabad (Rs 1.9 billion); and construction o f model Fish Harbour at Keti Bunder, Thatta (Rs 500 milli~n).~' The following proposed programmes o f the federal government aim to enhance value addition . inthe fisheries sector. Support to coastal fishermen: Programmes will target the boatless fishermen working as labourers as well as small boat owners. The programme will focus on areas like . upgrading existing boats through enhancing modification and refrigeration o f fish hold capacities and equipping with modern gadgets to make them adjust to sea climate. Support to coastal fisherwomen: Post-harvest handling o f fish and fish products i s carried out by women in coastal areas who lack necessary training and modem equipment, which results in enormous post harvest losses and deterioration o f quality. Therefore, a programme would be launched to supply improved processing equipment . backed up by training support to small-scale fishermen and women. Support to inland fisheries: The fisheries sector lacks extension support inthe country resultinginpoor growth and depriving it o f necessary competitiveness. To address this issue a programme o f streamlining o f existing extension service o f fisheries would be undertaken. The available diagnostic services are rudimentary and very limited which results in substantial losses o f fish. This would require strengthening/establishment o f diagnostic laboratories at provincial levels. Introduction and promotion of fish and shrimp culture: A project aimed at introduction and promotion o f fish and shrimp culture in coastal areas o f Sindh and 58Governmentof Sindh, Planningand DevelopmentDepartment, November, 2008. 98 Poverty Reduction Strategy Paper41 Chapter 6 - Pillar 111: IncreasingProductivityandValue Addition inAgriculture Balochistan will be started because of the enormous potential in these areas. This programmewill particularly focus on poor coastal communities. 6.17 Horticulture sector 6.17.1 Horticulture sector, which comprises production of fmits, vegetables and other high value products, has the capacity to rapidly generate incomes and jobs. Further, Pakistan has a competitive advantage in production of fruits and vegetables given their export potential. Horticulture projects, therefore, will be launchedduring the period of the PRSP-I1targeting small farmers and women. 6.17.2 While many developing countries have seen a fairly rapidexpansion inagricultural exports over the past decade, with China, Malaysia, Thailand, and India among the strongest regional performers, Pakistan's share in total world horticultural exports has actually declined. By contrast, India's total exports rose more than three-fold. Pakistan's exports have also remained heavily concentrated in low value added goods, while other regional producers such as India and Sri Lanka have improved product technology and value addition. Even in the low technology segment, such as in fresh fmits, Pakistan's exports have declined or stagnatedinrecent years. This stagnationi s largely because ofthe demand in world markets for better quality products and improved traceability, related to World Trade Organization (WTO) regulations and standards, and other increasingly stringent standards indeveloped markets. 6.17.3 The last comprehensive survey of the manufacturing sector estimatedthat there were 4,474 firms based across all sectors and that the food and beverages sector accounted for 984 firms. It i s estimated that about 1.5 million people may be employed in small and medium horticultural enterprises. The enterprises engaged in hortibusiness are generally either micro-scale village based activities, or large-scale operations being undertaken by . nationally recognizedc~mpanies.'~ 6.18 Agriculture, globalization and internationalcompetitiveness 6.18.1 Increasing global inter-linking due to globalization has made it mandatory for Pakistan to introduce new regulatory rules and bring fundamentalchanges inits agricultural production regimes including: the adoption of Sanitary & Phyto-Sanitary (SPS) measures; Good Agricultural Practices (GAP); and Good Manufacturing Practices (GMP) in agricultural production and processing. By meeting World Trade Organization (WTO) agreements and requirements, agricultural export commodities from Pakistan can have a better opportunity to compete globally in meeting the demand of a dynamic market and shift in consumer preferences for high-value crops. With evolving of WTO Regime and Regional Trade Agreements, the country needs to know/monitor the development o f tradable commodities both domestically and internationally and suggest steps to position the PakistanAgriculture in the emerging environment. Investments in transport & preservation technologies are s9Agribusiness & DiversificationProject, MinFAL, Government of Pakistan,November 2008. 99 Chapter 6 - Pillar 111: IncreasingProductivityandValue Addition inAgriculture Poverty Reduction Strategy Paper-I1 already underway in Pakistan through appropriate government interventions and triggers, whichwill improve the entire value chain inagro-industries. 6.18.2 Capacity building on WTO issues is an area of high priority, and for this purpose, an Agricultural Policy Institute (API) was established in 200660 to develop MinFAL's capacity for improving its negotiation strategies on WTO issues and other trade-related analysis and intelligence for promoting export of agricultural commodities and value-added food-related products. The purpose of the API is to advise the government on formulating agriculture policy in order to make Pakistani agriculture profitable, competitive and sustainableinlight of emerging global and domestic policy issues inthe agriculture sector. 6.18.3 Taking the case of Balochistan, the rural population increased from 1.5 million in FY 1998/99 to 3.2 million inFY 2006/07. While poverty rose inrural areas, it declined slightly inthe urbanareas. Balochistan's main drivers of economic recovery i.e. small scale trade; agriculture product markets; and government spending & services, have generated incomes in cities.61 The principle challenge is that rural households obtain a share of the overall national economic growth. The province is unfortunately a regular victim of drought and earthquakes62.More public resourcesneedto be allocated to lower the incidence ofpoverty inthe region. Inthis light, the Agricultural Planning Directorate (APD) was established in FY 1992/93 under the Directorate General of Agriculture Extension in Quetta. According to a study undertaken by the APD in Balochistan, agriculture i s the largest sub-sector consuming 97.3 percent of total available water resources in the province. In addition, agriculture provides majority livelihood to rural communities in the region. Restructuring of APD to convert it into a `High PerformancePlanning Institution' i s being consideredto be done inthree phases spreadover aperiod of three years to overcome its defi~iencies.~~ 6.19 Establishmentof agro-basedindustries 6.19.1 There is enormous potential for establishment of agro-processing and other related industriesfor which agriculture is the source of raw material. This arrangementwould help inincreasingjob opportunities for the ruralpoor as well as helpreducethe present trendof ruralmigrationto urbancentres. 6.19.2 Agribusiness sector has the potential to be a source of economic growth and income generationwith small farmers as major beneficiaries. There i s a need for implementation of a project that will help to enhance the quantum of export especially o f horticulture and floriculture items and value addition. The government signed a loan agreement with Asian Development Bank, and approved Agribusiness Development and DiversificationProject. This is a five year (2006-2010) project aimed at addressing constraints impeding development of the agribusiness sector, and exploiting domestic and export market The Governmentof PakistanreconstitutedAPCom as AFT in December, 2006. Governmentof Balochistan, PlanningandDevelopmentDepartment, October, 2008. See chapter 5 for a discussion on government efforts in disaster management. 63"Water for Balochistan: Policy Briefings", Volume (4), No. 11, 2008, Department of Agriculture, Government of Balochistan, ADB and RoyalGovernmentofNetherlands,2008. 100 Poverty Reduction Strategy Paper-I1 Chapter6 - Pillar 111: IncreasingProductivity andValue Addition inAgriculture opportunities in the sector, thereby contributing to increased economic growth and rural employment. 64 6.19.3 The project objectives are to support economic growth and job creation through competitive and sustainable agribusiness development. The project focuses on development o f horticulture, hortibusiness, livestock and dairy sub-sectors. Project objectives are to support economic growth and employment generation through competitive and sustainable agribusiness development. The project interventions focus on increased productivity, product quality, and value addition by removing constraints facing agribusiness that occur throughout the product value chain from production and input supply to processing and exports. Interventions include: (i)improving the managerial; production, and processing skill levels o f entrepreneurs and farmers to ensure the production o f good quality raw material and uniform and high standard products; (ii)supporting identified banks in increasing agribusiness lending to allow stakeholders exploit market opportunities; (iii) re- orienting government institutions to become facilitators o f agribusiness development using Public Private Partnerships; (iv) improving the policy, regulatory, and financial environment to make it more responsive to private sector needs, and encourage producers and entrepreneurs to invest in agribusiness; and (v) establishing the framework and standards to comply with stringentinternational standards. The project components include the f ~ l l o w i n g : ~ ~ 6.19.3.1 Agribusiness Support Service Provision: The project includes a component that aims to facilitate increased access to Business Development Services (BDS) through agribusiness enterprises by financing eligible services for capacity building, including technical, managerial, financial, and marketing skills. To achieve this objective the Project has established Agribusiness Support Fund (ASF) as a not-for-profit company under Public Private Partnerships that is providing matching grants to eligible agribusiness enterprises, farmers, research and extension service providers, and BDSproviders. 6.19.3.2 Agribusiness Finance Development: The project will also support development o f financial services, particularly credit, to agribusiness enterprises that do not have ready access to such services. The project has through State Bank o f Pakistan identified 6 participating financial institutions (PFIs) to develop their understanding o f the potential agribusiness finance market, and to enhance their capacity to undertake agribusiness lending. Agreement has been signed with an international consultancy firm for capacity buildingofparticipating financial institutions. These banks would be ina positionto launch their financial products within 20 to 24 months. 6.19.3.3 Agribusiness Capacity Building: The capacity building focus is on horticulture, hortibusiness, livestock and dairy sub sectors. The objective o f this component i s to increase private sector participation in provision o f services currently provided by public 64Agribusiness& DiversificationProject, MinFAL, Government of Pakistan, November 2008 65Agribusiness& DiversificationProject, MinFAL, Government ofPakistan,November2008. 101 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111: IncreasingProductivity andValue Addition inAgriculture sector institutions. To facilitate agribusiness development and international compliance, the Project will support the rationalization, restructuring, and coordination o f relevant MINFAL agencies and offices concerned in alignment with WTO regulations and internationalproduct standards. 6.19.3.4 Market Information Services: The objective i s to improve availability o f market information, identified as a significant constraint to agro-enterprise expansion. The Project will promote the development o f informationthrough outsourcing. This component is to be executed by the Department o f Agriculture and Livestock Products Marketing and Grading (DALPMG) under which an appropriate private sector provider will be supported to develop a system that will initially focus on 11 major wholesale markets inthe county and Pakistan's major export markets for fruits and vegetables. 