ISLAMABAD (Financial Updates): The World Bank said that during the previous CAS period strong growth and rapid poverty reduction through 2007 stalledas the economy faced crisis in 2008.
In a COUNTRY PARTNERSHIP STRATEGY FY 2010-2013, the World Bank siad that an ambitious reform program of the government elected in 2008has reduced the fiscal and, in particular, the external current account deficit, increased GDP growth,restored foreign exchange reserves, and reduced inflation.
The reforms have also resulted in a significantincrease in power tariffs along with an automatic pass through of international fuel prices. Thegovernment still has more work to do in a difficult security environment to further reduce inflation andthe fiscal deficit, particularly to eliminate the large losses of public sector entities in the power, transportand manufacturing industries, and increase public revenues through the introduction of a value added taxand better tax administration. The country's top leadership is cognizant of this and is committed tocontinue spearheading reforms in these areas.
ii. The Government’s strategy focuses on regaining macroeconomic stability after the economiccrisis and on structural reforms required to support the recovery of strong and sustainable growth. Theoverall vision of PRSP-II is to steer Pakistan’s economic growth back to the range of 5-7 percent per yearby stimulating growth in the production sector; creating adequate employment opportunities; improvingincome distribution; and harnessing the country’s economic competitiveness through economicliberalization, deregulation and transparent privatization. The strategy recognizes that to steer Pakistanback on a path of broad-based growth, create jobs, and reduce poverty, a prolonged period ofmacroeconomic stability, financial discipline and sound policies is required.
iii. Lessons Learned from the Previous CAS. The CPS reflects lessons learned from the Bank’s pastengagement in Pakistan. In particular, the need to adapt to a rapidly changing political and securityenvironment during implementation of the FY06-09 CAS highlights the need for flexibility. In addition,the proposed CPS will focus more on the longstanding structural problems (like tax revenue mobilizationand power) that contributed to the rapid erosion in growth and stability during 2007 and 2008. Reflectingthe need for greater realism, the proposed CPS outlines a less ambitious priority IBRD/IDA lendingprogram while leaving open the possibility of doing more should conditions permit. Finally, givenPakistan’s unique development and geopolitical challenges, enhanced partnership arrangements arecritical.
Bank Group Assistance Strategy
iv. This CPS seeks to support Pakistan to address some of the major institutional, policy andfinancing constraints on its capacity to achieve and sustain high economic growth rates, to manageconflict and to improve the social indicators and capacity of its population. The World Bank Group’ssupport to Pakistan will be organized around four pillars: (i) improving economic governance; (ii)improving human development and social protection; (iii) improving infrastructure to support growth;and (iv) improving security and reducing the risk of conflict. v. Improving Economic Governance. Addressing the shortcomings of Pakistan’s economicmanagement is critical not only for restoring macroeconomic stability but also for reducing the likelihoodof reversals leading to another cycle of growth giving way to stagnation. Enhancing domestic revenuemobilization will be the urgent priority during the CPS period. Strengthening public expendituremanagement at all levels of government will complement this focus. The strategy also focuses ongovernance of markets with a view to strengthening Pakistan’s competitiveness by addressing barriers tocompetition, and factor market rigidities (including constraints in access to finance). The World Bankwill support improvements in the legal and policy framework for growth through analytical work andii policy-based lending. Through AAA and policy dialogue the Bank will support increased efficiency,competition and broadening of financial markets as well as improvements in financial infrastructure. Anintegral part of IFC’s strategy in Pakistan is to increase access to finance to underserved groups,especially micro, small, and medium enterprises (MSMEs) by strengthening financial intermediation andbusiness management and corporate governance practices at enterprise level.
