FOR OFFICIAL USE ONLY

Islamic Republic of Pakistan

PforR

Punjab Resource Improvement and Digital Effectiveness (P171417)

TECHNICAL ASSESSMENT

Governance Global Practice South Asia Region

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ABBREVIATIONS AND ACRONYMS

ACG Anti-Corruption Guidelines

ADP Annual Development Plan

B2G Business-to-Government

BoR Board of Revenue

C2G Citizen-to-Government

CVT Capital Value Tax

DDO Drawing and Disbursement Officer

DIM Digital Identity Management

DLI Disbursement-linked Indicator

DLR Disbursement-linked Result

DRFS Disaster Risk Financing Strategy

ETNCD Excise, Taxation, and Narcotics Control Department

FD Finance Department

GCC Gender and Child Cell

GDP Gross Domestic Product

GoPb Government of Punjab

GST General Sales Tax

ICT Information and Communication Technology

IFMIS Integrated Financial Management Information System

IPF Investment Project Financing

IT Information Technology

LG Local Government

M&E Monitoring and Evaluation

MoF Minister of Finance

MTFF Medium-term Fiscal Framework

OSR Own-source Revenue

PAP Program Action Plan

PDB Planning and Development Board

P&DB Planning and Development Department

PEFA Public Expenditure and Financial Accountability

PFC Provincial Finance Commission

PFM Public Financial Management

PFMASD Public Financial Management for Accountability and Service Delivery Program

PFMRS Public Financial Management Reform Strategy

PFMU PFM Unit

PFMU Public Financial Management Unit

PforR Program for Results

PGS Punjab Growth Strategy

PIM Public Investment Management

PITB Punjab Information Technology Board

PPP Public-Private Partnership

PPRA Punjab Procurement Regulatory Authority

PRA Punjab Revenue Authority

PRR Pakistan Raises Revenue

PSU Program Support Unit

RISE Responsive Investment for Social Protection and Economic Stimulus

SMEs Small and Medium Enterprises

SNG Subnational Governance Program

SOE State-owned Enterprise

TA Technical Assistance

TEVTA Technical and Vocational Training Authority

TPVA Third-party Verification Agent

TSA Treasury Single Account

UIPT Urban Immoveable Property Tax

Table of Contents

Introduction .................................................................................................................................................. 4

Program Description ..................................................................................................................................... 4

Strategic Relevance ....................................................................................................................................... 6

Technical Soundness ................................................................................................................................... 10

Technical Assistance ................................................................................................................................... 15

Institutional and Implementation Arrangements ....................................................................................... 18

Program Expenditure Framework ............................................................................................................... 18

Assessment of Program Results Framework and M&E Arrangements ...................................................... 22

DLIs and Verification Protocol..................................................................................................................... 24

Disbursement Arrangements ...................................................................................................................... 24

Risks and Mitigation Measures in the Program Action Plan (PAP) ............................................................. 25

Economic Analysis ....................................................................................................................................... 26

Annex i- Anti Corruption Protocol

Annex II – Personal data protection

Annex III – Indicative list of Services to citizens and firms

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Introduction

Punjab is Pakistan’s largest province, accounting for 55 percent of the country’s population and around 60 percent of its economy. It is also one of the two provinces most affected by the COVID-19 pandemic, with government estimates showing that it could stand to lose up to 4 percent of its GDP per month of lockdown. The economic downturn is projected to increase unemployment in Punjab by 5-8 million, pushing many households below the poverty line. Like other provinces, Punjab depends on federal transfers from the divisible pool of revenue for the bulk of its budget resources. In recent years, the province has made efforts to increase its own source revenues (OSR), which come mainly from provincial taxes, to ramp up investment in development priorities. The economic fallout from the pandemic is, however, expected to reduce the province’s OSR, leaving it with fewer resources to finance its emergency response and to sustain the already modest investment in human capital and infrastructure.

The Government of Punjab (GoPb) has made significant progress in public financial management (PFM) reforms. The GoPb intends to deepen these successes through additional investment to address three recurring problems: (a) weak systems for managing fiscal risks, (b) low levels of OSR, and (c) inefficiencies caused by limited use of technology in the delivery of public services.

The government program is anchored on three key strategic documents. These are the Punjab Growth Strategy (PGS), the Public Financial Management Reform Strategy (PFMRS), and the Responsive Investment for Social Protection and Economic Stimulus (RISE) Punjab Strategy. The PGS sets the broader growth framework that directs the rest of the provincial growth agenda, while the other two documents (RISE and PFMRS) provide specific activities to advance the objectives of the PGS. This is also supported by the Punjab Information Technology (IT) Policy.

Program Description

The proposed Program is designed to support the PFMRS of the GoPb. It also supports the PFM and governance pillars of RISE and the IT Policy of the GoPb. The PFMRS is based on the findings of the Punjab Public Expenditure and Financial Accountability (PEFA) assessment of 2019. In addition, the PFMRS also addresses post COVID-19 priorities of the GoPb as reflected in RISE Punjab. These priorities are in response to three main challenges: (a) creating fiscal space by incorporating elements of economy and efficiency in the government expenditure management, (b) uniformly implementing fiscal risk financing across provincial and district governments, and (c) adapting revenue targets in the short to medium term.

The Program supports selected actions of RISE Punjab, the PFMRS, and the Punjab IT Policy. Specifically, the Program will support actions under the PFM and Governance Reform pillars (Pillars D and E, respectively) of RISE Punjab, the relevant pillars of the PFMRS, and Result Area 7 of the Punjab IT Policy. The PFMRS is organized around nine strategic pillars: (a) strengthened revenue mobilization; (b) improved quality of budgeting; (c) budget creditability and fiscal risk mitigation; (d) reformed development budget system; (e) disaster risk financing; (f) improved management of local funds; (g) strengthened legal and regulatory framework; (h) capacity enhancement for PFM; and (i) information and communication technology (ICT) based PFM systems. Pillar D of RISE Punjab prioritizes the PFMRS actions related to fiscal risk management, improving the budget formulation and execution process,

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public investment management (PIM), and the management of the local government (LG) funds. The specific interventions to be supported by the Program for Results (PforR) are shown in Table 1.

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Table 1: The Government Program and the PforR Boundary

Strategic Relevance

There is a compelling need to support Punjab’s PFM and revenue mobilization efforts to achieve efficient and effective use of public resources.1 Punjab, which is Pakistan’s largest province (in population and contribution to national GDP), aims to increase efficiency in its public expenditure, close its large tax gap, and create fiscal space for growth-enhancing expenditures on infrastructure and human capital. The proposed World Bank Program will contribute to the GoPb’s program which is likely to incentivize other provinces to learn from, replicate, and emulate Punjab’s lead in these reforms. The World Bank support to Punjab is based on extensive analytical work. The studies identify key challenges of PFM at both the federal and provincial government levels.2

The recent PEFA assessment of the GoPb identifies some of the most critical areas of reform.3 These include budgeting, revenue and risk management, asset and liability management, and fiscal

1 Punjab’s own strategic documents (for example, the PGS makes a strong case for engagement. 2 Studies include review of the Annual Development Plans (ADPs), PEFA assessment, and various tax studies. 3 World Bank. 2019. Punjab Public Expenditure and Financial Accountability Assessment Report. Draft.

Punjab PFM Reforms Strategy

Other strategies

Reform areas covered under the Program Responsibility

Pillar 1: Strengthened revenue mobilization

(RISE PUNJAB – PILLAR E

(a) Expanding the tax base and filing compliance; (b) Integration of tax databases; (c) Simplifying and automating business processes for tax administration; and (d) modernizing property valuation system (public and private) enhance related tax and non-tax revenues potential.

FD, ETNCD, PRA, BoR

Pillar 2: Improved quality of budgeting

(RISE PUNJAB – PILLAR E

(a) Formulation of a medium-term fiscal framework; (b) regulatory framework to facilitate integrated budgets, linked with procurement plans;(c) citizen-based budgets and citizen friendly execution reports; and (d) monitoring of recurrent and development budget.

FD, P&DB

Pillar 3: Budget Creditability and Fiscal Risk management.