6.19.3.5 Horticulture Project Unit: This Unit has been established within Pakistan Horticulture Development and Export Board (PHDEB) with the objective to develop more effective linkages between the public sector and private agribusiness. The unit has developed a comprehensive programme that will help implement project activities in the horticulture sub sector and facilitate interaction with agribusiness enterprises. In accordance with its mandate, the Unit i s assisting by: (i) contributing to and supporting provincial and special area horticultural policy task forces in developing horticulture policies for each province and special area; (ii) inassociation withprovincial and special areaproject implementation offices (PlOs), identification o f potential recipients for ASF cost-sharing grants, and forwarding grant applications to the ASF; (iii) identification o f enterprises, farmer group enterprises, and processors to determine training, extension, and research needs; and organize their training; (iv) identification o f farmer groups, exporters, packers, and processors that wish to become internationally compliant, and help them obtain project support; and (v) work closely with the project horticulture and hortibusiness consultants to support their activities. 6.19.3.6 The project also comprises components that deal with export quality certification, seed and plantingmaterialcertification, andtraining andcapacity building. 6.19.4 Development of Agribusiness Policy 6.19.4.1 This component will assist the Government to develop an appropriate policy and enabling environment for private-sector-led agribusiness development. This includes national and provincial interventions to redefine roles and responsibilities in the sector; strengthen regulatory framework, in particular for alignment with international standards; and create effective public-private partnerships to promote sector development. The project will support the development o f the regulatory framework, and establish quality and certification requirements for locally produced products to align with international standards. In particular, the project will assist the WTO cell in MinFAL to formulate amendments to the legal framework to align with commitments made inregard to sanitary andphytosanitary measures inPakistan's agreements with WTO. The project will also help 102 PovertyReduction Strategy Paper-I1 Chapter 6 - Pillar 111:IncreasingProductivityandValue Addition inAgriculture MINFAL develop programmes to collate and disseminate information relating to international standardsto relevant stakeholdersinbothprivate andpublic sectors. 6.19.4.2 Agro FoodProcessingFacilities(APC), Multan: Small MediumEnterpriseDevelopment Authority (SMEDA), in collaboration with Punjab Small Industries Corporation (PSIC), Mango Growers Association Multan (MGAM) and Multan Chamber of Commerce and Industry (MCCI) i s establishing Agro Food Processing Facilities. The Facility is expected to be operational by June 2008. Nature has blessed Pakistan with an ideal climate for growing a large variety of vegetables and fruits. Agricultural sector i s directly or indirectly contributing 25 percent towards GDP. Pakistanhas atotal fruit andvegetable production of about 5,900,88 1 and 6,171,986 tomes respectively. According to Agriculture Department, 30 percent of vegetables/fmits are wasted due to negligence and lack of processing facilities, which could convert them into non-perishable form, permitting its transportation and storage without wastage. With the spread of education, change in habits of populace, growth in working women force and increase in per capita income & urbanization, the demand for processedvegetable/fruit products is increasing progressively. The introduction of agro food-based Common Facility Centres enables minimal post harvest losses. The Centre will comprise of fruit processing (Mango and Guava Pulp) and vegetable processing (Fresh FruitNegetable Grading and Packing) facilities and also provide training and consultancy services to SMEs. It is envisaged that the Project will minimize post harvest losses, increaseincome of growers and exports from the country. 6.19.4.3 Punjab Agrimarketing Company (PAMCO): The Punjab Agrimarketing Company (PAMCO) has been formed by the Government of Punjab, Pakistan under the public- private initiativeto energize the agriculture business inPunjab. Investments inagribusiness which PAMCO will initiate andwill inturn, improve the lot of the common farmer through targeted interventions to accomplish the following objectives: providing easy market access, adding value to farm produce, making farm products competitive and reducing post harvest losses. PAMCO i s a corporate entity backed by the Government of Punjab ad managed by highly qualified private sector professionals. PAMCO operations are overviewed by a Board of Directors to ensure autonomy of the Company. PAMCO's mandate is to attract private sector investment in agribusiness with special focus on: facilitating investors, providing advisory services, investing in projects, supporting entrepreneurs and promoting trading activities. 6.19.4.3.1 PAMCO's immediate concern is increasing the marketability period of perishable commodities in Punjab which include fruits and vegetables, dairy, fisheries, livestock, floriculture and poultry. This will be accomplishedby encouragingprivate investment in(i) cold chain infrastructure - cold storage facilities at airports, urban and production areas, refrigerated transport via road, rail and air and (ii)food processing units - mango pulping, kinnow@ processingkoncentrate, onion processing/dehydration, tomato preservation and potato processing. b6Oranges. 103 PovertyReductionStrategy Paper-I1 Chapter 6 Pillar 111:IncreasingProductivity and Value Addition inAgriculture - 6.19.5 Other major agricultural initiatives being undertaken by the government are illustrated in the box below. Box 6.1: Major federal agriculturalinitiatives Special Programme for Food Security and Productivity Enhancement of Small Farmers in 1012 Villages (Rs 8013.5 million) m Establishmentof Facilitation Unit for Participatory Vegetable Seed andNursery Programme(Rs 497,5 million) Agribusiness Developmentand Diversification Project (Rs 4066.0 million) National Agricultural ResearchProgramme(Rs 2963.0million) National Programmefor Improvement ofWatercourses(Rs 66373.5 million) Water Conservationand Productivity EnhancementThrough Efficiency Irrigation(Rs 18000million) LandandWater ResourcesDevelopmentProject for Poverty Reduction (Rs 3400 million) Agriculture Sector DevelopmentLoan Project (Phase-11) (Rs 10029.5 million) Monitoring of Crops Through Satellite Technology (Phase-11) Managing Burewala Strain of Cotton Leaf Curl Virus and Up-gradation of Cotton Research Institutes . (Rs149.1 million) Restructuringand StrengtheningofAgriculturalResearch System, Balochistan(Rs 723.9 million) . National Biosaline Agriculture Programme(Rs 859 million) Production of Bioenergy from Plant Biomass(Rs 260.3 million) National PesticideResidues Monitoring SysteminPakistan Biological Control of Major Cotton Pests inPakistanwith emphasis on Mealy Bug StrengtheningofLivestock Services for Livestock Disease Control inPakistan(Rs 714.8 million) . Prime Minster's SpecialInitiative for Livestock (Rs 1696.4million) Livestock Production andDevelopmentofMeat Prodwtion (Rs 1500million) MilkCollection, ProcessingandDairyProduction(Rs 1600million) The White Revolutiod`DhoodhDurya' (Rs 2654.4 millionas federal share) Improving Reproductive Efficiency of Cattle and Buffaloes in Small Holders Production System (Rs 489.9 million) National Programmefor the Control and Prevention ofAvian Influenza (Rs 1184.1 million) Aquaculture and Shrimp Farming (Rs 1997million) Source:PlanningCommission,Annual Plan2008/09, GovernmentofPakistan. 6.20 Special programmes for reducing rural poverty 6.20.1 In order to generate economic activities and facilitate rural communities the following programmes will be initiated. These jobs have the potential to generate job opportunities and promote growth of the agriculture sector if coupled with the necessary package of technologies and strong implementation arrangements. 6.20.2 Supporting destitute farmers: A comprehensive programme should be launched to support destitute farmers under which farmers may be provided agricultural inputs on delayed payment in kind with a package of technology. The implemented strategy will needto bebased on cost sharingand a completely participatory approach. This intervention would also cover capacity building and training of the resource-poor farmers and organizing them into associations. 6.20.3 Support to landless and other disadvantaged groups: Rural landless comprise the poorest of the poor segment of Pakistan. They lack awareness and access to development 104 Poverty Reduction Strategy Paper-I1 Chapter 6 Pillar 111:IncreasingProductivityandValueAddition inAgriculture - programmes since traditional development has generally failed to focus on them. Therefore, a programme to include these groups in mainstream development would be initiated at grassroots level. This programme will include launching of income generation activities, and schemes for training disadvantaged groups to be more vocal for their rights andwages, etc. 6.20.4 Support to rural women: Rural women are key players of crop production activities with no or little institutional support. As a case study, the role of cotton picking women would be focused and programmes may be initiated to improve their situation. They will be provided with necessary knowledge support in efficient picking; informed of measures to protect them from environmental hazards caused by increased chemical spraying of the cotton crop; and providingtraining and informationon income-generating activities. 6.20.5 Facilitating access to inputs: Measureshave beentaken inthe Budget FY 2008/09 to help increase farmer productivity including supply of fertilizers at subsidized rates. An amount of Rs 35 billion has been allocated to subsidizethe cost of urea and to enhance subsidy on DAP from Rs 470 to Rs 1000 per bag; availability of agricultural credit will be ensured; fertilizers and pesticides have been exempted from sales tax; and numerous schemes to improve water availability and conserve water wastage have been initiated (described below). Special focus is being given to small irrigation projects in Balochistan. The government has negotiated projects for U S $38 million to improve management of water resources in the Indus River basin and for US $25 million for Balochistan Small-scale IrrigationProject. 6.20.6 Facilitating means of irrigation for farmer^:^' The binding constraint on agriculture in Pakistan i s water. While water shortages affect almost all the provinces, Balochistan i s the most arid and i s particularly hardhit. A special effort, therefore, will be made to increase the supply of irrigation water in that province. The irrigation system in the province of Sindh has also deteriorated, and measures to restore it will continue during the PRSP-I1 period. 6.20.6.1 The government has approved Rs 12.963 billion for rehabilitation of irrigation and drainage systems in Sindh and Rs 2.15 billion for construction of 20 delay action dams in Balochistan. A meeting of the Executive Committee of the National Economic Council (ECNEC), presidedby the Prime Minister also approved Rs 2.637 billion for construction of Shadi Kaur Dam and related projects in Balochistan. The Shadi Kaur Damwill be built 50km north of Pasni (Balochistan) and will contain storage capacity of 37,000 acre feet of water. It will irrigate 7,600 acres of agricultural land and provide drinking water to 15,000 people. 6.20.6.2 The dams falling on fan areas will store water during the rainy season and let it percolate in order to create artificial recharge for a sustainedflow during dry months. The dams will be 67Governmentof Pakistan, November, 2008. 105 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111: Increasing Productivity and Value Addition inAgriculture built in districts Awaran, Kalat, Bolan, Chaghi, Gwadar, Khuzdar, Qila Abdullah, Qila Saifullah, Kech, Lesbela, Loralai, Mastrung, Musakhel, Panjgur, Dishin, Quetta, Washuk, Ziarat and Zhob. The project on completion will store 55,000 acre feet of additional water and benefit 35,000 acres of agricultural land. It will also recharge groundwater and more than 13,000 householdswill benefitfrom it. The dams will be completed inthree years and over 5,000 skilled and non-skilled people from Balochistan will be engaged in the construction work. The project will help raise the value of agricultural crops from Rs 17.42 million a year to Rs 389.53 million. Income per acre is expected to rise from Rs 12,778 to Rs 25,650. 