79582 Pakistan Policy Note 15 Hanid Mukhtar Promoting Efficient Service J une 2 0 1 3 Delivery with Decentralization Over the last few years, Pakistan’s intragovernment Europe and the former Soviet Union, it was relations have undergone major changes. While they part of the political and economic transition. have created many opportunities for improving service In Latin America, it was to reinforce the move delivery, they have also created serious risks. The big- to deepen democracy. In Indonesia, South gest is state authority concentrated in the middle tier of Africa, and Sri Lanka, it was in response to government, which remains too isolated from the popu- ethnic or regional conflict. And in Chile, Côte lation to make any serious shift toward “bottom-up� d’Ivoire, and Uganda, it was to improve the accountability. This note argues that the disconnect delivery of basic services (Shah, Thompson, between political goals and service delivery is the biggest and Zou 2004). reason decentralization has failed to improve social out- comes. It presents contours of the key actions for a more Irrespective of the actual motivation, an explicit pragmatic decentralization model, which can bridge the (or implicit) reason for decentralization was gen- gap between the normative and doable aspects of decen- eral dissatisfaction among the populace with cen- tralization. The model sees a role for local governments tralized delivery of public services. Many people in municipal and other local services, while devolving believed that decentralization could improve other key provincial services like health and education governance of services by improving alloca- to autonomous provincial authorities to be headed by tive efficiency (better matching public services THE WORLD BANK GROUP SOUTH ASIA REGION elected local representatives. The financial sustainabil- to local demands) and accountability (taking ity of devolved functions needs to be ensured through government closer to the people while enhanc- improved revenue efforts by the federal and provincial ing productive efficiency of public services governments. And debt management concerns can be and infrastructure). Yet experience has been allayed if the province maintains fiscal discipline by mixed—see, for example, Burki, Perry, and legislating and adhering to fiscal responsibility laws. Dillinger (1999); World Bank (2001, 2003); and Ahmad and others (2005). Decentralization in Pakistan— A Historical Perspective Some common problems associated with decentral- ization’s impact on service delivery have begun to Over the last few decades, more than 75 countries emerge. It is thus critical to understand that even have attempted to transfer state responsibilities to if a decentralization plan has political, admin- lower tiers of government. Significantly, most of istrative, financial, and service delivery objec- these governments were elected, making such tives, it could only be achieved, and sustained, decentralization not just administrative or if it can address all the above aspects—and fiscal but also political. The political motiva- they must fit well together. Pakistan has tried tion for these measures varied. In Eastern to decentralize government, but most of its Pakistan Policy Note—Promoting efficient service delivery with decentralization initiatives, if not all, have failed to deliver the shifted from Karachi to Rawalpindi and then desired results—mainly because the primary Islamabad, both in Punjab. These federalist goal of each was political, and little attempt arrangements were widely seen as a sign of the was made to balance the other objectives, espe- “Punjabization� of Pakistan. Punjab’s domina- cially service delivery. tion of the armed forces, which ruled the coun- try for most of the 1960s, further strengthened Since its independence in 1947, Pakistan has been a this view. federation. This is partly an outcome of the con- stitutional legacy of British India as reflected In the 1956 Constitution, the distribution of legisla- 2 in the Pakistan Resolution, which contained tive powers between the federation and the federating many elements of federation (and indeed con- units was enumerated in three “lists.� The Federal federation); partly because of its geographic Legislative List had 30 items, the Provincial reality of consisting of two noncontiguous ter- List 94, and the Concurrent List (which enu- ritorial units (West and East Pakistan); and merated functions that could be performed by partly because the provinces developed distinct the federal, provincial government, or both) ethnic and linguistic identities of their own as only 19. Although wide powers were given to former sovereign states. However, the federal provincial legislatures, the shadow of federal provisions of the resolution remained inactive control remained as the federal government at the national level even as it continued to was entrusted with ensuring that each province serve as a Magna Carta for ethnonationalists. was governed according to the constitution. A provincial government was obliged to exercise That the two units were considered vulnerable to its executive authority so as to comply with Acts Indian designs pushed the ruling elite toward cen- of Parliament and laws applying to that prov- tralizing political power in Karachi’s—and later ince. The central legislature, however, could ­Islamabad’s—hands. The center amassed enor- legislate on any matter connected with a pro- mous powers under the 1947 Independence vincial subject on the grounds of national sta- of India Act (Salamat 1992). Pakistan was thus bility, planning, coordination, or achievement born into a paradoxical political situation that of uniformity on any matters in different parts made federalism at once the only viable form of Pakistan. In a conflict between central and of government and as toothless as possible provincial laws, the former prevailed. (Waseem 2010). It is no surprise, then, that Pakistan’s successive constitutions (see below) The 1956 Constitution did little to tilt the distribu- remained federal in form but unitary in