(RISE PUNJAB – PILLAR E

(a) Fiscal risk management, for three major risks faced by the GoPb, including: (i) pension payments; (ii) uncollateralized debt to the scheduled banks as a result of purchase of commodities; and (iii) contingent liabilities, including guarantees from PPP projects and from commercial loans extended to autonomous bodies

FD

Pillar4: Reformed development Budget Systems

(RISE PUNJAB – PILLAR D

(a) Integrated systems established for monitoring of development funds; and (b) e-procurement system implemented

P&DB, PITB, PPRA

Pillar 5: Disaster Risk Financing

(RISE PUNJAB – PILLAR E

Establishment of a disaster mitigation fund and support to disaster risk financing. FD

Pillar 6: Improved Management of funds in Local Governments

(RISE PUNJAB – PILLAR D. Governance)

(a) Legislation to introduce mandate for emergency response in LG (b) improvements in Provincial Finance Commission Award; and (c) establishment of Performance Grants to support LGs

FD

Pillar 7. Regulatory Framework

(RISE PUNJAB – PILLAR D.

(a) PFM Act; (b) update Financial Rules and Treasury Rules; (c) review system of delegation of Financial Powers Rules, 2016; and (d) Budget Manual

FD, P&DB

Pillar 8. Capacity enhancement in PFM

(a) support to PFM capacity building initiatives; (b) capacity enhancements of tax departments.

FD

Pillar 9. ICT based PFM systems.

(RISE PUNJAB – PILLAR D. Governance)

(a) Inter-operable PFM systems; (b) Inter-operable digital service delivery; (c) Integration of provincial tax data bases (and linkages with third party data)

PITB

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oversight. While there are positive outcomes such as controls on the aggregate expenditure outturns, improved public disclosures, and a robust budget classification system, the expenditure projections are still based on uninformed revenue targets which erode the impact of improvements made during the planning stage. Lack of a robust fiscal strategy and fragilities in revenue and risk management, among others, continue to undermine the overall fiscal discipline.4 The World Bank’s review of Punjab’s ADP for FY16–FY18 also highlights several strategic and process-related areas requiring improvement related to public investment, allocation disparities of ADP spending across districts, and the delays experienced in the budgeting process and public procurement.

The GoPb’s PGS clearly highlights the need to expand the province’s resource envelope. The projected average annual increase in OSR is 20 percent. This will enable the GoPb to increase budget allocations to meet its strategic goals of accelerating economic growth (7 percent growth target) and creating employment (target of 6 million new jobs). The PGS aims to strengthen the monitoring of development projects and, as clearly articulated in the Punjab IT Policy, to utilize the ICT to build a more efficient and transparent governance model in Punjab. The GoPb’s IT Policy envisions, among others, the instruction of government-wide, well-coordinated investment planning for IT through five-year IT plans for all departments to achieve the following outcomes: ICT training to all relevant government officials and linking career development to ICT skills; setting up a centralized, secure data center for all GoPb systems and e-service centers across the province to facilitate better access to government information and services; digitizing all aspects of PFM by expanding the use of the Integrated Financial Management Information System (IFMIS) and launching an integrated e-procurement system.

The GoPb intends to address the three binding constraints—fiscal risks, low levels of revenue, and inefficiencies in delivery of public services due to limited use of technology.

• Fiscal risk exposure remains a fundamental PFM challenge in Punjab. This is the result of a large pension spend which currently stands at 12.3 percent of the provincial revenues and is projected to rise to 23 percent of the total provincial revenues by 2060 (using both wage and inflation indexation). There is also considerable uncollateralized debt stock arising from trade in agricultural commodities—worsened by the lack of transparency on the policy, operation, and the actual debt numbers. Finally, the large number of state-owned enterprises (SOEs) and PPP projects, with increased provincial guarantees, and the lack of capacity to assess the impact of these guarantees only heighten Punjab’s fiscal risks. The capacity of the FD and the P&DB to prepare a realistic budget is compromised by the incremental nature of budget formulation, weak budget contestation, separation of recurrent and development budgets, and an inadequate PIM process.

• In addition, the existing fiscal institutions and intergovernmental coordination arrangements have constrained the effective management of the consolidated finances. The development of a coherent MTFF and fiscal risk analysis are hampered by the absence of these functions at both the federal and provincial levels. The result is incremental budgeting, lack of coherence between the objectives of the federal and provincial finance divisions, a buildup of debt, and lax fiscal discipline, as evidenced by the country’s persistently high fiscal deficits (at 6.4 percent of GDP on average in the last decade). These

4 World Bank 2019.

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challenges limit the country’s ability to respond effectively to the COVID-19 crisis and its ability to recover quickly and remain resilient.

• The recent analytical work shows the inadequacy of the province’s revenue performance to finance its expenditure and development needs (Figure 1). After the 18th Constitutional amendment of 2010, the GoPb substantially increased its OSR5 (from a little above PKR 120 billion in FY11 to PKR 273 billion in FY19), where tax revenue contributes about 73 percent of the total OSR (and the remaining comprises nontax revenues).6 Punjab’s OSR accounts for about 18 percent of its total expenditure in FY19, while remaining expenditure is financed through federal transfers and grants. However, overtime federal transfers show sporadic and declining growth. Therefore, to create room for further spending to support Punjab’s development agenda, the province needs to improve its revenue effort. Increased provincial revenue effort will also positively contribute to national revenue collection targets (Figure 1).

Figure 1: Punjab’s Revenue and Expenditure Profile

Source: Punjab civil accounts and annual budget statements.

5 The province’s OSR receipts include taxes and nontaxes. The revenue figures include total urban immoveable property tax (UIPT) collections of the province to get a full picture (that is, without deducting its later transfer to the local government—as reported in provincial budget documents). 6 The province collects taxes from ten key sources, but more than 90 percent of collection is made from five major direct and indirect taxes, including sales tax, stamp duty, land revenue, motor vehicle tax, and UIPT. Nontax revenue accounted for 27 percent of total OSR receipts in FY2018/19.

0

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1200

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1600

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FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 RE

Punjab's general revenue receipts and expenditure, PKR billion

Federal transfers (excl. loan & grants)

Total OSR

Total expenditure

16%14% 13%

25%

3%

16%

8%

-3%

-5%

0%

5%

10%

15%

20%

25%

30%

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 RE

Growth in federal transfers in Punjab (Divisible pool)

Growth, % Linear (Growth, %)

-50%

0%

50%

100%

150%

200%

0

100

200

300

400

FY15 FY16 FY17 FY18 FY19 FY20 RE

Punjab's own-source revenues, PKR billion

Non-tax revenue Tax revenueNTRs growth (%, RHS) Total OSRTax growth (%, RHS)

FY15 FY16 FY17 FY18 FY19 FY20 RE

Total taxes (PKR. Billion) 103 150 161 205 200 191

Services sales tax 41.2% 39.2% 48.3% 51.6% 45.3% 53.3%

Stamp duty 21.1% 18.2% 17.9% 25.2% 29.3% 23.9%

Land revenue 10.6% 8.0% 7.4% 5.9% 7.2% 7.6%

Motor vehicle tax 9.8% 7.9% 8.0% 7.1% 7.5% 5.3%

Property tax 7.8% 5.8% 6.3% 4.9% 5.4% 5.2%

Excise 1.8% 1.8% 1.7% 1.7% 1.8% 1.3%

Agriculture income tax 1.0% 0.9% 0.5% 0.4% 0.8% 1.1%

Professions tax 0.6% 0.4% 0.4% 0.4% 0.4% 0.4%

CVT- immoveable property 5.2% 7.4% 6.5% 0.2% 0.1% 0.1%

CVT- moveable property 0.3% 0.4% 0.3% 0.7% 0.0% 0.0%

Other taxes 0.8% 9.9% 2.6% 2.0% 2.2% 1.9%

% share in total taxes

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Note: CVT = Capital value tax; NTRs = Nontax revenue; OSR = Own-source revenue including tax and nontax; RE = Revised estimates.

According to the World Bank’s estimates, Punjab has potential to increase its tax revenues, without imposing new taxes or raising the rates. Punjab’s tax receipts currently account for only 0.8 percent of the province’s estimated economic output, indicating that the province may be collecting only a quarter of its tax potential. The largest estimated revenue potential is in the services sales tax, UIPT, stamp duty, and CVT.7 In the medium term, the province can capture much of this potential revenue by broadening its tax base through improvements in tax administration and policy—without imposing new taxes or raising rates. These improvements would include broadening of tax bases (surveys and review of exemptions8) and enhancing integration of three tax authorities to facilitate compliance, tackle tax evasion, and reduce the cost of tax collection. Simplification of business processes, increased automation and data integration, and capacity building of the province’s three revenue collection authorities will also contribute to the province’s goal of improving the business environment through taxpayer facilitation measures.9 A comprehensive compliance risk management approach especially includes audit capacity, third-party data, and arrears management, while the IT-based reforms will also enhance business continuity to better cope with current and future challenges.