6.20.6.3 A Rs 12.963 billion worth project for Sindh includes strengthening o f canal and drain banks (8,082 km), silt clearance of branches (3,635 km), stone pitching of canal bank (380 km), repairing and remodeling of 241 regulators, rehabilitation of 201 bridges, repair and extension of 11,725 modules, revamping and rehabilitation of the salinity control and reclamation project for tube wells and re-sectioning of 568 km surface drain. This will ensure safety of the canal system and provide water to tail-end farmers. All projects will be financed by the federal government with financial assistance from international lenders. Crops & horticulture Cultivation ofvegetables aroundtownships inAJK (Rs 14.015) Supply of agricultural inputs through public-private partnership(Rs 200.0) Promotion of mechanized farming for agriculture productivity enhancement(Rs 115.726) Promotion of red beans cultivation in Northern parts of AJK - Neelum, LeepaandHaveli(Rs 7.173) Agriculture development inAJK (Rs 33.765) Establishment of floriculture nurseries & introduction of cut flowers inAJK (Rs 29.321) Integratedpest managementservices for farmers (Rs 39.14) Livestock Povertyreduction in earthquake affected areas through restocking of small ruminants & poultry birds inAJK (Rs 13.255) Establishment of growth points for milk and meat at Plandari, District Sudhnoti (Rs 39.705) Promotion of commercial poultry farms and hatcheries for the production of eggs and integrated land management project, District Poonch(Phase-IV) (Rs 42.966) Wildlife Establishment, conservation and management of new protected Community based wildlife areas inAJK (PC-11) (Rs 3.60) conservation through introduction of trophy hunting inAJK (Rs 40.0) Protected areas management project (Machiara National Park) Support to mountain areas conservancy (Rs 18.285) fund (Rs 8.0) Fisheries Feasibility study for fisheries development in Mangla & Conservation of Mahsheer in AJK (Rs surroundingareas (PC-11) (Rs 1.60) 50.0) 106 Poverty ReductionStrategy Paper-I1 Chapter 6 - Pillar 111: IncreasingProductivity andValue Addition inAgriculture Establishment of modem trout fish hatcheries,DistrictNeelum(Rs 37.206) Source: Planning& DevelopmentDepartment, Azad Government of the State of Jammu & Kashmir, Pakistan, October, 2008. 6.21 SustainableDevelopmentPlaninthe FederallyAdministeredTribal Areas6* 6.21.1 The Federally Administered Tribal Areas (FATA) o f Pakistan are located along the country's border with Afghanistan. The last three decades have seen turmoil and instability across the border spillover into FATA. Increasingly impoverished and marginalized, its people have also become vulnerable to exploitation at the hands o f criminal and extremist elements. Today the region i s once again inthe spotlight, not simply for reasons o f internal security but also because o f its status as a staging post for geopolitical developments with global repercussions. 6.23.1.2 The economy in FATA i s based on agriculture and the subsistence-level use o f natural resources. However, agricultural production is low and natural resources are severely depleted. Commerce and industry provide jobs to many FATA residents but these sectors operate on a small scale and cannot absorb more than a limited share o f the working population. The workforce is largely unskilled, further hindering commercial and industrial expansion. Infrastructure is thin, depriving the population o f access to sufficient education facilities and healthcare. Development initiatives undertaken so far show a marked absence o f cohesive planning and have instead been carried out in a compartmentalized fashion, concentrating narrowly around specific sectoral activities At this critical juncture, a long- term strategy is needed to steer development planningso that flux and uncertainty may give way to positive change that will create stability, security and hope for the future. 6.23.1.3 The FATA SustainableDevelopmentPlan (SDP) aims to steer development planning in a new direction, focusing on the people at the grassroots level. It identifies the people as its main focus o f development and its instigators. The key objective,is to foster social and economic development based on the principles o f equity and participation. The SDP outlines measures to improve services, upgrade infrastructure, promote sustainable use o f natural resources, and generate activity in the industrial, trade and commerce sectors. It also provides an independent monitoring and evaluation framework to support, assess and strengthen development initiatives. 6.23.1.4 Rather than replicating the narrow focus o fthe past, the SDP takes an integrated approach to development planning, combining economic and social development with environmental integrity and poverty alleviation. While the core components o f the plan are structured around specific sectors, the vision i s holistic taking into account major cross-cutting themes ranging from broad structural concerns such as governance and institutional capacity to the more normative considerations o f social cohesion and cultural identity.The Plan is flexible and adaptable, comprising o f a two-phased implementation schedule. Priority interventions are planned for the first phase, spanning a period o f five years, followed by a second four- 68FATA SustainableDevelopmentPlan(2006-2015), Civil Secretariat (FATA), Government ofPakistan, 2006. 107 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111:IncreasingProductivityandValue Addition inAgriculture year assessment and consolidation period. Primary responsibility o f preparing the FATA SDP lies with the Civil Secretariat in FATA, in partnershipwith the World Conservation Union (IUCN), Pakistan. The total cost for implementation o f the long-term SDP i s Rs 124.108 billion, which will be met through the federal Public Sector Development Programme (PSDP) and assistance from development partner^.^' 6.23.2 Agriculture in FATA: Agriculture is the lifeline of the people o f FATA. Small landholders, who make up the majority o f farmers, practice agriculture mainly at the subsistence level characterized by the underutilization o f land and the prevalence o f risk- averse behaviour patterns such as the cultivation o f low input crops. The soil and climatic conditions favour the cultivation o f cereals, fruits and vegetables but agricultural productivity has remained low. The irrigated midland agricultural system is based on wheat, oilseed and pulses, with some fodder and vegetables, mainly onion in the winter (October-March), while maize, sugarcane, rice, potato and tomato are grown inthe summer (April-September). Household income is supplemented by the cultivation o f high-value produce such as apple, apricot,, date, fig, grape, peach, persimmon, plum, pomegranate and walnut. Significant scope exists to increase off-season vegetable cultivation. Wheat production falls far short o f needs and the deficit i s obtained from other parts o fthe country or abroad. Women play a major role in agricultural activities. They work in orchards while men are primarily responsible for land leveling, sowing and irrigation. In areas where women are relatively mobile, both men and women share responsibility for weeding, harvesting,threshing and seed storage. 6.23.3 Main issues: There is poor coordination between various actors involved in land and agriculture management, and procedural problems arise particularly when it comes to purchasing dry landagriculture machinery. Farmers lack access to improved seed varieties and do not have the relevant skills to produce high-yield seeds. Other inputs such .as pesticides and fertilizers are also in short supply. Where inputs are available, quality i s suspect, and no legislation exists in the tribal areas for the purpose o f regulating the standard o f reliability o f farm inputs. Credit is not available through mainstream financial institutions. As a result, farmers turn to private lenders that offer highly unfavourable terms. Marketingproblems persist inthe absence of adequate infrastructure such as grading plants, cold storage facilities and farm-to-market roads. This creates waste and lowers the sale price o f agricultural produce. 6.23.2.1 Forests are an integral part o f the rural economy, playing a significant role in the local livelihoods particularly in the mountainous regions. Forests meet the fuel, fodder and timber requirements of the rural population, besides providing critical ecological services. Forests create jobs, particularly in operations such as felling, transportation, saw mills and sale depots. Commercial undertakings including charcoal kilns and furniture factories also rely on forest resources. At the subsistence level, the collection and sale o f medicinal plants, work generally done by women, helps provide much-needed income support for 69Planning& DevelopmentDepartment, FATA Secretariat,Government ofPakistan,November, 2008. 108 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111: IncreasingProductivity andValue Addition inAgriculture poorer households. However, forest area in FATA is declining rapidly as a result o f timber extraction (legally for local use and sale and for export to areas outside FATA), prolonged periods o f drought, uncontrolled grazing, and pressure from fuel wood and fodder collection. The gap between production and use i s widening, and the current levels o f extraction are unsustainable. Over-exploitation has affected the natural regenerative capacity o f forests. With forest resources rapidly disappearing, environmental services provided by natural ecosystems have also diminished. Land erosion has led to denuded hills unable to retain soil or water. Erosion increases the incidence o f flash floods which wipe away crops, farmland and valuable infrastructure, while lower water retention has led to a drawing down o f the water table, creating scarcity where none existed a few generations ago. 6.23.3 Objective and strategies: The SDP aims to increase the contribution o f agriculture to the local economy, making it a key source for sustainable livelihoods in the area. A people- centered approach i s critical so that inputs and support can be provided where they are needed most and where they will provide the most benefit. This plan will be implanted by means o fthe following strategies: Support the shift from subsistence agriculture towards market-orientedproduction; Adopt a `pocket area' approach to designate zones where one specific crop with a comparative advantage will be promoted, providing necessary facilities, inputs and extension services. This effort will involve collaboration between the government, local farmers and the relevant industries. Industries will play a major role in agriculture extension services including phytosanitary measures, storage pre-processing and marketing,as well as the provision o fappropriate seeds; Reclaim cultivable wasteland for the benefit o f poor households; Expand the availability o f water and improve the efficiency o f supply systems in collaboration with the irrigation and water management sector; Increase the income o f farmers by providing loans, access to makers and quality agricultural inputs; Maximize soil efficiency, minimize farm inputs, improve the quality o f farm products and reduce post harvest losses by introducing environmentally friendly and area specific research-based technological packages; Improve agriculture data collection, compilation and analysis for effective planning and monitoring; Develop institutional and humanresources o f government and non-government service providers; and improve the working o f existing farm service centres. Introduce performance-based budgeting; Improve water management practices in collaboration with the relevant management authorities by introducing efficient water use technologies, and constructing small dams, ponds and reservoirs. Carry out a technical assessment of groundwater; 109 PovertyReductionStrategyPaper-I1 Chapter 6 Pillar 111:IncreasingProductivityandValue Addition inAgriculture - .. Introduce the use o f bio-pesticides; ... Involve women inservice delivery; Ensureavailability o fmicro-credit; Carry out adaptiveresearchto support the shift to market-orientedproduction; and Promote agro-forestry, off-season vegetable production and olive cultivation. 6.23.3.1 Key objectives and strategies under the SDP related to improved livestock and poultry production include: ... Improve access to animal health services; Increase the number o f female livestock extension workers; . Improve the condition and productivity o f rangeland in collaboration with tribes, farmers, herders, research institutions and forest directorates; .. Introduce new species o f fodder in collaboration with research institutions, farmers, tribes and herders; Enhance livestock productionthrough breedimprovement; and Declare `pocket areas' for dairy production, with linkages to agroindustry for marketing service delivery 6.23.4 The proposed budget for SDP interventions in the agriculture sector i s shown in the table below: Source:FATA SustainableDevelopmentPlan(2006-2015), Civil Secretariat (FATA), GovernmentofPakistan, 2006. 6.24 Agricultural Credit: EnsuringFarmerSecurity 6.24.1 Availability o f credit to meet financial requirements o f the farming sector is one o f the key factors that play a pivotal role in the development o f the agriculture sector. The SBP has, since its inception, been endeavouring to make the much needed credit a~ailable.