An analysis of the public expenditure reviews from 2017-22 reveals that child-focused spending by provincial governments is not aligned with their budgetary commitments. Public finance constraints, driven by large debt servicing expenditures, are curtailing social sector investment. Currently, public spending on education is limited to only 2% of GDP, health at 1%, and social protection at 1%.
The future of nearly 40% of our population—currently below the age of 18—is at stake due to inadequate investment in human capital development. According to the IMF, Pakistan faces a social sector financing gap equivalent to 16.1% of its GDP to meet the Sustainable Development Goals (SDGs) by 2030. Although fiscal deficits improved with the Extended Fund Facility, public finance remains insufficient to meet UN benchmarks and the required social sector spending.
**Revenue Distribution and Fiscal Challenges**
The revenue distribution mechanism under the National Finance Commission (NFC) Award is equally important, as the provinces rely heavily on federal transfers for social spending. Besides debt repayments, low-to-moderate GDP growth, and limited revenue generation, other factors aggravate the fiscal challenge. These include covariate shocks such as recurring climate disasters and demographic pressure.
Consequently, about 26 million children are currently out of school. Multi-dimensional poverty has surged to 40% of the population, meaning any further reduction in social spending risks pushing more people into intergenerational poverty.
Amid global austerity measures, official development assistance (ODA) sharply declined in 2025. Therefore, it is increasingly important for federal and provincial governments, alongside civil society, to diversify financing sources and develop expertise in alternative financing for sustainable social sector investments. New policy instruments and innovative models must be adopted to expand fiscal space.
**A Paradigm Shift in Social Spending**
There is a pressing need to approach social spending as an investment in future generations. Traditional views often perceive social spending as charity or welfare, which is no longer adequate to meet the scale of Pakistan’s challenges. A fundamental paradigm shift is required to reconceptualize this spending as a high-return investment in future human capital.
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### Policy Instruments and Reforms
1. **Redesign Financing Structures with Results-Based Approaches**
Financing strategies should be multi-layered, integrating traditional and non-traditional financing models as well as international funding aligned with national goals and medium-term budget frameworks. Incorporating results-based financing treats social spending as a high-return investment in human capital.
This shift will pave the way to expand the fiscal pool by attracting private capital investments through social impact bonds and other innovative instruments. Successful pilot projects can then be scaled up effectively.
2. **Align Policy Goals and Prioritize Social Sector through a Child Rights Lens**
Currently, fiscal policy has been reactionary rather than proactive in addressing children’s constitutional rights. There is a lack of long-term, sustainable financing approaches to fuel resilience and productivity.
A positive recent development is the equity and empowerment mandate of URAAN Pakistan, which strives for inclusive and equitable education, health, and nutrition for children. Realizing this vision requires collaboration among all stakeholders to forge long-term development investments alongside immediate emergency responses.
3. **Enhance Utilization and Allocation of Social Sector Spending**
Effective utilization is crucial for sustainability and scalability. Due to the absence of Provincial Finance Commissions, much development expenditure is focused on infrastructure rather than social sector development. The NFC award also requires modification to incorporate explicit provisions for provincial social spending.
4. **Integrate Climate Adaptation Strategies with Social Sector Programs**
There is a strong connection between social sector financing and climate finance, which can be translated into child-focused climate finance alternatives. Pakistan can learn from Malawi’s Climate Health Resilience project, a notable case study in cross-sectoral climate finance.
Education and health projects can link with initiatives in water management, urban resilience, infrastructure, and flood recovery. Achieving this requires capacity building, willingness to reform, and the development of proposals with this integrated approach in mind.
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### Innovative and Cost-Effective Financing Models
Many experts advocate for innovative alternative financing models to diversify fiscal resources for social sector investment. Some noteworthy examples include:
– **Blended Finance:** Combines public and philanthropic funds with private capital to mobilize investment for sustainable development, reducing risks for investors. The Global Partnership for Education Multiplier Fund is a successful example.
– **Development Impact Bonds and Social Impact Bonds:** Outcome-based financial instruments where private investment supports social programs, with repayments conditional on achieving results. These bonds enable collaboration among public sectors, private investors, and service providers. For example, the Punjab Skills Development Fund is implementing the first Employment Impact Bond, focusing on imparting future-ready skills to youth.
– **Social Success Notes:** Private investment by social enterprises with returns linked to achieved outcomes.
– **Social Impact Guarantees:** Governments or donors provide guarantees to incentivize private investment. Singapore’s Social Impact Guarantee Program has improved education and employment outcomes for youth.
– **Catastrophe Bonds:** Insurance-linked securities that can support climate adaptation initiatives under Pakistan’s Nationally Determined Contributions (NDCs) to finance disaster response.
Public finance remains indispensable for the social sector. Alternative financing instruments should complement—not replace—public expenditure.
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### Debt Swaps and Corporate Sector Engagement
Given high debt servicing costs that surpass social spending, bilateral debt swaps and Debt-for-Child Buybacks present strong opportunities. Pakistan could renegotiate bilateral debts to replace repayments with commitments for investment in social and sustainable development programs.
Egypt’s recent debt swap with Germany, where resources are committed toward welfare programs, serves as a successful example. Pakistan can similarly implement Debt-for-Child Buybacks to direct funds toward child health, education, and wellbeing.
The private sector should adopt a long-term, outcome-driven approach to corporate social responsibility (CSR) and philanthropy, aligning initiatives with national development goals. Instead of one-off projects, investments must focus on measurable social impact. The Indus Hospital Network exemplifies how sustained, strategic healthcare philanthropy can support vulnerable populations effectively.
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### Revenue Generation and Program Sustainability
– The **Sehat Sahulat Programme** should evolve from a non-contributory to a contributory model to ensure long-term sustainability and improved healthcare quality.
– Levies on tobacco and soft drinks can generate dedicated revenue for child-focused health and nutrition programs while also discouraging consumption of harmful products.
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### Conclusion
Recent floods and their devastating impact on children underscore that traditional approaches—often seen as mere charity or welfare—are insufficient. A fundamental shift is needed to reconceptualize social spending as a high-return investment in Pakistan’s future human capital.
The sustainability and scalability of social sector investments will ultimately depend on their alignment with local needs and contexts, as well as their integration with national and sustainable development goals.
By adopting innovative financing models, enhancing policy alignment, and leveraging both public and private resources, Pakistan can build resilient social sectors that secure a brighter future for its children.
https://www.thenews.com.pk/tns/detail/1345119-alternative-financing-for-human-capital
