ISLAMABAD:
Finance Minister Muhammad Aurangzeb has expressed concern over the Water and Power Development Authority’s (Wapda) green bond mechanism, which lacks provisions to mitigate government liabilities and their consequences.
The finance minister said that the same mechanism, set up for the Wapda green bond, was being used for the Pakistan Social Impact Bond (PSIB) that was to be floated to generate funding for the National Vocational and Technical Training Commission (NAVTTC). ). The Economic Coordination Committee (ECC) has reached an understanding that raising debt through the PSIB without a solid business plan would not be an appropriate course of action. At a recent ECC meeting, the Ministry of Federal Education and Vocational Training emphasized that the floating PSIB proposal was developed using an outcome-based approach to improve NAVTTC’s footprint.
ECC members criticized the proposal for lacking a viable business plan and for failing to provide details on distribution strategies, takeout deals and other aspects of the business market. The Finance Minister asked about the creation of unfunded liabilities, similar to the Wapda green bond, without providing mechanisms to the government to mitigate the liabilities or their consequences.
It was recommended that, instead of making small investments, large companies could participate through a syndication strategy and other similar arrangements. The ECC appreciated the idea of exploring capital markets to bridge the financial gap instead of relying solely on bank loans. The Federal Ministry of Education informed the NAVTTC forum, created in 2006, that it was tasked with leading the national technical and vocational training programme.
Its mandate includes providing necessary support to federated units to produce a market-driven workforce that meets industrial and self-employment needs while exporting skilled labor to regional and international markets. The commission, in collaboration with public and private sector stakeholders and international development partners, plays a crucial role in the economic and social development of Pakistan.
Given the rapidly changing technological landscape and the need to drive economic growth, it is imperative that NAVTTC mobilize additional resources to produce a high-quality workforce. This requires employing global best practices in cooperation with development actors and reducing dependence on public funding. Countries such as the United Kingdom, India, Vietnam and Turkey have successfully issued skills impact bonds (SIBs). For example, India has attracted more than $600 million in foreign direct investment through BIS in the education and public health sectors. The ministry said PSIB represented a significant shift from traditional funding models, moving from supply-driven training to demand-driven training requirements and from input-based to input-based approaches. in results.
Venture investors provide seed capital and receive returns based on the achievement of predetermined, measurable social outcomes, verified by a third party. In the pilot phase, NAVTTC, with the help of a bank as a venture investor, planned to issue PSIB worth Rs 1 billion, backed by a government guarantee.
This guarantee would be provided by the Finance Division, subject to approval by the ECC. The Finance Division would also approve the terms and conditions of the PSIB. The additional funds would be used for highly employable technical and vocational education and training (TVET) interventions that serve national and international labor markets. The ministry explained that PSIB offered a strategic solution to the TVET sector’s funding challenges by leveraging private capital for vocational training and training. This approach reduces the financial burden on government, reallocates public funds to other critical needs, and improves the scale and quality of TVET programs.
Building on the global success of the BIS, the PSIB aims to provide sustainable and scalable solutions for skills development in Pakistan, aligning with the country’s economic and social objectives. The initiative seeks to create a skilled workforce, boost national growth, reduce unemployment and break the cycle of poverty. The main committee of Special Investment Facilitation Council (SIFC) had already approved sovereign guarantee for financing of Rs 1 billion in its meeting held on February 7, 2024. The Finance Division also considered and recommended the proposal to introduce PSIB for sustainable skills development. and professional training for future necessary actions.
The Federal Education Ministry has asked the ECC to approve granting a government guarantee of Rs 1 billion to NAVTTC for the initial launch of PSIB. This would serve as a basis for attracting private investment to the TVET sector. The ECC reviewed a summary titled “Approval of Government Guarantee of Rs 1 Billion for Issuance of Pakistan Social Impact Bond”. It deferred the decision and directed the Federal Ministry of Education to prepare a robust business plan to address all aspects including distribution strategy, takeaway arrangements and cash flow.