The revenue potential could be further enhanced through proper management of public assets and elimination of minor taxes. Punjab has a total of 10 tax instruments (excluding other direct and indirect taxes), of which 96 percent is collected through five major taxes: sales tax, stamp duty, motor vehicle tax, property tax, and land revenue. In recent years, the province has streamlined its tax instruments, but there is scope to streamline taxes by eliminating duplication. Real estate (public and private) is another area which has the potential to generate high revenues.10

Finally, technology platforms for service delivery are neither integrated nor interoperable, despite progress in simplification and automation of government procedures. As COVID-19-related social distancing measures impose restrictions on face-to-face service delivery, the GoPb will need to expand its existing citizen feedback model, accelerate the use of technology in procurement, and digitize key services both for citizens and for routine administrative operations of government business. e-Governance can lead to significant efficiency gains.

Managing Disaster Risks and Related Gender Issues

The Program also supports enhanced disaster management at the LG level. The Program will provide women greater opportunities to participate in the planning and execution of disaster response actions due to their increased proximity. This will improve alignment with women’s recovery needs. The Disaster Risk Financing Strategy (DRFS), supported under the Program, makes access to certain financial incentives conditional on whether LGs address gender-specific recovery needs in disaster management and response. To ensure effective targeting of these gender-specific grants/funds, the technical assistance (TA) component will support the rollout of reporting, verification, and

7 World Bank. 2017. Pakistan Development Update – Growth: A Shared Responsibility. http://documents.worldbank.org/curated/en/536431495225444544/pdf/115187-WP-PUBLIC-P161410-77p-Pakistan-Development-Update-Spring-2017.pdf. 8 The PRA has conducted a survey of six districts and included some new services in the tax base during the past few years. 9 These measures include online filing of tax returns, e-invoicing, multiple payment options, risk-based audit, electronic refunds system, and improved appeals system. 10 Through, for example, asset maps (centralized automated and geo-tagged repository) and proper market valuations, the revenue potential from public real estate could be enhanced.

http://documents.worldbank.org/curated/en/536431495225444544/pdf/115187-WP-PUBLIC-P161410-77p-Pakistan-Development-Update-Spring-2017.pdfhttp://documents.worldbank.org/curated/en/536431495225444544/pdf/115187-WP-PUBLIC-P161410-77p-Pakistan-Development-Update-Spring-2017.pdf

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accountability mechanisms at the FD, with technical and operational support from the Gender and Child Cell (GCC) at the Provincial Disaster Management Authority. The intermediate results indicator under disbursement-linked indicator (DLI) 1 (At least 70 percent of districts achieve minimum standards for disaster risk reduction, as specified in DRFS, including guidelines pertaining to at least one of its gender-related themes/areas) has therefore been included to track the implementation of such standards within participating LGs/councils.

Technical Soundness

The proposed Program is based on extensive analytical work and draws heavily on lessons learned from recently completed relevant operation in Punjab. The Program design is informed by revenue potential and tax administration analyses conducted under the Trust Fund for Accelerating Growth and Reforms, the 2019 PEFA assessment report, detailed reviews of Punjab’s ADP over 2016–2019, and other technical assessments. In addition, the Program design benefits from the findings of the Implementation Completion and Results Report of the recently completed Punjab Public Management Reform Project, which supported several successful initiatives digitizing and improving service delivery. The Program implementation benefited from the presence of a strong World Bank team in the field, active coordination, and strong implementation capacity among the key implementing entities, which included the P&DB, ETNCD, PPRA, and PITB. Despite the change of government during the last year of Program implementation, the GoPb has sustained the reforms, and key ICT-based interventions have been internalized through the support of the PITB. Building on these initiatives, the GoPb (together with Government of Sindh) was able to introduce other GovTech innovations that contributed to improvement in Pakistan’s ranking on Ease of Doing Business by 28 points. Learning from these experiences and to leverage islands of excellence, the GoPb has requested the World Bank’s financial and technical support for customized, government-wide reforms, with a strong focus on results.

The proposed Program is an integral part of the World Bank’s whole-of-country approach to strengthen PFM systems and revenue mobilization at the federal and provincial levels to promote coherent national systems (Figure 2). This approach is anchored in the federal development policy operation, Resilient Institutions for Sustainable Economy (RISE DPF), which supports high-level policy reforms to improve federal-provincial coordination in the management of fiscal risks and federal-provincial harmonization of tax laws to unify the country’s tax space and improve the business environment. The approach is also based on two ongoing federal results-based operations, the Public Financial Management for Accountability and Service Delivery Program (PFMASD) and Pakistan Raises Revenue (PRR), which support improvements in the federal PFM and tax administration systems, respectively, and are complemented by provincial operations in these areas.11 The proposed Program is critical for the country, because it will support the government of the largest province to align its PFM and tax systems with the federal frameworks and augment the impact of new PFM and tax administration practices.

11 For example, the ongoing ‘KP Revenue Mobilization and Public Resource Management Program’ supports Khyber-Pakhtunkhwa Province’s efforts to strengthen its cash management, treasury single account (TSA) extension to LGs, PIM, and pension fund management. It also supports revenue mobilization by broadening the tax base and integrating data and processes among the province’s three tax authorities.

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Figure 2: World Bank-financed Operations under Whole-of-Country Support to PFM and Revenue Mobilization

Note: DPF = Development policy Financing; PRIDE = Punjab Resource Improvement and Digital Effectiveness Program.

The Program also benefits from the PFM activities supported by the Subnational Governance Program (SNG) funded by the U.K. Foreign, Commonwealth and Development Office (FCDO). The SNG was implemented by the FD and helped introduce innovations such as the citizen budget. The proposed interventions will help Punjab expand its fiscal envelope by capturing more of its untapped revenue potential and obtain efficiency gains and better results from its expenditure through proper budget allocation and effective utilization.

The proposed Program supports reform measures which address critical binding constraints to the GoPb’s PFM reforms. They include the efficient allocation of public resources through budget reforms and management of fiscal risks, effective delivery of public services, and improvements of OSR to create more fiscal space.

The Program’s first result area focuses on strengthening the budget formulation and fiscal risk management. This is one of the main reforms identified in the GoPb’s PFM Strategy. Better allocation of resources requires a strategic budgeting process which integrates expenditures and planning over a medium-term horizon while also incorporating elements to better monitor and manage fiscal risks. Thus, the Program will support the development of a fiscal management function in the FD to promote evidence-based budgeting. In addition, the Program supports several related areas that are essential for strengthening resource and fiscal risk management. They include, among others, the improvements in the legal framework for implementing the provincial Fiscal Responsibility and Debt Limitation Act for the province to better trailer and contextualize the federal government’s Public Financial Management Act and the Policy on TSA for the GoPb; functional reviews of the FD and P&DB; revision of budget manuals and guidelines aimed at integrating recurrent and development budget; the preparation of a credible MTFF aligning it with the national MTFF prepared at the federal

PRR supports harmonization of sales tax administration and sharing of taxpayer information among the country’s federal and provincial authorities to expand the tax base and compliance.

Federal Government

Punjab

Policy

Implementation: provincial level

RISE DPF supports management of fiscal risks and harmonization of federal and provincial sales tax laws to unify country’s sales tax and improve the business environment.

PFMASD (or Federal PFM program) operation supports federal PFM reforms, some of which will also be replicated at the provincial level, including in Punjab, with technical and financial support under the proposed PforR.

PRIDE will support Punjab in implementing PFM reforms in budget formulation aligned with the principles and practices of the federal PFM. The e-procurement strategy adopted by the Federal Government shall also be implemented in the province of Punjab. Unification of country sales tax laws and reforms will be strengthened through cascading similar reforms to enhance provincial OSR.

Implementation: federal level

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government level. Furthermore, the Program will support areas of fiscal federalism, especially the implementation of the updated PFC award to ensure equitable distribution of resources to LGs.

Currently, there are significant fiscal risks to the GoPb. These include (a) large costs associated with payroll and pension payments; (b) building of considerable uncollateralized debt to the scheduled banks as a result of the operations of the GoPb in purchase and sale of wheat and other agricultural commodities; and (c) contingent liabilities, including guarantees from PPP projects and commercial loans extended to autonomous bodies. These fiscal risks, if not addressed urgently, have the potential to severely affect the capacity of the GoPb to provide basic services to its population in the future. The Program focuses on building mechanisms, tools, reporting systems, and institutions to mitigate and reduce the fiscal risks. This will include updating the budget manuals to make mandatory reporting on fiscal risks (contingent liabilities, commodity financing, and pension liabilities); actuarial studies on pension liabilities and analytical reports on commodity financing; payroll and pension payment audits; and adoption of TSA. Transparency on fiscal risk reporting will also be supported, especially quantification of liabilities (including contingent liabilities) from loans and guarantees extended to SOEs and autonomous bodies, stock of commodity debt, and pension and provident fund explicitly published in both the Debt Bulletin (biannually) and Annual Budget Statement of the GoPb.

