ISLAMABAD: With the approval of $250 million by the Asian Infrastructure Investment Bank, for the Second Resilient Institutions for Sustainable Economy (RISE-II) development policy financing, the government is now in full gear to implement critical policy reforms to accelerate economic recovery and build the foundations for sustainable growth.

Last week, the World Bank had approved $350m for the second phase of the RISE project, which was followed by the Beijing-based AIIB to approve $250m for the $500m project.

RISE-II is supported under the Covid-19 Crisis Recovery Facility of AIIB and co-financed with the World Bank as a development policy financing (DPF) under the WB’s DPF Policy to further key institutional and policy reforms.

AIIB co-financed RISE-I with the World Bank in 2020, which was first in the proposed programmatic series to assist the Pakistan government strengthen its policies for improved macroeconomic management and business competitiveness in the medium term.

The objectives of the second programmatic operation are to strengthen the country’s macroeconomic management and support a more sustained and inclusive growth by mitigating the compounded socioeconomic effects of the Covid-19 pandemic and other exogenous and domestic shocks.

Objectives and goals

The newly-approved operation will provide external financing to help the government implement critical policy reforms to accelerate economic recovery.

Specifically, RISE-II seeks to further address key institutional and policy constraints for effective fiscal management and private sector investments to induce economic growth and reduce poverty by enhancing the policy and institutional framework to improve fiscal management; and improving the regulatory framework to foster growth and competitiveness.

Reforms supported by the programmatic series are relevant to current economic challenges and have already contributed to important outcomes of strengthening institutions for fiscal and debt management, broadening tax base and reducing distortions, eliminating trade barriers, and rationalising power sector subsidies.

An AIIB document says the programme results will be achieved under two reform pillars. The first pillar focuses on reforms that will enhance macro-economic stability and fiscal management by improving fiscal policy coordination; enhancing debt management and debt transparency; broadening tax base and reducing distortions in tax policy; reducing the stock of circular debt in the power sector; and addressing unsustainable and inequitable power subsidies.

Measures under the second pillar will improve the regulatory framework to foster growth and competitiveness by harmonisation of the general sales tax; financial sector transparency and deepening; increasing the use of digital payments; and reducing anti-export bias of the National Tariff Policy.

The World Bank’s DPF policy requires the bank to determine whether the specific policies supported by a development policy loan are likely to have significant social and poverty consequences, especially on the poor and vulnerable groups or to cause significant impacts on the country’s environment, forests, and other natural resources.

The World Bank has determined that the policy and institutional reforms supported by this operation are unlikely to have significant adverse poverty and social impacts and some prior actions are expected to have positive impacts on gender inclusion and poverty reduction. Most policy reforms supported by this operation are expected to have positive environmental impacts by increasing the budgetary allocations for environmental management and contributing directly to climate change mitigation and adaptation.

Published in Dawn, December 29th, 2023