spirit. tion of financial resources toward the provinces and away from the center. The main sources of Pakistan had an unbalanced federal structure the provinces’ income were taxes on mineral because of the demographic weight of the province of rights, electricity, vehicles, advertisements, ani- East Pakistan (55 percent of the country’s popula- mals, boats, professions, trades, and luxuries, tion). The ruling elite based in the West Wing as well as an excise on alcohol and drugs. shunned the grim prospects of rendering a permanent majority position to the East Wing The 1962 Constitution, framed by a military gov- and pushed the agenda for interwing parity ernment, adopted a presidential form of government of equal representation in Parliament (Was- and enhanced the legislative role of the central gov- eem 2010). This quest for parity was the driv- ernment. This constitution had only a Federal ing force behind merging all four provinces Legislative List, allowing provinces legislative in the West Wing into a megaprovince—West jurisdiction over residual functions only. On Pakistan. But this had two unintended conse- fiscal resources, it gave the president powers quences. First, it led to fierce backlash in the to establish a National Finance Commission form of ethnonationalist movements in Sindh, (NFC), comprising the central finance min- Balochistan, and North West Frontier Province. ister, provincial finance ministers, and other Second, Lahore was made the capital of West persons the president might appoint after Pakistan, and in 1960 the nation’s capital was consulting with provincial governors. These centralizing moves created serious dissention List, but the function was performed by provin- in the East Wing. cial governments. In that sense, the constitution acknowledged the need to have local govern- In 1966, the influential Awami League’s Six Points ments but only as extended arms of provincial Program sought to radically redefine federalism by government. This constitutional ambiguity has demanding six key areas for the center. The six areas remained Pakistan’s biggest impediment to are defense and foreign policy (with commu- developing local governments.3 nications); two convertible separate currencies (or one currency to be handled by two separate The first major move to institute local governments 3 reserve banks for the two wings); taxation for in Pakistan was in the 1960s under the military the provinces; the right of the provinces to han- regime of General Ayub Khan, which established the dle foreign exchange and foreign trade; and system of Basic Democracies. Local governments paramilitary forces for East Pakistan. However, ceased to exist in the early 1970s because the the political leaderships in the two wings could elected government of Zulfiqar Ali Bhutto did not agree on the amount of provincial auton- not hold local government elections, despite its omy. This, and the refusal by the West Wing’s stated intent. During General Zia ul Haq’s rule, political leadership to allow the Awami League local governments came back as a third tier of to form a national government after the 1971 government under the 1979 Local Government elections, led to the federation’s collapse in Ordinance (LGO), but again with only lim- 1971, when East Pakistan became the indepen- ited authority, as provincial governments were dent state of Bangladesh. given broad oversight and advisory authority over local governments. The secession of East Pakistan in 1971 prompted new thinking on federalism. As Punjab—with The first real attempt to fully empower local govern- 58 percent of the population in the remaining ments was made under General Musharraf. The areas—held a dominant position, the smaller 2001 LGO devolved some key functions to local provinces moved to constrain the majority of governments, including substantial concomi- one province in Parliament. Politicians from tant financial powers. The 17th Amendment Sindh, North West Frontier Province, and Balo- to the constitution devolved key functions like chistan successfully lobbied for some kind of education and health to the local governments majority-constraining federalism. and provided them time-bound protection. Still, the main objectives of this devolution The 1973 Constitution therefore adopted a two-tiered were not different from those of the previous legislative structure. It consisted of a National military governments. Since 1947, local govern- Assembly, whose membership was decided on ments have been used mainly to depoliticize majority basis and dominated by members governance, create a new political elite to chal- from Punjab, and a Senate, where all four prov- lenge and undermine the political opposition, inces enjoyed equal representation. The Sen- and demonstrate the democratic credentials of ate was thus supposed to balance the majority a regime to domestic and external audiences. dominance of the lower house. But it was given no control over the crucial Money Bill, such Political objectives aside, the 2001 Devolution Plan that the national budget could be sent for pres- aimed to change the governance structure, with idential approval after bypassing the Senate.1 strong implications for delivery of basic public ser- The 1973 Constitution also brought back the vices.4 For example: Concurrent List.2 • It expanded the scope and authority of elected local government. Local governments before Pakistan has remained a federation of provinces, but this devolution had little role, as they were none of the constitutions saw any role for subprovincial practically inactive and most state func- governments. Nonetheless, the 1973 Constitution tions were carried out by the provincial recognized management of local governments bureaucracy. The plan devolved some key as important, including it in the Concurrent functions, including education, health, and Pakistan Policy Note—Promoting efficient service delivery with decentralization agriculture, to local governments, trans- given to the local government was frequently ferring the vast majority of public services subverted on various