Planning Process for Economic Development in Pakistan

1. Planning Process for Economic Growth
in Pakistan
Dr. Vaqar Ahmed
Sustainable Development Policy Center 1

2. Objectives of Economic Planning
1. To increase per capita and national income
2. Higher level of employment
3. Price stability
4. Reduction of inequalities in income distribution
5. To remove BOP difficulties
6. Reducing regional disparities
7. Self-sufficiency in food
8. Redressing imbalances in the economy
9. Increase in savings
10. Reducing population growth
11. Reducing poverty levels
12. Provision of social services
2
13. Long term economic growth

3. Planning Myths
3

4. Myth 1: Planning is useless because
policies lack consistency
4

5. Myth 2: LDCs including Pakistan have not
completed the tenure of their economic policies
5

6. Myth 2: LDCs including Pakistan have not completed the
tenure of their economic policies
The discontinuity was not in policies but projects
6

7. Myth 3: Pakistan Vs. South Korea Model
Myth
7

8. Myth 3: Pakistan Vs. South Korea Model
• Aid Received
• Model Focus
8

9. Planning for Growth
• Financing for Growth
– Debt Funding
– Equity funding
• Public Sector Funding :
– PSDP
– Assistance
– Equity
9

10. Planning for Income Distribution
• Can growth & distribution be achieved
simultaneously?
• Is growth necessary for distribution?
• Is it economic growth that leads to reduction
in poverty or the process of distribution?
– Case of Trade Liberalization ? 10

11. Policy Planning & Implementation Stages
• Data Collection
• Analysis
• Planning & Prioritizing
• Implementation
• Monitoring
11

12. Planning Process and Machinery in
Pakistan
12

13. Functions of Planning Commission
• Consultation with:
– Federal Ministries / Provincial Governments
– Donors
– Civil Society
• Formulation of National Plan
– Annual Plan
– Five Year Plan
– Rolling Plan
– Perspective Plan (15-25 Years)
• Project Management
– Approval of Development Projects
– Monitoring & Evaluation of Projects
– Association with EAD in matters of Foreign Assistance 13

14. Plan Preparation Process
Planning Commission
• Preparation of approach paper
• Formulation of technical working groups
Consultations with all Consultations with all
in all sectors
Federal Ministries for input Provincial Govts. for input
• Preparation of sectoral chapters by
working groups
Sent to all Fed. Ministries Sent to all Provincial Govts.
and Dev. Partners for Draft Five for comments and input
comments and input Year Plan
Finance Division Finalization of draft plan by PC and its Economic Affairs Division
(Resource Availability) presentation before President/Prime (Foreign aid availability)
Minister
Submission to National Economic
Council (NEC)
Circulation of approved plan to all
Provincial Govts. And Federal
Ministries for implementation
Transformation of plan into viable
projects/programmes 14

15. Plan Periods in Pakistan
Plan Period
1. Colombo Plan (Six Year Plan) 1951-57
2. 1st Five year Plan 1955-60
3. 2nd Five year Plan 1960-65
4. 3rd Five year Plan 1965-70
5. 4th Five year Plan 1970-75
6. 5th Five year Plan 1978-83
7. 6th Five year Plan 1983-88
8. 7th Five year Plan 1988-93
9. 8th Five year Plan 1993-98
10. 9th Five year Plan 1998-2003
11. 10 Year Perspective Development Plan 2001-11
12. Medium Term Development Framework (MTDF) 2005-10
13. Vision 2030
14. 10th Five year Plan (drafted twice) 2010-15
15
15. Framework for Economic Growth 2011

16. Main Instruments of National Planning
• Policies
• Plans
– Perspective Plan 10-25 Years
– Mid Term Plan 04-07 Years
– Rolling Plan 03 Years
– Annual Plan 01 Year
• Transformation of plans into
projects/programmes
– Policies  Plan  Projects
16

17. Does Public Investment Crowd-in Private
Investment?
• No strong relationship
between PSDP and growth
(Ghani and Din 2006)
• PSDP may kick start growth
but not sufficient to
sustain growth (Pasha
2011)
• PSDP contributes only 14%
in TFP growth (Masood &
Hyder 2007)
17

18. How Projects are Identified in Pakistan?
• National Economic Council
– Planning Document (Annual / Medium Term Plan)
– Assistance and partnership strategies with donors
• Line Ministries / Public Sector Corporations
– Based on their sectoral strategies / work plans
• Public Representatives/NGOs/Pressure Groups
– Policy Debates
18

