Pakistan - International Development Committee Contents

4  Governance and security programme

46. DFID states that governance lies at the heart of Pakistan's economic and social problems:

    Poor planning, budgeting and management mean health and education services do not meet the needs of the population. 79% of Pakistanis have 'lost hope' in the current government's ability to improve their lives. [64]

DFID argues that the Pakistan Government needs to undertake significant macroeconomic reforms to increase growth, tackle severe energy shortages, and manage fiscal and inflationary pressures including increasing the tax to GDP ratio.[65]

DFID's current governance and security projects

47. DFID's governance programme is made up of a number of active projects which are listed below.

Table 4
Project title Description Budget
AAWAZ Voice and Accountability Programme Democratic processes in Pakistan are more open, inclusive and accountable to citizens. £37,500,000
Pakistan: Support to Multi-Donor Trust Fund (MDTF) for Northwest Frontier Region Support recovery and sustainable development in Border Areas (specifically those aspects identified as addressing root causes of conflict & supporting drivers of Peace) £30,000,000
SUB NATIONAL GOVERNANCE - KHYBER PAKHTUNKHWA AND PUNJAB Poor people in Punjab and Khyber Pakhtunkhwa provinces report that the government services (especially health and education services) are better meeting their needs £15,378,000
Supporting Transparency, Accountability and Electoral Processes in Pakistan (STAEP) Democratic processes in Pakistan are more open, inclusive, efficient and accountable to citizens £11,500,000
Supporting Electoral Reform in Pakistan Stable, inclusive and tolerant democracy in Pakistan £5,680,000
Support to Government of Northwest Frontier Province Provincial Reforms Programme Government of North West Frontier Province and Federally Administered Tribal Areas-Secretariat demonstrate increased capacity to design and deliver effective and sustainable public services improved. £2,496,499
Peace building Support to PCNA (PSP) People benefitting from a more stable environment for achieving Millennium Development Goal (MDG) targets in KP and FATA £2,400,000
Support to the Government of Balochistan To improve GoB's social service delivery through better public sector management. £800,000
Pakistan Alternate Dispute Resolution Project Phase II - Punjab To enhance access to justice for small and medium enterprises and business concerns through institutionalised mediation £296,000
Stabilisation Support to Pakistan To provide technical assistance in support of the completion of the crisis analysis phase of the post-crisis needs assessment £266,991

DFID website: Pakistan programmes

DFID Pakistan's 2015 targets for Governance are:

?  Provide and install a total of 50 bridge kits to conflict and flood affected areas in Khyber Pakhtunkhwa;

?  Help two million more women and men to vote in the next General Election;

?  Help increase the number of women in decision-making positions at local and provincial level in Punjab and Khyber Pakhtunkhwa by 13% and at national level by 5%;

?  Work with the Government of Khyber Pakhtunkhwa to strengthen its budgeting for another six districts so it is linked to delivery and performance across eight sectors, including education and health;

?  Work with the World Bank and other donors to, amongst other things, build schools and roads in Khyber Pakhtunkhwa and Federally Administered Tribal Areas (FATA).

Source: DFID, UK aid: Changing lives, delivering results in Pakistan, Summer 2012

48. This set of targets seemed to bear little if any relationship to governance projects detailed Table 4. It is unclear to us how DFID's portfolio of governance and security projects are linked to the targets in its operational plan for Pakistan, or how the impact of the projects will be measured. Given that the cost of these projects is large, in excess of £100 million, we believe that DFID should set clearer targets and measure performance against these targets. .


49. On 1 February DFID published specific plans to tackle the misuse of foreign public funds in each of its 29 priority countries[66]—one of which is Pakistan. It said by doing this DFID would:

    help the poorest people to develop their economies, hold their own governments to account and to grow their way out of poverty[67]

50. Pakistan's main anti-corruption body is the National Accountability Bureau (NAB), established in 1999. It has preventive, enforcement and public awareness functions with a mandate to investigate and prosecute corruption cases. DFID has informed us that it has worked with NAB in the past, most notably supporting the drafting of the National Anti- Corruption Strategy in 2002. DFID said that this work had had limited impact and referred us to a report that found:

    the NAB is widely perceived to target politicians and civil servants from preceding civilian governments, discrediting political opponents and junior government officials. Judges and military officers as well as political allies of the government have been virtually immune from any investigations or being held accountable for their actions. [68]

The previous Pakistan administration were working towards a new anti corruption body, in October 2012, it introduced a draft National Accountability Commission Bill 2012 to replace the NAB with a new institution. However the Bill lapsed with the expiry of the National Assembly's term last month.[69]

Box 2

DFID's anti corruption programme targets

Over the next three years, DFID said it will support the Pakistani government in tackling corruption through:

?  Building political commitment to increase accountability, for example by supporting Pakistan's Public Accounts Committee and supporting the Election Commission.