The Program’s second result area focuses on increased use of digital technology for delivery of selected public services. This result area will address the following main issues: (a) ensuring business continuity which requires that the government function must continue without disruption by adopting innovative ways of operation, (b) replacing the manual system through the implementation of a comprehensive framework of interoperability, and (c) enhancing access of digital services to the citizens of Punjab. These proposed changes will lead to the following innovative outcomes:

• Transition from a paper-based filing system to an e-office system. The PITB has developed the e-filing and office automation system to enable timely and effective management of official daily tasks and proceed toward a paperless office environment in the public sector. The main objective of this management software is to ensure that every correspondence is digitally accessible round-the-clock. The digital record is stored on a cloud server and archived for future use and reference.

• e-Office. It also schedules meetings more efficiently with the help of a scheduler which is backed up by an iOS/Android mobile application. The application sends a short message service (SMS) to all intended participants and notifies them about meeting timings and location. The system has minimized the turnaround time for approval of notes, documents, office orders, and notifications, resulting in increased efficiency.

• Videoconferencing. The PITB has developed an advanced videoconferencing solution with secure channel connectivity between offices and districts. The system can hold one-on-one, one-to-many, and many-to-many conferences and host multiple conferences at the same time without compromising on quality. These services will be extended to all the departments.

Under the Program, the whole procurement process will be automated for efficient expenditure management. The e-procurement system and simplified and automated payment process (particularly reducing redundancies and multiple steps in payment authorization) shall be developed

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and piloted in a few sectors/departments, before rolling out to other departments. e-Procurement has helped many countries achieve time and cost savings, as well as strengthen integrity and adherence to public procurement rules through automated controls, standardized processes and templates (for example, bidding documents, evaluation documents, contracts), and avoidance of direct contact between bidders and government staff. e-Procurement makes it easier for bidders to obtain information and submit bids and therefore tends to increase bidder participation in public tenders and competition for government contracts, which over time results in better quality and lower prices. The e-procurement system will be linked to the National Financial Management Information System and enable electronic submission and payment of invoices. Further, the system will link budgets and procurement plans, provide audit trails, and generate statistics to monitor the performance of contracting authorities and the overall system with reference to multiple indicators such as use of competitive methods, time frames for completion of procurement processes, and prices paid. The TA component of the Program will support continuous capacity building of PPRA staff and system users.

The Program will support the development of additional e-government capacity to integrate the GoPb’s several existing management information systems. The IFMIS exists at all three levels of government (federal, provincial, and district) which operates at central entities such as the Office of the Accountant General, District Accounts Offices, FD, and District Finance Offices. Departments continue to conduct most of the financial management processes manually such as approvals, sanctions, procurements, budget preparation, and asset recording, among others. The P&DB has digitized the process of ADP preparation and monitoring. To streamline business-to-government (B2G) and citizen-to-government (C2G) payments, Punjab has already launched the first-ever government payment gateway for citizen facilitation and ease of business through a collaborative endeavor between the PITB and the FD of Punjab. The solution is an integrated and centralized system, powered by the GoPb’s web and mobile application which includes all the scheduled banks, State Bank of Pakistan, and 1-link for interconnectivity. Catering to all kinds of B2G and C2G payments, ePay Punjab offers citizens the option to pay taxes through three different channels. Still, there is a need to extend the scope of this platform to enable a mechanism for the disbursement of government-to-business and government-to-citizen payments, which will complete the transition to a fully functioning and a comprehensive e-payment regime in the province.

These newly established local governments require support to establish comprehensive and transparent budgeting and financial reporting mechanism as required under Punjab Local Government Act 2019. The Punjab Local Government Act (PLGA) 2019 has abolished the district governments formed under Punjab Local Government Act 2013. Under the revised Act, 455 local governments are formed as Metropolitan and Municpal corporations, Municipal Committees, and Tehsil and Town Committees. The urban local governments are 319 in number and includes Metropolitan and Municipal corporations and Municipal Committees. The Bank funded urban sector, Punjab Cities Program (P156972), has introduced performance based grants (PBG) for local governments and inititated the PFM reform to strengthen financial management capacity in 16 urban local government. The PRIDE will build on the exisiting program - a) institutionalize PBGs in the provincial finance commission (PFC) awards for local governments and b) bring the PFM reform forward to all the urban local government by enhancing transparency in local government revenue and expenditure, especially, related to disaster risk management and core public services. The program will also establish compatability of the local government financial management system with

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the national IFMIS. The TA component will support the capacity building of the relevant local government staff for transparent financial management system.

The Government plans to expand existing IFMIS capacity for one-line bill submission. The process will significantly improve the efficiency by eliminating redundant processes and will enhance transparency and accountability by eliminating manual interaction and reducing rent-seeking opportunities. To enable this process, each Drawing and Disbursement Officer (DDO) would need to utilize smartphones or other connected devices (for example, tablet and desktop) to enter bills into the online system. Furthermore, additional softwares and licenses will be needed to include interactive forms, enterprise portal, enterprise content management, risk and compliance management, and bank communication management.

While the GoPb has already digitized several services, there is a need to integrate these services on a single platform to allow for more interoperability. The GoPb is currently offering 10 services online. Plans are in place to further enhance the online services from 10 to 100 (and more). All district-level services will also be integrated and available online with the e-District platform. The PITB has been involved in modernizing the IT-based systems for public sector departments/services, which are being used widely by different users including, but not limited to, general public, officers/officials of public service departments, law enforcement agencies, and courts, among others. The systems or applications in use are not advanced enough to uniquely identify the individual or an internet user. The PITB has prioritized 50 services to be completed in the first phase. There must be a generally acceptable (legally and technically), compatible, and secure way to identify individuals on the internet. A Digital Identity Management (DIM) system, which associates individuals with their respective online identities, will consist of issuing and maintaining tokens and certificates. The PITB proposes to implement a DIM system in collaboration with all relevant national and provincial stakeholders through which all government and majority of the private sector services will be offered remotely by using electronic and/or mobile mediums. Under the proposed system, a digital identity will be generated for every individual. Similarly, cloud-based digital lockers will be introduced. The latter will contain all documents of an individual under the ‘once only’ principal, and digital signatures will be generated and linked with the respective digital identities.

The Program’s third result area is to improve collection of OSR. This result area will support selected number of results both under the province’s PFM and COVID-19 response strategies. Envisaged areas of engagement under the Program (both the PforR and its Investment Project Financing [IPF] component) include (a) improving coordination of revenue policy and implementation measures; (b) expanding the tax base and filing compliance; (c) enhancing efficiency of revenue administration through the integration of taxpayers data, business intelligence, risk-based audit, simplification of tax administration processes, and the adoption of a performance framework; (d) encouraging taxpayers’ voluntary compliance through online and mobile functionalities (e-filing, e-payments, and e-refunds); and (e) improving the revenue potential from real estate (public and private) by modernizing valuation system. The results/annual targets related to these areas are sequenced and aligned with COVID-19

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containment and recovery stages, with a greater focus on building systems and institutions during the initial period of the Program. Some of the key interventions are the following:

• Supporting the GoPb in designing the revenue mobilization strategy and its implementation plan. This is based on revenue analyses (including assessment of impact of COVID-19 and recurrent climate events12 on revenue, to inform the design of related revenue policies and Punjab’s revenue mobilization strategy and plan); tax expenditure analysis; harmonization of General Sales Tax on Services (GSTS) with the Federal Government and other provinces; and improvement in coordination with the Fiscal Coordination Committee at the federal level.

• Expanding tax base through surveys and policies to encourage registration (for example, linking COVID-19-related government spending support to tax registration) and maintenance of existing registration during the COVID-19 response stage.

• Increasing the efficiency of revenue administration by simplifying and automating business processes by digitizing tax records; integrating databases among the province’s tax authorities and creating links with third-party data (for example, utilities, banks, telecoms, and retailers); implementing a risk-based audit framework; and adopting a performance framework.

• Encouraging voluntary compliance by expanding and improving taxpayer services to reduce the cost of compliance. Improved services would include multiple payment options; online and mobile services (for example, e-invoicing, e-filing, and online claims of refunds); improved refunds system (particularly to support small and medium enterprises [SMEs] and other businesses severely affected by economic downturn under COVID-19); and regular quality monitoring of taxpayer services with reference to service standards and taxpayer satisfaction surveys.

