Poor governance threatens Pakistan’s macroeconomic stability: WB

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  • WB report titled ‘[email protected]: Shaping the Future’ says fiscal challenges partly due to weak governance
  • ‘Failure to implement tax reforms, misalignment of responsibility, weak institutions causing high debt, deficit levels’
  • Pakistan asked to improve transparency, use existing data to hold service providers accountable

KARACHI: Poor governance threatens macroeconomic stability and Pakistan’s ability to generate sustainable growth, said a World Bank report issued Monday, adding that the country’s continuous fiscal challenges are partly the result of a weak governance system.

According to the report titled ‘[email protected]: Shaping the Future’, three factors contribute to the country’s high debt and deficit levels. Firstly, while tax receipts have increased in recent years (from 10 per cent of GDP in FY13 to 13 per cent in FY18), a failure to fully implement tax reforms and low institutional capacity to collect revenue means that Pakistan continues to suffer from relatively low revenues.

Secondly, the division of responsibility for expenditure on services and macro-fiscal stability between the Centre and provinces following the 18th Constitutional Amendment and the 7th NFC Award has resulted in a misalignment of institutional responsibility. This is because the mandate to drive fiscal consolidation rests with the central government, while only provinces have the fiscal space to achieve this fiscal consolidation.

Thirdly, ineffective institutional controls and accountability for fiscal expenditure, especially with regards to the enforcement of fiscal responsibility legislation, has contributed to fiscal slippage.

It was suggested that a conducive governance environment be created in which citizens have access to information and mechanisms necessary to hold political leaders accountable, and where political leaders have access to the tools, and the right incentives, to effectively manage service delivery. A functioning political system requires a triangular relationship between citizens, political leaders, and those tasked with delivering public services and implementing policy.

TRANSPARENCY, POLICY IMPLEMENTATION:

According to the report, the origins of weak governance as documented for Pakistan can lie on two levels. On the one hand, the link between citizens and policymakers can break, for example, because citizens lack access to information about the action of their leaders, or because they are unable to sanction behavior that is against their interest. Thus, transparency about leaders’ performance and the accountability of leaders to citizens, as per the report, are key for effective governance. On the other hand, governance failure can also occur when political leaders are no longer able to ensure policy implementation and service delivery.

In Pakistan, the report describes, there is a need to think about the management of the public sector and governance of non-public entities that are tasked with fulfilling service delivery functions. This also includes the private sector, which has increasingly taken over service delivery functions that fall into the public good domain, such as health and education. The next sections investigate each of these facets in turn. Pakistan has taken important steps toward improving transparency in service delivery and empowering citizens, but it needs to mainstream initiatives and ensure that existing data are used to hold service providers accountable.

Transparency with regards to the actions undertaken by political leaders and public officials is an important element of good governance. Pakistan’s provinces have taken some important steps toward improving the monitoring of service delivery and developing new avenues for citizens to provide feedback on service delivery. The report quoted the example of the District Performance Monitoring Cell in the Chief Secretary’s Office in KP which has “greatly improved the quality of service delivery at the local level through ICT-based, real-time monitoring of several key services of relevance to citizens.”

The findings of the WB report saw that completing the existing efforts requires operationalising such efforts across service delivery functions and ensuring that citizen feedback and performance data become a key metric in evaluating and rewarding service providers. Pakistan’s citizens have only limited access to information on public financial management. While federal and provincial budgets are published annually, supplemental budgets are only disclosed at the end of the fiscal year, and only Sindh publishes in-year budget execution reports.

Likewise, there is no provision for recording new commitments, cash management, or internal audits; these functions are not performed, except in some provinces on a pilot basis. While Pakistan declared its intent to join the Open Government Initiative and embrace its commitments on fiscal transparency in 2016, it has yet to submit a National Action Plan for implementation.

ELITE FACTIONS:

The report found that elite capture in Pakistan has affected policymaking, as in certain circumstances political leaders lack incentives to formulate policies in response to citizens’ demands, or to work toward effective policy implementation.

The WB report highlighted that a unique feature of Pakistan’s history is that economic, social and security policies gave rise to various elite factions that could sustain economic and political power until today.

A powerful class of civil servants emerged from an inherited colonial bureaucratic system, which gained political influence during times of unstable political leadership shortly after independence and has retained this influence until today, the report said, adding that an increasingly unequal distribution of land holdings after the evacuation of Hindus following independence and a failure to reform a land tenure and agricultural system that significantly favored large landholders gave rise to a politically influential landholding class in the agriculture sector.

An economic boom in the 1950s and protectionist economic policies generated high profits for merchants, who used their economic power to influence policies that facilitated their development into a politically connected industrialist class, the findings of the WB report suggested.

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