19. Project Preparation – PC I Performa
• History
– Introduced in September 1952
– Revised by Group of Experts 1995 including
World Bank.
– 14 Forms of Various Sectoral Projects
• Present
– Only 3 sectoral PC-I Performa (Infrastructure,
Social Sector and Production Sector)
19

20. Project Preparation – PC II Performa
• Need for Feasibility Studies
– Projects costing Rs. 300 million and above
• Financing the Cost of Feasibility Studies
– Provision under PSDP
– Proposal to be submitted in the form of PC II
Performa
• Highly Technical Projects
– Request donor for Technical Assistance Grant 20

21. Project Approval & Appraisal
• PC III, PC IV, PC V
• PC-III: Designed to furnish information on the
programme of on-going projects on quarterly basis
–Any Changes in Scope of Design
–Any Revisions
–Any Changes in Management of Project
• PC-IV: Project History (Physical Completion of
Project)
–Accounts Closed/amount unaccounted
–Employment generated by the project
–Suggestions for future planning
–Name of the operating agency 21

22. Project Approval & Appraisal
• PC III, PC IV, PC V
• PC-V form is to be furnished on annual basis
for a period of five years by operating agency
– Review of costs
– Review of financial results
– Arrangements for maintenance of project
– Difficulties experienced in operation, marketing etc.
– Repercussion of scheme
– General observation of Federal Ministry
22

23. Project Approval & Appraisal
• Approving Authority
– Departmental Development Working Party (DDWP) 
Up to Rs. 60 million
– Central Development Working Party (CDWP)  Up to
Rs. 1000 million
– Executive Committee of National Economic Council
(ECNEC)  More than Rs. 1000 million
– Provincial Development Working Party (PDWP)  Up to
Rs. _____ million
– Corporations and Autonomous Bodies  No Limit
23

24. Sectoral Distribution of PSDP 2011-12
Sector Rs. Billion % Share
Infrastructure 165 57
Social Sectors 122 42
Production 3 1
Total 290 100
ERRA 10 -
Total Federal 300
24

25. Why is PSDP Falling?
Size of PSDP [Federal + Provincial] Share of PSDP in Overall Expenditure
Current Expenditure Crowding out Development Expenditure25

26. Reasons for Contraction in PSDP Size
Efforts to lower
fiscal deficit
(IMF program)
Rapid
Low and
growth of
stagnant tax
current
to GDP ratio
expenditure
Reduction in PSDP has disrupted development process
26

27. How much PSDP reaches the Poor?
Estimate in Rs.
High Low
Overhead Costs of Projects Execution 8.1 8.1
Contingency & Miscellaneous (Potential
5.0 2.5
Savings)
Duties on Machinery and Equipment 1.4 1.4
Commissions on Machinery and Equipment 1.3 -
Taxes and IDC on Civil Works 11.6 11.6
Corruption Payments 4.6 -
Transfer Payments for Land Acquisition, etc. 5.5 5.5
Total Leakage 37.5 29.1
Amount for Service Provision 62.5 70.9
Source: P&D Division
For every Rs. 100 allocated, Rs. 38 does not reach beneficiaries
27

28. Issues in Feasibility, Appraisal and Approval Process
Entire planning system is understaffed
Inadequate compliance to project manuals
Weak and repetitive inhouse technical analysis
Requirements of financial and economic analysis not fulfilled
Staff not aware of risk analysis, shadow pricing, and estimating
rates of returns
Very short time given to process the projects
28

29. Most Critical Issues
What is the consequence of 18th Amendment and 7th NFC award on
federal PSDP?
How to address near Rs. 3 trillion throw forward?
Can PSDP finance mega infrastructure projects?
How to manage costs/time overruns due to cuts in PSDP?
Project cash flows and benefits are vague
29

30. Rationalization of PSDP Portfolio
30

31. Escalation of Cost between 2004-11
Project % Cost Escalation
Islamabad-Peshawar Motorway 47
Lowari Tunnel 193
Widening & Improvement of N-85 49
Rehabilitation of Karakoram Highway 67
National Program for Family Planning & Primary
415
Health Care
Expanded Programme for immunization 392
Raising the Mangla Dam (including resettlement) 62
Lower Indus Right Bank Irrigation & Drainage 235
Right Bank Out fall Drain from Sehwan to Sea 109
Escalation is due to design change, upscaling, inflation effect
31

32. Criteria for Slashing PSDP
Projects nearing completion be fully protected
Contractual bindings in projects with foreign donors
Development Packages be protected
Only new approved projects falling in government’s priorities
Projects with 30% expenditure may be deferred unless very
critical 32

