Annual Review

Title: Sub-National Governance Programme II (SNG II)

Programme Value £ (full life): £37m Review Date: April 2019

Programme Code: 204607 Start Date: May 2018 End Date: June 2024 (interim support
contract ends in November 2019)

Summary of Programme Performance

Year 2019
Programme Score A
Risk Rating Moderate

1DevTracker Link to Business Case: N/A

DevTracker Link to Log frame: N/A

A. Summary and Overview

Description of programme
SNG II2 is the second phase3 of a programme which aims to strengthen federal, provincial and local
governments and build sustainable institutions in two provinces: Khyber Pakhtunkhwa (KP) and Punjab to
improve the way public finances are managed. SNG II will help these governments to deliver better
services for their 140 million people, particularly the poor. More specifically this will include:

 Improving the way Governments plan and budget to provide for their citizens: making plans and
budgets more strategic, equitable, and more reflective of citizens’ needs, particularly women,
minorities and people with disabilities (PWD);
 Partnering with governments toward improving institutional performance for better service delivery
through building more effective departments;
 Improving the transparency and accountability of governments and the way they manage their
resources;
 Increasing fiscal space through helping governments to improve value for money (VfM) through better
use of resources, procurement, revenue mobilisation and performance, to allow more resources to be
spent by provinces and district governments on core service delivery priorities;
 Pilot innovation and responsive initiatives including on digital technology and data collection – such
as e-procurement and e-governance solutions.

The operating environment has changed since the business case was developed. In 2018, Pakistan
Tehreek Insaf (PTI) won elections and entered government in both Punjab and at Federal level (for the
first time) and continued in KP, campaigning on an anti-corruption agenda. The new Government has also

1 NB: Business case and results framework have not yet been published as SNG II is still undergoing the final stages of
procurement.
2 SNG II builds on a previous DFID programme, SNG I under which DFID invested £30.2 million over 5 years (2013-2018) to

support provincial and district governments in KP and Punjab to improve the delivery of basic services. The programme worked
to strengthen provincial and district level public financial management, planning and performance management capability to
enable efficiency savings and ensure a more productive and needs-based allocation of resources for improved basic service
delivery.
3 SNG I invested £30.2 million over 5 years (2013-2018) to support provincial and district governments in KP and Punjab to

improve the delivery of basic services. The programme worked to strengthen provincial and district level PFM, planning and
performance management to enable efficiency savings and ensure a more productive and needs-based allocation of resources.
SNG I made significant improvements in public financial management including: setting priorities for reform and oversight;
improving budget transparency and revenue collection. SNG II builds on these reforms, ensuring a greater focus on revenue
generation and the quality budget execution.
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demonstrated enthusiasm for local government reforms. Changes in Pakistan’s constitution and
legislation4 in recent years have decentralised powers and responsibilities to its provinces5. Such rapid
decentralisation and moves by PTI to redistribute powers further to the grassroots level will have significant
implications for how government operates and how services are delivered. The scale of the challenge is
huge, with more than 7,500 local governments across KP and Punjab provinces. This raises questions for
SNG II on how best to support reforms in a sustainable way. There be a need to: really understand the
drivers and incentives behind the reforms which will determine their success or otherwise; clarify roles and
responsibilities; and develop systems and capacity of provincial and local government to undertake their
new responsibilities.

Real challenges (e.g. low rates of budget execution and limited revenue generation) impact adversely on
the provision of services. Since the programme was approved the historic merger of the Federally
Administered Tribal Areas (FATA)6 with KP occurred in 2018. The merger could bring prosperity and
economic development to one of the most impoverished and neglected regions of the country. Whilst the
security situation especially in KP has improved7, increased security operations have negatively impacted
the operations of civil society organisations who have come under increasing scrutiny and restriction of
movement. All of these changes to the operating environment will require flexible programming under SNG
II to adapt to the new context.

During the first year of operation the procurement process for the service provider for SNG II was
completed (with some delays to comply with DFID’s revised procurement requirements). It is expected
that the service provider will commence the inception phase in June 2019. Whilst the procurement for the
main programme was undertaken, DFID was able to provide immediate support to the government on
priority reforms by using procurement through a framework agreement. Through being able and willing to
provide such interim support DFID was able to respond quickly to the requests of the new administration,
maintaining and building relationships, gaining credibility and demonstrating its position as a trusted
partner. At the provincial level, gaps include: diagnostics, e.g. revenue studies and evaluations of recent
finance and local government reforms; support to growth strategies; and sectoral policy and planning
reforms.

Summary supporting narrative for the overall score in this review

The programme scored an ‘A’ meaning outputs met expectations. Output 1 details the indicators relating
to the interim support to the Government of Punjab. Output 2 focuses on building relationships in KP as
well as the mobilisation and management of the open procurement process for the full SNG II programme.
An overview of the scoring and justification is given in the box below, with more detail provided in Section
B.

