Poor infrastructure services result in constrained economic activity and reduce the country's growth potential. Elasticity of business sector output and productivity with respect to public core infrastructure investments are usually much higher than those of private business investments in Pakistan, said World Bank study report.
South Asia Sustainable Development Unit (SASSD) South Asia Region's report said that Pakistan Government's ability to plan and deliver infrastructure projects effectively will determine the future pace of growth of the country.
World Bank report mentioned that according to the World Economic Forum Survey (2006-07) of 125 countries, Pakistan ranked 67th in basic infrastructure category. Historically, the balance between demand and supply of infrastructure facilities has faced a chronic imbalance.
For instance (a) the ageing and inadequate irrigation and water infrastructure deficit alone is estimated at Rs 4 trillion (US $70 billion). Pakistan needs to invest almost Rs 60 billion (US $1 billion) per year in new large dams and related infrastructure over the next five years,(b) the under performance of the transport infrastructure costs the economy Rs 300 billion (US $5 billion) per year and (c) existing power shortages of approximately 2,000 megawatts will increase to 6,000 megawatts by the year 2010 and 30,700 megawatts by the year 2020.
The study report stated that the per capita energy consumption in Pakistan is amongst the lowest in the world and a lack of adequate energy resources precludes industrial growth affecting all sectors of the economy.
After the lost decade of the 1990s, World Bank study stated that Pakistan's economy has bounced back and has been exhibiting growth rates of above seven percent in recent years. This, coupled with population growth rates of over two percent, places an acute demand on basic and advanced infrastructure.
World Bank study observed that the recent power shortages are a classic example of the rapidly growing economy's ageing and deficient power infrastructure, which is failing to cope with burgeoning demand and resulting in an energy crisis in the country.
A similar situation also prevails in the supply of the transport infrastructure in Pakistan. It is obvious that lack of appropriate public infrastructure is constraining (a) Pakistan Government's ability to transfer the impact of this growth to the wider public, (b) delivery of basic public services, (c) sustained advancement of traditional sectors such as agriculture and textiles and (d) development of emerging sectors such as services and industries required for continued economic expansion.
Therefore, the Pakistan Government requires heavy investment in physical infrastructure in order to improve delivery of social services and to enhance its internal and global competitiveness. In short, the infrastructure crisis is here, but the 'meltdown' will be inevitable in five to ten years unless the Pakistan Government is able to respond in time.
World Bank study mentioned that the Govt. has responded to this demand by planning extensive infrastructure expansion. The Federal MTDF, allocates Rs 2,162 billion (US $36 billion) to the development of large infrastructure-embarking on an ambitious program to upgrade roads, railways, air, power, water, irrigation and other infrastructure.
Of this, Rs 993 billion (US $16.3 billion) will be through the Public Sector Development Program (PSDP). The MTDF envisages a tripling of the infrastructure PSDP from an average of Rs 150 billion per year to Rs 440 billion per year. The current FY08 PSDP allocation of Rs 520 billion has already eclipsed this target.
There are other emerging infrastructure programs that are required to respond to the rapidly developing economy, and are not entirely included in the MTDF.
These include the National Trade Corridor Improvement Program (NTCIP), the construction of large water reservoirs (Kalabagh, Diamer, Bhasha), the rehabilitation of the key barrages, delivery of clean drinking water, sanitation, and electricity to all and the new Islamabad Airport project (which alone require substantial investments over and above the MTDF).
In addition, provincial governments, districts and towns/municipalities have also embarked on infrastructure improvement in the face of rapid urbanisation. Provincial capital development expenditure has tripled during the last three years alone and is projected to grow as devolution takes root and service delivery improves during the coming years, World Bank study observed.
In formulating development plans, World Bank study mentioned that the various tiers of government have primarily focused on identification of the required infrastructure and on the availability of public financing.
There is also the growing realisation that 'this infrastructure was needed as of yesterday'-that is why, most of the implementation period for this infrastructure delivery is now or at the latest over the next five to seven years. However, very little analysis has been done to factor in the constraints that may or will be posed by the wider construction industry, said World Bank study.
The study highlighted that "Public Infrastructure Implementation" goes through the stages of planning and approvals, financial allocations, detailed engineering, and physical construction, and finally through commencement of operations.
A quick review of the project cycle in Pakistan during the past few years shows weaknesses in all these stages. Of particular interest, and the easiest to find analytical data on, is the planning and financial allocation for the projects. This is the foundation of project implementation and this is where things start to go wrong.
Poor incentive structures motivate an annual 'mad rush' wherein each public agency puts in requests for maximum possible allocations. The agency neither considers their portfolio's throw-forward, nor do they analyse their implementation capacity.
It is common to find that, based on annual project allocations the projected average completion times for projects are seven to eighteen years- figures that should normally not exceed three years, World Bank study disclosed.
The study report pointed out that this occurs because too many projects are taken in hand simultaneously and without proper planning. So even though 'on-the-record' it appears that total public allocations are more or less spent, the picture is much more complicated-expenditures are not in line with plans and priorities- lots of projects are allocated money before they are ready for implementation.
Based on the allocations in the PSDPs/ADPs of the last 5 fiscal years, individual infrastructure projects in Pakistan would take a long time to complete-18 years on an average for irrigation and power (ranging between 3.4 years to 30.8 years) and 8 years on an average for roads (ranging between 4.6 years to 13.6 years).
This assessment is based on analysis of the federal and provincial expenditure portfolio in the power, irrigation and roads sectors over the last three to five years, study report explained.
For example, World Bank study stated that during FY04, two hundred and eighty three projects (costing Rs 43.62 billion) at federal and provincial levels in power, irrigation and roads, were allocated a sum of Rs 5.16 billion, which was never spent.
Conversely, in the same period, fifty-nine projects (costing Rs 241.43 billion) which were not allocated any money in the budget incurred an expenditure of Rs 75.156 billion. So, the agencies started with annual allocations for these two hundred and eighty three projects which were far less than optimal (optimal allocations could be around Rs 12 billion), and in effect indicated to stakeholders that these projects will drag on an average for more than eight years.
Then, the agencies undertook expenditures on fifty-nine new projects, which are not in the portfolio and spent above optimal amounts from unplanned allocations indicating their intent to finish these large, 'unplanned' and politically motivated projects in a three-year period.
As demonstrated above, the public agencies seem to be taking on too much and delivering too little, the 'little' that they do deliver is mostly determined by the political priorities.
But often, even when the government has tried to force public agencies to reduce the portfolio throw-forward, money has been difficult to come-by. The reason behind this lies in the nature of public infrastructure projects and related dynamics of the financial allocations.
Delivery of public infrastructure has long gestation periods and is built to cope with future anticipated demand. This requires visionary planning and often entails seemingly large pre-emptive investments.
These investments are a political-hard-sell as they cater to a future that is often difficult to visualise today. Further, the higher discount rates in developing countries create a challenge to appropriate funds for public infrastructure from urgently needed consumption expenditures.
This in-turn puts huge public pressure on the timely delivery of such projects-high visibility of these projects has often been a political graveyard. Delays therefore, not only have economic costs but also large political costs, World Bank study observed.