Fund Allocation Mechanism in Pakistan and Challenges in Fund Allocation

An Explorative study of Literature on School Funding in Pakistan

By

Bhagwani Bai

LDPS 8132

Dr. Charisse Atibagos Gulosino

University of Memphis
Introduction:

Pakistan ranks at the lowest level in education in the world and is among the 12 countries

in the world that spent less than 2 percent of their GDP on education sector (Ahmed et, al, 2004,

p. 82) Access to primary education, high dropout rate and low quality education are major

challenges identified in different governmental and non-governmental studies. (Malik, 2015, p.

3) Social, economic and demographic factor contribute negatively in these challenges. According

to ASER Pakistan report 2012 as cited in Malik, 2015, p. 5, those who complete primary

education in rural areas of Pakistan are for behind in achieving learning outcomes. Insufficient

spending in education is one of the major cause of lack of access and poor quality of education in

Pakistan. (p.8) Although, Government of Pakistan has been making commitments since 1992 to

spend 4% of its GDP on education but this target never exceeded from 2% of GDP. According to

Education for All (EFA) monitoring report 2015, Pakistan need to increase per pupil expenditure

10 more in primary education, and three time more proportion of GDP to meet the EFA goals in

2030. (Malik, 2014, p. 9, Alif Ailaan, 2015, p.1)

There are limited number of studies are done on education funding in Pakistan, and those

available are done at small scale and mostly district budget analysis of selected district. There is

lack of research on school finance as a sub-sector of education and limited empirical work on

funding allocation mechanism. Through this explorative analysis, literature on school finance in

Pakistan was reviewed and compiled in three main section. Section one is introductory, describes

the fund allocation mechanism in Pakistan overall and education specifically, section two

describe equity and adequacy in school finance, third section presents challenges in education

fund allocation at provincial, district and school level and final part present recommendation for

meeting the challenges of school funding allocation in Pakistan and implication for school
finance. After 18th Amendment, provinces are more autonomous and has its own planning and

implementation mechanism in school funding, therefore funding allocation mechanism vary

from province to province. I chose Sindh provinces for looking at provincial, district and school

level fund allocation mechanism.

Public Resource allocations in Pakistan

Pakistan has federal government structure with having five federation units/provinces,

FATA and disputed Kashmir. Power representation, resource allocations to provinces and the

exploitation of natural resources remained point of contradiction between and federal and

provinces since Independence. As the allocation of resources were based on population of the

province, Punjab, the largest provinces get the most part of federal funds and other provinces

instead of severe backwardness and poverty could not get enough funding share from the federal

government. (Jalal, 1999, p. 220 as cited in Adeney 2012, p. 549) The federal system of Pakistan

allocated funds in unequitable criteria among provinces and center that backwardness and other

vulnerabilities criteria were ignored.

The 18th Amendment is considered an important step towards minimizing the tension

between provinces and center and among provinces as well where Punjab is getting more share

of political power and financial resources from the federal government. (Adeney, 2012, p. 559) If

we see the roots of this imbalance allocation of resources, or ignorance of diversified needs of

demographically, ethnically, culturally, linguistically, economically diverse population, Adeney

2012 traced it historically and make liable the elite power (word establishment is used in local

context) who for the national integration of Islamic identity delegitimized the diversified

identities of provinces. (Adeney, 2007, p. 99-104 as cited in Adeney, 2012, p. 544 and 550)
NFC Award and 18th Amendment

Keeping in view the tensions on power, resources and autonomy of provinces, in 2010,

amendment were made in constitution and provinces were given more autonomy and changes

were made in National Financial Commission Award (NFC, a set of funding formulas to allocate

funds to federal and provincial government for five years). Before 2009, these funding formulas

were based on population of the province but in 7th NFC award, inverse population destiny and

poverty indicators were added to the funding formulas. After 18th amendment bill was passed in

2010 with consensus of all political parties and provinces were given provincial powers, with

change in formula for the vertical and horizontal distribution of resources. As a result, from 2010

the allocation was divided 57.5 percent for provinces and center was allocated 42.5 percent of

total revenues with change in criteria that 82 percent of resources allocated to the provinces was

distributed according to population, 10.3 percent for poverty/backwardness, 5 percent for

revenue generation and collection, and 2.7 percent for inverse population density. (Adeney, 2012,

p. 547-549)