~'The 70AgriculturalCredit Department, State Bank ofPakistan, November,2008. 110 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111:IncreasingProductivity andValue Addition inAgriculture SBP has taken various initiatives to create an enabling environment and facilitate banks in increasing the outreach of agricultural credit since the last several years. Initiatives include induction o f 14 domestic private banks in agricultural credit scheme in FY 2003/04, besides five big banks and two specialized banks. List of eligible items for agri-financing was enlarged by including more than 150 items in addition to allowing banks to provide financing for complete value chain of activities of agriculture by farmers. Wholesale financing to farmers through microfinance institutions, NGOs, etc. has also been allowed under agri-financing bybanks. 6.24.2 In order to facilitate banks in diversification of their portfolios of non-crop sector and the development of specialized products, guidelines for livestock, fisheries, poultry and horticulture financing were issued. Local Credit Advisory Committees were established at 16 offices of SBP to help banks and local farming community in resolving agri. credit related issues at the grassroots level. Similarly, to ensure sustainability in flow of agricultural credit and effective implementation of SBP's initiatives, a separate Development Finance Support Department (DFSD) and its subsequent units were established at SBP BSC Offices. These units are focusing on developing a network in collaboration with local banks and farming community. The forum will provide a platform for the awareness of banks and farming community about SBP's schemes and policies on agri-finance. There has always been a great demand from agricultural customers for Islamic financing products for agriculture sector. Islamic banks and Islamic Banking Branches (IBBs) of conventional banks have also shown their great interest in adopting Shariah7' compliant agriculture finance as a viable business line. Therefore, draft. Guidelines on Islamic Financing for Agriculture have been developed aimed at facilitating banksinthis process. 6.24.3 Separate Prudential Regulations (PRs) for agriculture financing, prepared in consultation with banks and other stakeholders, were issued to banks to provide broader regulatory framework to banks. Banks are also allowed unsecured financing up to Rs 500,000. With the consensus of all banks, SBP has simplified/standardized agricultural loan documents for the benefit and convenience of the farming community. For production loans, number of documents have been reduced from 14 to 5, and for development loans, from 21 to 6. These documents/forms have also been translatedprinted into Urdu and other regional languages for the benefit of farming community. Around 85 percent of the farming communities having land holdings up to 12.5 acres (as per Agriculture Census 2000) and majority of them have no collateral to offer. Therefore, a small farmers' scheme based on group lending methodology was introduced to address the issues of these small farmers. Under this scheme members of the group may borrow up to Rs 200,000 without any collateral from financial institutions. 6.24.4 After privatization of banks, many non-profitable rural branches had either been closed down or had beenshiftedto urban areas. Inorder to increase the rural branch network, SBP 7'Islamic Law. 111 Chapter 6 - Pillar 111: IncreasingProductivityandValue Addition inAgriculture Poverty Reduction Strategy Paper-I1 has made it mandatory for banks to open at least 20 percent rural branches while opening new ones. Moreover, to reduce operational/administrative costs of agri/rural financing and increasing the outreach o f financial services to rural community, SBP has allowed banks to adopt concepts o f branchless banking and open sub-branches, special booths and service centres inremote areas. 6.24.5 A Revolving Credit Scheme for a period o f 3 years for production loans with one time documentation was introduced to meet the seasonal requirements o f the farminglrural community and to avoid unnecessary delays in the documentation procedures. The limit automatically renews on the cleaning of the account (principle and mark-up), with date convenient to borrower, once a year. The scheme is a huge success and most of the agricultural financing products are beingcovered underthis structure. 6.24.6 Inorder to facilitate farmer borrowers inmeeting their credit requirement due to increase in prices for inputs like seed, fertilizer, pesticides, fuel, etc. per acre credit limit for crops, horticulture and social forestry has been enhanced by an average o f 70 percent from Rabi crop FY 2008/09. These credit initiatives have paid dividend in the form o f increase in agricultural credit to Rs 212 billon in FY 2007/08 from Rs 39 billion in FY 1999/00. The target for FY 2008/09 has been fixed at Rs 250 billion. SBP i s looking forward to establishing a farmer-friendly market based financial sector in the country to meet the increasing credit requirements o fthe agriculture sector and also to meet the financing needs o f rural community. The financial inclusion o f rural community will ultimately facilitate meeting o fnational goals o f agricultural growth and poverty alleviation inthe rural areas. 6.24.7 The SBP i s also working on a strategy to double agricultural credit disbursement and the number o f agri borrowers in next 3-4 years under the Financial Inclusion Programme financed by DFID. 6.24.8 The SBP initiated training & awareness programmes at the district level wherein representatives o f local banks were invited to provide farming communities details o f available agri-financing facilities and to discuss issues being faced by them in this regard. Around 50 such programmes have been conducted successfully so far. For the capacity building of agricultural credit officers o f banks, one week crash training programmes are beingarranged at offices of SBP-BSC. Inthe first phase, 500 officers would be trained in 15 programs and till now around 350 agricultural credit officers o f banks have successfully completed their training in 12 such programmes. 6.25 BenazirZarai" Credit Card 6.25.1 To improve farmers' access to institutional credit, the government has decidedto introduce `Benazir Zarai Credit Card' for farmers/growers to enable them to avail credit facility with convenience and dignity in their respective areas. The objective o f the Credit Card is to improve farmers' access, especially small farmers, to agricultural credit and enable to 72Agri-based 112 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111: IncreasingProductivityandValue Addition inAgriculture purchase quality farm inputs such as seed, fertilizer, pesticide, etc. without visiting bank branches. Under the scheme, participating banks will issue Benazir Zarai Card to farmers against their three years' revolving credit limits parallel to the existing chequing facility. The Card can only be used for the purchase o f inputs like seeds, fertilizers, pesticides and other inputs from any o f the vendors as per prescribed list. N o fixed investmentincluding purchase o f tractors, farm implements etc. will be allowed through Benazir Zarai Card. The Credit limit will be determined based on annual inputs requirements o f the farmer as per SBP per acre indicative credit limits or as prescribed by the bank. The Card holder may execute any number o f transactions within the limit approved by the bank. To ensure the smooth implementationo f the scheme, the government will develop a vendor network and Information Technology structure. 6.26 CropInsurancePlan 6.26.1 Agriculture is susceptible to natural calamities. Since banks have been reluctant to adopt agricultural credit as a viable business line mainly due to non-availability o f crop loan insurance inthe country, the SBP formed a task force on Crop Loan Insurance Framework comprising o f all stakeholders for the development o f a commercially viable and sustainable Crop Loan Insurance Scheme. A framework has been finalized and largely agreed upon by banks, representatives o f farming community and insurance ~ompanies.'~ The SBP Task Force will introduce mandatory CLIS for five major crops viz. wheat, rice, cotton, sugarcane and maize from Rabi 2008-09. It was also decided that the government will bear the cost o f premium on account o f subsistence farmers up to a maximum o f 2 percent per crop. 6.26.2 Under the scheme, all agri. lending banks are required to insure the agri. production loans through any o f the insurance companies offering crop loan insurance products. The risks covered include losses against natural calamities like excessive rain, hail-storm, frost, flood, drought, etc. Crop related diseases like viral and bacterial attacks, or any other damage caused to the crop like locust attack will also be covered. This scheme has been launched from Rabi season FY 2008-09. In case of natural calamity, it will help the farming community in the settlement o f their outstanding loans and they will also be eligible to draw fresh loans for future crops. This scheme will not only safeguard the interests o f banks and farmers, but will also save huge funds spent by the government in the shape offrequent write-offdwaivers of agricultural loans o fZTBL's borrowers. 6.27 Agriculture andEnvironmentalSustainability 6.27.1 The country's population i s predominantly rural and dependent on agricultural lands, rangelands and forests. Natural resources and their sustainable management are, therefore, central to economic growth and people's livelihoods. The PRSP-I1provides an opportunity for mainstreaming environment inall sectors and themes that target poverty reduction, thus maximizing the benefits o f interventions and eliminating or minimizing the adverse impacts of the initiatives and interventions. Environment is a cross-cutting issue; the 73The Cabinet approvedthe Crop Loan Insurance Scheme(CLIS) in itsmeetingheldon August 5`h, 2008. 113 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111: IncreasingProductivityandValue Addition inAgriculture solution to the environmental problems lies beyond the restricted jurisdiction of environmental agencies. Environmental governance, therefore, needs to be integrated into economic decision-making at all levels. However, strategic policy making is obstructedby lack of awareness, information on several critical issues and limited data coverage. Enhancing information and data base in key environmental sectors and dissemination of environmental information should, therefore, be a highpolicy priority. 6.27.1.1 The poor live inplaces which are ecologically more vulnerable and are forced to earn their living from low-productivity natural resources. In rural areas, indoor air pollution poses a health hazardto villagers, due to which respiratory diseases are commonly found. The rural poor often live in low-lying, flood-prone areas, on steep mountain slopes or on dry land and possess low-productivity marginal land devoid of any irrigation facilities. The urban poor are found inshanty towns of big cities, which are often built on flood prone, low-lying areas or around city drains; many of the poor earn their livelihood from environmentally hazardous scavenging. Environmental deterioration in the form of land degradation, frequent flood, increased pollution and other hazards reduces the income of both the rural andurbanpoor making themmore vulnerable to environmental shocks than the rich inboth rural and urban areas. Against the background of the observation that the poor, especially inrural areas, derive a large part oftheir livelihood income from environmental resources, especially land resources used for agriculture, some of the practices they follow can be damaging to the environment. Clearing forest areas to create land for agricultural use, including slash-and-burn practices, is an example showing that the poor are responsible for environmental degradation. Certain consumption practices of the poor, such as damaging the forest to acquire firewood to be usedfor cooking andheating could also be detrimental to the environment. The urban poor, most of whom live in shanty towns, slumslkatchi abadis often create unhygienic sanitary conditions because of their lack of access to formal toilet facilities. 6.27.1.2 The rate of deforestation in Pakistan is high. Although forests cover a relatively small proportion of land area in Pakistan, they remain a vital source of direct benefits including fuel-wood, livelihood and government revenue. Forests also provide several indirect services such as watershed protection, soil conservation, carbon sequestration and biodiversity habitat. A major immediate cause of forest loss is over exploitation for subsistence and commercial purpose. Much of the rural population relies on forest resources, while the high timber value gives perverse incentives to harvest in an unsustainable manner. The opportunity cost associated with forests loss can be large considering a wide range of benefits and services they provide. 