pretexts. Similarly for previously performed by provincial govern- fiscal transfers, the district share in the devel- ments’ district administrations to elected opment budget was much smaller than in the local governments. Local governments’ recurrent budget (Table 1), and even for the responsibilities for services and how they recurrent budget to the districts, the bulk of allocated district expenditures rose substan- development expenditure was retained at the tially (Cheema, Khwaja, and Qadir 2005). provincial level. Moreover, a sizable share of • It engendered electoral accountability. The dis- the recurrent budget became allocated for 4 trict administration head—the district coor- wages and pensions (Table 2), leaving a very dination officer—now reported directly to small amount for operating expenditure.5 the elected head of the government—the nazim. This was a significant departure With the return to power of elected governments (in from the previous systems, where the de 2008), the 2001 devolution was largely reversed. facto head of the district administration, the The new governments showed no inclination deputy commissioner, reported to the pro- to continue with the constitutional protection vincial government. provided to local governments by the 17th • It reduced bureaucratic power. Unlike the dep- Amendment, which lapsed in December 2009. uty commissioner, the district coordination No attempt was made to hold fresh local elec- officer was deprived of executive magistracy tions. As such, the local governments today and revenue-collection powers. are controlled by provincial government offi- • It established a rule-based system of fiscal trans- cers rather than elected local representatives. fers. Distribution of fiscal resources between In addition, all four provincial governments provincial and local governments was deter- moved to curtail the administrative and finan- mined by a new formula to which the pro- cial powers of local governments.6 vincial finance commission agreed. This body comprised representatives of the pro- There are two overlapping reasons for this lack of vincial and local governments. support for local governments by elected regimes. First, nondemocratic regimes in Pakistan tend From the outset, however, provincial political and to centralize power at higher levels of govern- administrative cadres were uneasy with the new ment but must rely on local governments to local government system. This was partly because lend political legitimacy to their rule and to the devolution plan did not provide any viable seek a political constituency to discharge gov- framework for integrating provincial and local ernment functions.7 Second, as the constitu- governments. These frictions led the provin- tion recognizes only federal and provincial cial government to systematically obstruct local governments, most political parties are struc- government by not implementing the plan as tured along these lines. Moreover, leaders of envisaged. The administrative authority of political parties are much more comfortable local governments was curtailed, as employ- working with a limited number of party work- ees stayed in the provincial domain. Even the ers if they have to be engaged with national appointment, posting, and transfer authority and provincial politicians. Including a large Table Share of districts in overall provincial expenditure, Punjab 1 (percent) Fiscal year Current Development Total 2008/09 29.5 20.3 27.4 2009/10 28.6 18.5 25.6 2010/11 31.0 19.7 28.5 Source: Office of the Accountant General, Government of Punjab. Table Share of wages and pensions, Punjab 2 (percent) Fiscal year Province Districts 2008/09 28.9 71.9 2009/10 28.0 68.3 2010/11 29.9 71.5 Source: Office of the Accountant General, Government of Punjab. 5 cadre of local politicians may create difficult direct transfer. Conversely, all federal grants managerial problems for the party leadership and subventions have been discontinued and (Cheema, Khwaja, and Qadir 2005). rolled into the divisible pool. Recent Issues in Fiscal Federalism More complex fiscal management. The rapid increase in revenue transfers to the provinces One lesson that emerges from the fiscal federalism has strong implications—not only for federal of recent years is that the 18th Amendment does and provincial government finances but also not have service delivery as its prime objective, and for overall fiscal management. Indeed, given moves to bottom-up accountability are incomplete. the budget’s tightness and rigidity, the impli- The amendment was driven mainly by political cation of the Seventh NFC Award is that the considerations, and decentralization remains federal government has to either mobilize unfinished. Specific issues are now discussed. large levels of additional resources to meet all its expenditure needs or discontinue a large Increased provincial dependence on federal trans- portion of its budgetary activities. It faces this fers. The federal and provincial governments choice because the award is not predicated on agreed on a new (Seventh) NFC Award new monies and in a sense plays a zero-sum (2010)8 that significantly raised the share game. The award can make one provincial gov- of provinces in the divisible pool of feder- ernment fiscally better off 9 only by making one ally collected taxes—from 46.3  percent to or more other governments (clearly the federal 57.5  percent. The federal government also government) worse off. The award has without cut that pool by reducing its retained collec- a doubt made fiscal consolidation harder, as tion charges from an average of 5.2 percent to seen in the following: just 1.0 percent. For horizontal distribution of • Increased fiscal stress at the federal level. Under revenues among provinces, the award moved the Seventh NFC Award, the federal govern- from using population share as the sole crite- ment transfers additional revenue of more rion and included other factors as well, such than 1.2 percent of GDP to provinces each as poverty and backwardness, tax collection, year. Under the 18th Amendment, annual and geographic