Provincial Financial Commission

In 2001 provincial financial commission were formed having authority to allocate funds

to the district government. The PFC is headed by Minister Finance/Advisor to Chief Minister

Sindh for Finance. PFC following the formula of 40% on population, 35% on infrastructure

services, 10% development needs, 5% area and 10% performance allocate the funds to the

districts. (Govt. of Sindh Finance department website)

Resource allocation in education

 In 2010, after 18th amendment bill Education become legal right in Pakistans constitution

and government become responsible to provide free and compulsory education for children aged

5-16years with financial implication in Article 25-A of the constitution. Making education legal

right shows a commitment for state towards education. Government of Pakistan made

commitment for spending of 4% of GDP on education at several national and international

events (Alif Ailaan, p. 1) but the spending on education in Pakistan has remained under 2% of

GDP for the past 20 years. Malik and Naveed, 2012 p.7, GOP/UNESCO, 2014, p.14)

After the devolution of power to the provinces and making provinces more autonomous

and policy decisions along with number of sectors, planning, financing and implementation of

primary to higher secondary education become responsibility of provinces excluding the higher

education that remains under the authority of federal government. This change made provincial

governments responsible for making budgetary allocation decisions, such as the allocation of

resources to various subsectors, development programs, etc. (Malik, 2015, p. 11) The major

change in education sector after 18th amendment is the devolution of policy decisions such as

curriculum and policy formation that was federal governments responsibility since 1973.

(GOP/UNESCO, 2014, p. 9)

Budget preparation Process/ Funds allocation mechanism

Fund allocation mechanism is complex in Pakistan, and there is lack of information

available to the people that how this mechanism works. The allocation of funds to the schools is

almost a year long process start in September and end on June every year and in June, after

approval the line ministries and departments are allocated funds for expenditure.
 In Pakistan, funds allocation is done at three levels - Federal, Provincial and the District

with almost similar allocation approach at all levels. As we have discussed above that the federal

government under National Finance Commission (NFC) allocates funds to the provinces. Each

province prepares their budget from the funds received from federal government and its own

revenue from the tax through the sources within province which makes up to 10% of total budget

of the province. There is variance in tax revenue among the provinces, i.e. Pujab generate 11% of

its revenues form provincial tax (World Bank, 2014, as cited on Malik 2015, p. 11) whereas,

Balochistan raise only 3%. (GoB, 2013 as cited in Malik, 2015, p.11) Following almost same

allocation approach provinces through Provincial Finance Commissions (PFCs) allocate funds to

district governments. Further districts prepare their own budget based on provincial allocation

and their own resource generation. (Umerani, 2013, p. 14)

Provincial level allocation of funds in Education

Due to unavailability of data on the criteria of allocation of funds or exclusive funding

formula for recourse allocation to districts and schools in education sector and difference in

allocation approaches among the provinces, I chose Sindh Province to see how funds allocation

mechanism work at provincial, district and school level. After discussion with officials at public

education department and website the below funding flow is drawn. In addition to federal funds,

provincial revenues, there is international aid for education as well that are implemented in shape

of different projects in the districts. There is shift of international funding from public schools to

higher education in recent years. (Malik, 2015, p. 16) After 18th Amendment, there is increase in

fund allocation in education has been noticed. For example, in 2009 7 th NFC award, provinces

were allocated 20% of its total allocation in education and province further followed the trend
such as, Punjab allocated close to 24% of its total budget on education, Sindh has allocated 22%,

KPK 26%, and Baluchistan 19% (I-SAPS. 2014, p. xvii) The recent report of Alif Ailaan, 2015

shows that Sindh provinces is lowest among all provinces in funding increase percentage from

2013-2014 to 2015-2016 budget allocation to education from its total budget of the province. (p.