6.27.2 National Capacity Self Assessment (NCSA) 6.27.2.1 The Ministry of Environment initiated the National Capacity Self Assessment (NCSA) in June 2007 with assistance from UNDP. The total cost of the project is U S $1999,000 with expenditure incurredduring June-December, 2007 amounting to U S $27,298. The NCSA is an assessment and planning exercise to identify country level priorities and needs for capacity building to address global environmental issues, focusing on capacity 114 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111: IncreasingProductivityandValue Addition inAgriculture requirements to implement the three `Rio Conventions' - biodiversity, land degradation and climate change. The NCSA will come out with an Action Plan and a Final Report, which will recommend goals, objectives and strategies for national capacity development including identified priority actions, timeframe, possible funding, responsibilities and means of monitoring and evaluation of outcomes and impacts. 6.27.3 NationalLandUse PlanProject 6.27.3.1 While the original version of the project was approved inApril, 2001 for a period of three years, the Rs 39.21 million worth project has been extended twice since then, and is planned to end by June, 2009. The project aims to compile and integrate isolated information about land and prepare a digital database on land resources inventory in Geographical Information System (GIS) to interpret the state of the country's environment relating to forestry, climate change, biodiversity, desertification, land degradation, soil erosion, hydrology, hydrogeology, geology and soil types, etc; and also to facilitate adoption of appropriate policy measures to address environmental threats and vulnerabilities. The action plan includes: generation of digital base maps on 1:500,000 scale; generatingthematic information; and compiling data relating to depthand quality of ground water, water logging and canal commands provided through IWASR174(WAPDA), etc. The National Agriculture Research Council (NARC)75 is engaged in generating field data on agro-climate, aridity index, crop growth index, rainfall, cropping pattern, vegetation classes, population density and agro-based industries. 6.28 Goingforward 6.28.1 In brief, the strategy for agriculture during the period of the PRSP-I1 will focus on increasing productivity, economizing on water, and starting to change the composition of production towardshigher value-added items. 6.28.2 Crop productivity will be enhanced through development of high yielding varieties, use of improved and hybrid seed, balanceduse of fertilizers and micro-nutrients, integrated pest management, andjudicious application of other plant protection measures. The production of highvalue crops, fruits, vegetables and flowers will be increasedandtheir export will be promoted by improving their quality. The private sector will be encouraged to establish processing, grading, packaging and cold storage facilities through provision of liberal credit and other facilities to promote exports. Additional water storage capacity will be created to bring additional area under cultivation and increase cropping intensity and productivity. Water use efficiency will be improved through precision land leveling, lining of water courses and promoting drip, sprinkler and trickle irrigation system. Timely availability of institutional credit will be ensured and the focus shifted towards disadvantaged groups. Steps will be taken for provision of cheap agricultural inputs to 74The International Water logging and Salinity Research Institute (IWARSI) was established in 1986, working under general supervision and control of Ministry of Water and Power through high powered Board of Directors and to be administratively controlled by WAPDA. 75The National Agricultural Research Centre (NARC) established in 1984, based in Islamabad is the largest research institution of PakistanAgricultural Research Council (PARC). 115 PovertyReduction Strategy Paper-I1 Chapter 6 - Pillar 111: IncreasingProductivity andValue Addition inAgriculture farmers. Sunflower cultivation will be promoted to meet cooking oil needs. The government's decision to increase wheat procurement price i s an attempt to ensure frequent supply of wheat at normal prices and maintenance o f an adequate stock. The support price for wheat will be further revisedbefore the next sowing season. 6.28.3 Initiatives/programmesplannedfor the future: 6.28.3.1 (a) Short andmediumterm: Improving services through transfer o ftechnology to growers; Water resource management; . Income diversification at farm and village levels; ..... Improvingthe agricultural marketingsystem; Introduction o f highvalue crops inhorticulture and medicinal herbs; Promotingproductivity inthe livestock and poultry sectors; Improvingthe farm input-output relationship; Improving access to rural credit ; Value addition and inculcating quality improvement/technologies at farm level inthe production system; and Replacing subsistence farming agriculture with agricultural entrepreneurship. 6.28.3.2 (b) Longterm Improvement in water distribution systems, building water reservoirs, improving water resources and propagating water conservation technologies; Minimizing post harvest losses at the farm level including crops, livestock, fisheries and allied pursuits; Establishing cold chains/warehouses in the private sector to minimize post harvest losses; Establishing a market information system to display prices of agricultural commodities on the patterno f stock exchange; and Building cool chain infrastructure at ports and airports to facilitate exports of agricultural commodities. 6.28.4 In short, poverty reduction in Pakistan requires rapid growth in agriculture, which has strong potential to create jobs and associated self-employment opportunities. This situation therefore, calls for planned efforts to improve the performance o f agriculture to achieve 116 Poverty Reduction Strategy Paper-I1 Chapter 6 - Pillar 111: IncreasingProductivityandValue Addition inAgriculture pro-poor growth; help reduce the rising trend o f rural poverty in addition to enabling food security by keepingsupplies intact, on the one hand, and prices incheck, on the other. 117 Poverty ReductionStrategyPaper-I1 Chapter 7 Pillar IV: IntegratedEnergyDevelopment Programme - Chapter 7 - Pillar IV: Integrated Energy Development Programme 7.1 Over the last 30 years, Asia's energy consumption has grown by 230 percent. Vehicle fleets are doubling every 5 to 7 years and this reinforces the urgency of producing cost- effective greenhouse gas (GhG) reduction solutions for transport. Pakistan's development, too, will demand enormous amounts of energy. Alongside other Asian countries, Pakistan must put its energy consumption on a more sustainable path. Rapid urbanization in Pakistan has brought tremendous challenges as cities work to absorb higher populations. Promoting energy efficiency, fuel diversity as well as climate change-friendly actions transcend the boundaries of energy policy and have a direct impact on the poor masses. Policies concerning the development and sustenance of transportation, technology, environment, finance, competition, and investment all have an important role to play.76The links betweensustainable development and energy will require even greater efforts for long term energy security. Ensuring availability of usable affordable energy i s therefore the bedrock of Pakistan's current and future development. 7.2 The private sector ranks problems with electricity among the top three or four most important impedimentsto investment (Chapter 11). The Poverty Reduction Strategy, which relies on the private sector as the main propellant of growth in Pakistan, must, therefore, pay considerable attention to developing the country's power resources. Indeed, the remit of the Strategy must be wider and must cover all forms of energy as different sources of energy are requiredfor different purposes, including for transportation, household cooking and power generation. One of the major challenges facing Pakistanis the energy crisis that i s intense, costly and multidimensional. Recent power and gas shortages underscoreurgent attention to prevent serious derailment of the economy. Tackling the current energy crisis to avoid stifling of growth by rapidly adding more power while simultaneously conserving energy will be atop priority of PRSP-11. 7.3 The demand for energy increases as the growth o f a country's GDP accelerates. Pakistan's Poverty Reduction Strategy is founded on regaining growth of the GDP; hence one expects the demand for energy to escalate rapidly. Based on historical trends and drawing on the experience of other fast-growing economies, Pakistan projects annual growth in energy of 7.2 percent up to 2010 and 8.8 percent thereafter.77 According to the updated demand forecast prepared by National Transmission and Dispatch Company (NTDC), the power demand is expected to increase by 8.5 percent for the period 2008-10 and 7.7 percent for the period 2010-15.78Pakistan's total energy requirements by 2030 will be 361 MTOE (Million Tons Oil Equivalent) comparedwith 60.4 MTOE inFY 2006/07.79 76ADB & DFID,EnergyEfficiency andClimateChangeConsiderationsfor On-roadTransportation inAsia, (Philippines,2006). 77Ministry ofPetroleumandNaturalResources, Governmentof Pakistan, Islamabad,2008. 78Ministry o fWater andPower, Power Wing, Governmentof Pakistan, Islamabad, 2008. 79Ministry ofPetroleumandNaturalResources, GovernmentofPakistan, Islamabad,2008. 118 Poverty Reduction Strategy Paper-I1 Chapter 7 - Pillar IV: IntegratedEnergy DevelopmentProgramme 7.4 Energy Consumption 7.4.1 A structural shift has taken place inenergy consumption since FY 1997/98 onwards. While the consumption of petroleum products is exhibiting a declining trend, the consumption of gas, coal and electricity i s rising. Note: e - estimatedfor coal *Million Tonnes Source: Hydrocarbon Development Institute of Pakistan & Finance Division, EA Wing, Government of Pakistan, December, 2008. 7.4.2 It i s essential to provide adequate energy to industry to drive economic growth and create employment opportunities; to the domestic sector for cooking and heating; and to prevent the continuing environmental degradation and deforestation by massive use of wood for domestic fuel. Per capita energy consumption inFY 2004/05 was only 14 million BTUgOin Pakistan, compared with 92 million BTU for Malaysia and 34 million BTU for China. This figure increasedto 16BTUduring FY 2006/07.8' 7.4.3 Access to electricity inthe country is quite high, but the proportion of consumersusing less than 60 units per monthper household is equally high. Per capita electricity consumption (402 kwh) is less than one-sixth the world average of 2,516 kwh. Consumption of electricity during FY 1997/98 to FY 2006/07 increased by an average rate of 5.5 percent per annum; and 0.9 percent during FY 2007/08.82Targets are to raise energy per capita consumption of electricity to 504.89/kwh in FY 2010/11 from 477.66/kwh during FY 2005/0683.Electricity consumption grew in all economic sectors during the last five years. The sectoral consumption of electricity by economic groups identifies the domestic sector as the largest consumer o f electricity for the past many years. During FY 2007/08, the share of domestic consumption was at 45.9 percent, industrial at 28.2 percent and agricultural at 11.5 percentg4. British Thermal Units. "GoP,PlanningCommission,`MTDF2005-2010'(May2005). Economic Survey, Government ofPakistan, 2008. 83Ministry of Water and Power, GovernmentofPakistan, October, 2008. 84Economic Survey, Government of Pakistan, 2008 119 PovertyReductionStrategy Paper-I1 Chapter 7 Pillar N:Integrated Energy Development Programme - Table 7.2: Electricityconsumptionby economicgroups (percentage share) Source Water and Poner DevelopmentAuthority & Finance Division, EA Wing, Government of Pakistan, December, 2008 7.4.4 Given the rising share o f energy in the total cost o f production, due to high costs o f primary energy, Pakistan's economy will become non competitive if it does not address energy efficiency. At the same time it must be recognized that inefficiency increases the delivered cost o f energy making it less affordable unless subsidies are increased. Energy efficiency needs to be given at least as much attention as buildingnew capacity. It i s worth noting, as per the MTDF, Pakistan's steel industry uses double the amount o f energy per tonNE compared to the world average. In terms o f energy intensity Pakistan uses more energyper US $ o f GDP compared with India, Indonesia, Malaysia and Bangladesh. 