vi. Improving Human Development and Social Protection. Improvement in human development,including social protection, is critical to the goal of building resilience at the level of families andindividuals. The focus of Bank Group efforts will be to support increased spending on humandevelopment along with reforms to improve governance and accountability in the provision of serviceswith the level of Bank closely tied to the achievement of agreed results under specific programs. Therewill be enhanced attention to assessing and addressing the needs of vulnerable groups among the poor,such as women and displaced people. In education, the CPS will support government programs thatcombine supply side interventions and demand-side measures to improve access to education with a focuson equity to address regional and gender imbalances. In social protection, the Bank will sustain itspartnership with the Government in establishing the Benazir Income Support Program (BISP) as thecountry’s national safety net program with a focus on increasing its targeting efficiency and strengtheningits operation. IFC will continue to explore opportunities for investment in private health and educationsectors. Particular emphasis will be given to promoting public-private partnerships, wholesaling throughfinancial intermediaries, and technical and vocational education.
vii. Improving Infrastructure to Support Growth. At present, power is the most pressing need ininfrastructure and the Bank Group will support adoption of policies to bring about financial sustainability,expansion of generation in a least cost manner, and improvement in the efficiency of transmission anddistribution. A significant increase in IBRD lending is envisioned to support enhanced power generation.
IFC will support development of the power sector with a focus on supporting privatization of utility anddistribution companies, improving of utility efficiency and promoting energy efficiency, as well asdevelopment of renewable power generation (hydro and wind generation). IFC will be a significantinvestor in transport and logistics. In agriculture, the strategy envisions technical assistance to helpPakistan in agricultural policy analysis and design with a view to increasing agricultural competitivenessand expanding rural livelihoods. IFC will explore investment opportunities in agribusiness (includingwarehousing and logistics), and support agribusiness SMEs through financial intermediaries.
viii. Improving Security and Reducing the Risk of Conflict. The persistence of conflict in KP andFATA poses a threat to some of the most vulnerable and marginalized populations in Pakistan, while alsochallenging economic stability across the country. The absence of employment opportunities andinadequate livelihoods in FATA and KP has created a favorable environment for militant groups whoseeconomic incentives for potential recruits greatly outweigh available opportunities while political andgovernance deficits, including weaknesses in the justice system, perpetuate a historical experience ofdisenfranchisement, alienation, corruption, poverty and underdevelopment that have fuelled the crisis.
Bank support will be guided by the results of a Post Crisis Needs Assessment (PCNA) which is nowunderway. This is a highly complex area, and the Bank’s knowledge is evolving but limited. We will,however, make this a major thrust of our work. Support under the CPS may include support foragricultural/livestock-linked employment and livelihoods, expansion of general and technical/vocationaleducation, investment in energy and transport, and social protection. In addition, the strengthening oflocal government will also be a focus to enhance the legitimacy of the state and counter the claim tolegitimacy by militant groups as a viable alternative to the state.
Implementing the Strategy
ix. Recognizing the challenges and uncertainties facing Pakistan in the coming few years, thestrategy emphasizes a more focused prioritization on key outcomes with flexibility to enable the Bankiii Group to meet emerging challenges and opportunities. Hence within the overall strategic frameworkoutlined above, the strategy will prioritize Bank support as follows: First, the CPS gives special focus tothe achievement of those outcomes that have the potential to be truly transformational. These outcomesare deemed to be pivotal to the sustained achievement of most of the rest of PRSP-II objectives and CPSoutcomes and will be the areas where the Bank Group will concentrate much of its efforts. Pakistancannot effectively build the foundation to make headway on exploiting its strategic advantages andendowments in the medium to long-term without successfully addressing these very basic issues. Theseobjectives are by no means easy – indeed, many of them represent longstanding challenges whereprogress has been incremental, at best. In these areas the CPS envisions a full range of services includingAAA, IBRD/IDA financing and, where appropriate, MDTF resources for the conflict affected region.
These transformational outcomes are:
• Strengthening Tax Policy and Administration: raising the ratio of tax to GDP (currently only10.2 percent of GDP) is absolutely essential if Pakistan is to have the resources to invest inhuman development and infrastructure, and if it is to build resilience to future shocks and guardagainst costly and disruptive growth reversals.