size. The award thus made a expenditure devolved to the provinces is direct attempt to cater to the needs of the two less than 0.4 percent of GDP. This is mainly smaller provinces. Over the last few years, nat- because only a small portion of employ- ural gas–related revenue transfers, especially ees associated with devolved functions was to Balochistan, have declined sharply, leaving accepted by provincial governments, and a huge resource gap in the provincial bud- many remain on the federal payroll, imply- get. To cover this gap, the new award greatly ing that federal government fiscal deficit increased Balochistan’s share in the divis- rose 0.8 percent of GDP a year solely because ible pool. The shares of all other provinces of new fiscal federalism arrangements. were reduced. Nonetheless, to help Khyber • Expenditure rigidities. With a sharp decline in Pakhtunkhwa cover the cost of the “war on its revenue share, the federal government terror,� 1 percent of gross revenue from the is expected to scale back its expenditures, divisible pool is provided to the province as a preferably current spending. However, a Pakistan Policy Note—Promoting efficient service delivery with decentralization very large portion of current spending of Increased social spending captured by wage and the federal government is extremely rigid— price increases. Despite its adverse implications almost three-fourths is spent on interest for fiscal management, the main motivation payments, defense, and employees’ wages, behind the NFC Award—and perhaps for the allowances, and pensions.10 The federal optimism that followed—was that provinces government might thus not be positioned would have almost total jurisdiction over social to substantially scale back its current expen- sectors. Weak provincial finances and the con- diture. However, every PRs 100 increase sequent underfinancing of social sectors were 6 in federal transfers leads to an increase considered major factors in the country’s poor of more than PRs 40 in provincial current social indicators. Data from post-NFC pro- expenditure. As such, current expendi- vincial accounts show that provinces made a ture is expected to continue to increase. sizable increase in fiscal resources to social sec- In addition, the development expenditure tors. Over 2009/10–2011/12, provinces’ overall of the provincial governments also appears expenditure increased 24 percent a year, with linked to the size of their revenue surplus education and health expenditures each grow- (expected to be greater with larger trans- ing 25 percent a year. However, correspond- fers from the federal government). The ing progress is not yet visible, mainly because provinces may be unwilling—or unable11— much of the increase has been eroded by steep to reduce their expenditure, such that fiscal wage increases. Indeed, the salary expendi- consolidation can be achieved only be scal- ture of district governments rose 34 percent in ing back the federal government’s develop- 2010/11. ment program, with strong implications for investment and growth. And even this may Political motivation of decentralized governance. not be enough to achieve desired levels of By eliminating the Concurrent List, the 18th fiscal consolidation. Amendment abolished the federal govern- • Disincentives for revenue mobilization. Paki- ment’s role in discharging these functions.14 stan’s tax to GDP ratio is among South As these functions were transferred to the Asia’s lowest, mainly because some major provinces, 17 federal ministries were abolished, sectors and areas of the economy are making more than 38,000 federal employees untaxed or taxed very lightly.12 Although redundant. Nonetheless, decentralization did a major effort from the federal and pro- not intend to reduce payroll. It instead targeted vincial governments is required to raise the broader objective of stabilizing democracy more revenue, the NFC Award has built- by reestablishing the supremacy of Parliament, in disincentives against any such attempt. balancing the power of the president, prime The majority of revenue collected at the minister, and National Assembly, and reduc- federal level is now transferred to the prov- ing opportunities for military intervention in inces, and the federal government is left government.15 with insufficient revenue to adequately finance its functions. Thus, from the fed- Laws on, and delivery of, services assigned to the eral government’s perspective, the balance federation. The 18th Amendment strengthened between the need for collecting more taxes the Council of Common Interest (CCI) and and the associated political cost has tilted made the National Economic Council more toward the latter. But the large inflow of responsive to provincial interests. It also elimi- free federal transfers helps reduce the nated federal–provincial shared functions, already weak political will in the provinces reassigned some functions to the federation to make any real revenue effort of their (not the federal government) to be guided own.13 In addition, the assignment of the by the CCI, and devolved others to the prov- general sales tax on services to the prov- inces. This change has raised some pertinent inces has forestalled all efforts to institute questions about framing rules and formulat- an integrated general sales tax and value ing procedures for services. The CCI is solely added tax system in the country. a grievance-redress and decision-making body, so it has no mechanism to legislate the laws or continued to function as provincial employ- frame the rules and procedures for delivering ees, with the district nazim having little the functions that the 18th Amendment assigns authority over their hiring, firing, evalua- to it. Any CCI decision requiring a change in tion, or placement. Similarly, while oversight any law thus requires legislation by the national of the salary budget was transferred to dis- and/or provincial assemblies.16 Similarly, the tricts, inadequate transfers were made for procedures have to be formulated by the fed- nonsalary recurrent and development bud- eral and/or provincial governments. Moreover, gets, depriving district governments of any federal and/or provincial governments will opportunity to improve service delivery. 