33. Analysis of Projects in PSDP
33

34. Sectoral Priorities in Federal PSDP (%)
Physical Infrastructure 32.8%
60 Social Development 18.9%
Productive Activities 4.6%
50 Special Areas 13.8%
Special Programmes 15.3%
40 Other 14.6%
% Share
30
20
10
0
2005 2007 2009 2011
Social Development Infrastructure Productive Activities
34
Special Areas Special Programmes

35. Share of Infrastructure by Type (%)
25
PSDP Allocation for Infrastructure:
2003  Rs. 90 billion
20 2008  Rs. 335 billion
2012  Rs. 290 billion
%
15
10
5
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Water Power Communication Ports Railways
Pakistan over-invested in Roads (Pasha 2011) 35

36. Cost Components of Projects 2010-11
Rs. billion
Main Cost Components Delivery Cost Total
Land & Civil Machinery Salary & Contingency
Vehicles Utilities
Resettlement Works Equipment Admin & Misc
220 2350 558 268 17.5 22 582.5 4018
5.5% 58.4% 14% 7.2% 0.4% 0.5% 14% 100%
78% 22% 100%
Source: Planning and Development Division
Largest share goes to civil works, machinery procurement, and land
36
acquisition and resettlement

37. Project Monitoring Methodology
Monitoring Mode
• Physical: site visit, meeting with PD and project teams
• Desk Monitoring: data collection / updating
Reporting
• Submission of Monitoring Report by concerned monitoring Officer through
respective DG
Approvals
• Member (I&M), Secretary (P&D), Deputy Chairman (Planning Commission)
Corrective Measures
• Reports forwarded to the Project director and concerned Federal secretary
for necessary corrective measures
Feed back
• Necessary corrective measures initiated at line Ministry level – intimation
to Planning Commission
• Confirmatory Monitoring
37

38. How Many Projects are Monitored?
Number of Projects No. of Min / Div
PSDP Electronically
Year Allocation Connected with
PSDP Monitoring Monitored Ex-Post
(BN Rs.) (PMES)
(Nos) (Targets) (Achievement) Evaluated
Cumulative
2005-06 204 1530 170 156 - -
2007-08 335 2119 720 766 20 4
2008-09 219 1894 587 587 31 11
2009-10 300 2243 611 618 26 22
28
280 (pre-
2010-11* 1846 654 578 12
(180)~ devolution
scenario)
*Upto end-June 2011, ~ Rationalized, @ Target (33 Ministries)
38

39. Issues in Project Implementation
# Issues / Problems 2008-09 2009-10 2010-11*
1 Management Capacity 252 (43%) 212 (34%) 124 (23%)
2 Inadequate Releases 179 (30%) 183 (30%) 216 (40%)
3 Delay in Civil Works 44 (8%) 68 (11%) 75 (14%)
4 Consultant Related Issues 7 (1%) 20 (3%) 22 (4%)
5 Lack of Coordination Between 22 (4%) 9 (2%) 22 (4%)
Fed/Prov. Govt.
6 Delay in Procurement 0 (0%) 7 (1%) 16 (3%)
7 Others (Security and Sector 58 (10%) 58 (9%) 54 (10%)
Specific Issues etc.)
8 Projects having no major 25 (4%) 61 (10%) 11 (2%)
issue/problem
TOTAL 587 618 539 39

40. Analysis of Aid by Division
82% aid on projects related to
infrastructure and only 13% on social
development
Within infrastructure, the sectors with
highest share are: power, atomic
energy, railways and communications
40

41. Top 10 Foreign Aided Projects 2010-11
Sr. Division Scheme Allocation (Rs. Million)
No Aid Rupee Total
1 Atomic Energy Chashma Power Project (C3 and C4) 7,510 2,816 10,341
2 Atomic Energy Chashma Nuclear Power Project C-II 2,212 554 2,766
3 NHA Faisalabad – Khanewal Expressway 1,646 247 1,893
Procurement/Manufacture of 75 New
4 Railways 1,359 800 2,159
D.E. Locos
Health System Strengthening and
5 Health 1,340 70 1,410
Policy Programme
National Maternal, Neo Natal and
6 Health 1,235 1,046 2,281
Child Health Programme
7 Kashmir Affairs 43.5 Jagan Hydro Power Project 1,235 0 1,235
8 Railways Replacement of Khanewal Section 1,200 617 1,817
9 WAPDA Neelum Jhelum Hydropower Project 1,103 13,597 14,700
10 States & Frontier FATA Special Programme 1,096 7,135 8,231
Total (Top 10 Projects)* 19,936 26,882 46,833
Total PSDP 37,584 242,415 280,000
41
% Share Top 10 Projects 53%

