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Planning Process for Economic Development in Pakistan

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Planning Process for Economic Development in Pakistan

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Planning Process for Economic Development in Pakistan

  1. 1. Planning Process for Economic Growth in Pakistan Dr. Vaqar Ahmed Sustainable Development Policy Center 1
  2. 2. Objectives of Economic Planning1. To increase per capita and national income2. Higher level of employment3. Price stability4. Reduction of inequalities in income distribution5. To remove BOP difficulties6. Reducing regional disparities7. Self-sufficiency in food8. Redressing imbalances in the economy9. Increase in savings10. Reducing population growth11. Reducing poverty levels12. Provision of social services 213. Long term economic growth
  3. 3. Planning Myths 3
  4. 4. Myth 1: Planning is useless because policies lack consistency 4
  5. 5. Myth 2: LDCs including Pakistan have notcompleted the tenure of their economic policies 5
  6. 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. 7. Myth 3: Pakistan Vs. South Korea Model Myth 7
  8. 8. Myth 3: Pakistan Vs. South Korea Model• Aid Received• Model Focus 8
  9. 9. Planning for Growth• Financing for Growth – Debt Funding – Equity funding• Public Sector Funding : – PSDP – Assistance – Equity 9
  10. 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. 11. Policy Planning & Implementation Stages • Data Collection • Analysis • Planning & Prioritizing • Implementation • Monitoring 11
  12. 12. Planning Process and Machinery in Pakistan 12
  13. 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. 14. Plan Preparation Process Planning Commission • Preparation of approach paper • Formulation of technical working groupsConsultations with all Consultations with all in all sectorsFederal Ministries for input Provincial Govts. for input • Preparation of sectoral chapters by working groupsSent to all Fed. Ministries Sent to all Provincial Govts.and Dev. Partners for Draft Five for comments and inputcomments 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. 15. Plan Periods in Pakistan Plan Period1. Colombo Plan (Six Year Plan) 1951-572. 1st Five year Plan 1955-603. 2nd Five year Plan 1960-654. 3rd Five year Plan 1965-705. 4th Five year Plan 1970-756. 5th Five year Plan 1978-837. 6th Five year Plan 1983-888. 7th Five year Plan 1988-939. 8th Five year Plan 1993-9810. 9th Five year Plan 1998-200311. 10 Year Perspective Development Plan 2001-1112. Medium Term Development Framework (MTDF) 2005-1013. Vision 203014. 10th Five year Plan (drafted twice) 2010-15 1515. Framework for Economic Growth 2011
  16. 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. 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. 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. 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. 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. 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. 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. 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. 24. Sectoral Distribution of PSDP 2011-12 Sector Rs. Billion % ShareInfrastructure 165 57Social Sectors 122 42Production 3 1Total 290 100ERRA 10 -Total Federal 300 24
  25. 25. Why is PSDP Falling? Size of PSDP [Federal + Provincial] Share of PSDP in Overall ExpenditureCurrent Expenditure Crowding out Development Expenditure25
  26. 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 expenditureReduction in PSDP has disrupted development process 26
  27. 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 70.9Source: P&D Division For every Rs. 100 allocated, Rs. 38 does not reach beneficiaries 27
  28. 28. Issues in Feasibility, Appraisal and Approval ProcessEntire planning system is understaffedInadequate compliance to project manualsWeak and repetitive inhouse technical analysisRequirements of financial and economic analysis not fulfilledStaff not aware of risk analysis, shadow pricing, and estimatingrates of returnsVery short time given to process the projects 28
  29. 29. Most Critical IssuesWhat is the consequence of 18th Amendment and 7th NFC award onfederal 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. 30. Rationalization of PSDP Portfolio 30
  31. 31. Escalation of Cost between 2004-11 Project % Cost EscalationIslamabad-Peshawar Motorway 47Lowari Tunnel 193Widening & Improvement of N-85 49Rehabilitation of Karakoram Highway 67National Program for Family Planning & Primary 415 Health CareExpanded Programme for immunization 392Raising the Mangla Dam (including resettlement) 62Lower Indus Right Bank Irrigation & Drainage 235Right Bank Out fall Drain from Sehwan to Sea 109Escalation is due to design change, upscaling, inflation effect 31