7 be responsible for implementing all CCI deci- • Misaligned priorities. When the 2001 LGO sions, which may cause significant delay or assigned much greater responsibility to uneven implementation. elected district governments by devolving education and health to district cadres, Bringing the government closer to, or distancing it these broader functions appeared a little from, the people? By not providing any consti- out of sync with the nature and character of tutional basis for the local government, the these governments. Their focus remained 18th Amendment has paved the way for con- on small civil works and local functions, as centrating state authority at the middle tier of very little of their development budget was government. This move runs counter to world- spent of health and education (Hasnain wide trends, which reflect technological devel- 2010). Priorities are still skewed heavily opments that have made the middle tier of toward infrastructure (Table 3). government largely redundant and the concen- tration of state power in the two tails—federal Confusing accountability roles. One argument and local governments. in favor of the 18th Amendment is that it has brought greater clarity to government account- Debt management concerns. By opening the door ability. Accountability for public services now for provinces to borrow directly from the starts and ends with provincial governments— domestic markets and international donors, a strong incentive for them to improve service the 18th Amendment has added potential risks outreach and quality. However, only a frac- and brings urgency to debt management. Prov- tion of the functions of three main federal inces should adequately finance their develop- m inistries—agriculture, health, and educa- ­ ment needs, and unless they do this prudently, tion, abolished under the 18th Amendment— their actions can create enormous fiscal risks.17 were devolved (or abolished), and many were retained by the federal government, assigned to Issues with decentralized service delivery.18 This existing and new federal ministries (Table 4). dominance of politics over service delivery has manifested itself in at least three factors that Way Forward have prevented any significant improvements For the decentralization introduced by the in service delivery. They are: 18th Amendment to improve service delivery, • Capacity bottlenecks. The lack of subnational the following actions are critical:19 government capacity to exercise respon- sibility for public services is deep-rooted. Strengthen fiscal management and discipline Similarly, some the functions devolved to • The CCI should establish a national fiscal the provinces under the 18th Amendment framework before the beginning of each fis- require skills that may not exist at that level. cal year, which would establish the key fiscal Until provinces acquire or develop these goals at the national level and assign each capacities, the quality of associated services government (federal and provincial) targets is likely to suffer. (revenue, expenditure, fiscal deficit, and • Asymmetric responsibilities. All the employ- financing)20 to help achieve national fis- ees associated with the devolved functions cal goals. This framework would guide the in 2001, including health and education, federal and all four provincial budgets for Pakistan Policy Note—Promoting efficient service delivery with decentralization Table Sectoral shares in district development expenditures 3 (percent) Sector 2009/10 2010/11 General public service 5.3 6.9 Public order and safety affairs 0.0 0.0 Economic affairs 40.5 38.9 General economic, commercial, and labor affairs 0.0 0.0 Agriculture, food, irrigation, forestry, and fishing 3.5 5.5 8 Mining and manufacturing 0.0 0.0 Construction and transport 36.4 32.8 Communications 0.0 0.0 Other industries 0.0 0.0 Research and development economic affairs 0.6 0.5 Environment protection 0.5 0.7 Housing and community amenities 2.2 3.2 Health 2.3 2.0 Recreation, culture, and religion 0.4 0.2 Education affairs and services 8.2 9.1 Social protection 0.1 0.1 Total 100.0 100.0 Source: Office of the Accountant General, Government of Punjab. Number of functions and departments devolved, abolished, or retained by the Table federal government 4 Before 18th Amendment After 18th Amendment Devolved Abolished or merged Retained Ministry Functions Departments Functions Departments Functions Departments Functions Departments Agriculture 38 13 9 1 2 3 27 9 Health 15 22 3 4 0 3 12 15 Educationa 14 19 4 4 0 0 10 15 a. Functions for standards in higher education and research, scientific, and technical institutions were taken to the Federal Legislative List, Part II. Source: Paul and others 2012. the forthcoming fiscal year. The CCI would and classification, and auditing and pro- periodically review the implementation of curement rules and procedures) should the fiscal framework during the year and be extended to all local governments. This make required changes (if any). would require considerable strengthen- • The federal and provincial governments ing of provincial government capacity, should undertake tax policy and tax admin- especially of the district accounts officers, istration reforms to mobilize additional provincial accountant generals, provincial revenue and make the tax system more effi- procurement regulatory agencies, and Audi- cient and equitable. Bringing untaxed and tor General of Pakistan. lightly taxed sectors in line with other sec- tors should help achieve these objectives. Rationalize the assignment of functions • Provinces should legislate (and adhere to) • The CCI (or a similar body) should review their own fiscal responsibility laws to ensure the devolution of “national� functions overall fiscal discipline. (Shah 2012) and develop modalities and a • The public financial management system timeline for assigning them to the federal (budgeting protocols, accounting codes government