• Enhancing potential for revenue generation from public and private real estate . This will be achieved by building capacity to modernize the valuation system of public and private real estate using the rental and capital valuation methodology. For this, international good practices will be used to inform improvements in valuation methodology. This will complement another World Bank project supporting the Government’s asset maps

compilation in Punjab (Punjab Urban Land System Enhancement Project).

Technical Assistance

(a) An IPF component worth US$29.24 million will support the PforR. The IPF will finance ICT investments and TA to support the achievement and sustainability of Program results. The TA will support implementing entities to develop their capacity. The TA component comprises the following componentBusiness Process Re-engineering

12 It may be regularly monitored, for example, ‘percent of revenue at risk from X climate event or by vulnerable industry/population’.

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Provision of technical assistance to support, among others: (i) functional reviews of the Finance Department, P&DB, and the three (3) tax authorities; (ii) mapping, redesign and automation of business processes in three (3) tax authorities; (iii) assessment of database location and source to inform climate-based procurement decisions under Part 1(c)(iv) above, related to energy efficiency and capacity to avoid climate and geological impacts; (iv) development of e-service capabilities such as e-procurement and e-payments to vendors, e-filing and e-payment of taxes and e-submission of taxpayer appeals; (v) development of Provincial Government’s public financial management regulatory framework and guidelines for their implementation; (vi) designing framework for property valuation system based on international practice; (vii) strengthening of the tax policy function within the PFMU, including building capacity within FD to develop contingency budgets to safeguard finances in case of potential climate-related incidents; (viii) establishment of research and intelligence units in the tax authorities; (ix) design of performance framework, and implementation of improved tax audit techniques by the PRA; (x) development of monitoring and accountability framework for LG gender-specific disaster preparedness and response; (xi) revision of the rules and regulations as well as the revisions in the Provincial Finance Commission Award and (xii) establishment of a digital reforms implementation unit within PITB.

(b) Business Continuity, Monitoring and Safeguards

Provision of technical assistance to support, among others: (i) development of standard operating procedures on e-waste management; (ii) development of a comprehensive inter-operability framework and associated rules and regulations to enable integration of databases; (iii) strengthening of monitoring and evaluation systems in P&DB; (iv) development of rules and regulations to facilitate e-government; (v) development of sector masterplans, linked with overall provincial growth strategy; (vi) revision of annual development plan guidelines and rules (vii) conducting business process review for the preparation, monitoring and evaluation of public investment projects; (viii) training and capacity building for public investment management; (ix) development of legal framework for digital identity management (including adequate online privacy and safety protections for end-users); and (x) Program impact assessment.

Gender Issues Addressed by the Program

Despite marked long-term growth in pro-poor allocations, the pattern of budget execution in Punjab often disadvantages women.13 Between 2004/05 and 2011/12, growth in pro-women expenditures was around 20 percent lower than the increase in overall pro-poor public spending. During the same period, pro-women allocations, such as in female education and population welfare, were also more frequently cut as a result of midyear budgetary reallocations. By supporting the publication of citizen budgets and budget execution reports, which will contain gender-disaggregated information (that is, data on pro-women allocations and spending), the Program will support enhanced parliamentary oversight and civil society advocacy for gender-inclusive budget formulation and execution. In addition, forums for budget consultations and monitoring of development budget will include both men and women and other vulnerable groups, thereby creating a check against budget execution practices that disadvantage women. DLI 5 has been included in the Results

13 Ayesha Ghaus-Pasha. n.d. Process Oriented Poverty Focused Gender Based Analysis of Punjab Budget 2009-10. Lahore: Government of the Punjab. http://www.undp.org/content/dam/pakistan/docs/WomenEmpowerment/UNDP-PK-POVERTY-WOMEN-Gender%20Based%20Analysis%20Punjab%20Budget%2009-10.pdf.

http://www.undp.org/content/dam/pakistan/docs/WomenEmpowerment/UNDP-PK-POVERTY-WOMEN-Gender%20Based%20Analysis%20Punjab%20Budget%2009-10.pdfhttp://www.undp.org/content/dam/pakistan/docs/WomenEmpowerment/UNDP-PK-POVERTY-WOMEN-Gender%20Based%20Analysis%20Punjab%20Budget%2009-10.pdf

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Framework to track the publication of accurate, up-to-date, gender-disaggregated data on budgetary allocations and public spending on vulnerable populations, including women and girls.

Despite the potential it holds for women, digitization of services can further the digital ‘gender divide’ in the absence of measures that encourage women’s uptake and utilization of ICT. The Program, under Result Area 2, will promote the targeting of women to access digitized government services and facilitate their entry and continued participation in the economy, particularly in the context of disasters/emergencies when financial pressures and mobility constraints on women typically intensify. This will be achieved by prioritizing digitization of the following: (a) social protection and economic support services under the Punjab Social Protection Authority and the World Bank-funded Land Revenue Management Information System; (b) enterprise support services, such as those under the World Bank-funded Business Enterprise Support in Transition package, as well as business registration and licensing services under municipal corporations, particularly in sectors where women are concentrated, such as beauty/self-care, confectionary, apparel and handicrafts, home tuitions, jewelry design, and small-scale manufacturing; (c) gender-based violence support services housed in the Social Welfare Department (police reporting, crisis counseling, legal aid and emergency shelter/protection); and (d) skills development programs run by TEVTA and employment support services for women under the Women Development Department, such as skills development, day care fund, and working hostels for women.

The Program’s digitization drive for women will also be aligned with the Gender Management Information System managed by Punjab Commission on the Status of Women. While digitization of these services is expected to improve economic participation and accessibility of services for those women who are already digitally active, there is a need for accompanying measures that encourage uptake and utilization of newly digitized services by women who are digitally inactive or first-time users of public services/digital platforms. s. PDO 2, which measures the number of citizens accessing online government services, of which 20 percent are expected to be women, has been included to track progress on overcoming certain barriers to women’s uptake and utilization of services being digitized under the Program.

Women and girls are disproportionately affected by natural disasters and public health emergencies, primarily because their needs are poorly reflected in disaster management planning and execution processes.14 In the aftermath of such events, women and girls may experience higher mortality rates and more adverse health/socioeconomic outcomes than their male counterparts. In addition, they may also experience greater exposure to sexual and gender-based violence; debilitating loss of livelihoods and income generation opportunities; and limited mobility, leading to reduced access to services and emergency assistance in post-disaster contexts. By supporting enhanced disaster management at the LG-level, the Program will provide women greater opportunities to participate in the planning and execution of disaster response actions due to their increased proximity, leading to better alignment with their specific recovery needs. Concerns of women and girls will also be embedded into the Program’s DRFS, which makes access to certain funds/financial incentives conditional on whether LGs address gender-specific risks/recovery needs in disaster management and response. To ensure effective targeting of these gender-specific grants/funds, the TA component will support the rollout of reporting, verification, and accountability mechanisms at the FD, with technical and operational support from the GCC at the Provincial Disaster Management Authority. The

14 OECD (Organisation for Economic Co-operation and Development). 2018. Bridging the Digital Gender Divide: Include, Upskill, Innovate. OECD: Paris. http://www.oecd.org/internet/bridging-the-digital-gender-divide.pdf.

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intermediate results indicator under DLI 1 (At least 70 percent of districts achieve minimum standards for disaster risk reduction, as specified in DRFS, including guidelines pertaining to at least one of its gender-related themes/areas) has therefore been included to track the implementation of such standards within participating LGs/councils.

Institutional and Implementation Arrangements

The Program will use the existing country systems to ensure that responsibility for achieving Program targets is within the mandate of the assigned implementing agencies. A Steering Committee will be formed which will be chaired by the Minister of Finance (MoF) who also chairs the PFM Reform Working Group. This working group includes key implementing agencies of this Program (Figure 3). There shall be a PSU based in the P&DB and a PFM Unit (PFMU) in the FD. The PSU will support the day-to-day Program management functions in line with World Bank rules on financial management, procurement, and contract management and environment and social standards. The PFMU will coordinate activities with all implementing agencies of the Program and will provide technical and capacity-building support to the implementing entities. In this regard, the TA component will be used to support the implementing entities with interventions that require specialized expertise. Besides the FD and P&DB, the following entities will be engaged in the Program implementation: PITB, PPRA, PRA, ETNCD, and BoR.

