Dissecting the government's civil service reforms agenda - An interview with Dr. Ishrat Husain

BR Research recently sat down with renowned economist Dr. Ishrat Husain in Islamabad to take his pulse on the civil service reforms under the PTI government. Dr. Ishrat, who is currently serving as Advisor to the Prime Minister for Institutional Reforms & Austerity, retired as Dean of the Institute of Business Administration in 2016. He has been a career bureaucrat and a former Governor of the State Bank of Pakistan, while also having a long and distinguished career with the World Bank. He has also worked as a Public Policy Fellow at the Woodrow Wilson Center in Washington DC. Below are edited excerpts of the sit-down.

BR Research: In your current role, which areas of public-sector reforms are you particularly focusing on?

Dr. Ishrat Husain: The lesson that I learnt from the 2006-08 National Commission for Government Reforms (NCGR) episode was that we took two years to prepare a very comprehensive report covering all aspects of the civil service administration, police, local governments, and other areas. By the time that report came out, the government had changed, and therefore, there was no appetite for its implementation. This time, our approach is that we are going to pick up one particular issue, take it to the cabinet, get it approved and then have it implemented.

We have started with an integrated, value-chain approach of the human resources. We are looking at how we can enhance the quality of human resource in the whole government. The value chain starts with recruitment induction, and then it goes to training, performance management, career progression and promotion policy, compensation and benefits, and finally retirement.

BRR: What is the scope of reforms in those six areas and what are the timelines associated with them?

IH: For recruitment, we are bringing in some element of domain knowledge at the time of the appearing in the civil services exam. So right now, you may be an English Literature graduate but because of the quota system and if you are from Punjab, you are not given a place in DMG or Foreign Service, and you end up in Audit and Account Service. As a result, your domain knowledge becomes absolutely incompatible with the job you are going to do. So either you are a frustrated person or you rely on your clerks and juniors. The government, therefore, is currently unable to make an optimal utilization of these bright young men and women.

BRR: So you are moving towards specialization.

IH: We are now moving towards a blended approach in which the relative strengths of the generalists and specialists are optimally utilized. Therefore, at the time of induction, we are creating four clusters of specialization. You may be a doctor or an engineer, but we now want you to appear in two subjects that are pertinent to the service. So if you are going for a career in Foreign Service, you must appear at International Relations and International Law as optional papers. If you prefer to work in the Police Service, you must have chosen papers on Criminology and Civil & Criminal Procedural Codes as optional subjects. So that is the mapping we are doing.

Additionally, we are creating a screening test based on the international best practices. Right now, it is very difficult to assess 16,000 scripts from the exam every year. So we are bringing in MCQs which will help to eliminate a lot of people at the screening stage. As a result, the residual bunch of 2,000 people or so will go through a psychometric test modeled on the British Civil Service. After this round, we will go through compulsory and optional subjects' written exams, and then the interviews. So, more effort would be focused on those candidates who have qualified at the screening test. And by having these specializations, there would be matching of their domain knowledge with the placement in the service. That is one reform which has been accepted by our task force and it is now going to go to the cabinet.

BRR: What are the changes being proposed in the 'training' domain?

IH: The second most important element of this value chain is the training. Right now, there is no differentiation in the products of training at various stages of civil service. The training is not linked to the job requirements. The reforms will address that issue. But the biggest change is that we have to rely on specialists, and not on generalists alone. Out of 29,000 federal government officers, only 6,000 are generalists or what we call cadre officers. The remaining 23,000 are non-cadre officers - there are engineers, doctors, accountants, financial analysts and others among them. They don't have either any training or any career path. They are frustrated and demotivated and therefore they are not contributing much. They are sulking because despite having their degrees from some of the best universities in the world and in Pakistan, they haven't been promoted for 12 years from grade18 to grade-19. We are trying to bring them into the mainstream and eliminate this artificial barrier between the superior services and other services.

The cabinet has already approved the plan to have post-induction training for all the specialists and then in-service training at grades 18, 19 and 20. So there will be an equality of opportunity for both the generalists and the specialists. And this discrimination that exists today and has led to a lot of heartburn will be removed and we would be able to utilize their services effectively. We have mega projects and engineers have never had any chance to refresh their knowledge or learn new tools, even as the government is spending a lot of money on these consultants from outside and we cannot even judge whether the work of the consultants is up to the quality. So we will create a cadre of specialists who will be exposed to training and up-gradation of their skills over time so that we can do a better job in project screening, project appraisal, and project evaluation. That has already been approved by the cabinet and now it is being implemented.

BRR: There is a public perception that civil servants have a career for life. How do you plan to make the civil services more performance oriented?

