Pakistan : Achieving Results in a Challenging Environment

Synopsis

Throughout its history Pakistan has been plagued by cycles of high growth interrupted by shocks and crises and followed by relative stagnation. Social indicators for both health and education have remained low and have lagged behind other countries in the region. The next few years are deemed critical in terms of gaining fiscal and economic stability required for equitable growth and development.

Challenge

Pakistan has a population of over 162 million, with over 60 percent living in rural areas. The country continues to under-perform as compared to other countries at similar levels of per capita income in terms of economic growth and social development. Particularly, Pakistan lags behind comparative countries in nutrition, literacy, gender equity, and access to health facilities and clean water. Social and human development is constrained by a lack of reliable and sustainable livelihood opportunities.

Pakistan has faced significant political, economic, constitutional challenges over the past four years. The sharp rise in international oil and food prices, combined with expansive domestic policies, had a devastating impact on the economy. As the fiscal and trade deficits increased sharply, economic growth slowed down from about 7 percent in 2006/07 to only 1.2 percent in 2008/09; inflation soared to over 20 percent; and the favorable debt dynamics stalled. A government facing challenges on various fronts has found it difficult to sustain bold actions required to stabilize the economy. Revenue efforts fell well short of the desired levels and hemorrhaging of the budget continued due to government’s inability to reduce untargeted subsidies. Monetary modes of financing the high fiscal deficits thwarted all attempts to tame inflation. The devastating floods in mid-2010 further added to economic woes of the country. With an estimated damage of over US$ 10 billion, the floods interrupted economic recovery and added to inflationary pressures. As such, Pakistan’s gains in poverty reduction over the last 7-8 years may have been partly reversed. Flood-related reconstruction activities will span several years, and therefore impose durable pressure on the already small fiscal space. In addition, the rising levels of ethnic and religious strife, conflict and insecurity have further limited the country’s capacity to deal effectively with persistent poverty.

A number of critical challenges that Pakistan needs to address to accelerate growth are:

• Weak revenue mobilization;
• Poor composition and efficiency of public expenditure;
• Inadequate and unreliable infrastructure;
• Low level of human development
• Conflict and insecurity;
• The imminent demographic bulge, which would require jobs for a young, growing and increasingly urbanized population; and
• Poor and deteriorating level of governance in a context of accelerated decentralization to provincial governments.

The Government’s strategy focuses on regaining macroeconomic stability after the economic crisis and on structural reforms required to support the recovery of strong and sustainable growth. The government’s overall vision is to steer Pakistan’s economic growth back to the range of 5-7 percent per year by stimulating growth in the production sector; creating adequate employment opportunities; improving income distribution; and harnessing the country’s economic competitiveness through economic liberalization, deregulation and transparent privatization.

Approach

The Bank’s Country Partnership Strategy (CPS) is directly linked to Pakistan’s own development vision. The Bank’s support is focused on, inter alia, helping the country maintain economic stability by addressing critical long-term constraints to growth; assisting the government to put in place a safety nets system that adequately and effectively protect the poor from economic shocks; and supporting education reform programs to increase school participation, reduce gender and rural-urban disparities, and improve quality and governance. The Bank is also helping Pakistan cope with the consequences of conflict while reducing the prospects of future conflicts through its engagement in the country’s border areas.

As of March 1, 2011 Pakistan’s portfolio consisted of 22 active projects with the total commitment (IDA + IBRD) of US$3.822 billion. The Pakistan Trust Funds portfolio has 55 active grants with a total commitment of US$ 110.405 million.

Results

The World Bank, Pakistan is helping the Federal and Provincial Governments in implementing various reform programs aimed at encouraging growth, investment, and employment generation. Reforms at the provincial level are specifically aimed at improving delivery of social services like education, health, clean drinking water, and sanitation. These efforts have yielded impressive results in many areas:

• Investing in Education: The Bank supports government programs to improve access to education that focus explicitly on the achievement of results. Between 2004 and 2011, IDA extended over US$1.1 billion to support increased investment and reform in the education sector in the two largest provinces in Pakistan: Punjab and Sindh. These efforts, including reforms in teacher recruitment and payment of stipends for girls’ attendance, have started to translate into increased enrollment rates. For example, overall net primary school enrollment in Punjab increased from 45 percent in 2001 to 62 percent in 2008. Female primary enrollment went up from 43 percent to 60 percent. Similar enrollment results have been achieved in Sindh. Other achievements in Sindh include merit-based recruitment of around 13,000 teachers and 300 new private coeducational primary schools in underserved rural communities which are supported by public cash subsidies of US$4–6 per student per month conditional on free schooling and stipulated school quality standards. These schools have over 26,000 students and evidence suggests that the school participation rate has increased from 30 percent to 80 percent in these communities, and that gender disparity in school participation has been eliminated.

• Responding to natural disasters: Over the course of the monsoon season in July and August 2010, Pakistan experienced the worst floods in its history. The floods affected 78 districts and nearly 10 percent of Pakistan’s population over a vast geographical area. The Bank has provided strong support for floods recovery, consisting of $300 million in critical import financing, $20 million for highways rehabilitation, and $125 million to finance cash transfers to around 1.4 million flood affected families. The Bank also provided support to the Government of Pakistan when the earthquake hit Pakistan on October 8, 2005. The earthquake left 2.8 million homeless, and 570,000 houses damaged, with 90% requiring total replacement. The Bank provided $400 million for Earthquake Reconstruction out of which $220 million was for housing reconstruction. 96% (335,000 houses) of the 350,000 houses have been completed under Rural Housing and Reconstruction Program and have also been certified.

