Macro Bites

Macro Bite # 13

6 min read

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How does the government allocate funds to the budget in Pakistan?

Continuing where we left off with our discussion on government budgets last time, let’s dive into what we spend on education. But before we do that, some metrics to assess education:
  • Literacy rate: Proportion of population that can read and write (10 years and above)
  • Adult literacy rate: Proportion of population that can read and write (15 years and above)
  • Secondary educated: Proportion of population with some secondary education (25 years and above)
  • Mean years of schooling: Years of education the average citizen has completed

Harmonized test scores: Unified global test results to judge learning outcomes

We don’t spend enough

Source: Economic Survey of Pakistan 2019-20

Pakistan’s public expenditure on education is just over 2% of GDP, which is less than half the average of 4.7% in other emerging markets. This spend seems low but before the 18th Amendment, when education was devolved as a provincial subject, spend used to average between 1.7-1.8% of GDP. Additionally, the private sector also spends as much as the public sector on education in Pakistan.

According to I-SAPS, parents privately spent PKR 829 billion on education in Pakistan, with half (PKR 398 billion) going to private schools and the rest to the “shadow sector” that includes tuition centers. This private spend on education is similar to the outsized spend on housing we have spoken about before. Due to inadequate support from the state, the average citizen has to spend more than they should, which leads to lower domestic savings

Literacy is a problem

Punjab’s consistently higher public spend on education has resulted in a higher level of literacy while the whole of Pakistan lags other regional economies. Pakistan’s average literacy rate is 60%, ranging from 64% in Punjab to 40% in Balochistan. Our adult literacy rate is lower at 57% and compares embarrassingly with rates from other regional peers. The situation at secondary education level is even worse.

Source: Economic Survey of Pakistan 2019-20; Human Development Indicators 2019

Human Development Indicators have started using a new metric of mean years of schooling. The latest numbers suggest that the average Pakistani has completed 5.2 years of schooling as compared to Bangladesh’s 6.1 years, India’s 6.5 years, Iran’s 10 years and Sri Lanka’s 11.1 years. Across most metrics, you will notice education in Pakistan lagging behind other countries.

To get rich is glorious

As discussed before, Pakistan’s level of intergenerational mobility is quite low, which means there is a high likelihood that rich will remain rich for generations to come. A primary reason for this is the disparate access to education for the rich and the poor in the country. While the average literacy for the country is at 60%, the level for the richest and poorest households is 83% and 35% respectively. Even with qualitative metrics, the highest quartile of wealth holders performed almost twice as well as the lowest quartile.

Source: Pakistan Social & Living Standards Measurement Survey 2018-19; ASER Report 2019

As the poor continue to be left behind in education, they will be left behind in access to better job opportunities as well. This cycle will continue to perpetuate and lead to increasing income inequality in the country.

Money buys higher scores

While the causal relationship is unclear, developed countries with higher incomes are more likely to have better educational outcomes. With lower per capita GDP than India, Bangladesh, Sri Lanka and Iran, it is expected that Pakistan will have lower test scores than these countries. However, it also slightly lags behind Afghanistan, which is a much poorer country. To understand the curious case of Vietnam, read the full article below

Source: World Development Indicators

The middle is missing

Source: Economic Survey of Pakistan 2019-20; Excludes Pre-Primary enrollment of 12-13 million students

Tertiary education and specifically university enrollment an indicator of the quality of a country’s workforce. In Pakistan, public and private tertiary enrollment makes up just 7% of total enrollment compared to 15% contribution of just private university enrollment in Vietnam. The issue of lagging tertiary education in Pakistan actually begins in middle school. Growth rates for enrollment in middle school (3.4%) are the lowest across all other education levels.

We don’t like the middle


Source: Pakistan Social & Living Standards Measurement Survey 2018-19

The missing middle is confirmed when we consider dropout rates by class levels. Starting from almost zero in Class 1, the rate rises to almost 19% in Class 6. As compared to 2014, dropout rates across class levels fell in 2019 but the highest proportion of students continued to drop out in Class 6, after they enter middle school. Over half of the bottom 50% of wealth holders in Pakistan reported poverty as the reason for leaving or never enrolling in school. This shows the impact that economic status continues to have on enrollment decisions in Pakistan.

Higher education gets more money

The issue of dropping out in middle school is important because it reduces the pool of future students that can be enrolled in secondary and later tertiary education. They eventually lose out on higher paying jobs and hence the cycle of low social mobility continues.

Source: Research Consortium on Educational Outcomes & Poverty

Dropping out in middle school is actually a rational choice for wageworkers because the value add from just enrolling in middle and lower secondary school is negative.This implies that middle and lower secondary school educated dropouts have less value in the job market than primary school dropouts. This should make intuitive sense since the skills gained in classes 6-8 only prepare you for coursework in class 9 and above. The next significant returns to education after primary school are experienced in higher secondary and tertiary education with the reward of higher paying jobs.

If you want to know what the government is doing to tackle the issue of ~23 million children out of school in Pakistan, read the full article below. A lot of effort will be required to bring the state of education in Pakistan up to regional standards and ensure the necessary human capital development that future growth will require. We will discuss another important component of human development of health next time.

Read the full article in the link below

Why has education in Pakistan lagged behind?

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Faiz Ahmed

MBA Candidate at Harvard Business School with prior experience at Bain & Company, International Finance Corporation and State Bank of Pakistan. He is also the Founder of Macro Pakistani.

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