7.5 Structure of Pakistan's Energy Sector 7.5.1 Although Pakistan's energy resources are diverse (comprising power, oil, gas, coal, nuclear and renewable sources), the country is in energy deficit due to sub-optimal development, exploitation and management o f energy resources. The sector remains institutionally fragmented (Figure 7.l), and lacks integrated energy planning to analyze/develop a consolidated action plan in order to address the country's energy needs during the short, medium and long term. The energy sector policy remains with the government, while the power sector i s regulated by National Electric Power Regulatory Authority (NEPRA) and Oil and Gas Regulatory Authority (OGRA). 120 PovertyReductionStrategy Paper-I1 Chapter 7 - Pillar IV: IntegratedEnergyDevelopment Programme Figure7.1: Organizationalstructureof the energysector inPakistan Pakistan: Energy Sector Organizational Structure - To date Generahon (GENCOs) Company(NTDC) Licences gNento -Prcdmem(SPPS) 32 SmallPower L 18 Independent --- 8+1 Power Power PrcdYCelD (IPPS) (DISCOS) I _. 50 MW (primarilythrough mini 8 smallhydels)and mntradsell directlyto NTDClDlSCOsthrough appropriatepaver puichsrc Note:Ail entitiesat one ievelherarchy share informationon a need to know basis Source: AsianDevelopmentBank(ADB), IslamabadOffice, November, 2008. 7.6 An IntegratedApproach to Energy 7.6.1 Energy security is becoming a major concern globally, arguably being ranked second to food security. Management of the energy sector is fragmented spread over a number o f Ministries, agencies and regulators at the federal and provincial levels. No single ministry or regulatory body has over-arching responsibility for managing energy affairs. With Pakistanbeing a net energy importer and with energy needs being supplied from multiple sources there is scope for optimization through integrated planning and oversight of implementation. An empowered and effective link between the planners and those who implementplans will ensure improved information for decision making, realistic planning and faster implementation of projects. It should lead to faster and timely response to changes in domestic and geopolitical realities. The country needs to start thinking interms of energy rather than gas, oil, coal and electricity. Energy is scarce and an integrated look at energy is needed to allocate scarce resource on the basis of maximum economic benefit. Such an integrated look will help develop a least cost approach to energy policy and pricing and minimize the cost of subsidies. Once true economic costs and benefits are established, issues such as pricing o f peak power or using captive power can be effectively addressed. 121 PovertyReductionStrategyPaper-I1 Chapter 7 - Pillar IV: IntegratedEnergyDevelopmentProgramme 7.7 Power sector 7.7.1 Key challenges specific to the power sector include: . To improve supply-demandbalance through additional least-cost power generation, de- bottleneck transmission and distribution systems; . reduce subsidiesand allowing cost recovery tariffs by distribution companies; .. inject cashinto the sector to stem asset deterioration; strengthen corporate governanceby discharging ownership responsibilities; and toughen sector policies andregulations. Figure 7.2: Powersector market inPakistan PAK Power Sector Value Chain Market Structure - Residentlal Conrumen 1 Dlstnbunon Companies I Islamabad 23 Lahore I 1 Munsn WAPDA Hydel IncludesTarbela, NationalTransmssion 45 Gujranwala Faisalabad Mangla,Wanak ind DespatchCompany lndustnal and other Hydro 6 Hyderabad ( N T W 7 Karachi Consumers PowerDams 8 Peshawar 9 Tnbal 19 Existing PurchaseAgency Independent Federal PowerProducers Government Bulk Supply I Consumers Service Providers Pmnnual Inputfor Power NewlPPs Governments Generation Power Generators Power Power Distributors Consumers I GrOUDS Source: Asian DevelopmentBank (ADB), IslamabadOffice, November, 2008. 7.7.2 In order to mobilize private sector investment for the power sector, an independent power projects (IPP) policy was launched in 1994 and reviewed in 1998 and 2002. A Private Power and Infrastructure Board (PPIB) was set up to provide one window support to the private sector. The government also set up the National Electric Power Regulatory Authority (NEPRA) in 1997. In 1998 the government embarked upon a programme of 122 Poverty Reduction Strategy Paper-I1 Chapter 7 Pillar IV:IntegratedEnergyDevelopmentProgramme - unbundling Water and Power Development Authority (WAPDA) through corporatization and commercialization. Pakistan's power sector has historically been dominated by public sector utility oligopolies, WAPDA and KESC. Over the years, these institutions emerged as large, monolithic, vertically integrated utilities with overstaffing, financial and technical inefficiencies, and a lack o f competitive spirit. WAPDA owns about 59.6 percent of the country's total power generation capacity and serves about 88 percent of all the electricity customers inthe c~untry.'~ 7.7.3 The government privatized KESC and reorganized WAPDA into nine distribution companies called DISCOs, one National Transmission and Dispatch Company (NTDC) and four thermal generation companies called GENCOs. Hydroelectric power development and operation functions remain with WAPDA. Inorder to carry out this restructuringand re-organization, a facilitatiodmanagement company owned by the government called the Pakistan Electric Power Company (PEPCO) was incorporated in 1998. Inorder to take the reform process to the next level, the government has separated the chairmanship of WAPDA and PEPCO. The nine DISCOs, NTDC and GENCOs work independently incorporated with the Securities Exchange Commission o f Pakistan (SECP) as public limited corporate companies under their own Board of Directors with equal representation o f members from the private sector including the Chairman. The DISCOs' loss reduction projects coupled with the introduction of competition in power and in natural gas supply are all efforts towards reducing energy costs. Figure 7.3: WAPDA Overview of performances6 - 7.7.4 Duringthe last five years especially, the government has made strenuous efforts to expand the production of electricity and to increase access to this resource. NO.of Consumers - (Millions) Target Total electricity 1 2 2 12.7 13.3 14.1 generation increased from 67,500 Gwh in FY 2000/01 to 87,992 Gwh in FY 2004/05 and 1.7 million new consumers Villaaes Electrified affi7 7193 were added in the WAPDA and KESC 1595 1699 2246 systems. In financial terms, an amount of Rs 73.4 billion was utilized for the power sector during FY 2001-05. The total installed Economic survey, Government of Pakistan,2008. 86WAPDA (2007). 123 Poverty Reduction Strategy Paper-If Chapter7 Pillar IV: IntegratedEnergy DeveIopmentProgramme - capacity of WAPDA stood at 11,363 M W during FY 2007/08 (Table 7.3). O f this, hydel power accounts for 55.6 percent and thermal for 44.4 percent. The total installed capacity of IPPs is 5,760 M W (29.4 percent) followed by KESC's (1,690 MW) and nuclear power (462 MW). The share of public sector in total instaIled capacity is 70.6 percent while private sector accounts for 29.4 percent. Note: Share in WAPDA system * Source: HydrocarbonDevelopment Instituteof Pakistan & Finance Division, EA Wing, Government of Pakistan, December, 2008. 7.7.5 Several public sector power projects includingAllai Khwar (121MW), Khan Khwar (72MW), Dubair Khwar (l3OMW), Golan Go1 (106MW), Malakand-I11 (81MW), Keyal Khwar (130MW) and Jinnah low head (96MW) are at different stages o f implementations7. In addition, hydelprojects, namelyMalakand-111(81MW) inNWFP, Battar (4.8MW) inAJK and Naltar (18MW) in Northern Areas under the provincial programme have been approved for implementation. 7.7.6 Immediate future investment plans of DISCOs include the Power DistributionEnhancement Project funded by ADB for eight DISCOs (LESCO, GEPCO, FESCO, IESCO, MEPCO, PESCO, HESCO and QESCO). Twenty percent of the project cost will be borne by the DISCOs' own resources. The total project cost is worth Rs. 20.4 billion. The World Bank funded Electricity Distribution and Transmission Improvement Project for four DISCOs (LESCO, IESCO, MEPCO and HESCO) and NTDC will cost U S $256 million (US $1 = Rs. 60.9). The investmentplanfor GENCOs is as follows: Sr. Project Fuel Capacity Expected Project Exchange Entity No. OMW) Commercial cost Rate Operation Date (Rs. biflion) (US $1= Rs. 1) 1. Nandipur Oil 425 Dec 2010 22.36 61 GENCO-111 PowerProject 2. Chichoki Gas 525 Mar 2011 31.22 62 GENCO-I11 Mallian PowerProject 3. GudduPower 11Gas 1 750 Apr201I 43.00 61 GENCO-I1 87Pleaserefer to chapter 10for investmentplansfor these hydropowerprojects. 124 Poverty Reduction Strategy Paper-I1 Chapter 7 Pillar IV: Integrated Energy Development Programme - I Project Source:Ministry of Water and Power, Power Wing, Government of Pakistan, December, 2008. 7.8 Energy Crisis 7.8.1 The link between sustainable development and energy will require even greater efforts for long term energy security. Crisis management including installation of rental power plants inthe private sector and reduction of peak demand through energy conservation and load management measures, since one M W reduced i s in fact one MW generated. Short term measures include installation of new power plants inthe public sector and fast-track power generationcapacity enhancement through addition of 2000 M W inGENCOs and additional rental plants of 1300 ME before the end of FY 2008-09. Energy Management and Conservation (EMC), PEPCO has set up a special EMC Cell, while the Ministry of Water and Power has set up a Power System Operation Committee and Power Planning Committee to resolve related matters and undertake comprehensive planning on power issues on a consultative basis with relevant stakeholders. Mediumterm measures include a combination of supply side as well as demand side actions further supplemented by a continuing Energy Conservation Plan (discussed later in the chapter). With these efforts, decrease inthe energy gap is aimed to be reducedby 500-1000 MW by 2008-09 while the goal of complete elimination ofthe gap will occur during the PRSP-I1period." 7.8.2 Over a longer period, large coal based plants with a total capacity of 3000 M W by FY 2011/12, followed by large hydel power plants (5000) M W by FY 2013-15 are essential for ensuring lower cost generation in lieu of the current high cost of fuel oil and rental based power plants". The following table illustrates details of NTDC's Power Distribution Enhancement Project, 20 percent of which will be funded by NTDC's own resources whereas 80 percent ofthe cost will be borne out of lending from ADB. Power DistributionEnhancementProject Tranche-1PC-1 cost Rs 15.6billion ADB U S $226 million Power DistributionEnhancementProject Tranche-2PC-1 cost Rs25 billion ADB U S $220 million Ministry of Water and Power, Government ofPakistan, October, 2008. 89Ibid. 125 Poverty Reduction Strategy Paper-I1 Chapter 7 - Pillar IV:IntegratedEnergyDevelopmentProgramme Table 7.6: Power projects pla ned for the PRSP-I1 period Key Interventions Tar :ts Outcomes 2008-09 2009-10 2010-11 Power~roiects/~ams~~: Medium Mirani; Khan Allai Additional Thermal power projects to sized Sabakzai; Khwar (72 Khwar (21 hydopower generate 2000-2500 MW energy hydropower Satpara MW); MW): power under various stages of damsto be (15.8 MW); Jinnah(96 Dubair generation, as implementation at: Chichoki completed Mangla MW); Khwar 130 well as, live Mallian, Nandipur, Guddu, Dadu Dam GomalZam MW) storagefor and Faisalabad Raising (17.4 MW) agriculture, Hydel power projects: Project development Large dams under constructionto be (120 MW o f fisheries completed during 2013-2018: addl. Kurram Tangi (83 MW); Akhori capacity) (600 MW); Munda (740 MW); Diamer Bhasha(4500 MW) Public sector hydropower projects under construction: Neelum Jhelum, Golan Gol--106 MW (detailed engineering and tender documents completed), Keyal Khwar--130MW (feasibility study completed), Malakand-I11--81 MW (partly viinistryof Wa r & Power, GovernmentofPal tan, October, 20( 7.9 Efficient Procurement of New Energy Generation 7.9.1 Pakistan has one o f the most advanced Public Private Partnershipprogrammes inthe power sector with about 30 percent o f its generation capacity being in the private sector. It has also gradually expanded the scope of this programme from thermal to hydro and wind power. The response o fthe private sector continues to be positive. 