Finance Minister Muhammad Aurangzeb has aired concerns over the mechanism for the Water and Power Development Authority's (Wapda) green bond, which lacks provisions for mitigating liabilities of the government and its consequences.
The finance minister said that the same mechanism, established for Wapda's green bond, was being used for Pakistan Social Impact Bond (PSIB) that was to be floated to generate financing for the National Vocational and Technical Training Commission (NAVTTC). The Economic Coordination Committee (ECC) has reached an understanding that raising debt through PSIB without a solid business plan would not be an appropriate course of action. In a recent ECC meeting, the Ministry of Federal Education and Professional Training emphasised that the proposal of floating PSIB was developed using an outcome-based approach to enhance NAVTTC's footprint.
ECC members criticised the proposal for lacking a viable business plan and failing to provide details about syndication strategies, take-out arrangements, and other aspects of the commercial market. The finance minister inquired about the creation of unfunded liabilities, similar to Wapda's green bond, without providing mechanisms to the government to mitigate the liabilities or its consequences.
It was recommended that instead of pursuing small investments, large companies could participate through a syndication strategy and other such arrangements. The ECC appreciated the concept of exploring capital markets to bridge the financing gap instead of relying solely on bank loans. The Ministry of Federal Education briefed the forum on NAVTTC, established in 2006, which was tasked with leading the national technical and vocational training programme.
Its mandate includes providing necessary support to federating units to produce a market-driven workforce that meets the industrial and self-employment needs while also exporting skilled manpower 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 for NAVTTC to mobilise 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 UK, India, Vietnam and Turkey have successfully issued Skill Impact Bonds (SIBs). For instance, India has attracted over $600 million in foreign direct investment through SIBs in the education and public health sectors. The ministry said that PSIB represented a significant shift from traditional funding models, transitioning from supply-driven training to demand-driven training requirements and from input-based to outcome-based approaches.
Risk investors provide initial capital and receive returns based on the achievement of predetermined, measurable social outcomes, verified by a third party. In the pilot phase, NAVTTC, with assistance from a bank as the risk investor, planned to issue PSIB worth Rs1 billion, backed by government guarantee.
This guarantee would be provided by the Finance Division, subject to approval from the ECC. The Finance Division would also approve terms and conditions of PSIB. The additional funding would be utilised for high-employability technical and vocational education and training (TVET) interventions catering to both domestic and international labour markets. The ministry explained that PSIB offered a strategic solution to the funding challenges of the TVET sector by leveraging private capital for skills and vocational training. This approach reduces the government's financial burden, reallocates public funds to other critical needs and enhances the scale and quality of TVET programmes.
By drawing on the global success of SIBs, the PSIB aims to provide sustainable and scalable solutions for skill development in Pakistan, aligning with the country's economic and social goals. The initiative seeks to create a skilled workforce, boost national growth, reduce unemployment and break the cycle of poverty. The apex committee of the Special Investment Facilitation Council (SIFC) had already approved the sovereign guarantee for the financing of Rs1 billion in its meeting held on February 7, 2024. The Finance Division also considered and recommended the proposal for introducing PSIB for sustainable skill development and vocational training for further necessary action.
The Ministry of Federal Education requested the ECC to approve the provision of a Rs1 billion government guarantee to NAVTTC for the initial launch of PSIB. This would serve as a foundation for attracting private investment into the TVET sector. The ECC reviewed a summary titled "Approval of Government Guarantee of Rs1 billion for Issuance of Pakistan Social Impact Bond." It deferred the decision and directed the Ministry of Federal Education to prepare a robust business plan for addressing all aspects, including syndication strategy, take-out arrangements and cash flow.
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