?  Supporting better access to information and transparency, for example helping provincial governments to consult communities about their budgets.

?  Improving public financial management, for example by supporting provincial governments on budgeting, reporting and independent auditing.

?  Identifying and supporting initiatives outside government that strengthen the voice of citizens in reporting concerns and demanding action on corruption.

?  Supporting the international community's work to co-ordinate approaches to corruption.

?  Backing global and regional initiatives on corruption.

Source: DFID's Anti-Corruption Strategy for Pakistan, January 2013

51. Commentators have warned that progress against corruption will be slow as it was "deeply entwined with patronage, which in turn is at the heart of the political system."[70] James Fennell pointed out that the most corrupt institutions in Pakistan were the ones with an interface with the people, for example the police, the land tax administrators and the income tax administration. Corruption is permitted in these entities as Pakistan's political class need them "to be biddable in order to make sure that people vote for the right people, for example the so called feudals in southern Punjab and northern Sindh."[71]

52. It is unclear to us how DFID's newly announced anti corruption programme sits with the current DFID governance projects (Table 4) and 2015 targets (Box 1)—whether it is additional to what already exists with additional funding or encompasses the projects and targets which already exist.

53. We commend DFID's anti-corruption aspirations but recommend that in its response to us DFID should:

   confirm that:

  the Pakistan Government remains committed to an anti-corruption strategy and programme led by the National Accountability Bureau

  once appointed, the Bureau's principal officers cannot be dismissed by the President, Government, Parliament or the armed forces of Pakistan,

  the Bureau has the budget and power to investigate, charge and prosecute people without seeking approval from the President, Government, Parliament or armed forces of Pakistan;

  set out measurable targets to see if its investment in anti-corruption is having the desired, positive effect;

  indicate at what point monitoring and evaluation will take place to determine whether DFID and the Government of Pakistan's investment in anti-corruption is being achieved.

  hold discussions with the Commonwealth Secretary General about what further steps the Commonwealth can take to help all Commonwealth Governments to reduce corruption.

54. We are concerned that DFID's anti-corruption targets do not include bringing public officials accused of corruption to court and securing convictions and sentences against those found guilty.

Tax reform

55. More tax has to be collected to fund social programmes for Pakistan's rapidly growing population. A report commissioned by DFID on Pakistan governance concluded that if Pakistan were to guarantee a more inclusive and equitable political settlement one of the three things it needed to do was to "Ensure that the tax base is extended and revenues are raised fairly from all sectors of society".[72] Dr Ahmad told us:

    if the Government does not fix it, and you continue to have pressure on public services, the increase in militancy and dissatisfaction with the state of affairs is only bound to grow. I think this will manifest not only in demonstrations in Islamabad, which we are seeing now, but also in increasing regionalism. [73]

56. We were therefore keen to examine what DFID was doing to support improvements in the current state of taxation in Pakistan. DFID's submission to our Tax in Developing Countries inquiry stated that it had contributed to a Tax Administration Reform Project (TARP) in Pakistan, costing DFID £13 million over six years. The objectives of the programme had been to improve organisational efficiency and effectiveness of revenue administration, promote compliance through strengthened audit and enforcement capacity, improve trade facilitation through modern and internationally acceptable customs procedures, and improve the integrity and fairness of the revenue system.[74]

57. However, Dr Ahmad was scathing about the programme. He told us that TARP which had been run by the World Bank had cost $135 million. After a year the programme was no longer audited, at the end of eight years work had not started on integrating the tax administration systems (the main purpose of the programme) and, by the time it was 'shut down' by the World Bank there was not even a design for a functioning IT system. He believed the West had turned a blind eye to Pakistan's tax affairs during this period allowing the programme to fail due to the need to keep the Pakistan Government on side with the Western political objectives following 9/11.[75]

58. Currently DFID has no programmes on taxation. DFID told us that its engagement on taxation focused on "building consensus" at both Federal and Provincial level, while being "ready to engage technically when political leadership was clearly expressed":

    The UK stands alongside the US, IMF, World Bank and Asian Development Bank in encouraging the Government of Pakistan to lay the groundwork for post-election economic reform including on taxation and revenue collection.