IH: We are making changes to 'performance management,' which is the third area of intervention. Today we follow the colonial system of 'annual confidential report' that provides no substantive evidence of performance on the job or future potential. So we are replacing these subjective evaluation reports by an objectives-based, KPI-driven evaluation which a subordinate can discuss with his or her superior officer. Both of them will sign the KPIs that are to be achieved during the year. Only 20 percent in the cohort will be categorized as outstanding, 60 percent as satisfactory, and 20 percent as below average. Performance will also be related to promotion, so that the officer's training outcomes and placement in the promotion ladder will be determined by his or her performance. So there is an incentive for the officer to work hard because he or she wants to get promoted to the next grade.

The other thing that we are looking to change is the practice where a 15 percent across-the-board annual increment is given whether an officer has performed or not. We are going to give a 20- 25 percent raise to the people who are in the outstanding category, 10 percent to 15 percent increment to those in the satisfactory category, and no increment to those who are below average. We want to give a signal that the officers need to improve. In performance management, we are also giving attention to officer's personal development and linking it to training objectives. For instance, if an officer feels that he or she needs training to improve writing or presentation skills, it will be the job of the supervisor to provide adequate training in that particular field.

BRR: You mentioned that promotion will be driven by performance. How do you plan to integrate competence with career progression?

IH: The fourth area of our value-chain approach deals with the career path. Today, you may be a Joint Secretary of the Ministry of Religious Affairs and tomorrow you may become a Joint Secretary of Industries ministry. Now, how can you actually contribute to that position because you don't have any prior background? To tackle this issue, we are following the clustering model. At grade 19, you may be a medical doctor or an engineer or an agriculture researcher or a DMG officer or a PSP, but at this stage we will try to sort out people into a cluster. So some people will remain only in the financial and economic ministries' cluster; some may remain in the social sectors' cluster; some will remain in the technical ministries; and some will remain in the general administrative cadre.

The idea is to have an officer's performance and career path tailor-made so that if he or she has the inclination and the capacity to go to the economic ministries, then we will train him or her in that path. Hence, after the 19th grade, you will specialize in that area. So the clustering will promote a plank between a generalist and a specialist. Both the theory and the empirical evidence show that you need a generalist at the leadership position who synthesizes the various domains' knowledge to make a very cogent and coherent decision. So you may be a very good engineer and you may have a very beautiful design for a bridge, but your chief financial officer says that the cost is so much that it outweighs the benefits. So, as a Secretary, I will listen to the engineer as well as the finance person and make a decision whether this is really a viable solution to the problem.

BRR: There could be a case for lateral entry in the specialist cadres for the private sector.

IH: We are doing that for specialist cadres. We have now technical advisors to each minister. Fifteen ministries have been chosen for that. The technical advisors will be picked from the market. They will be employed on a contract basis.

BRR: What is the proposed incentive structure to bring about the targeted reforms?

IH: We are looking at several areas under 'compensation and benefits,' which is the fifth element of our value chain. Out of 640,000 people currently working in the federal government, about 95 percent are staffed in grades 1 to 16, and only 5 percent are employed in grades 17 to 22. This reflects an imbalance in our human resource deployment. We have too many naib qasid's, too many clerks, and too many assistants - and they are paid much higher than the private-sector counterparts because of the national pay scale. As a result, a private secretary gets the same pay and emoluments as the neurosurgeon working in PIMS, because both of them are in grade 19. So we are trying to bring in e-governance, so that this secretarial support staff is eased out over time.

Additionally, we are trying to create more positions from grade 17 all the way to grade 22. Even today, at grade 22 salaries, you cannot get people who are specialists in their fields to work for the government. We don't want to get rid of anybody, but through the process of attrition we will not replace the people who are retiring or resigning in the lower grades. In the process, we will use the savings to push up the salaries to reward performance. This experiment has been successfully implemented in the State Bank of Pakistan for last 15 years where an entry-level officer receives salary comparable to that in the MNCs.

And finally, we have the retirement. This is a bomb that is going to explode in the future, because our pension bill is just going up and up every year. In fact, our pension bill is now more than our salary bill. We want to go the defined-contribution mechanism, as identified after actuarial analyses during my time as the Chairman of Pay and Pension Commission in 2011.

BRR: Are you considering increasing the retirement age to 63?

IH: We are still considering it. There are two schools of thought. One is that there is a lot of deadwood at the higher levels of the government. So if you give an across-the-board extension in retirement age, you end up retaining the deadwood. The second school of thought is that you have a youthful population, whose entry for new jobs in the government will be blocked for three years if the retirement age is set to 63 years. And in financial terms, you will only be postponing the D-day from this year to three years later. On a net basis, your salary bill is going to increase and only the pension payments will be postponed temporarily.