Output Score Impact Weight Summary

1.Interim support to A 70% The programme successfully supported public
Government of Punjab financial management (PFM) planning and local
government reforms in Punjab during the period
leading to initiation of the main SNG II programme.
2.Programme mobilisation A 30% A package of priority interim support has been
and management designed for KP which is aligned with the PFM

4 In some cases, responsibility for service delivery has been further decentralised to districts.
5 Resources given to the provinces from the federal government have also increased, with provincial budgets more than tripling
in size from 2010-11 to 17-18.
6 FATA was a semi-autonomous tribal region in north western Pakistan that existed from 1947 until being merged with

neighbouring province Khyber Pakhtunkhwa in 2018. The merger happened more quickly than was anticipated and will require
significant administrative, judicial and security reforms, as well as a reconstruction and rehabilitation programme. Former FATA
(now called KP merged districts) is the poorest and most marginalised area of Pakistan and has been affected by terrorism
resulting in military operations. The operations have displaced around two million people from the tribal areas, as schools,
hospitals, and homes have been destroyed.
7 This is mainly because of the successful anti-terrorism operation that the Pakistan Army launched called ‘Operation Rad-ul-

Fassad’ and the strengthening of capabilities of civilian law enforcement agencies including KP police and the Counter Terrorism
Department.
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 strategy. The procurement for SNG II is nearing
completion.

Under Output 1: overall the programme made good progress. PFM: In Punjab, diagnostic assessments
of PFM systems were undertaken, using the Public Expenditure and Financial Accountability (PEFA)
methodology. This provides a solid evidence base on which to plan further reforms. The programme also
supported the initiation of Medium-Term Budgetary Framework (MTBF) reforms8 with the development
of a Budget Strategy Paper (BSP)9 and a Budget Call Circular (BCC)10 as well as supporting the National
Finance Commission11(NFC)12 dialogue with federal and provincial governments. A revenue mobilisation
strategy for Punjab has also been developed to improve own source revenue generation which could be
used to support service delivery. Planning: the programme supported the drafting of the Punjab Growth
Strategy (2018-23) by the Planning and Development Department as well revising the planning manual to
improve the efficiency of development spending. The programme also supported the establishment of a
District Development Challenge Fund (DDCF) to support innovation in governance at the district level.
Local Government: the programme supported the drafting of the local government framework and the
draft local government act in both Punjab and KP province. As already noted PTI’s plans to redistribute
powers further to the grassroots level will have significant implications for how government operates and
how services are delivered. There are risks for the programme in being associated with such significant
changes which will need to be carefully tracked and managed. There are also real opportunities for DFID
to contribute to strengthening local government and service delivery.

Under Output 2: a package of priority interim support has been designed for KP which is aligned with the
PFM strategy. This includes: short term assistance to the Minister of Finance on: planning, budgeting and
improving fiscal space. The procurement for SNG II is nearing completion although with some delays to
adhere to DFID’s new procurement guidelines.

Recommendations for the year ahead

 There are some important recommendations from the Project Completion Report (PCR) for SNG I
which (along with this annual review) need to be reviewed and implemented now that the main SNG
II programme is commencing. These are included as an annex in this document. SNG II will provide
support to: improving public financial management; strengthening local government; improving service
delivery especially for women and marginalised groups; as well as supporting innovation. During the
inception phase of the main SNG II programme the contractor will: recruit staff; establish operational
policies and procedures as well as: develop key strategies; agree district selection; and establish the
relationship between SNG II and related DFID programmes, e.g. SEED, AAWAZ II.
 From the interim support, recommendations include:
 Refresh the PFM Reform Strategy for Punjab (keeping in mind the PEFA methodology) so that there
is an opportunity to contribute to incrementally improving the PEFA scores during the next
assessment. There may also be an opportunity to undertake a PEFA for KP to develop a robust basis
on which to plan reforms.
 Work with the Offices of the Finance Ministers in both provinces, to embed the PFM strategy as well
as to establish a PFM roadmap to implement the identified reforms.
 Support MTBF budgeting in Punjab ensuring the Finance Department leads on MTBF reforms and
engages with line ministries to ensure long term sustainability.

8 MTBFs are fiscal arrangements that allow government to extend the horizon for fiscal policy making beyond the annual budgetary
calendar. MTBFs usually cover the preparation, execution, and monitoring of multi-annual budget plans and contain both
expenditure and revenue projections as well as the resulting budget balances. They may help ensure fiscal discipline by making
more apparent the impact of current policies on the government balance in the coming years. Likewise, the existence of a MTBF
may facilitate monitoring by providing benchmarks against which budgetary developments can be assessed over time.
9 The Budget Strategy Paper provides the public with an overview of the fiscal landscape of the country and the government's

fiscal policy responses to these prevailing conditions.