3)

District Level

At district level there are two major categories of budget current and development, the

first includes administration cost of department offices at district and tehsil level, and

development cost include maintenance and development of school infrastructure. The second

category falls under education sector but funds are allocated and managed separately with

another department called works department. All the development related funds such as

construction of schools, maintenance and repair of schools building etc. are allocated to works

department. The salary of staff is centralized and managed at provincial level. (Umerani, 2013,

12)

The education budget formulation process starts by the invitation of Executive District

Officer Finance and Planning (EDO- F&P) to EDO education with the breakup of salary and

non-salary estimation. (Umerani, 2013, p. 14) The non-salary budget is not prepared on actual

needs of school instead and certain proportion is added to the previous year budget. Schools are

not consulted for their needs, and sometime proposed budget is slashed down by District Officer

Finance and Planning. The budgeting activity is considered as a formality that is done every year.

(Umerani, 2013, p. 15) After finalization of funds allocation by EDO education and DO F&P the

budget is sent to Deputy commissioner office for approval.

Funds allocation mechanism Education Department in Sindh (Adopted from Umerani, 2013, p.

19)

School Level

In recent years, school based budget has been introduced and all 23 districts of the

province at primary, middle, secondary and high and higher secondary school level following the

formula of 20% on school level, 45% on student enrollment and 35% on number of classrooms.

Within the 20% of the budget allocated for distribution on the basis of school level, 50% is

allotted for distribution among primary schools, 10% for distribution among middle schools,

15% among elementary schools, and 25% among high and higher secondary schools, up to
specified ceilings. Use of school non salary budgets by primary, middle, and elementary schools

is limited to certain stipulated categories of expenditures (travel expenses for teachers, stationery,

teaching and learning materials, expenditures for co-curricular activities), up to stipulated

ceilings in percent terms. (taken from website of GoS ministry of education)

Equity and Adequacy

Odden and Picus 2014 defined equity in three different principles that define the

distribution of resources equitability. 1. Horizontal equity in which all members of the group are

considered equal, (2) vertical equity, in which differences (for which unequal resource

distributions are legitimate) among members of the group are recognized; and (3) equal

opportunity, (fiscal neutrality) which identifies variables such as property value per pupil that

should not be related to resource distribution. (p. 46) In horizontal equity, without considering

the diversified needs of students, schools, districts allocated funds on equal basis. Equal

treatment for equal principle assume that all students are alike and spending should be same

across, district and state. (p. 56) On the contrary, vertical equity acknowledge the different

among the students and their diversified needs and this approach believe that all students are not

alike and some students needs are different than others. Unequal treatment of unequal

principle in school finance give importance to three categories of characteristics, i.e.

characteristics of students, districts and programs. Characteristic of students can include, mental

and physical disabilities, low income background, limited English proficiency and gifted and

talented students. District characteristic contains price, scale economies, transportation, energy

costs, and enrollment growth and variance in these indicators has impact on education. Provision

of funds on these characteristics is difficult to implement as there is a lot of controversy on both

student and tax payers perspective. (p. 62-63)

The concept of adequacy not only focus on the provision of a set of strategies, programs,

curriculum, and instruction, in accordance with diversified needs of students, districts and

schools but it focus on output that every students achievements as per set standards for all

children as well. As the adequate school finance approach focus on both input and output level

at input level, adjustment of resource allocation as per students special needs and districts

wealth and spending per pupil and at output level every students achievement as per minimum

set standard is considered the major criteria for recourse allocation to the schools. (Odden and

Picus, 2014, p. 65)

Challenges and problems in equitable and adequate allocation of resources

The most prevailing issue in funds allocation mechanism is the unavailability of sector

specific fund allocation information that show the funding formula and criteria of allocation of

funds to the districts and school. For this study, after reviewing several government websites,

manuals and related documents, access to required funding allocation formulas was not ensured.

This challenge has been highlighted in Umerani, 2103 as well where he writes that sector

specific budget allocation information is not available in easy and understandable form to the

people. And there no law for right to access to information exist in the country. (p. 20) Malik,

2015 has highlighted the unclear funding formula to allocate education funds to the districts. Due

to population a major criterion for establishment of primary schools, poor, remote, and under

developed districts get less money due to scattered population. Population based fund allocation

is one the reasons of establishment of school on long distance and single teacher schools that

ultimately effects the access of girls to the school and quality of education due to multi grade
teaching. (Malik, 2015, p. 14)

The administration staff of education department both at tehsil and school level are not

involved in budget formulation process and were found unaware of different budget terminology.