• Expanding Power Provision: reforming the power sector and ensuring sustainable expansion ofsupplies is absolutely essential if industrial and service activity is to be increased and productivityraised.
• Addressing Security: coping with the consequence of conflict while reducing the prospects offuture conflict is essential for long term growth. This is a highly complex area, and the Bank’scompetence and knowledge is evolving but limited. We will, however, make this a major thrustof our work, giving emphasis to service provision and job creation in highly vulnerable areas,(and drawing upon emerging findings from the WDR and from work in Pakistan).
x. Second, in addition to these transformational priorities, the strategy identifies a core program ofsupport to improve educational and health outcomes, strengthen the potential for increased and moreproductive labor force participation, reinforce safety net systems and enhance the earning capacity of thepoor and vulnerable. These objectives relate directly to key elements of the MDGs and related socialoutcomes and indicators. The core program also includes selected investments in ports, watermanagement and financial management.
xi. These two areas comprise the priority lending program to be financed during the CPS. Finally,the CPS envisages the potential for the program to expand beyond this priority program to address keychallenges which do not meet all of the selectivity criteria but where the Bank would like to support thegovernment to lay the basis for interventions to successfully address significant development challenges.Such challenges include fostering livability and economic growth and dynamism within Pakistan’s majorcities and rapidly growing urban settlements, and strengthening fiscal management in Pakistan’sprovinces. The CPS will support such activities where the individual programs are ready and theprospects for success and results are strong. We will also link expansion of the overall lending programbeyond the priority program to progress being made against the objectives of the transformationalactivities. The above approach to engagement with Government under the CPS emphasizes exercisingselectivity in what we can firmly undertake to do effectively while not foregoing the option to do more, ifconditions permit. It should allow for more effective use of our resources under the uncertain conditionswe expect to continue to face in Pakistan.
xii. In line with the need for selectivity, the proposed CPS also identifies subsectors and thematicareas where the Bank will not lend. In the energy sector, given our limited resources and capacity, theBank will not engage in coal. On governance, the Bank will play only a supporting role with partnersiv leading in the areas of civil service and judicial reforms. In agriculture, the strategy envisages providinganalytical support to formulate strategies and policies to increase value-added in the sector. We mayextend this role to supporting the government to develop program platforms that may serve as vehicles forother development partners to provide financing to the sector, subject to demand from government andpartners. Finally there are sectors, like highways, where risks are such that the Bank Group will notengage pending significant improvement in institutional governance or strong measures being taken byGovernment to mitigate risks, including fraud and corruption risks.
xiii. The priority lending program amounts to an estimated $3.7 billion (IBRD/IDA) through FY12,equivalent to about 60 percent of a total potential lending envelope of up to $6.0 billion during the 4 yearCPS period (FY10-13). IFC intends to invest between $1.3 and $1.5 billion provided that the economicand security situations do not deteriorate significantly, and will continue with its robust program ofAdvisory activities. The Bank on behalf of development partners will administer complementary grantfinancing of at least $100 million for the MDTF for the Northwest Border Region. This amount mayincrease depending on developments in the region and results achieved.
Risks and Mitigation
xiv. Given the serious and multifaceted challenges that Pakistan faces, this CPS poses greater thannormal risks. The FY10-13 CPS will be implemented in the context of economic austerity with thepotential for policy reversal as well as other uncertainties. Notably, although Pakistan has made muchprogress in stabilizing the economy, reviving growth of GDP, exports and foreign exchange reserves andreducing inflation and the current account deficit, the fiscal situation remains vulnerable and inflationhigh and hence there is a risk of macroeconomic slippage. In addition, ongoing conflict within Pakistanand in Afghanistan poses a risk to stability while proposed Bank Group activities in the conflict-affectednorthwest.
No comments:
Post a Comment