10 The BCC summarises the government’s strategy for the coming budget and outlines the budget process and timetable.
11 The National Finance Commission is responsible for determining the distribution of revenues between the federal and provincial

governments of Pakistan.
12 NFC deliberations are still going on among provinces and Federal Government. Priority has been given to KP merged districts

financing issues while the deadline set for agreeing to the NFC is 31st December 2019. The SNG interim support programme is
also contributing to an expenditure and revenues benchmarking paper for the NFC committee.
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 Ensure careful planning to avoid gaps in programming so that the momentum of implementing PFM
reforms can be maintained. Where possible DFID should plan for longer programmes, given that
public sector reforms take time to come to fruition.
 There is a need for the Procurement and Commercial Department (PCD) to provide clearer guidance
on procurement processes so that slippages are avoided.

List of acronyms

Acronyms Meaning
ADP Annual Development Programme
BCC Budget Call Circular
BSP Budget Strategy Paper
DDCF District Development Challenge Fund
DFID Department for International Development
FRA Fiduciary Risk Assessment
GDP Gross Domestic Product
GIS Geographical Information System
GoP Government of Pakistan
IFMIS Integrated Financial Management Information System
KP Khyber Pakhtunkhwa
MTBF Medium-Term Budgetary Framework
NFC National Finance Commission
OBI Open Budget Index
PCR Project Completion Report
PERI Punjab Economic Research Institute
PEFA Public Expenditure and Financial Accountability
PFM Public Financial Management
P&D Planning and Development
PTI Pakistan Tehreek Insaf
PWD Persons with disabilities
SDGs Sustainable Development Goals
SNG Sub-national Governance
SME Small and Medium Enterprise
VFM Value for Money
WB World Bank

B: DETAILED OUTPUT SCORING

Output Title Interim Support to the Punjab Government

Output number per LF 1 Output Score A

Impact weighting (%): 70% Impact weighting % N/A

revised since last AR?

Indicator(s) Milestone(s) for this review Progress

1.1: PEFA analysis carried out in
Punjab
1.2: MTBF initiated by the Finance
Department for at least two line
departments
PEFA draft report by March 2019
Budget Strategy Paper; Budget Call
Circular completed.
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B: Milestone moderately did not
meet expectations Draft PEFA
findings shared with Government
however the draft report is slightly
delayed and should be submitted by
mid-May 2019
A: Milestone met expectations
Both the Budget Strategy Paper and
Budget Call Circular with budget
ceilings were issued in time for the
2019 budget.
 1.3: Punjab Growth Strategy Draft Growth Strategy developed A: Milestone met expectations
Developed The Growth Strategy 2018-23 was
developed and is awaiting final
approval from the Chief Minister.

1.4: Revision/ updating of planning Work on planning manual revision A: Milestone met expectation
manual started (meetings/workshops) The planning manual has also been
revised and will be launched along
with Growth Strategy by mid-May
2019.

Provide supporting narrative for the score

Summary: This output is intended to provide technical assistance to the Government of Punjab covering
public financial management, planning, and local government reform. This output has scored an A which
reflects that good progress has been made and deliverables were completed as expected. Highlights
include:
 A PEFA assessment: was undertaken to provide insights into the strengths and weaknesses of
financial management at the provincial level in Punjab and guide the future direction of PFM reforms
under SNG II. A PEFA expert was deployed to: develop training materials; raise awareness and build
capacity of government counterparts on using the PEFA tool. Data collected was analysed and
consultations with government were undertaken to discuss preliminary results. The extensive data
collection and validation exercise led to some delays in the process; however, now a PEFA steering
committee is planned for April 2019, after which the draft report will be finalised. MTBF13: an action
plan was developed for the implementation of the MTBF. This included the: development of a BCC14;
new formats for the development of budget estimates; and following consultations, issuing of guidance
for line departments to implement. A key component of the reform was to develop a Medium-Term
Fiscal Framework (MTFF) which provides an estimate of resources likely to be available for
Government during the next financial year. Budget ceilings were issued to all departments for the first
time, informing departments of the resource envelope available to them for budget planning. A BSP 15
was developed to help to prioritise the allocation of resources which included estimates of revenue
collection in the medium term as well as guidance on the main sectoral priorities. The BSP also included
a revenue mobilization strategy. These activities will help ensure fiscal discipline by making more
apparent the impact of current policies on the government balance in the coming years.
 Growth Strategy: whilst the previous strategy was developed in June 2018, the change of government
and different priorities necessitated a review. A new strategy was developed under the leadership of
the Punjab Economic Research Institute (PERI). DFID support included development of the strategy as
well as mentoring and capacity building of young researchers at PERI to undertake research and
analysis. Priorities in the strategy include: increasing focus on areas where Punjab has a comparative
advantage, i.e. agriculture and Small and Medium Enterprise (SME) development; creating an enabling
environment for private sector led growth; investing in human capital; improving the Annual
Development Plan (ADP) allocation strategy to maximise growth and impact implementation of the
Sustainable Development Goals (SDGs); and advocacy on federal government initiatives, e.g. water
and trade policy. The strategy aims to support 7% growth by 2023 and create 6.1 million jobs over a 5-
year period. A final draft of the strategy has been submitted to the Chief Minister for Cabinet approval.
 Planning Manual: over the last 5 years Punjab has undergone significant expansion in its expenditure
and development activities, e.g. with new investments in infrastructure projects and health and
education facilities. Increasing spend and leveraging private sector finance has created new delivery
mechanisms and institutional relationships. Given the changing nature of the planning processes,