7.9.2 However a lack o f proper planning for additional capacity and timely action may be resulting in suboptimal pricing. The power policy envisages procurement of private generation capacity through competitive as well as negotiated basis. However, due to delayed and reactive rather than proactive action to capacity demand, the government continues to find itself in a situation where it does not have time for competitive bids and has to contract new capacity on a cost plus model. The current practice results in a higher level o f investment over a shorter period which pushes up price due to higher country risk perceptions and available funds for the country. A more level investment demand would reduce these risk perceptions. Although these projectswill be completedduring intervalswell after the PRSP-I1timeframe, they have been incorporatedin the policy sincework has already started on them and annual expenditures/allocationshave been devised. 126 PovertyReductionStrategy Paper-I1 Chapter 7 - Pillar IV:IntegratedEnergyDevelopmentProgramme 7.10 Village Electrification 7.10.1 The government i s determinedto spreadelectricity to all parts of the country especially the rural areas. The village electrification programme is an integral part of the Poverty Reduction Strategy and seeks to increase the productive capacity and to raise the social economic standards of the population living in far-flung. The target is to electrify all the villages inthe country by 2010. 2005-06 2006-07 2007-08 Rural electrification 1,000 2,499 2,748 Table 7.8: Village Electrification(number of villages)" 7.10.2 Inthe eight years prior to FY 2003/4, the number of villages electrified increased at an annual rate of only 3.3 percent; during that period 16,637 villages received electricity. In the three subsequent years, the rate of village electrification accelerated sharply to 11.6 percent per annum and provided electricity to 25,788 villages. The number of electrified villages has increased from 117,456 on 30* June 2007 to 129,686 by FY 2007/08. Moreover, local stakeholders have been invited to review the programme; future village electrification progress will be verified by district governments and they will be engaged in implementing the programme. Rs 2,499 million of PRSP expenditure was spent on this purpose during FY 2006/07, while Rs 2,748 million was spent during FY 2007/08. 7.11 Oil and Gas 7.11.1 The Oil and Gas Regulatory Authority (OGRA) has been set up to regulate the petroleum, oil and gas activities and look after the interests of consumers. Government Holdings (Pvt.) Limited has also became operational which handles government's participation in petroleum explorationjoint ventures. 7.11.2 The Iran-Pakistan-India (IPI) gas pipeline project, currently under approval by the government, is an arrangement under which Iranwould provide 2.1 billion cubic feet o f gas per day in the first phase, and 3.2 billion cubic feet during the second phase, to Pakistan. 9'Source: Water and Power Development Authority, Government of Pakistan, 2008 & Finance Division, EA Wing, GoP, December, 2008. 127 PovertyReductionStrategy Paper-I1 Chapter 7 - Pillar IV: IntegratedEnergyDevelopmentProgramme The construction work o f the pipeline, worth approximately US $3 billion, will begin next year, while the first gas delivery is expected in2012. Regional linkages will be established and possibilities explored for importing power from Central Asian Countries. Current linkages with Iran will be expanded for importing power particularly in remote areas o f Balochistan. 7.1 1.3 In order to augment the transmission system o f gas utilities, the Gas Infrastructure Development Project has been completed. About 1 billion cubic feet of gas per day was injected into the system for supply to both the power sector and industry. Moreover work on the 817 km cross-country White Oil Pipeline has also been completed. Utilization of Compressed Natural Gas (CNG) was encouraged in the transport sector to improve urban air quality and reduce carbon emissions. About 650,000 vehicles would be converted on CNG. The Government issued directives to promote CNG in the transport sector as an alternate fuel. About 700 CNG stations are aimed to be established indifferent parts o f the country. The use o f CNG would be expanded as about 100,000 cars and 10,000 buses would be added every year to the existing stock o f the country. A programme o f dedicated CNG city buses would be undertaken, initially in federal and provincial capitals, and subsequently, the programme will be extended to other urbancentres. 7.11.4 The main objectives o f the CNG Policy, initiated by the government in 2007 are: to encourage CNG as a substitute o f liquid fuel to reduce import bill; to provide cheaper and environmental friendly fuel; to discourage mushrooming growth o f CNG outlets, with the announcement that there should be at least one km distance between two CNG stations; enforcing better industry discipline & safety culture in the CNG sector; introducing CNG technology for import o f natural gas; using CNG for town gasification where supply o f pipeline gas i s not viable. Other gas initiatives include the Underground Gas Storages (UGS) Project. The ultimate goal o f these efforts is: to increase exploration and production o f crude oil, coal and gas; enhance the number o f wells drilled; increase the use o f Liquefied Petroleum Gas (LPG) supply (tonnedday) to overcome energy shortage; and to promote the use o f CNG inthe transport sector as an alternate fuel. 7.12 PetroleumExplorationandProduction(E&P) Policy2008 7.12.1 The Government o f Pakistan (GoP) i s committed to accelerate an exploration and development programme in order to reverse the decline in crude oil production, to increase the domestic gasproductionand supply andto reducethe burdeno f imported energy which otherwise will have adverse effect on the balance o f payments & trade. The Petroleum Exploration and Production (E&P) Policy, initially approved by the government in November, 2007, unfortunately could not take off due to the following reasons; seismic and E&P work could not be undertaken innew areas to assess potential due to the law and order situation inthe prospective areas particularly Balochistan and NWFP provinces, and the non-availability o f rigs in the country. However, the Ministry o f Petroleum has prepareda new Petroleum (E&P) Policy, 2008, which has been circulated to the relevant 128 PovertyReductionStrategyPaper-I1 Chapter 7 - Pillar IV:IntegratedEnergyDevelopmentProgramme stakeholders and will be resubmitted for approval by the government shortly.92 The E&P Policy will establish related policies, and a tax and pricing regime for the E&P sector. The offshore Petroleum Policy was revised and production-sharing formula introduced to attract private investment in high risk offshore petroleum exploration. To make the refinery operations competitive and to provide a level playing field for the public and private sectors, government permission will not be required for setting up new refineries or expandingthe existing ones. Principal objectives o fthis Policy include: . To accelerate E&P activities in Pakistan with a view to achieve maximum self sufficiency in energy by increasing oil and gas production and, therefore, to reduce the current onerous burdenon the balance o fpayments and trade; To promote direct foreign investment in Pakistan by increasing the competitiveness o f its terms o f investment inthe upstreamsector without reducing tax revenues; . To promote the involvement of Pakistani oil and gas companies in the country's upstream investmentopportunities; . To train Pakistani professionals in E&P sector to international standards and create favourable conditions for their retention withinthe country; To enable a more proactive management of resources through establishment o f a strengthened DGPC and providing the necessary control and procedures to enhance the . effective management o f Pakistan's petroleum reserves; and To undertake exploitation of oil and gas resources in a socially, economically and environmentally sustainable and responsible manner. Estimates for drilling inthe E&P sector under the Policy are illustrated inTable 7.9 below: Table 7.9: Estimatesfor drilling in the E&P sector during the PRSP-I1period Description 2008-09 2009-10 2010-11 Drillingofoil and gas wells 60 65 70 Enhancingindigenousgas 4100 4200 4300 production(MMCFD) Enhancingindigenousoil 71000 73000 75000 production(BOPD) 7.13 Enhancing Coal Based Generation 7.13.1 With rapidly declining domestic natural gas resources, there i s a need to r ass ss the economics o f alternatives particularly the use o f domestic and imported coal. The development o f domestic coal has unfortunately suffered partly due to multiple and overlapping responsibilities and to a certain extent owing to efforts to integrate mining and 92Ministry ofPetroleumandNaturalResources, GovernmentofPakistan, Islamabad, October, 2008. 129 PovertyReductionStrategy Paper-I1 Chapter 7 - Pillar IV: Integrated Energy Development Programme power production. At the same time, imported coal was seen as a replacement for domestic coal and thus not encouragedwhen inreality imported coal is a substitute for imported oil andbothdomestic and imported coal are neededifPakistan's cost ofpower generationis to be competitive. Countries like China and India have also entered the international coal market to ensure long term supplies as part of their energy security plan. It may be noted that the world's coal reserves to production ratio are 5 times that of oil andthree times that of natural gas.93Pakistan's initiative of starting work on 2000 M W based on imported coal i s in the right direction and it needs to build further on this initiative. Development of domestic coal should be addressed in a more systematic manner including the option of segregating mining from power generation where initial cost of mining development may be high as in the case of Thar. Enhanced use of coal would not only diversify Pakistan's fuel base but will also reduce the cost of power generation and improve the country's competitiveness. 7.14 Energy ConservationProgramme 7.14.1 An energy conservation programme will be undertaken including enactment of necessary laws by Ministry of Science and Technology and ENERCON (National Energy Conservation Centre, Ministry of Environment), for energy efficient building designs, use and manufacturing of energy efficient appliances. Co-generation technologies to conserve energy would be promoted. ENERCON would develop a mechanism to monitor strict compliance of energy conservation laws. The power sector is one of the major contributors of emission of greenhouse gases accounting for over 80 percent of total carbondioxide (C02) emission. The main source of these emissions i s due to heavy use of fuel oil in power generation. During the MTDF period (2005-10), conversion of existing thermal power stations from fuel oil to natural gas would substantially reduce the C02 and particulate emission.94 It is estimated by National Energy Conservation Centre (ENERCON) that energy conversion and implementation of low cost and medium cost measures at the national scale can bring about a saving of around 250,000 tomes of oil equivalent i.e. an estimated saving of about Rs. 4 billion per annum. The cost of retrofit measures would only be a fraction of the cost of these savings. The Pakistan Council of Renewable Energy Technologies (PCRET) has also designed five types of efficient cooking stoves suitable for rural areas. These cooking stoves, which provide fuel saving against traditional stovesinthe range of 25 to 45 percent, would also be marketed. 7.14.2 Pakistan i s responding to its energy development challenge by pursuing a wide range of domestic and imported energy options. These include import of gas as LNG and through pipeline and import of power from Central Asia & Iran.At the same time, development of significant but challenging Thar coal is being pursued. In addition, two 1000 M W private sector power generation projects based on imported coal, are also at advanced feasibility stages. A number o f Independent Power Projects (IPPs) projects have been contracted and are in different stages of development. The Government has also come out with a new ~~ 93Asian DevelopmentBoard (ADB), Islamabad Office, November, 2008. 94GoP, PlanningCommission, `MTDF 2005-2010' (May 2005). 130 PovertyReduction Strategy Paper-I1 Chapter 7 Pillar IV: IntegratedEnergy Development Programme - policy to encourage investment in hydrocarbon exploration. Renewable Energy (RE) projects are being promoted with a target of 10 percent of energy mix to be met from renewable sources by 2015. A number of energy efficiency projects are at an early stage of development. A strategy is beingdevelopedto finance large hydropower projects. 