ISLAMABAD, April 25: The World Bank has asked Pakistan to substantially improve its transport sector, which causes at least Rs180 billion annual loss to the economy, to reap the benefits of rising growth.

A senior government official told Dawn on Sunday that since the transportation currently accounts for about 10 per cent of the GDP, it would continue to drain the resources with even higher rates until its high levels of slippages are blocked immediately.

The losses would rather multiply in the coming years and increase the production costs with higher transportation needs as the economy enters into the expansion stage. And more so, if the regional trade expands.

The bank estimates that port inefficiencies at Karachi and tariff distortions are adding around Rs50 billion per year to transport costs. This includes Rs12 billion in higher freight rates, Rs9 billion in port processing costs, Rs18 billion in low containerisation and Rs12 billion due to increased inventories.

Similarly, roads cost Rs50 billion per year because of the poor network conditions and another about Rs50 billion per year in road accident costs. Furthermore, trade and transport facilitations costs Rs30 billion per year. In addition, there are potential losses of Pakistan Railways and other transport enterprises.

"Transportation currently accounts for about 10 per cent of the GDP and 17.3 per cent of the gross capital formation. It is inefficient and costly and imposes an annual cost of Rs180 billion or five per cent of the GDP," the bank recently communicated to the finance ministry.

The road sector dominates the transport sector, accounting for 90 per cent of passengers traffic and 95 per cent of freight. The network is comparable in density (0.3km/square km) to other developing countries in the region.

It, however, faces severe limitations in the form of poor quality, a serious shortfall in tertiary roads needed for basic access in poor areas, investments in economically unviable mega projects, a huge unfinished portfolio of investment works that has increased budget rigidities and one of the worst safety records.

The road sector has been the major recipient of public sector funding. Total expenditure on roads are about Rs20 billion per year of which 65 per cent of the required amounts for the national and provincial networks. In 2001, whereas Rs21 billion were spent on roads, assets worth about Rs16 billion were lost as a result of deferred maintenance.

The rapid growth of the road sector has in part been at the expense of railways. Currently, Pakistan Railways accounts for only five per cent of freight traffic, compared with 73 per cent in 1955-60.

Its share of the passenger market has dropped from 42 per cent to nine per cent in the same period. This shift is primarily due to mismanagement and resulting poor service, the World Bank notes.

It says that Pakistan Railways is one of the largest public money-losing operations in the country, with recent (1999-2000) annual deficits regularly hitting the Rs6-7 billion mark.

The reduction in railway deficits is not possible on long-term basis in the face of conflicting fare structures, decaying rolling stock and infrastructure and huge fixed costs coupled with low employee productivity.