13 MTBFs are fiscal arrangements that allow government to extend the horizon for fiscal policy making beyond the annual
budgetary calendar. MTBFs usually cover the preparation, execution, and monitoring of multi-annual budget plans and contain
both expenditure and revenue projections as well as the resulting budget balances. They may help ensure fiscal discipline by
making more apparent the impact of current policies on the government balance in the coming years. Likewise, the existence of
a MTBF may facilitate monitoring by providing benchmarks against which budgetary developments can be assessed over time.
14 The BCC summarises the government’s strategy for the coming budget and outlines the budget process and timetable.
15 The Budget Strategy Paper provides the public with an overview of the fiscal landscape of the country and the government's

fiscal policy responses to these prevailing conditions.

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 revisions to the planning manual were required. The revised manual aims to simplify the planning
process and procedures. It will be sent to Cabinet for approval during April 2019.

Lessons identified this year, and recommendations for the year ahead linked to this output
Some of the key lessons include:
 PEFA assessments require extensive data collection from counterparts and this needs to be factored
in while planning the timelines so that delays in implementation can be avoided.
 Embedding roadmaps in government systems require constant influencing through formal and informal
channels besides working with reform champions.
 The enthusiasm for MTBF reforms fluctuates. There is a need to provide consistent support by
embedding key features of MTBF within systems and processes.

Key recommendations include:

Under SNG II:
 Refresh the PFM Reform Strategy for Punjab (keeping in mind the PEFA methodology) so that there
is an opportunity to contribute to incrementally improving the PEFA scores during the next
assessment.
 Work with the Office of the Finance Minister to embed the PFM strategy as well as to establish a PFM
roadmap to implement the identified reforms.
 Support MTBF budgeting in Punjab ensuring the Finance Department leads on MTBF reforms and
engages with line ministries to ensure long term sustainability.

Output Title Programme mobilisation and management

Output number per LF 2 Output Score A

Impact weighting (%): 30% Impact weighting % N/A

revised since last AR?

Indicator(s) Milestone(s) for this review Progress

Provision of priority interim support
(aligned with relevant PFM
strategies) to the Government until
the SNG main service provider
comes on board
Relationships established with
newly formed governments of KP
and Punjab post-election; positive
feedback from GoP on
relevance/responsiveness of
support provided.
A: Milestone met expectation
Key relationships with Finance,
Planning, Education and Health
Departments established in both KP
and Punjab.

Mobilise and manage open Cabinet Office approval of sourcing A: Milestone met expectation
procurement process for full SNG II strategy; technical moderation Procurement for SNG II in final
programme completed. stages

Briefly describe the output and provide supporting narrative for the score
Summary: This output is intended to build relationships with the Governments in KP and Punjab as well
as the mobilisation and management of the open procurement process for the full SNG II programme. This
output has scored an A which reflects that good progress has been made and deliverables were completed
as expected.

The DFID team has built good relationships with the new administration in KP and Punjab post the July
2018 election. In Punjab as noted in the previous section a set of reforms have already been implemented.
In KP, a package of priority interim support has been designed which is aligned with the PFM strategy.
This includes: short term assistance to the Minister of Finance on: planning, budgeting and improving fiscal
space. The timing of the interim programme from November 2018 to July 2019 will ensure seamless
transition into the SNG II programme planned to start in June 2019.

The procurement process for the full SNG II programme is now near completion. The sourcing strategy for
the programme was approved by the Cabinet Office in October 2018 and the technical moderation has
now been completed. Technical bids were evaluated in terms of: the quality of the proposed core team;

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the organisation’s ability to recruit short and longer term technical expertise; the quality and
appropriateness of the proposed team structure; the degree of bidder’s understanding of the Pakistani
(and KP/Punjab) context; the quality of management approach; the quality and suitability of approach to
deliver the programme; the proposed areas for collaboration; and coordination mechanisms with partners,
stakeholders and other DFID programmes. The team is currently working on the contract approval
process.
It should be noted that SNG II has experienced delays in the procurement of the programme - in part due
to the requirement to meet DFID’s new procurement guidelines. The contract for SNG II was expected to
more quickly. However, with the revised timeline it is now anticipated that the contract will be in place in
June 2019.
Lessons identified this year, and recommendations for the year ahead linked to this output
Some key lessons include:
 It is important to maintain wide networks of relationships within the civil service as well as political
leadership in order to navigate through frequent political changes.
 The gap between SNG I ending and SNG II commencing was over one year. This made it challenging
to sustain relationships with key government stakeholders. The interim support has provided the
opportunity to rebuild and develop new relationships, so the programme is now well placed to deliver
for SNG II.