  32. 32. Criteria for Slashing PSDPProjects nearing completion be fully protectedContractual bindings in projects with foreign donorsDevelopment Packages be protectedOnly new approved projects falling in government’s prioritiesProjects with 30% expenditure may be deferred unless verycritical 32
  33. 33. Analysis of Projects in PSDP 33
  34. 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. 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. 36. Cost Components of Projects 2010-11 Rs. billion Main Cost Components Delivery Cost Total Land & Civil Machinery Salary & Contingency Vehicles UtilitiesResettlement 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. 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. 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 Cumulative2005-06 204 1530 170 156 - -2007-08 335 2119 720 766 20 42008-09 219 1894 587 587 31 112009-10 300 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. 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. 40. Analysis of Aid by Division82% aid on projects related toinfrastructure and only 13% on socialdevelopmentWithin infrastructure, the sectors withhighest share are: power, atomicenergy, railways and communications 40
  41. 41. Top 10 Foreign Aided Projects 2010-11Sr. 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 14,70010 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. 42. 7th NFC Award & 18th Amendment 42
  43. 43. Share of Federal & Provinces in PSDP 43 Development Planning Shifting to Provinces
  44. 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. 45. Examples of Projects with Unclear Responsibility for Funding Sector Project Establishment & Operation of Basic Education Community Schools inEducation the Country Conversion and Rehabilitation of Indus Delta Mangroves forEnvironment Sustainable ManagementEnvironment Establishment of Environmental Monitoring System in PakistanHealth National Plan for Disease SurveillanceHealth Health System Strengthening and Policy ProgrammeLGRD Model Village Development in PakistanFood and National Program for Improvement of Watercourses in PakistanAgricultureFood and Water Conservation & Productivity Enhancement through HighAgriculture Efficiency Irrigation SystemFood and National Project for Enhancing Existing Capacity of Grain StorageAgricultureSpecial Clean Drinking Water for AllInitiatives 45
  46. 46. Reforms Agenda for PSDP 46
  47. 47. Results Based ManagementKey Performance Indicators  Strong M & E 47
  48. 48. Portfolio, Program, and Project Management 48
  49. 49. How Provinces should Rationalize Throwforward?Projects which are politically driven do not provideeconomic justificationSeveral projects represent a duplicationNew and ongoing projects for which expenditure incurredis less than 25% should be considered for closure 49
  50. 50. Minimizing the LeakagesProject management costs should be minimized (includingcorruption)Dedicated Project Directors Required [current incentivesdistorted]Consultancy charges should be rationalizedContingencies should be reducedPublic sector projects should be exempted from GST 50
  51. 51. Capacity Building Projects17 projects involve setting up training facilities in different divisionsTraining efforts of the government are fragmentedSuch projects should be rationalizedCentralize all training efforts under National School of Public Policy,National Management Colleges and Civil Service Academy 51
  52. 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. 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. 54. Thank You www.sdpi.orgvaqar@sdpi.org 54
  55. 55. Chronology of Planning Machinery1. Development Board established in 1948 in the EAD2. Planning Board set up in 1953. First 5 year plan prepared for 1955-603. National Planning Board established in 19574. Planning Commission setup under the Chairmanship of President in 19595. Second five year plan prepared for 1960-65 followed by the third five year plan for 1965-706. Fourth Five Year Plan (1970-75) prepared but remained dormant due to separation of East Pakistan7. 1970-77 non plan period: Development on basis of Annual Plans8. Fifth Five Year Plan 1978-83 55
  56. 56. Chronology of Planning Machinery9. Sixth Five Year Plan 1983-8810. Seventh Five Year Plan 1988-9311. Eighth Five Year Plan 1993-9812. Ninth Five Year Plan (halted due to changed in government)13. 10 Years Perspective Development Plan 2001-1114. 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. 57. Approaches to Planning• Reactive Past oriented• Inactive  Present oriented• Preactive  Predicting the future• Proactive  Create the future 57
  58. 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. 59. Project Management Lifecycle• Identification and Formulation• Appraisal and Approval• Implementation• Completion and Closure• Ex-post Evaluation 59

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