or federation (that is, jointly to a body having representation of the fed- of whether the funds are transferred by the eral government and all four provincial provincial government or raised by the local governments). government. Each provincial finance depart- • Roles and functions of each level of gov- ment, planning and development depart- ernment should be further clarified. Over- ment, accountant general office, and office lapping functions across government tiers of the Auditor General of Pakistan has a twin cloud this clarity and diffuse accountability. responsibility to build local fiscal and finan- cial management capacity and to ensure that Improve service delivery broad fiscal discipline is maintained—the 9 • Each level of government should have com- latter through establishing a system of fiscal plete control over the functions assigned to reporting that can raise red flags and timely it. This implies revising the rules and pro- alerts to avoid fiscal or financial disaster. cedures at each level to weed out provisions • Financial autonomy of local governments that can enable intrusion from higher levels. can also be strengthened if some broad- • Institutions supporting the federation, such based and buoyant revenue bases were as the CCI, NFC, and National Economic devolved to them, especially to the larger Council, need to be strengthened with sec- ones. The main candidates are the Urban retariats to do upfront work on consensus Immovable Property Tax, Profession and building and on monitoring implementa- Callings Tax, and Entertainment Tax. Over tion of these institutions’ decisions. time, local governments may be given the • Adequate human and technical resources right to piggyback the provincial agricul- for performing the assigned functions tural income tax, motor vehicle tax, and should be available to the level of govern- even general sales tax on services, where the ment responsible for those functions. The local government would set the rate (of addi- higher level of government keeping even an tional tax) and the provincial government oblique control over staff not only makes it would collect the tax on its behalf. difficult for the responsible level to perform • A “citizen’s report card� (or similar mea- the functions per its policies and priori- sure) should be launched to assess the per- ties but also gives it an excuse and a shield formance of each local government and to against bottom-up accountability. promote healthy competition among them. • Similarly, the responsible level should have adequate financial resources to discharge Completing decentralization therefore remains critical these functions. Irrespective of the strong to establishing an accountable and efficient system— economies-of-scale argument for centrally whether decentralizing from the federal to provincial collecting taxes, each level of government level or from provincial to local. The logical com- should have enough tax powers to raise its pletion of decentralization defined by the 18th budgetary flexibility, but more important, Amendment is a viable and effective system of to strengthen bottom-up accountability. local government in each province. While the Fiscal transfers from higher level govern- extent and form of devolution to the third tier ment should be mainly for fiscal equaliza- needs to be driven by the reality on the ground tion and achieving national and provincial in each province, to be effective local govern- objectives.21 ments should be granted wide service delivery • To ensure top-down (and bottom-up) functions, commensurate finances, and a fair accountability, local governments should degree of autonomy. have complete financial autonomy. Each dis- trict government (metropolitan corporation, It is important that a bottom-up accountability sys- municipal corporation, municipal commit- tem be established and given a chance to function. tee, district education and health authorities, Ideally, this calls for local government to be and the like) should be given complete con- accepted as a genuine third tier of government trol of their budgets according to their pri- and to be given a role in and protection under orities and ground conditions, irrespective the constitution. One lesson from Pakistan’s Pakistan Policy Note—Promoting efficient service delivery with decentralization moves to decentralize is that the main rea- or raised by the board (perhaps by levy- son for the lack of effective local government ing a fee, cess, or surcharge on delivery of is the mutual discomfort between provincial the service).23 and local governments. Further, irrespective • The Member of Provincial Assembly of political affiliations of the local govern- (MPA) elected from each constituency ment, the provincial government has always or markaz should be the chairperson of remained wary of the authority (and ability) (all) these authorities. of local governments, making every effort to • The function delivery budgets, as well as 10 obstruct their functioning. This invariably sty- the staff associated with these functions, mies full decentralization, generating worse should be transferred to these authori- than desired outcomes. ties, giving authorities full control over their management. Toward a pragmatic model of • Among provincial governments, setting up decentralized service delivery mechanisms for effective but nonintrusive monitoring of these authorities, based on To establish a reasonably well-functioning decen- pre-agreed benchmarks and targets. The tralized system of governance and service delivery, results of such monitoring are to be made it is critical to adopt a more pragmatic approach public so that people can see each author- to bottom-up accountability. As mentioned, this ity’s performance. would require a system capable of integrating political, administrative, and financial aspects Advantages and risks of the new model of decentralization. The first step is to better align political priorities of provincial and local The biggest advantage of the new model is that it tiers of government, by: aligns the incentives among