Key recommendations include:

 There is a need to ensure careful planning to avoid gaps in programming so that the momentum of
implementing PFM reforms can be maintained. Where possible DFID should plan for longer
programmes, given that public sector reforms take time to come to fruition.
 There is a need for DFID’s Procurement and Commercial Department and the DFID in country team
to work together to ensure the guidance is clear on procurement processes so that slippages are
avoided.

C: THEORY OF CHANGE AND PROGRESS TOWARDS OUTCOMES

Summarise the programme’s theory of change and any major changes in the past year
The expected impact of the programme is ‘consolidated democracy in Pakistan and reduced poverty’. The
proposed outcome of the programme is ‘improved provision of basic services and strengthened
perception of government performance’. The programme will have four outputs, each aimed at addressing
different identified constraints to the effective delivery of services. These include:

 Planning and reform: helping improve the way government plans for carrying out its functions so
resources are allocated based on need and helping to get the most efficient and effective
government systems and structures in place.
 Budgeting and transparency: helping provincial and local governments manage their resources
better, including better budget allocation and spending that reflects them, and to become more
transparent, making it easier for citizens to hold them to account.
 Fiscal space: helping government generate and free up more resources which can be utilised for
the delivery of services.
 Innovations: piloting and scaling up innovative approaches to improving evidence-based policy
making and planning, governance, and action-oriented research.

It is recognised that there have been changes in the operating environment since the programme was
approved. This includes a new government with different priorities from the previous administration. The
new government has demonstrated enthusiasm for local government reforms. Rapid decentralisation and
moves by PTI to redistribute powers and resources to the grassroots level signals a need to build systems
and capacity of provincial and local government to undertake their new responsibilities. This will have
implications for the programme and may require revisions to the Theory of Change which will be
considered once the service provider is on board in June 2019. The assumptions made in the Theory of

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Change will be regularly reviewed throughout the implementation of the programme to ensure the logic
still holds.

Describe where the programme is on track to contribute to the expected outcomes and impact,
and where it is off track and so what action is planned as a result in the year ahead
As noted already, the procurement for the main programme was slower than anticipated. However, to
mitigate against any adverse effects of this, DFID launched a procurement process through a framework
agreement to provide immediate support to the government to be responsive post- election and support
priority reforms. This approach has worked well. Proactively starting interim support has meant that strong
relationships have already been established at the provincial level and the main programme is in a good
position to start the inception phase. The programme team has already applied for a no cost extension to
extend implementation for an additional year, which will allow time for reforms to be fully implemented.
Cabinet Office approval for this is currently being sought.

Explain major changes to the Log frame in the past year

There have been several changes to the log frame throughout the inception phase of the programme as
the team has worked iteratively with the new PTI government stakeholders in developing their workplans
for the interim support. This has included: refining the output indicators; and ensuring that data sources
exist for the proposed indicators. As recommended in the SMART Rules the DFID log frame was finalised
before 30th January 2019 (three months in advance of the annual review).

Describe any planned changes to the Log frame because of this review
Given the main technical assistance programme will be on board by July 2019, the programme will
revise its logframe as one of the key inception phase activities.

D: VALUE FOR MONEY

Assess VfM compared to the proposition in the Business Case, based on the past year
The business case stated that VfM will be integrated within SNG II once the implementing partner is
selected. A priority set of VfM indicators will be identified and monitored on a regular basis. Indicators will
be based on DFID’s four Es VfM strategy, including but not limited to the following proposed indicators:

Unit cost of inputs and outputs (such as average unit cost of the technical assistance by type)
Economy Unit costs of majority of outcomes (directly attributable only)
Trends in costs of significant operating items
Overhead cost vs. overall programme cost

Efficiency Savings through management process efficiency

Institutional capacity of government departments in public finance
Improvements in Provincial Open Budget Index (OBI)
Increased provincial resources to finance basic services
Effectiveness Strengthened provincial planning process (% of development budget linked to costed sector
strategies or medium-term development frameworks or economic growth strategies)
Districts budgets are demand based and executed as planned (% of budgets adjusted to
respond to needs and execution remains in line with these plans)
Services improvement pilots are evaluated, and successful pilots are adopted by the
government
% of women/minority/excluded specific projects included in the development budget which are
needs based
Equity % of disabled benefitting through various interventions (sex disaggregated)
% of religious minorities benefited through various interventions

