The federal government has taken a principled decision to make government financial assistance to all state institutions conditional on performance and a new funding formula for institutions has been proposed in this regard.
According to the report, the federal Ministry of Finance has proposed a new model of performance-linked funding.
The document issued by the Ministry of Finance states that under the proposed model, state institutions will have to meet specific targets for funding, financial assistance will not be provided until the institutions meet specific targets.
The report further stated that the purpose of results-based funding is to promote financial discipline and, in addition to improving operational performance, to bring institutions out of financial loss and towards value addition.
According to the report, financial assistance will be reduced in case of failure to achieve the targets. The new funding model is a long-term strategy that seeks to make institutions self-sufficient by removing them from the financial patronage of the state.
The report further said that the aim of this initiative is to ensure that every rupee of government money is used for the development of the country. This is a clear message to state institutions that mere survival is no longer enough. Institutions have to use their resources effectively and show better results.
The Finance Ministry report further said that taxpayers’ money can be used for better purposes. The continuous financial support of state institutions has given rise to inefficiency.
The report said that unconditional support of state institutions has wasted national resources. This will result in innovation in institutions, reduce their costs and encourage strategic reforms.
The report said that institutions that were originally supposed to be a source of economic development have become a financial burden due to unaccountable funding. Such state institutions burden the national budget every year.
The Finance Ministry further stated that some state institutions have a negligible role in the economy or public services, the government repeatedly provides capital to loss-making institutions, this capital is usually given without any clear performance and roadmap.
This investment results in operational stagnation, poor governance, misprioritization of goals.
The report further stated that when investment is independent of the availability of results, fiscal discipline is weakened.