key stakeholders for • Unbundling functions assigned to district a more transparent and accountable service deliv- governments by the 2001 LGO depend- ery system. Ref lecting the prevailing trend, ing on their nature. District governments all municipal and local services are to be should be assigned local functions. In other delivered by elected local governments, but words, provincial governments should adopt some key provincial services will be delivered LGOs similar to the 1979 LGO.22 by autonomous authorities, which would be • Improving management and quality of key headed by the elected representative of the social services like education and health by provincial government. This approach would devolving them to autonomous provincial not only devolve the provincial service to a authorities. For this: level where it could be much better managed • Provincial governments would create but also, by making the MPA responsible these authorities, preferably through for delivering these services, enhance the actions of provincial assemblies. transparency and accountability of delivery. • These authorities would be created at the Under the current system, the MPA makes markaz (sub-tehsil) level. many important decisions on the delivery of • The geographic boundaries of the education, health, and other services within markaz would be defined to coincide with his or her constituency but without getting the provincial assembly constituencies. any credit or being held accountable. Under • These authorities would be governed by the new model, the MPAs would be respon- autonomous boards comprising local sible for delivering these key services in their members of district councils, local profes- constituencies (the markaz), boosting their sionals in these fields, and senior officers reelection chances if services are provided of education and health. satisfactorily. • The boards would have complete auton- omy over hiring, firing, transfers, and The model aims to bring about better coordination postings and over funds received as between provincial government policies and the grants from the provincial government devolved service delivery system. The MPAs, who would now head the autonomous authorities in Notes their constituencies, are likely to advocate for 1. In 2003, through the 17th Amendment social (and other) services within the provincial based on General Musharraf’s 2002 Legal assemblies much more forcefully than before. Framework Order, it became mandatory to Similarly, they would be in a much better posi- present money bills to the Senate, but only tion than the district nazims, for example, to for review. bring about changes in provincial policies sup- 2. According to Burki (2010), the Concurrent porting services in their constituency. List included functions on which the fed- As with any new system, the proposed model eral government made a promise during 11 has several risks: the process of drafting the 1973 Constitu- • It gives MPAs almost full control over deliv- tion that provinces would get control after ering key public services, making them vul- a “period of political maturation,� defined nerable to capture by political and local as 10 years. elites. 3. In 2006, the government inserted Clause • The MPAs are members of provincial 140A into the constitution, which made assemblies, with a key responsibility for it incumbent on every provincial govern- framing provincial legislation. Such a time ment to establish a local government sys- split (between legislative and service deliv- tem and devolve political, administrative, ery responsibilities) may be detrimental to and financial authority to the elected rep- both. resentatives of the local governments. This • Provincial departments and service delivery ensures the existence of a local govern- cadres are likely to show fierce resistance, which ment system, but only through an action would require careful management. Specifically, of a provincial government. Moreover, the the model limits appointments, transfers, degree of authority and responsibility to and postings only to the markaz, thereby be devolved to the local governments is left “depriving� staff from being transferred to to provincial governments. more preferred jurisdictions, such as district 4. The government announced the Devo- headquarters or the provincial capital. lution Plan first, which was later imple- • The model intends to decentralize services mented through the 2001 LGO. to a level that has never managed such ser- 5. Tables 1 and 2 refer only to Punjab. Given vices, creating obvious capacity concerns, that fiscal decentralization was much more especially in health. advanced there than in the other prov- • As the service authorities are to get finan- inces, the aggregate situation is likely to be cial autonomy, the provincial financial even starker than the tables show. management mechanisms (procurement, 6. The Sindh 2012 LGO has created a much accounting) are likely to be bypassed. This starker divide between rural and urban can potentially take large sums of public areas than before. The six most urban- expenditure outside the public financial ized districts have been given metropoli- management system. The accounting and tan status and will be governed similarly auditing parameters might have to be rede- to those under the 2001 LGO, while the fined to ensure effective accountability of remaining areas of the province will have these authorities (see above). a system closer to that set up by the 1979 • An additional cadre in service delivery may LGO. The provincial cabinet of Punjab raise administrative costs. has approved a draft LGO, similar to the Most of the risks should be mitigated by the 1979 LGO. bottom-up accountability realized through the 7. The Basic Democracies of Ayub Khan in electoral system, and the nonintrusive oversight the 1960s, the 1979 LGO of General Zia- by the provincial government would enhance ul-Haq, and the 2001 Devolution Plan of the systemic accountability of these authori- General Musharraf were all designed to ties, helping them achieve the objectives of this centralize