The Economic Coordination Committee (ECC) of the Cabinet has deferred a decision on providing a Rs1 billion government guarantee for the Pakistan Social Impact Bond (PSIB), citing concerns over an inadequate business plan and unresolved financing mechanisms.
According to a news report, the PSIB, proposed by the Ministry of Federal Education and Professional Training, is intended to transition from traditional input-based training models to demand-driven, outcome-based approaches. Initial funding of Rs1 billion, backed by a sovereign guarantee from the Finance Division, would be issued with the support of a risk investor, subject to ECC approval.
During a recent ECC meeting chaired by Finance Minister Muhammad Aurangzeb, members criticised the proposal for lacking details on syndication strategies, take-out arrangements, and cash flow management.
The finance minister also expressed concerns about the mechanism used for the Water and Power Development Authority’s (WAPDA) green bond, highlighting its lack of provisions to mitigate government liabilities and their potential consequences. He noted that the same framework had been adopted for the Pakistan Social Impact Bond (PSIB), intended to secure financing for vocational and technical training initiatives.
The Ministry of Federal Education defended the PSIB, explaining it as an outcome-based funding approach to address the financing challenges of the technical and vocational education and training (TVET) sector.
The ministry highlighted that similar initiatives in countries like India, Vietnam, and the UK have successfully mobilised private investment and improved social outcomes. India, for instance, has raised over $600 million through Skill Impact Bonds in education and public health sectors.
NAVTTC, established in 2006, is tasked with creating a market-driven workforce to meet industrial and self-employment needs, as well as to export skilled manpower.
The ministry argued that PSIB represents a strategic shift in leveraging private capital for skill development, reducing the government’s financial burden, and reallocating public funds to other critical needs. The funding would support high-employability TVET programmes catering to both domestic and international labour markets.
The ECC appreciated the concept of using capital markets to bridge financing gaps but emphasised the need for a comprehensive business plan. It directed the Ministry of Federal Education to address all key aspects, including syndication strategies and take-out arrangements, before resubmitting the proposal.
The apex committee of the Special Investment Facilitation Council (SIFC) had previously approved the sovereign guarantee for PSIB in February 2024. The Finance Division has also supported the proposal, recommending it for further action.
However, the ECC’s decision underscores the importance of a robust framework to ensure the initiative’s success.
