Ishrat Husain: Financing human development in Pakistan
Speech by Mr Ishrat Husain, Governor of the State Bank of Pakistan, at the Pakistan Development
Forum, Islamabad, 25 April 2005.
* * *
Pakistan has committed to achieve its MDGs by 2015 through a variety of interventions e.g. Real per
capita income growth, expansion of schooling particularly for the female population, increasing
pupil-teacher ratio, improving sanitation access, increased immunization coverage, improving
nutritional status of the children, providing electricity to the villages. Empirical studies assessing the
progress made so far indicate that growth of real consumption expenditure per capita and large
targeted intervention in child survival, malnutrition and schooling over and above the more general
intervention could take Pakistan closer to achieving these goals. Failing this, it will be quite difficult to
attain any of the MDGs. Financial assistance to poor families conditional on their making investment in
their children's human capital can bring about the desired results in improving child schooling, health
and nutritional out comes.
Conceptually, the economists think in terms of production function i.e. a set of inputs are deployed to
produce one Unit of output. In case of MDGs the inputs such as teachers, doctors and para medical
staff, generation transmission and distribution of water and collection of waste and garbage, supply of
immunization shots etc. produce expansion of school, improved access to health, nutrition, water
supply and sanitation, immunization coverage etc. Some of these inputs are additive while other
interact with each other in a positive way making the output greater than the sum of all the inputs e.g.
provision of inputs for potable water supply and sanitation interact with inputs for heath in a way that
the outcomes of improved access to health, water and sanitation are positively correlated. Therefore
instead of thinking independently of financing for education, financing for health, financing for water
supply and sanitation we should think in terms of financing MDGs and include all expenditures on
inputs that are deployed for achieving the outputs or outcomes embedded in the MDGs.
Institutionally, federal government ministries, provincial departments, district government departments
are all organized vertically and do not conform to the conceptual issue that I have outlined. Thus there
is a disconnect between optimally efficient utilization of financing and the actual delivery of these
programs. The other issue is that we have to design the correct measure to capture expenditures on
human development. So far we have focused on a partial measure i.e. public expenditures - the
amounts allocated out of the budgets of Federal or Provincial Governments. As a matter of fact there
are three types of expenditures that are incurred. First is the public expenditure, second is the
expenditures by private and nongovernmental sectors who provide schooling or health services and
finally is the expenditures incurred by the households themselves in form of tuition fees, text books,
purchase of medicines, vaccines etc. When all three types of expenditures are taken together we get a
complete picture of the expenditures on inputs used for achieving MDGs.
In addition to MDGs Pakistan has developed the Poverty Reduction Strategy (PRSP) and more
recently an ambitious medium term development framework (MTDF) to catch up in the other areas of
human development such as secondary, vocational and technical training, higher education, science
and technology teacher training, curative health services etc. Too much preoccupation and the swing
of pendulum towards an exclusive focus on primary education and basic health services create its own
distortions and disequilibria. Teachers at the primary level exhibit poor quality and performance
despite many attempts at teacher's training because their graduate and postgraduate education has
been sub-optimal. Universities are producing hundreds of thousands of graduates every year who are
not all suited for ready absorption in labor market while economy is starving from a lack of technical
skills. We have aspirations to become an active player in the globalized economy but capacity has to
be developed in our science and technology institutions to generate the products, innovations and
processes that will improve the productivity. The linkage between industry and universities is almost
non-existent at present and has to be nurtured.
The main argument of this paper is that while the donor emphasis and Pakistan's commitment to
achieve MDGs are well placed and should be fully implemented a more holistic approach towards
human resource development that caters both to the economic and social objectives of the country
has to be adopted. The internalization of externalities, spillovers and linkages within the whole human
development initiative would create efficiency and result in cost savings and thus reduced overall
financing needs.
Second, "All hands on the deck" covering the Federal, Provincial and local governments, private
sector, external donors, communities, not-forprofit institutions, civil society organizations,
philanthropies and charities should be assigned roles in a more cohesive and integrated manner. The
waste, duplication, overlapping can be avoided and optimal use of physical facilities and infrastructure
by multiple players and pooling of resources across institutions rather than maintaining separate silos
encouraged under the current arrangements of program delivery.
Third, the excessive focus on public budgetary allocations on education and health has neglected the
tremendous expenditures, being made by the households themselves in spending on schooling,
health care, water and sanitation and also the efforts being made by other providers of these services
in non-governmental sector. Attention should be shifted from the level of public expenditures or its
share in GDP to the productivity of these expenditures. These stereotype and meaningless indicators
with which the countries are flogged for lack of their commitment are not very helpful.
Fourth, it is my contention that we should distinguish between financing and provisioning. While the
Government should be responsible for financing primary and to a large extent secondary education
and basic health services particularly preventive it should have, however, no exclusivity or monopoly in
providing these services. For the poor quintiles the access to quality services can be improved if the
Government provides scholarships, stipends, per capita grants and financial assistance to the
non-governmental or quasi-governmental institutions in a transparent and targeted manner. The
Government is already providing several incentives to these providers in the context of its
Public-Private partnership program which needs further strengthening in operational terms.