• Protecting the poorest: In social protection, the Bank has helped the government in establishing the social safety net systems. The Benazir Income Support Program (BISP) is the country’s national safety net program and the Bank’s support focuses on increasing its targeting efficiency and strengthening its operation. This cash transfer program offers a monthly payment of Rs. 1,000 to qualifying households. In 2011 it is expected to cover about 7 million households or about onequarter of Pakistan’s total population.

• Operating in conflict areas: The conflict in Khyber Pakhtunkhwa (KP) and the Federally Administered Tribal Areas (FATA) led to one of the worst security crises in Pakistan’s history, displacing millions of people and severely disrupting lives, livelihoods, and the provision of public services. The Bank is now administering the Multi-Donor Trust Fund (MDTF) for KP, FATA and Balochistan, which supports the implementation of a program for reconstruction and development aimed at facilitating the recovery from the impact of the armed conflict and reducing the potential for escalation or resumption. Ten donors have contributed a total of US $140 million for the MTDF. In 2011, the Bank provided an IDA credit of US$250 million - supplemented by $35 million MDTF grant - to finance cash transfer to conflict-affected households in the KP and FATA.

• Supporting rural livelihoods: The Bank has supported Pakistan Poverty Alleviation Fund (PPAF) since 2000 and during this time, the program has facilitated the formation of 80,000 community organizations and provided 1.9 million micro-credit loans, 16,000 community infrastructure schemes, and training support for 232,000 people in enterprise development skills. The World Bank is also assisting the Government of Azad Jammu & Kashmir (AJK)* in implementing a program to restore vital economic and social infrastructure damaged and/or destroyed by the October 2005 earthquake by financing reconstruction of 201 primary schools, 35 other buildings including government offices, police stations, and vocational training institutes, and 24 rural roads. 190 sub projects including 24 rural roads and 166 buildings are complete. Work on 50 sites is above 80% completed, on 13 sites it is more than 60 % and on remaining seven sites it is about 50% complete.

• Connecting the Poorest: The Bank is working to address Pakistan’s vast urban and rural infrastructure deficits, often cited as the greatest constraint to sustained, rapid growth. Through its ongoing US$ 495.0 million Highways Rehabilitation Project, the Bank is helping Pakistan to improve its road network. Major achievements include: (a) road network in poor condition reduced from 49% to 39.5%; (b) network-level ride quality (measurement of how bumpy or smooth the road is) improved by 15%; (c) travel time between Karachi and Peshawar reduced from 47 hours to 42 hours; (d) fatalities on Grand Trunk Road decreased from 107 to 60 per km.

Bank Contribution

During the past five years, from Fiscal Year (FY) 2007 to March 2011 the Bank approved 35 operations totaling around US$5.0 billion (IDA $ 4395.27 million + IBRD $ 634.4 million) for Pakistan. Stringent implementation of the economic program will be critical to success, and timely responses of fiscal and monetary authorities to emerging risks will be essential to ensure it remains on track.

Partners

The World Bank works closely with a large number of donors in various activities. Partners include Asian Development Bank (ADB), the European Union (EU), United Nations (UN), USAID, United Kingdom’s Department for International Development DFID and other bilateral partners.

A good example of exploiting synergies with partners is the Bank’s work with DFID, EU, and the Canadian International Development Agency CIDA, around the medium term education sector reform programs of Punjab and Sindh.

Post-crisis support for KP and FATA is a priority where the Bank from the very start has sought enhanced coordination among all interested partners. The MDTF for the border region aims to facilitate harmonization of donor programs with government’s priorities as well as a mechanism for enhanced donor coordination across sectors in line with strategic priorities agreed between donors and government. Australia, Denmark, the European Union, Finland, Germany, Italy, Sweden, Turkey, UK, and the USA have agreed to pool a total of $140 million through the Fund to support these reconstruction activities.

Moving Forward

The Bank is deepening its engagement on social protection, community-led development, water management, agriculture, energy, and infrastructure, while maintaining strong programs in education, and irrigation.

Recognizing the challenges and uncertainties facing Pakistan in the coming few years, the Bank’s strategy emphasizes a more focused prioritization on key outcomes with flexibility to enable the Bank Group to meet emerging challenges and opportunities.

Beneficiaries

Pakistan Poverty Alleviation Fund (PPAF) has supported 3.8 million microcredit loans in different parts of the country. Samina, a resident of Azad Jammu and Kashmir (AJK)* is one of the beneficiaries of these loans. Her life was completely changed with the training and microcredit given by the World Bank supported PPAF. She said, she had no resources available for her before this program and this has turned her life around by helping her in generating household income for her kids “My husband is not well and has some psychological problem and I have two kids. The vocational training that I received by PPAF is helping a lot in running the daily expenses of my house.”

Akbar is a very dedicated student in one of the schools in Punjab. He is very excited about the positive change in his school. He is proud of the fact that he goes to school regularly. This school comes under the Punjab Education Reform Program. “I am studying in this school since I was in nursery. The building of the school has improved remarkably and the teachers come to school regularly and so do we.”