Delay in transfer of approved budget to the concerned offices is noticed due to hierarchal

formalities. This delay is one the major cause of underspending of re-appropriation in approved

budget. Most of the primary schools are not provided non-salary budget and is utilized at sub-

district offices. This cause lack of basic facilities such as water, electricity etc. Furthermore, the

budget allocation formats are traditional and mostly districts and sub-districts offices do not

make any changes by adding new budget head and follow old forms only. (Umerani, 20014, p.

20)

I-SAP 2010 study of five district of Baluchistan shows that the lack of connection

between fund allocation to the quality of education as the budget only reflect salary and non-

salary cost and development cost. (cited on Umerani, 2013, p. 120 Oden and Picas 2014 says

that budget the reflection of goal and priorities of state. And from this exploration of material

available on school funds allocation in Pakistan it clearly reflects lack of focus on quality of

education.

Inadequate funds allocation in education sector remained a problem and only 7-8% of

total budget has been allocated to education. At the same time, expenditure against allocated

budget remained very low and different budget assessment reports show serious concern on this

aspect as well. The Public Financial Management Accountability Assessment 201, as cited on

Umerani, 2013 that 2008-2009 and 2009-2010 budget shows 26% and 28% under spending. I-

SAPS, 2014 as cited in Malik, 2014, p. 12 shows that in 2003-2014 report shows only quarter of
its budget were spent overall but 60% of development remained unspent for year. This

underutilization is reflection of the issues such as over ambitious estimation, poor absorption

capacity at district level, slow, erratic and delayed realizing of funds to districts, improper and

inadequate budget preparation process (Umerrani, 2013, p. 13) and poor coordination between

education department and works department. (Malik, 2015, p. 12)

Although districts education department is involved in budget formulation process the

DO F&P and DC has authority of making budget cut and re-appropriation. This modification is

happened due to political influence and use of power discretion of district authorities. Political

influence is seen high in mega education development projects where mostly its feasibility and

other merits are ignored. (Umerani, 2013, p. 12) Malik 2015 has highlighted political influence

in inequitable distribution of resources where mostly poor and remote districts dont get adequate

recourses and more developed districts get more allocation. I-SAPS, 2014 has brought

inequitable funding allocation issues in districts of Punjab.

As the international aid is one of the major funding sources in education in Pakistan. It is

estimated that closely 30 donor agencies are working in education sector, but lack of

coordination between donor remained challenge. After 18 th amendment, leading position of

federal government become weak and the existing international fund tracking mechanisms has

become obsolete because of direct funding to provinces. The donor funding to private schools

has become one of the major contribution in education. There is controversy even among

government official and policy researchers on the strengthening and supporting of private

schools. Some believe that it will provide opportunities to the people when there is huge gap in

public sector education in Pakistan, Other see the strengthening of private schools is not a
sustainable initiative rather a stop-gap measure. Equity and adequacy issues in the funding to

low fee private school should not be ignored and there need to have tracking system to assess

international aid in promoting equity and adequacy in education. (Malik, 2015, 19)

How can these problems and challenges be minimized or eliminated?

As, the spending on education remained 2% of GDP, despite government commitment of

spending of 4% of GDP on education. One of the action suggested in Malik, 2015, p. 21 is to

increase tax revenues through reforming both federal and provincial level tax systems.
Keeping in view the gap in coordination between education and finance sector that cause

inequitable and inadequate resource allocation, there need to strengthen the coordination

among government departments from federal, provincial, and district level. At district level,

District education officer should be the focal person for educational matters by giving

priority to school specific budgeting keeping individual school requirements. Umerani, 2013,

p. 46)
For the tracking and getting maximum benefit of international aid for education there is need

to develop a policy with fund disbursement protocol and tracking mechanism to avoid

duplication and inequitable distribution of international funds in the education sector. (Malik,

2015, p. 17) Furthermore, keeping in consideration low level of access and quality education,

donor funding on education with private sector mostly focus on outcomes and result based

approaches but there need to be studied the effectiveness of this support in an education

system where wider level inequalities exist. (Malik, 2015, p. 22)