Figure 3: Implementation Arrangements

Program Expenditure Framework

The GoPb Program. The total program expenditures are estimated to be US$524 million out of which the World Bank’s IDA would finance US$274 million (Table 2). The Program will be implemented over five years. Table 3 provides a breakdown of the PRIDE expenditures by budget classification and economic budget codes. The PforR is within the scope of the government program and is aligned with the GoPb’s overall strategic vision and response to the COVID-19 pandemic.

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Table 2: PRIDE Financing

Source Amount (US$, million) % of Total

Counterpart Funding 250 48

Borrower 250 48

IBRD 274 52

IBRD Credit 274 52

Total 524 100

Table 3: Expenditure Framework Analysis (PKR, millions)

Nature of expense Econ

omic

Code

Budget

for next

5 years

% Budge

ted

Cost.

Un-

budge

ted

Cost

Program Years

2020-21 2021-22 2022-23 2023-24 2024-25

Recurrent Budget Employee related

expenses (pay and

allowances)

A01 18,968 22 18,968

3,107 3,418 3,759 4,135 4,549

Operating expenses A03 8,867 10 3,867 5,000 1,633 1,697 1,766 1,843 1,927

Physical assets A09 9,179 11 43 9,136 1,120 1,525 1,617 2,160 2,759

Grant, subsidies,

transfers**(LQ4784

)

A05 12,907 15 12,907

2,114 2,326 2,558 2,814 3,095

Performance Based

Grants through PFC

Awards to LGs

A05 15,737 18 - 15,737 3,477 3,477 3,477 2,653 2,653

Development

Budget (Existing

Schemes with

enhanced scope)

vario

us

20,845 24 10,845 10,000 3,595 3,855 4,140 4,454 4,800

Program EF in PKR 86,503 46,630 39,873 15,046 16,298 17,317 18,059 19,783

In USD Million 524 10

0

283 241

54% 46%

The expenditure framework analysis shows (Table 3) the following expenditure categories and the allocations. About 11 percent of the expenditure framework cost relates to physical assets planned to be acquired, that is, hardware including laptops, scanners, document capture tools and its link with FABS and so on, and 10 percent of operating cost includes additional licenses for the online bill submission module for each of the 28,000 spending drawing and disbursing officers in the provincial and district government (for selected 13,604 Drawing and Disbursing Officers (DDOs) in the provincial government and 14,223 DDOs for districts). This cost is directly attributable toward DLI 3 and DLI 5. About 15 percent of the expenditure framework includes one-line transfers to the PRA providing budgetary support for its operational activities. The PRA is the main revenue collection agency which will improve collection of general sales tax (GST) and facilitate SMEs and women enterprises in digitization of receipts and its collection (DLI 6 and DLI 7). About 18 percent of the expenditure framework includes performance grants to the LG budgeted in the FD and will be transferred to the

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LG for preparedness of emergency response and improving service delivery and accountability at the grass roots level (DLI 5).

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Table 44: Detailed Development Schemes

Key Program Activities Initiated in the ADP

Implementing Agencies

Associated Cost Approximately Amount (US$)

Related DLI/Results Indicators

GIS-integrated computerization of UIPT in 36 districts of Punjab 

Excise and Taxation Department 

Scanning of records, data entry, data verification and updating of receipts/arrears, digitization, Android field-based surveys for picture mapping, software development and deployment 

20,000,000 DLI 7 

Automation of Stamp Paper (e-Stamping) 

PITB  System development, server cost  5,000,000 DLI 7 

Online payment of government receipt; IT-based revenue case management and monitoring 

BoR/PITB  System development  7,000,000 DLI 6 and DLI 7

Smart monitoring of development projects in Punjab 

PITB  GIS, system development  5,000,000 DLI 4

Establishment of Citizen Facilitation and Service Center

PITB  System development and integration of various services, hardware, portal cost, and development of mobile apps 

30,000,000 DLI 4

e-Filing and office automation in 10 departments 

PITB  Network node, printers, UPS, scanners, scanning of records, data entry, archiving, data verification, and so on 

10,000,000 DLIs 3 and 4 

Setting up of Wi-Fi hot spots  PITB  Service-level agreement, routers, networking cost 

3,000,000 DLIs 3 and 4 

IT-based profiling of government employees 

PITB  Data collection, digital signatures, data bases and security protocols, networking, bandwidth, cloud devices, hosting and integration with FABS, e-notification, police, and anti-corruption case management

5,000,000 DLIs 3, 4, and 5 

Establishment of data centers for the PRA and development of invoice monitoring system for GST for 200 services and integration of databases of three revenue agencies 

PRA   Hardware cost, software development cost, and cost of colocation services 

13,000,000   DLI 7 

e-Procurement across Punjab  PITB  Hosting charges, software development, and rollout 

5,000,000 DLI 3

Note: GIS = Geographic information system.

The expenditure framework is adequately structured to achieve the Program’s objective and includes recurrent expenditure and development schemes (Table 4). The GoPb has a constrained macro-fiscal position with overall budget deficit of PKR 2.37 billion in FY2017/18 and PKR 25.1 billion in FY2018/19.15 The budget deficit is expected to increase due to economic downturn caused by COVID-19. The Program expenditure will directly improve the fiscal outlook of the province by bringing transparency through the MTFF and supporting government agencies for bringing efficiency in the system while simultaneously tapping the avenues for increase in OSR. The GoPb has already spearheaded many PFM reform activities supported by the Program, as outlined in Table 4. There is a

15 Finance Department White Paper, Government of Punjab, 2018/19 and 2019/20.

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risk that limited fiscal resource may hamper the availability of resources for the Program activities including the related development schemes/projects. The fiduciary systems assessment includes various mitigating measures which will ensure the adequacy and predictability of the budget. These include the preparation of the annual work plan supported by the annual procurement plan and a legal covenant to ensure that development schemes associated with the Program are tagged as priority schemes and the FD will ensure adequate funding for the Program.

Table 55: Expenditure Framework - Functional and Economic Classification

Implementing Agencies Cost Centers Economic Classification

FD including the Inspectorate of treasuries and accounts, DAOs, Local Fund Audit, and PFC

LQ4066, LQ4100, LQ4101, LQ4102, LQ5293

Employee-related expense (except for LQ4066), physical assets, operating expenses

P&DB LQ4068 Employee-related expense, physical assets, operating expenses

Excise and Taxation Department LQ4005, LQ4007, LQ4008 Employee-related expense, physical assets, operating expenses

BoR LQ4099 Employee-related expense, physical assets, operating expenses

PRA LQ4784 Grants, subsidies, and others

PITB LQ4429 Employee-related expense, physical assets, operating expenses

Performance grants to LGs as part of the PFC Awards Transfers

Development schemes (PITB, BoR, and Excise and Taxation Department)

LE4337, LE4295, LE4316 Operating expenses including consultancies, physical assets

Assessment of Program Results Framework and M&E Arrangements

The Program’s theory of change (Figure 4) indicates the activities identified for achieving critical Program outputs and outcomes. The activities which are related to respective result areas will lead to specific outputs which in turn are expected to bring about the expected outcomes. For instance, the first two sets of outputs will result in improved budget formulation and fiscal risk management both of which are essential for achieving fiscal sustainability. Similarly, the third set of outputs will lead to improved budget execution (due in part to the IFMIS) and service delivery through the utilization of technology. The expected outcome of these outputs is a significant improvement of both allocative efficiency (different sets of inputs are combined to achieve expected output) and technical efficiency (maximum output with potentially least costs). Finally, an increased OSR enhances the fiscal space to enable the GoPb to carry out a range of important reforms, identified in the revenue mobilization and other strategies with medium-term time horizons. Three important assumptions (A1, A2, and A3 in Figure 4) are made to establish a link between proposed outputs and outcomes.

Results Monitoring and Evaluation

The Results Framework defines the indicators and the institutional arrangements for data collection. The M&E arrangements are designed to reflect the shared responsibility for implementation of the two strategies that support this Program. The P&DB is responsible for monitoring the implementation of RISE Punjab, while the FD is responsible for monitoring the implementation of Punjab’s PFMRS. The P&DB has experience in carrying out monitoring of similar programs and adequate capacity to monitor Program performance. Whenever necessary, the PFMU will augment its capacity for M&E with additional staff. In addition, the M&E plan details the specific responsibility for data collection for each indicator.

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The Results Framework has been agreed between the GoPb and the World Bank which defines the indicators and the institutional arrangements for data collection. The FD will oversee overall Program implementation and will coordinate the reporting of results during Program implementation. The consolidated progress reports will rely on evidence-based information provided in monthly meetings of the PFMR working group members who are designated Program focal persons in each department. Given the experience of the P&DB in conducting M&E of several PforRs and the important role of the FD in PFM reforms, it is important that both departments will work together during the Program implementation.

