USF Faces Cash-Flow Issues and Policy Gaps, Stalling Rural Connectivity

In a revealing assessment of Pakistan’s digital development strategy, the Asian Development Bank (ADB) has flagged severe operational and structural inefficiencies within the country’s Universal Service Fund (USF), a key vehicle meant to bridge the digital divide in underserved regions.

The startling contradiction? Despite having substantial funds on its books, USF remains starved for cash.

ADB Sounds the Alarm

In its latest report on Pakistan’s digital ecosystem, the ADB notes that the USF, while central to enabling last-mile connectivity, is struggling to execute projects due to cash-flow constraints.

Mobile internet coverage is available to more than 80% of Pakistan’s population. The remaining 20%, those in geographically challenging and economically less-viable areas were the intended beneficiaries of USF. However, delays in fund disbursement and outdated frameworks are obstructing its core mandate.

-ADB Report

The crux of the problem lies in bureaucratic barriers. Since a change in policy six years after USF’s inception, all receipts collected by the fund are deposited into the National Consolidated Fund, Pakistan’s central treasury. The USF must then request funds from this pool for project financing. This multi-step approval process has made the fund both “cash-rich on paper” and “cash-poor in practice,” according to telecom sector insiders.

What Is USF, and Why Was It Created?

Established in 2006, the Universal Service Fund Company (USFCo) was created under Section 33A of the Pakistan Telecommunication (Re-organization) Act. Its purpose is to subsidize telecom infrastructure in commercially unviable areas, thereby ensuring that rural and remote regions are not left out of Pakistan’s digital growth.

The fund is financed not by government handouts but by a 1.5% levy on the gross adjusted revenues of licensed telecom operators. It was envisioned as a self-sustaining ecosystem to promote equitable access to digital services.

To date, the USF has contributed to hundreds of projects, from laying fiber optic cables in Gilgit-Baltistan to subsidizing mobile broadband in Baluchistan. But recent cash-flow limitations are stalling critical new work.

Demand-Side Blind Spot

ADB’s report also criticizes the USF’s lopsided approach: an excessive focus on supply-side infrastructure with almost no emphasis on stimulating user demand.

The USF does not currently fund demand-creation programs. This limits its ability to incentivize telecom companies to enter underdeveloped regions.

Programs like smartphone subsidies, digital literacy initiatives, and pilot smart village projects are not being pursued, despite being crucial for enhancing adoption and sustaining private-sector investment.

By focusing only on building infrastructure without preparing the ground for its use, Pakistan risks creating digital “ghost towns”—regions wired for internet but lacking users, local businesses, or institutional capacity to harness its benefits.

ADB’s Prescription for Reform

To make the USF fit for purpose, the ADB recommends a two-pronged overhaul:

1. Channel funds through infrastructure providers, rather than service providers, which would accelerate the rollout of telecom towers, fibre, and broadband backhaul in remote areas.

2. Introduce demand-generation initiatives, such as subsidizing smartphones and internet packages or investing in digital education in schools and communities.

Crucially, the report also calls for policy realignment that allows USF to retain a portion of its collections in a separate escrow or revolving account, allowing it more autonomy and agility in fund utilization.

ADB further underscores the need for nationwide fibre optic coverage that extends to all Union Councils, laying the foundation for future-ready digital infrastructure.

A Broken Pipeline in a Digital Future

As Pakistan eyes ambitious digital goals under its “Vision 2030” agenda, including nationwide 5G rollout and universal broadband coverage, the inefficiency within USF represents a major stumbling block.

With over 40 million Pakistanis still offline and rural internet speeds among the slowest in the region, the pressure is mounting for USF to evolve from a bureaucratic relic to a nimble, strategic enabler of inclusive connectivity.

Unless urgent reforms are enacted, Pakistan’s digital divide may not just persist; it may deepen.

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