It was seen that allocation of funds depend on population but even allocation on the basis of

population is not accurate because population census has not been done since 1998. There is
 need to conduct census so that most recent population is determined and planning and

implementation should not be based on outdated available data. There is need of school

census that will provide complete picture of public and private schools in the country and the

that data should be used for planning and resource allocation (Mailk, 2015, p. 22) as per

specific needs of the districts and schools keeping all social, demographic, and economic

indicators in consideration that Adeney 2012 has highlighted about after 18th amendment bill

provinces are still struggling with. The poor and insufficient official documentation on the

provision of funds to the schools require to develop management information system for

informed decision making in fund allocation but access of that information should be made to

the people through policy formation on right to information. (Umerani, 2013, p. 47)

The capacity of educational officials, inefficient funding mechanism, political influence

cause inequitable, inadequate and inefficient funding allocations to the schools. The funding

allocation and budget development framework with more involvement of school

management committees, and grassroots government officials in order to develop their

capacity on budgeting and planning and avoid political influence in resource allocation at

district level. (Umerani, 2013, p. 47)

Implication to school finance

The finding of this explorative study shows that the fund allocation to schools is

complicated and vague that not only common people but grassroots level officials are not aware

of its rationality and criteria of its allocation to the districts and schools. Different studies have

identified gaps between allocation, and management of funds due to inequitable, and inefficient
funding mechanism. Funding allocation form federal to provinces and then districts is

contradictory. After 18th amendment measures were taken to change the allocation formula but

still provinces with low tax revenue are the victim of inequitable distribution of funds due to

inequitable fund allocation criteria. Pakistans weak economic condition is the harsh fact that

needs some reforms at country and provincial levels to generate funds overall and for education

specifically to meet the goals. This need to reform funding mechanism with making schools and

students as center of education budget with simple and fast track fund management mechanism

with clear coordination among relevant offices and other stakeholders. (Umerani, 2013, p. 47)

It is important to track the allocation of funds with education sector that monitor the focus of

government is the old trend of education budget is spent on salaries? Or there is more focus is

needed on non-salary and development budget. (Alif Ailaan, 2015, p. 8)

While looking at funding mechanisms, and its challenges with equity and adequacy lens,

it is apparent that Pakistan education fund allocation mechanism and approach is more towards

horizontal where all the districts, population are considered alike and public funds are allocated

on Robin hood approach. It should also be noted that with horizontal equity approach there is

gaps of inefficiency and political influence that create hindrance in even equal distribution to

equal approach. The examples of I-SAPS, 20014, Umerani, 2013, Malik & Rose, 2015 have

presented these challenges. Adequate allocation approach is applied in bits in pieces especially

with foreign aid. There is need to conduct comprehensive study of equity and adequacy issues in

the funding system in Pakistan with all three levels that help in policy and practice change for

more equitable and adequate fund allocation.

Keeping in view the lack of school finance knowledge to administrative staff at grassroots level,

school finance should have been included to professional development programs for the staff. It

should also be included in education degree programs so that capacity gap can be minimized.

References:

Ahmed. I., Reham. K., Ali. A., Khan. I., & Khan. F. A. (2014) Critical analysis of the problems

of education in Pakistan: Possible solutions. International Journal of Evaluation and

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Alif Ailaan. (2015). Government allocation in education in Pakistan: The road to getting to 4%

GDP. Retrieved from http://www.alifailaan.pk/budget_allocation_2015-pubs

Institute of Social and Policy Sciences (I-SAPS) (2014). Public financing of education in

Pakistan: Analysis of federal, provincial and district budgets 2010-11 to 2014-15.

Islamabad

Malik, R., & Rose, P. (2015). Financing education in Pakistan: Opportunities for action. Country

case study for the Oslo Summit on Education for Development

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expenditure and aid on educational outcomes (No. 42, p. 39). RECOUP working paper.

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Ministry of Education, Trainings and Standards in Higher Education Academy of

Educational Planning and Management, Islamabad, Pakistan.

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budget in district Tando Muhammad Khan and Matiari. Research Study on Budget

Tracking of Matiari and Tando Muhammad Khan Districts.

Odden, A. R., & Picus, L. (2014) School finance: A policy perspective, 5th edition. New York:

McGraw-Hill.

http://www.sindheducation.gov.pk/educationReforms/ssb.jsp