The M&E mechanism will include third-party verification of the results achieved and the World Bank’s implementation support missions. The third-party verification agent (TPVA) will validate the achievement of disbursement-linked results (DLRs) semiannually, as per the verification protocols defined in the Program Document. It will submit the verification reports to the PSU in the P&DB for onward submission to the World Bank. The World Bank task team will hold Quarterly Program Monitoring meetings and, at least twice a year, will carry out implementation support missions to take stock of progress, review M&E arrangements and related reporting, and help resolve any implementation bottlenecks.

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Figure 4. Theory of Change

DLIs and Verification Protocol

The GoPb will engage a TPVA. The TPVA will conduct semiannual verification of the results reported by the implementing entities. The TPVA will rely on a desk review of the documentation provided by the responsible institutions and will conduct independent review.

The PFMRS provides an operational framework to advance key PFM reform priorities. The road map has a strong political ownership, as the reform working group is being led by the MoF of the GoPb, who monitors the progress of reforms monthly. Currently, the PFM Reform Strategy is being updated based on the finding of the most recent PEFA (2019).

Disbursement Arrangements

Funds from the PforR component will be disbursed upon verification of achievement of DLRs and approval from the World Bank. If targets are reached before deadlines, disbursement may be made

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after clearance from the Association. Achievement of DLIs will be verified by the TPVA according to the agreed verification protocol. The FD will then communicate the achievement of the DLIs to the World Bank and, based on the World Bank’s approval letter, disbursement requests will be processed using the World Bank’s e-Business platform. Withdrawals on account of advance payment up to an aggregate amount of US$30 million can be made against agreed DLRs that represent key milestones toward achieving the DLIs. If the DLRs are not achieved by the end of the Program implementation, advanced funds will be reimbursed to the Association.

The Program is designed to sustainably develop institutional capacity to mobilize and manage public resources in line with modern best practices. These practices will be anchored in improved regulations, business processes, and ICT systems. The Program’s DLRs provide a framework of well-sequenced milestones with incentives for implementing entities to progressively develop their capacities by introducing better practices and effecting behavioral change to consolidate the new practices to achieve and sustain the Program’s objectives. As mentioned earlier, the Program includes a TA component to support the implementing entities with challenging interventions that require specialized technical expertise. The TA resources will also finance the necessary ICT investments to embed the new business processes and specialized technical support to implement capacity-enhancing innovations, including fiscal planning, monitoring and management of fiscal risks, business process improvement, advanced revenue forecasting and tax audit techniques, modernizing property valuation methodology, and database integration change management.

Risks and Mitigation Measures in the Program Action Plan (PAP)

The fiscal risks remain substantial due to COVID-19 challenges. Federal macro-fiscal policies have a direct impact on provincial finances. The macro-fiscal risk impact is most profound for Punjab, which makes up 55 percent of the total population of Pakistan. The project specifically addresses the fiscal risks of the GoPb through improved budgeting, medium-term fiscal/revenue forecasting, and better fiscal management. These measures could improve macro-fiscal position during the Program period.

Stakeholder risk is moderate. The Program builds on the government’s own strategy and priorities, which were defined as a result of a wide consultative process, and reflects consensus among the stakeholders. However, due to the transformational nature of Program activities, there is a risk of vested interests creating bottlenecks to the Program success. Considering the benefits to common citizens that the Program activities would accrue (for example, in the shape of increased fiscal space to allocate more resources to human development, improved services to citizens, and reduction in rent-seeking opportunities), the risks shall be mitigated through proactive stakeholder coordination, communication, and behavioral change measures. The Program Steering Committee, chaired by the MoF, will be required to meet at least once in a quarter to review progress and address any related concerns (PAP 5). In addition, the PSU established in the P&DB and the PFMU in the FD (PAP 1 and PAP 8) will provide necessary support for Program management, coordination, and capacity building.

There is a risk that the Government may be constrained as a result of Post COVID-19 challenges to allocate appropriate resources to Program activities and expenditure framework. All the implementing agencies in the Program will prepare work plans for Program activities based on yearly results indicators and will submit them to the PFMU no later than March 31 each year. The FD will ensure that appropriate budget as per each work plan is allocated and released on time to the implementing agencies (Legal Covenant). The P&DB will prioritize ADP schemes which are supporting

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Program result areas and will ensure continuous and predictable release of funds for Program activities (Legal Covenant).

There is a risk that reforms may not trickle down to LGs due to uncertainty regarding devolution of functions and resources to the LGs. A revised LG has been approved by the Provincial Assembly, but it has not been implemented yet. The existing LGs are under suspension and no date has been set for a new LG election. Currently, the Government has nominated administrators to take care of the LG functions. To mitigate this risk, one of the DLIs includes incentives to the LGs by introducing a performance grants system, which will be neutral to the type of LG system.

The Program lacks a unified independent anti-corruption platform to ensure compliance with the World Bank’s Anti-Corruption Guidelines (ACG). The PFMU will be responsible for reporting on the compliance with the World Bank’s ACG (PAP 4). Each implementing entity will report the compliance to the PFMU, which in turn will share it with the World Bank annually in a format mutually agreed with the World Bank.

Economic Analysis

The cost of implementing the Program is US$274 million. The expected net economic impact of the Program is US1.5 billion over the five-year implementation period. The projected net benefits from improvements in Punjab pension fund management; adoption of e-procurement and digitization of local service delivery; and increase in own source collection is valued at US$1.26 billion This represents the sum of estimated net benefits arising from Program implementation (Table ). The cost-benefit analysis assumes a discount rate of 7.0 percent during 2021-2025.

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Table 66: Summary Economic Analysis (in US$ million)

Fiscal Year 2021 2022 2023 2024 2025 Total

Result area 1: Strengthened budget formulation and fiscal risk management

costs 15 15 20 20 10 80

benefits 116 113 149 146 72 597

Result area 2: Increased use of digital technology for delivery of selected public services

costs 30 25 27 20 15 117

benefits 71 58 62 45 78 314

Result area 3: Improved collection of OSR

costs 10 15 20 17 15 77

benefits 85 124 163 136 119 626

Total Costs 55 55 67 57 40 274

Total Benefits 272 296 373 327 269 1,537

NET BENEFITS 217 241 306 270 229 1,263

Net Present Value (NPV) at 7% 637

Improvement in own source revenue collection (OSR) are expected to add PKR109 billion over the baseline by FY2025, after adjusting for the economic impact of the COVID-19. Increases in pension fund footing are expected to provide PKR103.5 billion (using an 11-year average pension growth rate assumption-- average per annum growth rate of 28.8 percent) and the estimated gains from e-procurement and digitization of LG service delivery are estimated to be PKR46.4 billion in the “medium scenario” (assuming a 10 percent efficiency gains). The benefits to be gained from other interventions to improve fiscal management (such as fiscal integration with the federal government; and improved transparency of LG resources) cannot be quantified effectively in absence of a benchmark.

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Annex i.

September 22, 2020

ANTI-CORRUPTION PROTOCOL The Borrower shall implement the Program in accordance with the “Guidelines on Preventing and

Combating Fraud and Corruption in Program-for-Results Financing”, dated February 1, 2012 and revised

on July 10, 2015 (variously, the “Anti-Corruption Guidelines” or “ACG”), issued by the International Bank

of Reconstruction and Development (variously IBRD or the “Bank”) and applicable to the Program under

“Punjab Resource Improvement and Digital Effectiveness” (the “Operation” pursuant to: (a) Section 5.13

of the General Conditions, as defined in the Loan Agreement for the financing of the Program, to be

entered between the Islamic Republic of Pakistan (the “Borrower”) and IBRD, which is also incorporated

by reference to the Operation Agreement for the Operation, to be entered between IBRD and the

Province of Punjab (“Punjab”). The Borrower, Punjab and the Bank agree to the following

supplementary Anti-Corruption Protocol:

