ISLAMABAD: Finance Minister Muhammad Aurangzeb has expressed concerns about the mechanism surrounding the Water and Power Development Authority's (Wapda) green bond, specifically regarding its inability to address the government's potential liabilities and the consequences of those liabilities.

These concerns extend to the Pakistan Social Impact Bond (PSIB), which is being developed to finance the National Vocational and Technical Training Commission (NAVTTC). The same mechanism applied to Wapda's green bond is being proposed for PSIB, raising questions about its adequacy in managing financial risks. The Economic Coordination Committee (ECC) discussed the proposal to raise funds through PSIB, highlighting the importance of a sound business plan to support this initiative. The Ministry of Federal Education and Professional Training presented a plan that uses an outcome-based approach to enhance NAVTTC's operations. However, ECC members criticized the proposal for its lack of a clear and viable business plan, missing details on essential aspects like syndication strategies, take-out arrangements, and the broader commercial market aspects necessary for such an initiative. The Finance Minister raised concerns about the creation of potential unfunded liabilities, similar to the issues faced by Wapda with its green bond. The mechanism for PSIB, according to the minister, needs to incorporate provisions for mitigating any financial risks and ensuring that the government is not burdened by unforeseen liabilities. The ECC, while acknowledging the idea of raising funds through capital markets, advised that instead of pursuing small-scale investments, larger companies should be encouraged to participate through a more structured syndication strategy.

The ECC also stressed the importance of exploring capital markets to bridge the financing gap, emphasizing the need for alternative sources of financing beyond traditional bank loans. The Ministry of Federal Education outlined the role of NAVTTC, which was established in 2006 with a mandate to lead Pakistan's national technical and vocational training program. NAVTTC aims to develop a workforce that meets the demands of both local and international job markets. In a rapidly evolving global job market, the Ministry emphasized the need for NAVTTC to secure additional resources to improve the quality of technical and vocational education and training (TVET) and reduce dependence on public funding. Drawing inspiration from international examples like the UK's Skill Impact Bonds (SIBs), India's successful attraction of over $600 million in foreign direct investment, and other countries' experience with such bonds, the ministry aims to use PSIB as a model to address funding challenges in the TVET sector. The PSIB concept introduces a shift from traditional funding models to a demand-driven and outcome-based approach. Investors in PSIB will provide initial capital and receive returns based on the achievement of measurable social outcomes, as verified by a third party. The initial phase of the PSIB will involve NAVTTC, with assistance from a bank as a risk investor, issuing bonds worth Rs1 billion, backed by a government guarantee. The Finance Division has agreed to provide this guarantee, subject to ECC approval. The additional funds will be used for high-employability TVET interventions, targeting both domestic and international labour markets. PSIB aims to leverage private investment to reduce the government's financial burden, reallocating public funds to other urgent needs while scaling and improving the quality of TVET programs. The ECC, however, deferred the decision on providing the Rs1 billion government guarantee to NAVTTC for the launch of PSIB. They instructed the Ministry of Federal Education to submit a more comprehensive business plan addressing all necessary aspects, including syndication strategy, take-out arrangements, and cash flow details, before proceeding. The approval from the Special Investment Facilitation Council (SIFC) for the sovereign guarantee further solidifies the significance of this initiative, but a robust plan remains critical to moving forward.