The business case envisaged that the programme will provide excellent VfM. Even based on conservative
assessments of its results, over 5 years, an annual revenue increase of 1% would amount to additional
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revenue of £7m, and efficiency savings of just 0.5% from current spending could potentially total some
£90m. In addition, there will be less-quantifiable results around helping to build a stronger and more
accountable state. VfM analysis found good value in the efficiency work under the first phase of SNG,
finding that for every £1 invested, £72.93 of increased allocations to health and education, attributable to
the programme, could be anticipated over the next ten years.16

It is too early to assess VfM for the main programme as envisaged in the business case. However steps
were taken to ensure good VfM for the interim support. These include:

 Economy: negotiating reductions in unit costs of technical assistance for the interim support; and
ensuring that unit costs were in line with similar contracts.
 Efficiency: scrutinising overhead costs compared to the overall programme costs.
 Effectiveness: although it is early days, the interim support has started to demonstrate that it is
delivering short term results whilst laying the foundation for longer term reforms. Support delivered so
far is contributing to: developing a growth strategy for Punjab; designing new local government
systems; supporting the implementation of MTBF which has improved planning and budgeting,
making these more strategic and predictable; and the development of a revenue mobilization plan in
Punjab and KP.

Explain whether and why the programme should continue from a VfM perspective, based on its
own merits and in the context of the wider portfolio
The main SNG II is expected to start in June 2019 therefore it is too early to make a judgement on the
overall VfM of the programme. However, the programme will strengthen local and provincial governments
and improve public financial management and service delivery in two provinces. Supporting Government
to ‘stand on its own feet’ by raising revenue and delivering services should offer good VfM for this
programme and in terms of the wider portfolio and Pakistan’s transition.

E: RISK

Overview of programme risk and mitigation

The overall programme risk as envisaged in the business case is “moderate”. The risk rating has not
changed since the business case was developed; however, the risks have been reassessed and it is
important that the programme remains responsive to the changing context. Good risk mitigation measures
are in place: a risk register is reviewed and updated on a monthly basis and the programme team has
established strong relationships with government and wider stakeholders in each province which enables
us to triangulate information to understand the context and adapt implementation as needed.

The table below outlines the main risks and proposed mitigation measures outlined in the business case
which remain relevant.

Risk Likelihood Impact Mitigation measures

Delivery
Lack of sufficient management
rigour by the supplier leads to
slow delivery
M&E systems of partner not
robust enough to identify
programme’s performance i.e. it
is on track or off track
Robust oversight of delivery organisation.
Due diligence assessment of delivery
Possible Moderate organisation
Delivery partner mapping and verification
Third party verification.
The partner organisation will produce a detailed
M&E framework during the inception phase, to
be agreed with the programme team and DFID’s
Results Adviser. It will be linked to the theory of
change and will describe the data requirements,
data sources, data collection and analysis, and

16 SNG VfM Report, 2016-2017

9

External Context:
Lack of constructive
engagement by local politicians
and administrators/lack of
political will. The political context
is competitive and subject to
change as the government
settles down.
Reluctance to take up the
lessons learned or to use the
improved evidence base for
service delivery improvements
There is a risk that some of the
governance reforms influenced
by programme may not be
sustainable beyond the life of
the programme
Elections may cause diversion
of political attention which may
results in delayed
implementation
Operational:
DFID’s internal inability and time
constraints to manage top level
relationship in the provinces
Reputational:
DFID seen to be closely linked
with any of the political parties
and its impartiality is questioned
Safeguards:
how monitoring and evaluation will be
undertaken
Selection of districts will include early and
Possible Severe regularly updated assessment of political
commitment and risks.
Early engagement at administrative and political
levels with key change makers, political
economy analysis. The programme will be
responsive to ad hoc requests for support
consistent with the mandate to build trust.
Ensure effective communications strategy to
demonstrate results.
Emphasis in inception phase/early years will be
on building the evidence base and the capability
to deliver change, and on building the political
will for scaling up what works with the
bureaucracy and, as they are elected, new or
continuing political leaders
This needs to be mitigated through greater
government ownership, lower government staff
turnover and matching capacity building
alongside the technical assistance. The
programme must carefully and closely support
the institutionalisation of the reforms along with
developing and rolling out an exit strategy and
framework for possible future programme
directions
During the inception phase, emphasis would be
made on generating the political will through
designing interventions according to the
priorities of politicians, ensuring approval by the
bureaucracy
Possible Major
DFID has low risk appetite for management
failures but will always seek to learn lessons in
order to improve.
Internal governance arrangements would be laid
out who will act as the liaison and
communication point with the main political
actors.
Unlikely Severe
Right from the offset, impartiality should be taken
into account by contracting a management
organisation with a respected and non-politicized
reputation.
Likely Moderate Partner’s security team is vigilant and have
regular liaison with British High Commission.
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DFID’s ability to visit Khyber
Pakhtunkhwa remains restricted
Partner to develop approach to safeguarding in
Safeguarding risks, e.g. around line with DFID guidelines.
sexual exploitation
Fiduciary: Regular audit of SNG programme.
Possible Moderate Steering Committee meetings taking note of
DFID funds mismanaged funds management.