1. All fraud and corruption complaints will be aggregated through three mechanisms. First, an Management Information System, to be maintained by executing agency/implementing agencies for administrative discipline and efficiency inquiries, including any procurement corruption charges related to the Program. Second, the Anti-Corruption Establishment (the “ACE”) already aggregates and categorizes all complaints. Third, Secretary Finance will process through the relevant administrative authorities any Program related procurement corruption complaints that may be received. 2. The office of the Secretary Finance will be Punjab’s focal office for the purposes of ACG application. It will also aggregate Program related procurement corruption complaints by monitoring the Management Information System (MIS) of administrative inquiries and by maintaining liaison with ACE. 3. The Borrower and/or Punjab will undertake investigations, criminal and administrative, under the Program, of all material and credible allegations of fraud and corruption and keep the Bank abreast of their progress and findings and make public the conclusions. 4. Punjab will provide the Borrower and the Bank with reports annually or more frequently as warranted, reporting allegations of fraud and corruption under the Program received and registered, as well as related investigations and, as needed, the actions taken. A proposed format is found below. The implementing agencies will immediately inform finance department as and when such incidence arise, and else report bi-annually on the compliance of ACG. Reciprocally, if the Bank finds evidence of corrupt practices, the Bank will, to the extent consistent with the Bank’s policy, refer the case to the Punjab for investigation under the relevant criminal and civil laws. 5. If the Bank determines to conduct an administrative review into allegations or other indications of fraud and corruption in connection with the Program, conducted alone, together with the Borrower or Punjab, or in parallel with the Borrower’s or Punjab’s investigation, the Borrower and Punjab will cooperate fully with representatives of the Bank and take all appropriate measures to ensure the full

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cooperation of relevant persons and entities subject to the government jurisdiction in such investigation, including, in each case, allowing the Bank to meet with relevant persons and to inspect all of their relevant accounts, records and other documents and have them audited by or on behalf of the Bank. If the Bank finds evidence of corrupt practices, the Bank will refer the case to the Borrower and Punjab for investigation under the relevant criminal and civil laws. The Bank may, however, debar private individuals and firms on its own. 6. If the Borrower and/or Punjab or the Bank determine that fraud and corruption have occurred in connection with the Program, the Borrower and/or Punjab will take timely and appropriate action, satisfactory to the Bank, to remedy or otherwise address the situation and prevent its recurrence. 7. The Borrower and Punjab will ensure that any person or entity debarred or suspended by the Bank is not awarded a contract under or otherwise allowed to participate in the Program during the period of such debarment or suspension. 8. The bidding documents will serve as the bidders’ source of information regarding the applicability of the ACG to the Program. Compliance will be verified through the Program’s annual audits.

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COMPLAINTS HANDLING REPORT

(Date)

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Annex II

Proposed insert to the PIM for the

Punjab Resource Improvement and Digital Effectiveness Project16

Operative Provisions:

Personal Data collected under the Project will be Processed only for purposes defined in the Project. To meet these requirements, [Recipient] represents and warrants that it will, or will cause its agents or contractors acting on its behalf to:

a) Process Personal Data only for purposes defined in and only for performing and achieving the

Objectives under the Project (“Legitimate Purpose”).

b) To the extent practical in the circumstances, inform Data Subjects about the Personal Data being

Processed using the following form of notice, and keep a log of all Data Subjects who are so

informed and where it keeps its register of other data collected in connection with this Project.

Form of notice:

c) Process only the amount and type of Personal Data necessary for the Legitimate Purpose.

d) Take due care to ensure that Personal Data collected is accurate, complete, and up-to-date.

e) Take due care to secure collected Personal Data.

f) Retain collected Personal Data only for so long as is necessary to fulfill the Legitimate Purpose.

g) Afford Data Subjects with the ability to inspect Personal Data collected about them and correct

any errors in such data.

16 This insert consists of two parts: the first contains operative provisions and related definitions, and the second part contains examples and additional guidance. The second part is optional

“You are hereby informed that data about you is being collected for purposes of

[State here the public service being delivered]. We may share or otherwise

automatically process this data for that purpose only. You have the right to inspect

this data and correct any errors by contacting us at [ Provide contact details here ].”

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h) Establish a procedure for Data Subjects to seek redress for abuse of these provisions.

Related Definitions:

“Data Subject” means an identified or identifiable natural person.

“Personal Data” means any information relating to a Data Subject.

“Processing” means collecting, recording, organizing, structuring, storing, adapting or altering, retrieving, consulting, using, disclosing, sharing or otherwise making available to third parties, erasing or destroying Personal Data collected under the Project.

Guidance & Examples (for illustrative purposes only):

1. Examples of good practices for collection and processing of Personal Data

a) Provide access to Personal Data to third parties only where strictly necessary to achieve Project

objectives.

b) Share anonymized or aggregated data, rather than Personal Data, wherever possible.

c) Don’t combine Personal Data from the Project with other government databases for other

objectives, such as to enforce unrelated social security contributions and tax obligations.

d) If the Project intends to provide temporary social assistance to individuals, consider whether it is

necessary to know extraneous details such as the religious affiliation or sexual orientation.

e) Securely destroy or delete Personal Data when no longer needed.

f) Store physical records securely, e.g., in locked cabinets or rooms.

2. Examples of data that might be considered Personal Data:

a) General patient data of a Data Subject including: name, contact information, date infected,

nationality, gender, age, persons with whom the Data Subject had contact.

b) Other information related to a Data Subject (if applicable):

o Mobile location data

o Biometric data such as facial recognition technology

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Annex III

Digitalization of Services to Citizens and Firms in Punjab

Indicative list of services

1. Learner Driving License

2. New Regular Driving License

3. Renewal of Driving License

4. Duplicate Driving License

5. Motor Vehicle Registration

6. International Driving License

7. Vehicle Transfer of Ownership

8. Token Tax Payment

9. Route Permit

10. Character Certificate

11. Domicile Certificate

12. Birth Certificate

13. Death Certificate

14. Marriage Certificate

15. Divorce Certificate

16. Issuance of FARD (Record)

17. Issuance of FARD (NEC)

18. Issuance of FARD (Bail)

19. Issuance of Challan for License to start Business (Metropolitan Corporations)

20. Issuance of Local Government Business Licenses

21. Issuance of Sectoral Business Licenses

22. Business Registrations by Punjab Industries Department (Weights and Measures, Boilers)

23. Business Registrations by Punjab Labour Department and Social Security

24. Private Housing Scheme - Building Plan Approvals for All Residential Building Types

25. Private Housing Scheme - Building Plan Approvals for Apartment & Converted Commercial Buildings (All Types)

26. Private Housing Scheme - Building Plan Approvals for Designated Commercial / Civic Center Plots

27. Development Authority Scheme – Building Plan Approvals for Residential Buildings

28. Development Authority Scheme - Building Plan Approvals for Apartment & Converted Commercial Buildings (All Types)

29. LGCD Residential Buildings

30. LGCD Commercial Buildings

31. PHATA Residential / Commercial / Community Sites (Up to 3 stories / 38 feet height)

32. PHATA Multistory & Public Assembly Buildings

33. Change of Land Use (Permissible Cases) (Development Authority)

34. Change Of Land Use of Permitted Cases on Approved Roads / Master Plan Zones (Development Authority)

35. Metropolitan Change of Land Use

36. Town Planning Change of Land Use

37. Completion Certificate (Development Authority)

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38. LGCD Completion Certificate

39. PHATA Completion Certificate

40. Approval of Pvt. Housing Scheme by Development Authority

41. Approval of Housing / Farm Housing Scheme (Metropolitan Corporations)

42. Metropolitan Warehouse Approval

43. Approval of Land Sub Division (Metropolitan Corporations)

44. NOC for Traffic Impact Assessment / Parking Agreement From TEPA/Traffic Police

45. IEE/EIA NOC from Environmental Protection Agency

46. NOC from WASA (For Converted Plots)

47. NOC TEPA Structural Plan Road

48. NOC from WASA (Change of Land Use)

49. NOC from TEPA (Change of Land Use)

50. NOC from Civil Defense

51. Khidmat Card-People with Disabilities

52. Khidmat Card for Brick Kiln

53. Khidmat Card-Zevar-e-Taleem

54. New Regular Driving License

55. Renewal of Driving License

56. Duplicate Driving License

57. Mutation (PLRA)

58. Implementation of Stay Order (PLRA)

59. Physical Possession (PLRA)

60. Lien Removal (Development Authority)

61. Correction of Name (Development Authority)

62. Litigation Cancellation (Development Authority)

63. Caution Marking (Development Authority)

64. Transfer of Plot (Development Authority)

65. Caution Removal (Development Authority)

66. Completion Certificate (Development Authority)

67. Mortgage Cancellation (Development Authority)

68. Litigation (Development Authority)

69. Permission to Mortgage (Development Authority)

70. Other - Outstanding Challan (Development Authority)

71. NOC/Clearance Certificate (Development Authority)

72. Placement of Documents (Development Authority)

73. Change of Address (Development Authority)

74. Building Period Extension (Development Authority)

75. Lien Marking (Development Authority)

76. Power of Attorney (Development Authority)

77. Property Tax collection (Excise & Taxation Dept.)

78. Misplaced/stolen R