power while giving local govern- decentralized model. ments a greater role in government. Pakistan Policy Note—Promoting efficient service delivery with decentralization 8. For its part, the 18th Amendment greatly the Concurrent List: issuing a new NFC altered the assignment of functions award; expanding the Senate to give rep- between federal and provincial govern- resentation to minorities; integrating the ments. For a more detailed assessment Federally Administered Tribal Areas with of the motivation for and successes and North West Frontier Province; empower- failures of the amendment, especially in ing Gilgit–Baltistan; lifting the ban on service delivery, see Hussain and Kokab assumption of the office of prime minis- (2012) and Paul and others (2012). ter for the third time; establishing a Truth 9. In this case, provincial governments in gen- and Reconciliation Commission and a 12 eral and the governments of Balochistan National Democracy Commission; making and Khyber Pakhtunkhwa in particular. the Inter-Services Intelligence, Military 10. Including 10–12 percent on grants to Intelligence, and other security agencies provincial governments and state-owned accountable to the elected government; enterprises and another 8–12 percent on removing indemnities introduced by mili- subsidies. tary governments; appointing the higher 11. Part of the reason for provincial govern- judiciary through a commission chaired ments’ inability to limit their recurrent by a chief justice who had never taken expenditure stems from large and frequent oath under the Provisional Constitutional increases in wages and pensions of govern- Order; and establishing a Federal Consti- ment employees. With provinces having tutional Court with equal representation much larger payrolls than the federal gov- for all the federating units in order to ernment, the budget impacts of such wage resolve the constitutional issues. increases are much stronger. 16. Possible delays may stem from CCI deci- 12. The manufacturing sector is taxed much sion making, as it has to come to a consen- more heavily than the agriculture and ser- sus on the decision and its modalities. vices sectors. However, within the manu- 17. The amendment has tried to establish facturing sector some industries (such as some check on provincial borrowing by textiles) are taxed much more lightly than mandating that the National Economic the others. Council (NEC) set ceilings on the borrow- 13. Our preliminary estimates show that for ing of each province. But given the strong every PRs 100 that provincial governments presence of provinces in the revised com- receive as transfers from the federal gov- position of the NEC, the amendment may ernment, expenditure increases by PRs 87, not be able to impose effective checks on PRs 9 go to reduce the provincial fiscal provincial borrowing. deficit, and provincial revenue declines by 18. For the conceptual basis, potential benefits, PRs 4. and risks of decentralization, see World 14. Some of the functions of the Concurrent Bank (2001) and Ahmad and others (2005). List were shifted to Part I or Part II of the For evaluation of the 2001 devolution Federal Legislative List. in Pakistan, see World Bank (2004) and 15. The 18th Amendment was a vehicle to Keefer, Narayan, and Vishwanath (2006). operationalize the Charter of Democracy, 19. Some critical prerequisites for this decen- which was agreed on by the two main- tralization are highlighted in Shah (2012). stream parties—the Pakistan People’s 20. Under the 18th Amendment, determin- Party and the Pakistan Muslim League ing the ceiling on provincial government (N)—and some other smaller parties borrowing is the responsibility of the NEC. in London in May 2006. The Charter This recommendation implies that NEC demanded, among other things: ending decisions of provincial borrowing have to the presidential powers of dissolution align with the national fiscal framework of the National Assembly and appoint- defined by the CCI. ment of governors, armed ser vices 21. There will be a role for the federa- chiefs, and the Chief Justice; abolishing tion (CCI) or comparable provincial institutions to harmonize taxes subnation- Keefer, Philip E., Ambar Narayan, and Tara ally, thereby prohibiting tax wars between Vishwanath. 2006. “Decentralization in subnational governments. Pakistan: Are Local Governments Likely 22. The provinces share a strong consensus to to Be More Accountable than Central adopt the 1979 (or similar) LGO, suggest- Government?� In Decentralization and Local ing that they are quite amenable to devolv- Governance in Developing Countries: A Com- ing municipal and local services to the local parative Perspective, eds. Pranab Bardhan government. However, some key services and Dilip Mookherjee. Cambridge, MA: devolved to district governments by the MIT Press. 13 2001 LGO, such as education, health, and Paul, Jawad, Shahid Zaman, Naveed Saleh Sid- agriculture, would revert to the provinces. diqui, Moshan Atta, and Qamar Mustafa 23. 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World Bank. 2001. �Decentralization and Gov- Cambridge, MA: MIT Press. ernance: Does Decentralization Improve Hasnain, Zahid. 2010. “Devolution, Account- Public Service Delivery.� PREM Notes 55. ability, and Service Delivery in Pakistan.� The Washington, DC. Pakistan Development Review 49 (2): 129–52. ———. 2003. World Development Report 2004: Hussain, Mahboob, and Rizwan Ullah Kokab. Making Services Work for Poor People. Washing- 2012. “Eighteenth Amendment in the Con- ton, DC. stitution of Pakistan: Success and Controver- ———. 2004. Devolution in Pakistan. Washing- sies.� Asian Social Science 8 (1): 81–88. ton, DC. © 2013 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street NW Washington, DC 20433 USA All rights reserved This report was prepared by the staff of the South Asia Region. The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the World Bank’s Board of Executive Directors or the countries they represent. The report was designed, edited, and typeset by Communications Development Incorporated, Washington, DC.