ISLAMABAD, March 19: The World Bank has urged Pakistan to ensure political stability in order to attract private investment in the country.

It said that non-economic factors such as the regional security situation and the threat of terrorism will also continue to have a bearing on investment trends.

Political stability, reduction in regional tensions, improved governance and a continued forceful pursuit of the economic and social reform agenda, could contribute to achieving 6 per cent growth rate in the next three to four years, says the bank's latest study. "But this is a fairly tall order and cannot be accomplished without serious efforts being made by the government", a source in the World Bank told Dawn here on Thursday.

He said that issues concerning reduced defence expenditure and allocating more resources for human development would become the basis for increased bank's assistance to Pakistan.

The study said that more important issues that were likely to influence future private investment were the investor perceptions about political stability, the new government's commitment to sustained economic reform and its ability to bring about improvements in governance and delivery of public goods and services.

"While private investment must provide the bulk of growth in investment, it must be accompanied and supported by significant improvement in both the quality and level of public spending to overcome the key gaps in the delivery of public goods, including infrastructure".

The low level of human resource development in Pakistan is limiting productivity growth and hindering competitiveness. The study said that a centre-piece of the growth revival must be the recovery in the fixed investment rate from 13-14 per cent of GDP in recent years to around 17 per cent by 2007, led mainly by the private sector.

The implied high growth in investment over the next few years would require further efforts to improve investment climate both for domestic and the foreign investors.

Better public resource management can assist the growth in private investment in several ways, by improving governance especially law and order and access to justice, by promoting skills development, providing needed infrastructure, and by strengthening bureaucracy and making public institutions more responsive to citizens.

With continued reforms, the study said, the restructuring of public expenditures away from interest payments and public enterprize losses will create substantial fiscal space for increasing social and development spending.

However, without addressing the institutional issues that are at the heart of the effectiveness of public spending, the opportunity afforded by the likely creation of fiscal space would be wasted.

Some of the elements of public expenditure management that can make public spending more effective are: continued focus on accelerating privatization plans, making devolution work at the district level, devolving more responsibilities and finances to the provinces, adoption of medium term budgetary framework at all levels of government, moving away from excessive focus on development spending, developing public-private partnerships, delivery of social services and strengthening civil service by improving incentives, expanding opportunities for learning and more 'transparent accountabilities'.