The Government of Pakistan has an ambitious and comprehensive program of reforms to accelerate growth and poverty reduction. Governance reforms, particularly in the areas of tax administration, procurement, financial management, and devolution of power to local governments are key features of the program.
Weaknesses in tax policy and administration have long been identified as being among Pakistan’s most serious challenges. Collusion between taxpayers and tax officials has been pervasive and facilitated by the discretionary powers of tax officials, complex tax rules, and weak supervision of staff. In the past, tax administration was organized by geographical sub-zones known as ‘circles’, within which tax officials carried out a range of functions (e.g., inquiries, collections, audits/investigation) thus increasing the opportunities for unethical behavior. The Central Board of Revenue (CBR) is now being re-structured along functional lines, and dedicated medium and large taxpayer units conforming to international best practice have been established. The introduction of universal self-assessment in fiscal year 2003-04 for filing tax returns, and the introduction of risk-based systems in customs administration have reduced face-to-face contact between taxpayers and tax officials, thus reducing opportunities for corruption.
The Pakistan Public Procurement Regulatory Authority (PPRA) was created in 2002, with the task of developing the procurement framework for the federal public sector, covering goods, works, and services. Specifically, the PPRA was given the powers to recommend to the Federal Government revisions in or formulation of new laws, rules and policies with respect to public procurement, and the making of regulations, codes of ethics and procedures for public procurement. In 2004, the PPRA drafted, and the government promulgated, new procurement rules, conforming to international best practice, that apply to all procurement of goods carried out by the federal government line departments, as well as those of state-owned enterprises and semi-autonomous organizations.
The government’s reform program in public financial management is well underway. The technical reforms have centered on the Project for Improved Financial Reporting and Auditing (PIFRA I and II), under which a new chart of accounts and a computerized accounting system is being developed. The timeliness and quality of financial statements and audit reports has improved, although scope for further improvement, particularly in audit methodology, remains. Public Accounts Committees (PACs) at the Federal and Provincial levels have been formed and have been holding regular reviews of audit reports; however the capacity of PACs remains a significant issue.
In the past five years, Pakistan has implemented a radical restructuring of government, devolving the main responsibility for the delivery of education, health, water and sanitation, roads and transport, and agriculture services to district, tehsil, and, to some extent, union governments. This functional devolution has been accompanied by remarkable political, fiscal and administrative changes. As is common in this process, political, fiscal, and administrative devolution have proceeded at different paces, which has resulted in an overlap of responsibilities between provincial and local governments. Administrative decentralization remains the most contentious area. While formally authority over recruitment and career management over junior local government staff has been transferred, both the local and provincial governments are de facto exercising authority over local staff, thereby resulting in dual accountabilities that undermine incentives for performance. While there are early signs that devolution is beginning to yield positive results, it is also clear that much remains to be done.
Pakistan’s bureaucracy, although not large by international standards, suffers from structural weaknesses, that are fairly common in the region, and progress in civil service reforms has been quite limited. While a Civil Service Reform Unit (CSRU) has been created to catalyze and oversee the implementation of reforms, there has been little progress in civil service restructuring, and future reforms are likely to be, given the politically difficult issues involved, at best incremental. Wage decompression and pension reforms have been politically difficult to implement, and despite some good progress in the past five years, in particular the increased autonomy of the Federal and Provincial Public Service Commissions, ensuring merit-based recruitment into the bureaucracy continues to remain a challenge.