VfM not achieved resulting in Routine monitoring of programme performance

inefficient and/or ineffective supplemented by explicit VfM focus as part of
DFID spending annual reviews will highlight any areas where
there are significant failures and trigger action.

A number of new risks have been identified since the business case was developed including: e.g. in
Punjab a weak coalition government which may limit what can be achieved in terms of reforms; in KP
uncertainty in how the merger of the former FATA into KP will be implemented; the macro-fiscal context
which has resulted in limited resources available for development (SNG II could help mitigate this risk by
helping increase fiscal space for the Government through revenue mobilization measures/encouraging
savings in expenditure). There are real risks for the programme in being associated with the planned local
government reforms. This will need to be carefully tracked (including through undertaking robust analysis
of the politics of reforms) and managed (escalating upwards as appropriate) to ensure that reforms
supported are within our risk appetite and can be sustainably implemented.

The programme will have separate Steering Committees in each province which will play a key role in
risk management. The successful supplier will be responsible for coordinating and facilitating each
Committee through its respective provincial offices.

Update on partnership principles

DFID Pakistan’s overall assessment is that the federal Government is demonstrating a reasonably credible
commitment to the agreed principles. A review of the partnership principles in March 2019 shows that
there has been mixed progress on domestic accountability and there is cause for concern on human rights
and civic space. These issues are discussed on a quarterly basis with the GoP.

At the provincial level, DFID has built good relationships with the KP and Punjab Governments and there
is confidence that there is broad commitment to build institutions, systems and processes to support
improved public financial management and service delivery. SNG II could play a significant role in
improving public financial management. Under SNG II diagnostic studies will identify any limitations in
planning, budgeting, revenue generation and expenditure which can then be addressed through targeted
interventions. This could contribute to improving Pakistan’s position in future assessments of the
partnership principles.

DFID has undertaken a Fiduciary Risk Assessment (FRA) for both Punjab and KP. The fiduciary and
corruption risk for KP and Punjab are rated as substantial. Overall both provinces have made some
progress on public financial management reforms but need to improve public financial management
systems and service delivery. No funds will flow through government systems on this programme.

F: DELIVERY, COMMERCIAL & FINANCIAL PERFORMANCE

Performance of partners and DFID, notably on commercial, and financial issues
The interim support is being undertaken through a framework agreement – with Oxford Policy
Management (OPM) as the service provider. There has only been a limited period on which to report in
terms of delivery, commercial and financial performance. Overall there has been good co-operation
between OPM, DFID and consultants working on the programme.

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Delivery against the work plan is monitored and reported on a monthly basis using monthly meetings and
progress reports. This provides an opportunity to look into the upcoming challenges, identify risks and real
time solutions.

Invoicing quality is maintained. However, there is room for improvement around the quality of forecasting,
which has been overly optimistic in some of its assumptions. Invoices are supported by a progress report
along with the expenditure tracker which are reviewed by DFID before processing the disbursement. Cost
efficiencies are achieved through continuous negotiation between DFID, OPM and the consultants.

Date of last narrative financial report(s) March 2019

Date of last audited annual statement (s) N/A

G: MONITORING, EVIDENCE & LEARNING

Monitoring
Monitoring activities have been undertaken by the programme team on an ongoing basis during the first
year of the programme. Under the interim support contract, monthly reports have been submitted by
OPM for review by the SRO and the programme team. DFID has also met with the service provider on a
monthly basis and had regular meetings with government to ensure that the services delivered were of
the required standard. Support provided to both Punjab and KP has been flexible and responsive to
government needs and has been well received. 5/6 of the milestones outlined in the results framework
have been achieved, only one milestone has been delayed due to factors external to the programme17.

The supplier will be required to design the monitoring and evaluation framework for the main programme.
The log frame, delivery plan and budget for the implementation will also be finalised during the inception
phase.

Evidence
During the inception phase DFID will work with the service provider to design an evidence plan to address
any data or evidence gaps which would support programme implementation. Research, including surveys
undertaken will disaggregate information by age, sex, disability and geography where possible to do so.

Given the short duration of the programme, no evaluation is planned of the interim support. However,
going forward evaluations will be planned for the main SNG II programme.

This annual review was completed by a team comprising: the SRO; technical advisers, and programme
managers. The annual review was undertaken via a desk review of key documents and interviews with
government counterparts.

