s Pakistan confronts a youth bulge and a growing mismatch between workforce skills and labour market demand, there is an urgent need to rethink how government and development partners fund skills development programmes. Traditional input-based financing mechanisms have fallen short in delivering sustained employment outcomes. Outcome-based financing models—particularly those linking disbursements to clear metrics such as formal employment and job retention—are gaining traction globally for their ability to drive accountability, efficiency and impact.

Outcome-based financing (OBF) links disbursement of funds to the achievement of predefined outcomes. The desired outcomes can include job placement, income growth or job retention. This shift from inputs (e.g. number of enrolled/passing out students) to outcomes aligns financial incentives with programme success, requiring that the service providers focus on quality and relevance rather than mere delivery. This enhances accountability by imposing a results-oriented culture where service providers are responsible not only for delivering training but also for ensuring that the beneficiaries are meaningfully employed.

This promotes efficiency, as funds are disbursed only after outcomes have been verified, reducing the risk of waste and promoting cost-effective interventions. It also fosters a demand-driven approach by incentivising service providers to tailor training to labour market needs and encourages innovation in pedagogy, employer engagement and support services like job matching.

Traditional financing disburses funds based on projected budgets and completion of inputs, sometimes leading to underwhelming results in employment outcomes. In contrast, OBF structures focus on actual success. Although the upfront investment in design, monitoring and evaluation may be higher, the cost per successful........

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