7.14.3 Major issues include the slow development rate of indigenous resources, including hydel, coal, oil, gas and renewable, which has aggravated the overall supply position. The lingering deadlock over major reservoir dardpower projects has virtually held hostage the development of huge hydro resources. The non-availability of feasibility studies of potential sites has further added to the delays inutilization of hydel resources. Inaddition, relatively limitedinfrastructure has hinderedthe development of oil and gas inthe country. Recognizing the importance of exploitation of renewable energy, projects totaling 800 MW are also envisaged for implementation during 2005-10. The local production of oil and gas would start declining due to depletion of resources from the year 2010. There would also be a deficit of gas unless considerable contribution is made from new discoveries. In case the gap is not met through indigenous supply, there will be need to import gas, and the requisite infrastructure would have to be placed ina timely manner.There will be a gas and petroleum products deficit throughout the PRSP-I1 period which will be met through imports. The current coal deficit of about 3 million tomes per annum (including 1 million tomes for Pakistan Steel Mills)will remain to be met as local coal cannot beuseddue to its quality constraints. The planned import of natural gas as liquefied natural gas (LNG) and also through pipelines is aimed at bridgingthe gap betweendemand and supply. Here, the trade/transport/energy/industrycorridor being designed from the new port of Gwadar to the north ofthe country and beyondto China and Central Asia will play an important role. 7.14.4 The strategy for the power sector comprises four main elements. The first i s a muchhigher rate of investment in order to generate and distribute more power. Several power generating stations have beenimproved (see previous sections inthis chapter), while others are invarious stages of preparation. Table 7.10 shows the future power generationplan of Pakistan. Table 7.10: Power generation plan (2005-30) Nuclear I Hydel I Coal I Renewable 1 Oil I Gas I Total ICumulative 1 Existing II 2005 400 I 6,460 I 160 I 180 1 6,400 I 5,940 I 19,540I I Addition II 2010 1,260 900 700 160 4,860 7,880 27,420 2015 900 7,570 3,000 800 300 7,550 20,120 47,540 2020 1,500 4,700 4,200 1,470 300 12,560 24,730 72,270 2025 2,000 5,600 5,400 2,700 300 22,490 38,490 110,760 2030 4,000 7,070 6,250 3,850 300 30,360 51,830 162,590 Total 8.800 32.660 19.910 9.700 7.760 83.760 162.590 Sources:Planning Commissionof Pakistan& Economic Survey, GovernmentofPakistan,2008. 131 Poverty ReductionStrategyPaper-I1 Chapter 7 - Pillar IV:IntegratedEnergy DevelopmentProgramme 7.14.5 To overcome the growing shortage of electricity; gas, oil and coal-basedpower generation can help Pakistan to meet its requirements inthe short-to-medium-term. Due to escalating oil prices and shortage o f gas supply, coal-based electricity generation is the best option as Pakistan possesses 185 billion tomes of coal reserves. The government has planned for transmission of an additional 2,200 M W within a period of 12 months by April 2009. These projects comprise 81 M W of hydel and 1,007 MW of thermal power in the public sector and 1,020 M W in the private sector.95The government has also launched effective conservation measures which include distribution of 10 million energy saver bulbs to consumers. These measures are expected to save about 1,000 M W at peak hours. In the medium term, small hydro dam projects can make significant contribution to the national energy supply, while in the long run hydel power generation and alternative renewable energy can solve these problems. 7.14.6 The second element in the Strategy relates to finance. The total investment for the power sector during the MTDF i s estimated at Rs 1102 billion, and of which the government expects to mobilize Rs 445 billion from the private sector. The overall investment level will be kept under constant review, and in case the private sector falls short of mobilizing expected resources, the government is preparing a contingency strategy that includes, inter alia, offering enhanced sovereign guarantee^.^^ 7.14.7 Certain strategic actions need to be taken inparallel and on a priority basis to arrest energy shortages and to support related initiatives since the energy sector requires huge financial resources. There are limits to raising funds against the government's contingent liability and steps are requiredto strengthen the revenue and cash flows of the sector entities and improve their credit ratings. This financial weakness has placed anunsustainableburdenon the government's budgetary position, impacting the entire economy. The government's initiative in encouraging Public Private Partnerships is the right step in this direction. The success in attracting private investment to a certain extent i s dependent on the financial strength of the contracting public sector given its tendency to cause delays and attempt partial implementation of necessary and agreed reforms. In the power sector distribution companies have not beenable to charge cost recovery rates, whereas generation companies and IPPs have had real cost adjustments for their tariffs. The deficit amount is covered by the government as a subsidy to electricity customers. However, the total cost of this subsidy, along with the subsidy intariffs is not ~ustainable.~~Alongside, the government is encumbered with liabilities to oil companies for differential between the regulator approvedprices and consumer prices on petroleum products. The absorption ofthe increase inoil prices by the governmentis straining its budgetary position and negatively impacting the ability ofthe public sector to carry out necessarycapital and attract private investments. The recent adjustment to petroleum prices and electricity tariffs i s a step in the right 95FinanceDivision, CorporateFinanceWing, GovernmentofPakistan, December,2008. 96This is keepingin mindthe limit of state guaranteesneedingto be below 2 percent of GDP annuallyby law and the planned PPPs in others areas generating contingent liabilities. Source: MTDF (2005-10), Planning Commission, Government of Pakistan. 97Source: AsianDevelopmentBank (ADB), IslamabadOffice, November, 2008. 132 Poverty Reduction Strategy Paper-I1 Chapter 7 PillarIV: IntegratedEnergyDevelopmentProgramme - direction, while the accumulated debt of the sector needs to be restructured. The investment plansofIPPs, which amount to approximately US $4 billionare illustratedbelow: Source: Ministry of Water and Power, Power Wing, Government of Pakistan, December, 2008. 7.14.8 Another source of finance as well as of policy and technical advice is the international development community. In order to meet the additional power generation requirement of 143,310 MW during 2005-2030, an investment of about U S $150 billion will be required. 133 Poverty Reduction Strategy Paper-I1 Chapter 7 - Pillar IV:Integrated Energy Development Programme The average government investment per year is planned at US $2 billion, with the balance o f US $4 billion per year met through international development agencies and the private sector (including through BOTprojects and Public Private Partnerships). Box 7.1: Private Sector Investments --PotentialPipeline The Asian DevelopmentBank is Pakistan's single largestdevelopmentpartner inthe energy sector followed by the World Bank andJBIC andhas strongpresence (through investmentprojectsandanalyticalandproject preparatory assistance) across the power supply chain inthe country. (i)AxorDawoodWind PowerProject:Theprojectwillbea50-MWwindpowerIPPinSouthernSindh. Tarifffor the projecthasbeennotifiedandthe project's CCP stands approved. (ii)RajdhaniPowerProject:HydroIPPfollowingADB's participationintheNewBongEscapeHydroIPP. No major environmentalrisks. (iii) LNGProject: IntegratedLNGprojectfor supplyinggas to Sui SouthernGas Company distribution network. (iv) LandhiCattle Colony BiofuelProject: Involvesconverting(currentlypolluting) dung from 400,000 cows to 25MW of electric power, 2,000tpd of fertilizer, and 1.1 mtpa of carbon emissioncredits. The cost of the projectis U S $100 million. The projectis currently inpilot stages. Source:AsianDevelopment Bank (ADB), IslamabadOffice, November, 2008. 7.14.9 The third prong in the strategy is strengthening o f institutions. Public Sector companies such as Sui Northern Gas Pipelines Ltd (SNGPL), Sui Southern Gas Company Ltd (SSGCL) and other energy sector entities will be privatized duringFY 2009/10.98 7.14.10 In 1998 the government unbundled WAPDA, splitting it into companies that are expected to be leaner and more agile in responding to changing circumstances. However, the successor companies have not yet been given financial autonomy, and WAPDA continues to tightly manage the affairs o f the power sector. The main efforts during the PRSP, therefore, will be directed towards deepening sector structural reforms by enhancing the corporate autonomy o f WAPDA's successor companies (especially in distribution). In particular, the government will transfer all responsibilities for financial management o f sector revenues from consumers and the government budget (in the form o f subsidies) to the distribution companies. Other objectives o f the strategy are to strengthen the management and operation o f the wholesale market, and to improve sector governance and regulation in order to increase the efficiency o f the sector. One way o f doing this could be to reduce peak loads by shifting usages from peak to of-peak times and thereby deferring construction o f new facilities. This shift could be achieved through the use o f time-of-day or seasonal tariffs. 7.14.1lThe fourth critical element in the government's strategy i s to diversify the energy mix. Pakistan's energy sources include hydropower, coal, oil and gas, uranium, and alternate 98PrivatizationCommission, Governmentof Pakistan, 2008 134 Poverty Reduction Strategy Paper-I1 Chapter 7 - PillarIV: lntegratedEnergyDevelopmentProgramme energy sources such as the sun and the wind. The projected composition and utilization o f energy sources from 2005 to 2030 are detailed inTable 7.12 and Figure 7.4. Current Short Term Medium Term I Long T a v m I I 50.8 I 79.39 1 120.18 I 177.35 I 255.37 I 361.31 I Source: Planning Commission, MTDF 2005-2010. 7.14.12 The current energy mix includes 50 percent natural gas, 30 percent oil, 12.7 percent hydroelectricity, 6.5 percent coal, and 0.8 percent nuclear. The natural gas reserves are expected to start declining after 2010. Pakistan will, therefore, have to focus on energy conservation and shift the balance o f energy production from oil to nuclear, wind, solar and other alternative energy sources. The strategy seeks to diversify the energy mix by expanding the share o f coal, nuclear and renewable energy from the present combined share o f 20 to 36 percent by 2030, even as the amount o f energy grows from 55 MTOEto 361 MTOE in2030. Figure 7.4: Projected composition and utilization of energy sources, 2005-2030 (MTOE) I Composition of Energy Sourcesfor Consumption Source: Planning Commission, MTDF2005-2010. 7.15 Subsidies 7.15.1 Inorder to ease the burden on public finances the government will reconsider the question o f power sector subsidies, which currently amount lo about 1 percent o f GDP. The government is managing Rs 121 billion tariff differential shortfall for FY 2008/09. Out o f this, the government is providing Rs 65 billion while the remaining will be passed onto 135 Poverty Reduction Strategy Paper-I1 Chapter 7 Pillar IV: IntegratedEnergy Development Programme - consumer^.^^ Average annual subsidy given to lifeline consumers is Rs 10.35 billion out o f which Rs 3.04 billion have beenbuilt inthe tariff. The government has a firm commitment to remove all subsidies on oil and electricity by end 2008 and June 2009 in pursuance o f which, 31 percent increase inelectricity tariffwas already made inSeptember, 2008, while the petroleum subsidy was brought down to less than Rs 7/litre from a high o f Rs 50/1itre.''' 7.16 Renewable Energy Sources 7.16.1 The objectives o f policy for the Development o f RenewableEnergy for Power Generation, 2006 include increasing the deployment o frenewable energy technologies inPakistan so as to provide a higher targeted proportion of the national energy supply mix and also help ensure universal access to electricity in all regions o f the country. As a first step, Alternative Energy Development Board (AEDB) has been established to facilitate development o f renewable energy i.e. solar energy, wind energy, and bio-fuels. The authorities will accelerate programmes for the use o f alternate energy (especially wind), which have the potential to provide more than 5 percent of the electricity supply needed in 2030. 7.16.2 Wind Energy: Since 2001, global wind capacity has nearly doubledto 47,760 MW'O' and i s cheaper than natural gas. Pakistan has some excellent sites to exploit wind energy. A section o f the coastal area o f Sindh has been identified as having wind power potential o f 50,000 MW. With improved site studies, betterproject planning, R&D and learning, cost o f wind energy projects can be reduced to acceptable levels of around US 6.0 cents/kwh and even below. The government i s preparing a contingency strategy that i