Learning
The programme will have a strong focus on learning and adaptation of programme activities based on
this learning. Lessons learned to date from the interim support include:
 The interim support has been vital in continuing the momentum of the reforms initiated under SNG I
as well as building relationships with the new administration. Through the interim support DFID has
been able to be responsive to government need and kick start time sensitive initiatives which
provide a solid basis for longer term reforms under SNG II.
 The current political context is highly competitive which could lead to skewed policy priorities: there
is a need to focus on evidence-based policy making to ensure that adequate resources can be
deployed to address the right priorities. A number of new and young legislators and ministers have
come to the fore after the recent elections who offer fresh perspectives; this represents a real

17The delay is attributable to delays in provision of data by the Government departments and time taken in approving / endorsing
the work done by the PEFA consultant hired under the programme.
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 opportunity. There may be a need to provide capacity building support to these individuals to enable
them to deliver on their mandate.
 Embedding technical advisers18 in government departments has advantages in terms of building
ownership of the programme within government. However there is a need to ensure that there is a
clear exit strategy for any embedded adviser along with a plan for building the capacity of existing
government staff.
Progress on recommendations from previous reviews
Not applicable as this is the first Annual Review of the SNG II programme.

18In KP for example this has included an economic adviser to provide support on the growth strategy; a public financial
management consultant to provide support on planning and budgeting; as well as on IFMIS and pension reforms.
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Annex I: Lessons learned from SNG I

The ‘How’
1. Invest in local government, who are at the coal face of decentralisation and improved service
delivery. Capacity at the lowest levels of government remains particularly weak and further work is
needed. It will be important to establish what reforms have been embedded and which have not,
and the local capacity to deliver them, before pushing forward with further reforms.

2. Accountability, oversight and sustainability mechanisms should be integrated into the

programme from the start. Policy and budget preparation requires an oversight and
accountability dimension to be able to fully assess the overall effectiveness and credibility of the
management of public finances. Whilst the oversight and accountability angle is harder to sell to
governments and requires building trust, it should be part of the conversation from the beginning
and planned into logframes.

3. Ensure incentives and structures to partner across DFID sector and governance
programmes is built in from the outset. This could include:
a. Mandating the development of a framework for partnership in the inception phases of
the new AAWAZ II and SNG II programmes, which could be monitored in future Annual
Reviews.
b. Using DFID convening power to regularly bring together implementing partners working
on similar thematic or regional areas for ad hoc deep dives.

4. Consider indicator choices carefully. (1) Measurability: Avoid those with a time lag and which
are not easily and/or regularly assessed. (2) Programme processes vs. Government actions:
explore gearing more indicators towards government actions and behaviours, rather than the
programme’s own processes and products, to help build in sustainability. It may help to have a
more developed theory of change on how institutionalisation occurs, to enable charting the desired
progression of reforms.

5. Better define what success looks like for DFID’s investment in the delivery units. Given that
the value of DFID’s investment in delivery units is not limited to the SNG programme, it is important
to take a broader perspective on defining success. This could consider a number of factors
including: buying access, unblocking ‘tangible’ reform blockages and long and short-term
investment in capacity building. Finally, regularly review the balance of DFID investment in
delivery units versus priority departments’ own monitoring capabilities. Whereas delivery
units no doubt effectively fill an urgent gap, it is important to ensure a balance between plugging
gaps and building long term capacity.

6. SNG II should build on the success of phase II of the Challenge Fund. The methodology for
phase II has shown strong results. In the next generation of programming, the challenge fund
should continue to ensure selected innovations are in line with government priorities to increase
the probability of scale up and to avoid a distortionary effect in the allocation of government
resources. The innovations should also try to use e-solutions, where possible, to capitalise on
efficiency gains and build on the success of these types of interventions in round II.

The ‘What’
7. Integrate demand-side accountability. Future programming should consider having a more
incorporated demand side component, even if it has to be managed separately. Ideally the demand
side function would sit within the programme – perhaps in SNG II there may be opportunities to
explore this through the Challenge Fund - but where that is not possible it is important that efforts
are made to incentivise joint working (see recommendations on cross-DFID partnership). A
mapping of districts has already been undertaken on SNG II and demand side programmes. This
will be revisited during the inception phase.

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8. Pivot from preparation and transparency to execution and oversight. Work with internal and
external audit and provincial parliamentarians and concentrate on the rigour of execution reporting
to improve the overall credibility of the budget cycle. SNG has done a lot of very good preparatory
work, but it is important to now focus on the quality of its implementation. There may be links with
CSSF, e.g. through support to parliamentarians.

9. Focus on the sharp end of PFM. Concentrate on those areas of PFM that are more sensitive but
impactful. SNG1 built a critical mass of relationships; it is now time to leverage these although
many of these shall change with the new administration, especially in Punjab. For example,
consider engaging on areas that begin to address potential mismanagement and wastage within
the system: such as government procurement and fraud units and departmental performance and
expenditure reporting. On tax, the focus should be on ‘tax for development’ objectives, which
require a closer look at ‘tax for what’ and ‘tax mobilisation how’ to avoid regressive implementation
and to maximise pro-poor allocation.

10. Needs based budgeting should be part of a process, which should include community
monitoring of activities and government reporting back to communities on performance against
expenditure throughout the year. In addition to AAWAZ, consider linkages to democracy
programming at the local level as engaging citizens in budgetary processes and holding elected
officials to account is vital.

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