We questioned the DFID Director General Humanitarian, Security and Conflict, Mark Bowman in December 2012 about tax in Pakistan as part of our inquiry into the Department's annual report and accounts and were informed:

    There are some very significant challenges in Pakistan, in terms of building up their tax base. This is an area that we would like to explore further—how we can continue to work with the Pakistani authorities. They have a very persistent problem in terms of the very low ratio of tax to GDP. Through the technical support that we can provide but also the dialogue we have with them over their general economic policy, through the IMF and other organisations, this will be a key priority for us in the coming years.[76]

59. It seemed to be agreed amongst our witnesses that the IMF had a critical and important role to play in persuading the Pakistan Government to reform taxation. Although discussion continue between the Pakistan authorities and the IMF, to date the IMF have not received a loan request from the outgoing administration. There is speculation that Pakistan's caretaker administration might approach the IMF but it is not clear if negotiations could be concluded unless agreed by the newly appointed government following the May elections. New IMF financing would be dependent on the Pakistan authorities taking prior policy actions for macroeconomic stabilisation. Discussing Pakistan on 21 November 2012, the IMF Executive Board said:

    "Directors called for comprehensive revenue and expenditure reforms. Fiscal consolidation should focus on changes in tax policy and improvements in compliance. Some Directors urged reconsideration of the tax amnesty schedule currently being contemplated. Recognizing the political difficulties in implementing a full VAT, Directors advised the authorities to consider credible alternative revenue measures including a modified GST and strengthening the income tax."[77]

Dr David Steven said he hoped the IMF would be tougher in what it did.[78] Dr Ahmad agreed:

    You cannot have an IMF programme that says, "Never mind about the tax reform." How is the IMF Board going to turn around and say the same thing to Greece, if Greece is going to ask for the Pakistan treatment? You cannot have another IMF programme. That is where the United Kingdom, and the Germans[...] have a voice in the IMF. No programme without tax reform. [79]

We asked the Secretary of State how levels of taxation could be increased in Pakistan. She also believed the IMF had an important role and that there was potential for a new Government after the election to face up to the problem She hoped that in the first 100 days after the election there would be a serious approach to confront taxation. She said that Pakistan needed to

    look at some of the reforms that have also been proposed by the IMF, potentially. They also need themselves—I sense, on a cross party basis—to start to get some agreement on what needs to be reformed, whoever wins [the election], so that you try to take the politics out of what are structural economic challenges that will face whatever government takes over after the next election.[80]

60. We recommend that DFID work with other donors to encourage Pakistan to make progress on tax policy and revenue collection and seek to ensure this is a high priority for all donors. We further recommend that the UK Government use its influence in the IMF to ensure this institution presses for reforms to Pakistan's tax system. The UK Government also should be ready to support the new Pakistan government in implementing a nationwide, strategic communication plan to explain the need and benefits of the desired tax policy changes so as to help the authorities to build political momentum for reform within Pakistan.

The 'Golden Thread'

61. The Secretary of State said the concept of the Golden Thread, as discussed earlier in this report, has translated into DFID's programme in Pakistan by investing in the transparency and accountability agenda, for example the budgeting and local community engagement project in Khyber Pakhtunkhwa.[81]

62. However, given the importance the Prime Minister, David Cameron, attaches to the 'Golden Thread' and the poor quality of governance in Pakistan, we were surprised that DFID's governance programme only had one small provincial project directly related to improving and building the Golden Thread which, from what the Secretary of State told us, we surmise is the Sub national Governance project in Khyber Pakhtunkhwa.

63. Pakistan is a country where the Golden Thread is lacking—there is corruption, a frequent absence of the rule of law and low tax collection. We were surprised that addressing these important failings does not seem to be the main focus of DFID's governance work. We recommend DFID review and re-design the DFID Governance programme to support key Pakistani reformers to design and deliver a credible reform programme, involving increases in revenue collection, applying the rule of law and reducing corruption.

64   Ev 56 Back

65   Ev 56 Back

66   DFID Press Notice: Corruption: UK crime agencies to fight problem overseas 1 February 2013 Back

67   DFID Press Notice: Corruption: UK crime agencies to fight problem overseas 1 February 2013 Back

68   2008 U4 paper Overview of Corruption in Pakistan Back

69   Ev 63 Back

70   Q11 Back

71   Q40 Back

72   Coffey International Development in association with the IDL Group, Pakistan Country Governance Analysis 2011, April 2011 Back

73   Q89 Back

74   House of Commons International Development Committee Fourth Report of Session 2012-13 Tax in Developing Countries: Increasing Resources for Development, HC 130,Ev 108 Back

75   Q 93 Back

76   House of Commons International Development Committee Ninth Report of Session 2012-13 Department for International Development's Annual Report and Accounts 2011-12, Ev 4, Q 14 Back

77   International Monetary Fund website, Public Information Notice (PIN) No. 12/135, Back

78   Q102 Back

79   Q95 Back

80   Q125 Back

81   Q123 Back

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Prepared 4 April 2013