42. 7th NFC Award & 18th Amendment
42

43. Share of Federal & Provinces in PSDP
43
Development Planning Shifting to Provinces

44. Federal PSDP 2010-11 Transferred to Provinces
Throw forward Allocation for
(July 1, 2010) 2010-11
(Rs Billion) (Rs Billion)
Federal 1,117 208
Transferred to Provinces 344 57
Total 1,461 265
• Federal govt will continue to fund higher education &
provide for vertical programs of health and population
• What will be the mechanism of funding of projects
which are neither location specific nor vertical
program? 44

45. Examples of Projects with Unclear
Responsibility for Funding
Sector Project
Establishment & Operation of Basic Education Community Schools in
Education
the Country
Conversion and Rehabilitation of Indus Delta Mangroves for
Environment
Sustainable Management
Environment Establishment of Environmental Monitoring System in Pakistan
Health National Plan for Disease Surveillance
Health Health System Strengthening and Policy Programme
LGRD Model Village Development in Pakistan
Food and
National Program for Improvement of Watercourses in Pakistan
Agriculture
Food and Water Conservation & Productivity Enhancement through High
Agriculture Efficiency Irrigation System
Food and
National Project for Enhancing Existing Capacity of Grain Storage
Agriculture
Special
Clean Drinking Water for All
Initiatives 45

46. Reforms Agenda for PSDP
46

47. Results Based Management
Key Performance Indicators  Strong M & E 47

48. Portfolio, Program, and Project Management
48

49. How Provinces should Rationalize
Throwforward?
Projects which are politically driven do not provide
economic justification
Several projects represent a duplication
New and ongoing projects for which expenditure incurred
is less than 25% should be considered for closure
49

50. Minimizing the Leakages
Project management costs should be minimized (including
corruption)
Dedicated Project Directors Required [current incentives
distorted]
Consultancy charges should be rationalized
Contingencies should be reduced
Public sector projects should be exempted from GST
50

51. Capacity Building Projects
17 projects involve setting up training facilities in different divisions
Training efforts of the government are fragmented
Such projects should be rationalized
Centralize all training efforts under National School of Public Policy,
National Management Colleges and Civil Service Academy
51

52. Improving Feasibility, Appraisal and Approval
Processes
• Strong financial and technical appraisal should be put in
place – may be outsource this
• Social analysis should reflect beneficiary population,
dislocation, resettlement, livelihoods
• Economic analysis should estimate EIRR, B/C ratio, NPV and
domestic resource cost
• Risk analysis should include time delays, cost variations,
design and content modifications 52

53. Way Forward
• Rationalize Projects further and maintain priority-based
completion
• Reduce throw forward through financing modes such
as:
– Public private partnerships
– Built to operate & transfer
– Built to operate & own
• Discourage brick and mortar projects
• Assure full release of PSDP budget without cuts
• Carefully re-estimate cash flows and benefits
53

54. Thank You
www.sdpi.org
vaqar@sdpi.org 54

55. Chronology of Planning Machinery
1. Development Board established in 1948 in the EAD
2. Planning Board set up in 1953. First 5 year plan
prepared for 1955-60
3. National Planning Board established in 1957
4. Planning Commission setup under the Chairmanship
of President in 1959
5. Second five year plan prepared for 1960-65 followed
by the third five year plan for 1965-70
6. Fourth Five Year Plan (1970-75) prepared but remained
dormant due to separation of East Pakistan
7. 1970-77 non plan period: Development on basis of
Annual Plans
8. Fifth Five Year Plan 1978-83 55

56. Chronology of Planning Machinery
9. Sixth Five Year Plan 1983-88
10. Seventh Five Year Plan 1988-93
11. Eighth Five Year Plan 1993-98
12. Ninth Five Year Plan (halted due to changed in
government)
13. 10 Years Perspective Development Plan 2001-11
14. MTDF 2005-10 July, 2005.
15. Planning Commission restructured on 20 April 2006
with P.M. as Chairman.
16. Vision 2030 launched in August, 2007 56

57. Approaches to Planning
• Reactive Past oriented
• Inactive  Present oriented
• Preactive  Predicting the future
• Proactive  Create the future
57

58. Conditions of Successful Planning
• Realistic goals of the plan
• Appropriate policies and instruments
• Adequate information
• Rational institutions
• Suitable administrative and technical
apparatus
• Public cooperation
58

59. Project Management Lifecycle
• Identification and Formulation
• Appraisal and Approval
• Implementation
• Completion and Closure
• Ex-post Evaluation
59