To illustrate this point education and health in Pakistan has been blessed recently with the entry or
private sector, not-for-profit organizations, semi or quasi-governmental bodies (Annex I for a tentative
list). The National Commission on Human Development, the National or Provincial Educational
Foundations, Rural Support Programs, Fauji Foundation, Private foundations, charitable hospitals and
clinics are taking an increasing burden of provisioning every day. There is no reason that the
Government cannot use some of these quality institutions for financing the services targeted at the
poor. So a competitive business model in which all service providers irrespective of their affiliation
meeting the set criteria can provide the education, health or other services to the poor households
needs to be implemented.
If the above holistic framework encompassing the concept, measurement, financing, provisioning of
Human Development is agreed upon and a consensus is reached then the issue of financing human
resource development becomes less pressing.
Table-I
Financing human development
2005-2010
Public Private Total
Basic and College education 103 50 153
Health, Nutrition and Populate 107 300 407
Water and Sanitation 150 1050 1200
Skilled based literary, technology education 70 37 107
Higher education, S&T 223 70 293
Total 653 1507 2160
Annual 130 300 430
The total financing requirements for human development as identified in the MTDF and estimated on
the basis of household expenditures amount to Rs.2160 billion over 2005-2010 period or Rs.430
billion annually. Of this, public expenditure is Rs.130 billion or slightly over or US$2 billion annually or
less than one third of the total expenditure on human development, while private expenditure is
Rs.300 billion or $ 5 billion annually. Private expenditure is dominated by household expenditure on
water and sanitation, and health and to a lesser degree education. Non-household private expenditure
would be about Rs.30-60 billion annually mainly provided by philanthropic, charitable institutions,
individual and corporate donations and endowments.
In the last year 2003-04 the total public expenditure on education and health alone was Rs.112 billion.
Thus the proposed target of Rs.130 billion is not unrealistic and can be easily achieved if the domestic
and donor assistance are available.
Conclusion:
Pakistan's public expenditures on human development are low by international standards and are
approximately 4 percent of GDP. But total public and private expenditures amount to more than
8 percent of GDP i.e. twice what the public sector spends. But this number is hardly recognized or
mentioned in the popular discourse. Households themselves spend at least 4percent on health,
education, water supply and sanitation.
Donors have to agree on an integrated plan of human resource development that will meet the MDGs
as well as the objectives set out in the MDTF. They should then channel their resources on the basis
of certain criteria i.e. cost effectiveness, efficiency in the resource use, targeting the poor households,
quality of service etc. Competition for these resources among the various providers of services will
give them a better bang for the buck. For primary education and basic health services it is proposed
that the 30 most deprived districts of Pakistan (Annex II) where the majority of the population live at
the poverty or fringes of poverty and have the weakest social indicators should be chosen for grants in
aid, scholarships, stipends, and other financial assistance. This will spur into action these providers of
services who are at present reluctant to extend their outreach to these poor districts because of higher
set up and operating costs. The assistance to them should be linked to the outcomes such as net
enrolment ratios, drop out rates, immunization etc.
In my view the approach outlined in the above paper has a much better chance of achieving both the
MDGs as well as the objectives set out in the PRSP and the MDTF.
Annex-I
Major service providers in the non-governmental sector.
1. National Commission on Human Development
2. Beaconhouse School System
3. CARE
4. Bahria Foundation
5. Shaheen Foundation
6. The Citizens Foundation (TCF)
7. Fauji Foundation
8. Sindh Education Foundation (SEF)
9. Bunyad Foundation
10. Al-Sahiffa Hospital
11. Rural Support Programs (RSPs)
12. Punjab Education Foundation (PEF)
13. Agha Khan Education Service (AKES)
14. Agha Khan Health Service (SKHS)
15. Edhi Welfare Services
16. Shaukat Khanum Trust
17. National Education Foundation (NEF)
18. Overseas Pakistanis Foundation (OPF)
19. Lahore University of Management Sciences (LUMS)
20. Frontier Education Foundation (FEF)
21. Community Learning/Literacy Centers
22. Pakistan Centre for Philanthropy (PCP)
23. Marie - Adelaide Trust
24. Layton Rahamtullah Trust
25. Infaq Foundation
26. G.I.K. Institute
27. Agha Khan University
28. FAST
29. Shaikh Zaid Hospital, Lahore
30. Al-Shifa Trust
30 most deprived districts in Pakistan
(Based on overall Deprivation Index published by Haroon Jamal et al in Pakistan Development Review
Summer 2003)
100 Musakhel
99 Kohistan
98 Kharan
97 Kohlu
96 Awaran
95 Zhob
94 Jhal Magsi
93 Panjgur
92 Khuzdar
91 Shangla
90 Batagram
89 Dera Bugti
88 Barkhan
87 Nasirabad
86 Killa Saifullah
85 Killal Abdullah
84 Tharparkar
83 Bolan
82 Rajanpur
81 Upper Dir
80 Mastung
79 Chagai
78 Thatta
77 Lasbela
76 Badin
75 Jafarabad
74 Loralai
73 Muzaffargadh
72 D.G. Khan
71 Kalat
Provincial breakdown
Balochistan 20/26
NWFP 4/24
Sindh 3/16
Punjab 3/34