BRR: How long do you think will this value-chain approach take to implement?

IH: The implementation of the whole value chain is a longer term process. Let me be very clear. I would be misleading you if I say that all this package of reforms will be done even in five years' time. They will not be done in five years' time. What we are doing is actually changing the direction, because good governance means finding the right person for the right job. For a younger man or a woman, the signaling is very important. If they find that the direction is changing, they will come and join the civil services at the entry level with a lot of dedication.

BRR: What can ensure the continuity of these reforms beyond the current government?

IH: That is a very fair point. We want to change the Civil Service Act and Civil Servants Disciplinary Rules. But for the time being, the government does not have a majority in the Senate. So we will do it through rules and regulations, which is under the cabinet's purview. The Prime Minister is the most committed person who wants to undertake these reforms as he has been elected on the platform of good governance and getting rid of corruption. Hopefully, I will try to persuade other political parties also. If another party comes to power, it would also need an efficient civil service to implement its policies. But I realize that in reality we have to take incremental steps.

BRR: These reforms are also dependent on cooperation of civil servants. But these reforms will dilute their influence. What is your strategy to counter any resistance?

IH: We are going to grandfather the existing incumbents, as these reforms will be applicable to the new cadres. For example, if you are a grade-22 Secretary, you will be protected. But if you're being promoted from grade-21 to grade-22, these reforms will come in. That's how we will manage the resistance. The resistance will also be diluted because those 21,000 officers for the first time will get an opportunity to act as equals. So there will be winners and there will be losers. But the number of winners is going to be very high.

The moot point to keep in mind is that we are taking steps to transform a colonial civil service to a modern civil service that can deliver public goods and services to the common citizens of Pakistan in an efficient, cost-effective, and responsive manner. This is, by no means, an easy task, and the cynics would certainly dismiss this lofty goal as impractical wishful thinking. Our task is to prove them wrong and this requires support from all segments of the society as well.

BRR: Your portfolio also contains austerity. What can you tell us about some of the major austerity measures identified or implemented in the last 14 months?

IH: On austerity and restructuring, we have published our first report. But let me explain the background first. The federal government didn't have a complete knowledge of how many organizational entities it had under its own control. So first we had to create a database as to which ministry had which organizations, what was their status, and under what legal instrument were they created. That is something which we were able to do. And then we went to the federal cabinet and said that out of 441 entities, we will retain 342 under two categories. One will be the attached departments - or as we call them, executive departments - and the other will be autonomous bodies. The remaining entities will be privatized, merged, liquidated or transferred to the provinces. The report has already been approved by the cabinet and it is now being implemented by a ministerial committee of the cabinet that meets every week and takes decisions on the basis of this report. We have been given six months' time for this transition.

The other thing that we have looked at is the public financial management law, in which we have delegated the powers of the federal finance ministry to the line ministries. Right now, even if you are a grade-22 officer, you have to approach the Deputy Financial Adviser or the Section Officer of the Ministry of Finance in order to re-appropriate spending from one sub-head to the other. All the financial advisors' officers have now been abolished and the payment function has been transferred from the AG's office to the ministry. Due to automation, cheques will now be issued by the line ministry. Under the law, now it is the responsibility of the Principal Accounting Officer, who is the secretary of the ministry, to handle those responsibilities. They will be given two budget items: employee-related expenses and operational expenses. And they can do anything within that, provided they meet the performance contract that is agreed between the minister and the Prime Minister.

BRR: Lastly, what is your view on the reforms in the energy sector, such as unbundling of DISCOs and improving governance?

IH: The government is addressing the energy sector issues and it is going to take some time. What the individuals heading the several energy-sector entities are doing right now is to reduce the transmission and distribution (T&D) losses and increase the recoveries. These are the people who know what the weaknesses in the system are. If some of these individuals do not perform, the government will get rid of them. The government's priority is not replacing the individuals right now, but to reduce the T&D losses and recover the bills, control the circular-debt flow problem and then go for technology, such as AMI meters and a foolproof wiring system.

But I will tell you that the only way we are going to get anything done is to have competition in the power sector, where you have multiple buyers and multiple sellers, and where the NTDC only collects the wheeling charges and it leaves the buyer and the seller to settle the terms of the contract. If an entity wants to use the NTDC grid, it will need to pay a certain wheeling charge, and then it will sell it to its bulk consumer. This way, all pricing is done through competitive means and negotiation.

We cannot do anything about the old contracts, but we will not renew the old contracts based on take-or-pay, capacity charges and dollar-indexed guaranteed rates of return. This policy has made our industries uncompetitive and imposed huge burden on our households. The upcoming Renewable Energy policy addresses those issues. There will be no guaranteed rate of return from now on and we are not going to keep the old IPP model.