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ISLAMABAD, July 30: The country’s economy faces serious challenges and major risks emanating from a variety of internal and external sources, says the World Bank.
According to the World Bank’s Country Assistance Strategy (CAS) released on Tuesday, the main risk comes from uncertainty about a sustained implementation of reforms after October polls, particularly in the face of domestic opposition from ‘vested interest’ and possible opposition to the policies introduced by the present government.
The CAS refers to uncertainty over the reform of the elementary education system, including the attempt to regulate religious schools and the pro-gender equity policies.
The World Bank says that the government has rightly decided not to complete the Poverty Reduction Strategy Paper until after the new government is in office to ensure the latter’s endorsement of the PRSP.
The Bank and other donors are working together with the government to improve its capacity to manage the implementation risk. The “complacency” risk is mitigated by the sound debt reduction strategy which has been under implementation for the past three years to rapidly restore creditworthiness and reduce over-reliance on international financial institutions’ assistance.
There are many other risks which could cause problems in reducing the poverty. “The low tax/GDP ratio may prove difficult to raise significantly over the next three years”. Lower growth caused by the impact on exports of a longer-than- expected global slowdown or protracted military operations in Afghanistan, or weather related shocks to agricultural output. These shocks could, in part, be weathered by the floating exchange rate regime but would have also to be met through a combination of additional adjustment measures and external financing.
The Bank Group support programme is self-adjusting to mitigate the risk of reform derailment. Substantial lending will continue only as long as Pakistan continues its implementation performance of the past two years. Lending is subject to Pakistan being “on track” in implementing the poverty reduction and economic management strategy, including those under the PRGF.
MODERN ISLAMIC STATE: The World Bank will offer substantial financial and technical support to Pakistan “for a transition to a modern Islamic state” through a programme of analytical services, institution capacity building and demand-pull lending.
The World Bank’s Country Assistance Strategy provides the roadmap for extending assistance to Pakistan for fiscal years 2003 to 2005. The bank’s new support aims at strengthening fundamental socio-economic reforms in the country.
The CAS identifies three lending scenarios for Pakistan. The equivalent to $400 million per year is the IDA (International Development Association, the interest-free arm of the World Bank Group) allocation for the base case scenario and the equivalent to $600 million a year for the high case over 2003-05.
In the high case lending scenario, the bank would resume International Bank for Reconstruction and Development (IBRD) lending from 2003-04. These lending scenarios will be guided by two sets of triggers, one linked to provincial reforms, another to each of the three pillars of the assistance strategy: macro-economic stability and governance, an improved business environment for private investment and advances in human development. The bank appreciates Pakistan government’s commitment to its reform agenda. But it says that Pakistan still faces formidable challenges (political, attitudinal and policy) to fully develop human capital, improve the investment climate, and increase productivity growth to bring the economy to 5-6 per cent annual growth rate achieved in earlier decades, or even higher, to significantly reduce poverty.
