Determinants of public-private-partnership performance: the case of Pakistan

Shah, Syed Azeem Ahmed (2019) Determinants of public-private-partnership performance: the case of Pakistan. PhD thesis, James Cook University.

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Abstract

Pakistan is the sixth most populous country in the world with a population of 207.77 million and growth rate of 2.40 percent per annum (Pakistan Bureau of Statistics, 2018). Continual increases in population growth and urbanisation are applying pressure on infrastructure services demand. Currently, the country is unable to finance infrastructure projects through traditional methods. Public finance – due to budget deficit. The provisions of Fiscal Responsibility and Debt Limitation (FRDL) Act 2005 limit federal fiscal deficit to 4 percent of gross domestic product (GDP) and the current budget deficit is 4 percent of GDP. Borrowing – is unavailable because, under lending restrictions in the FRDL Act 2005 public debt is restricted to 60 percent maximum of estimated GDP. Present public debt is 59.2 percent of GDP (Ministry of Finance, 2016). Issuance of international bonds – is not available due to their high susceptibility to event-risk factors. Access to capital markets is limited to only three stock exchanges and stock issuers are unable to use savings from remote areas. There is no availability of long-term lending facilities for infrastructure projects financing. Finally, the government cannot impose new taxes or increase tax rates due to weak economic conditions and political reasons.

Improvements in public infrastructure facilities have not kept pace with population growth and urbanisation. Consequently, the gap between infrastructure services demand and supply is widening. Financial constraint is the major barrier in infrastructure development alongside other problems such as a weak institutional framework, political instability and governance issues. Consequently, Pakistan ranks 115 out of 137 countries in the basic infrastructure category in Global Competitiveness Index 2017-18. Therefore, it is suspected that a large part of the population will not have access to infrastructure facilities in future, if appropriate measures are not taken now.

The present infrastructure demand-supply gap needs to be addressed on priority basis. New avenues to increase infrastructure investment may be found elsewhere, beyond the scope of public resources. Accordingly, Pakistani government needs to adopt innovative approaches to deal with financial constraints for infrastructure development by avoiding future debt traps. Empirical studies suggest that public-private partnerships (PPP) may be a valuable solution to the infrastructure challenge. Therefore, it is ascertained that PPP for infrastructure development is urgently needed in Pakistan and an exploration of the factors helping or impeding their implementation is justified.

However, there are a few impediments in PPP implementation in Pakistan. These includes lack of "ownership" of such projects at senior level management and a weak judicial system: there is a lack of fast track dispute-resolution mechanises. There is no PPP legislation and sector specific guidelines and standard model contracts. The financial system is weak such that long-term loans for infrastructure development are unavailable. There is limited access to the capital market. Institutional structure is ineffective, especially regarding political instability and inconsistency in policy implementation. Finally, microeconomic polices are weak.

In the current literature, the majority of research focus, primarily within developed countries, has been put on PPP procurement, management and performance of PPP projects and service delivery. However, institutional capacity and the capacity of public and private sectors for implementing PPP projects has been largely ignored, with only a small number of researchers having identified the importance of institutional and public sector capacity for successful implementation of PPP projects. A comprehensive set of criteria and methodology for evaluating their capacity is missing. An extensive review of the available literature suggests that private sector capacity to implement PPP programs has not been assessed so far. Therefore, no previous analytical methodology and research technique was available to evaluate this aspect of PPP. As no studies have been carried out to determine the capacity of institutions, public and the private sector to implement PPP program in the context of Pakistan, this thesis therefore focuses on the determinants of PPP implementation.

In this thesis, time series and cross-sectional primary and secondary data covering 24 years from 1991 to 2014 was used. Primary data was collected through a survey questionnaire. Secondary data was collected through official websites and financial reports of the government of Pakistan and from the World Bank database. The suitability of questionnaire was verified by using factor analysis. Cronbach's alpha was used to test reliability and consistency among questionnaire variables. Time series property of the data and unit root non-stationarity of variables within panel framework was conducted by panel unit root tests. Panel cointegration tests were performed among the variables to avoid spurious regression by utilising Persyn and Wasteland tests.

The estimated model was built up within panel vector autoregression (PVAR) framework. The PVAR model was further extended to include qualitative policy variables to articulate the effects of quantitative and qualitative variables in infrastructure development of Pakistan. This model is generally known as panel vector auto regression with exogenous variables (PVAR – X). The panel regression model was estimated by ordinary least square (OLS) and generalised least square (GLS) methods. PVAR model was estimated by generalised method of moment (GMM). The post-estimation analysis was performed for checking: i) economic theory consistency and sign consistency; ii) statistical significance; iii) model adequacy; iv) goodness-of-fit tests; and v) classical testing framework was also applied (t-test, F-test, Lagrange multiplier (LM) and Wald testing approaches) for comparing growth parameter among panel and their interaction.

The estimation results showed that:

i) Institutions in Pakistan do not have the capacity for managing PPP program. The private sector not only lacks the capacity for participating and managing PPP projects but also are a barrier to infrastructure development;

ii) The public sector has an influence on PPP undertakings for infrastructure development but the sector cannot attract private sector investment due to lack of managerial, financial and monitoring capacity. Further, the public sector does not have the capacity for mitigating project-related risks.

iii) Other factors (barriers) for implementing PPP in Pakistan were also identified, which are: a) lack of good governance – administrative formalities and ambiguous rules and regulations; b) delays/deficiencies in project execution; c) public and private sectors do not have PPP related experience and qualification; and d) feasibility studies and projections for PPP projects are unrealistic.

This thesis contributes to both theoretical and practical aspects of PPP implementation in Pakistan. The findings provide valuable insights on how and why PPP model may or may not work effectively in different institutional settings. These contributions extend the theoretical literature related to PPP implementation, especially in developing economies, and provides policy guidance for the government to remove barriers for implementing and encouraging PPP undertakings in Pakistan. The findings provide guidelines for PPP implementation in Pakistan and the methodology used can be extended to other developing countries and/or multi-country studies for generating useful comparisons and revealing more useful information.

Item ID: 59810
Item Type: Thesis (PhD)
Keywords: public private partnerships, fiscal responsibility and debt limitation act 2005, panel vector autoregression, ordinary least square, generalised least square, lagrange multiplier, Pakistan
Copyright Information: Copyright © 2019 Syed Azeem Ahmed Shah.
Date Deposited: 13 Aug 2019 22:51
FoR Codes: 14 ECONOMICS > 1402 Applied Economics > 140212 Macroeconomics (incl Monetary and Fiscal Theory) @ 50%
14 ECONOMICS > 1402 Applied Economics > 140214 Public Economics- Publically Provided Goods @ 50%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9101 Macroeconomics > 910199 Macroeconomics not elsewhere classified @ 50%
97 EXPANDING KNOWLEDGE > 970114 Expanding Knowledge in Economics @ 50%
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