ISLAMABAD, March 20: The World Bank will provide $350 million Structural Adjustment Credit (SAC-2) by June 30 this year to help improve Pakistan’s Balance of Payment (BOP) position.

According to sources in the local multilateral agencies, the amount of SAC-2 could be a little higher and will be disbursed as a “single tranche”, like that of SAC-1 that amounted to $350 million. The SAC-1 was disbursed in August, 2001.

Quite like SAC-1, SAC-2 also carries just 0.7 service charges to be offered from the International Development Agency (IDA) window.

However, the World Bank expected the government’s social spending targets to be in line with the Poverty Reduction Strategy Paper (PRSP) prepared with the help of major international donor agencies.

The sources said the World Bank had also indicated making available additional funds for health and education.

While the bank’s authorities believe that macro-economic conditions have improved in Pakistan, they contend that exports need to be increased and positive environment created for attracting foreign investment.

Pakistan has been asked to improve law and order situation and ensure continuity of economic policies, the sources said. In this behalf, the example of differences with Independent Power Producers (IPPs) was cited which had been given a tough time even though they invested huge sums in their ventures.

“The IPP issue is still causing a lot of problems as the foreign investors often quote the instance of Hubco which had to suffer in the past due to its differences with the Nawaz government,” a source said.

The World Bank appreciated poverty reduction programme, good governance and decentralisation, but it believed that corruption needed to be overcome. “There is a lot more to do to have cleaner government,” a source said.

Similarly, the government was expected to improve delivery services, especially in the rural areas. The shift in the government’s thrust from building motorways, telecommunication projects and developing infrastructure to increasing spending in social sectors and alleviating poverty was lauded. The bank said the present government was spending 4 per cent of the GDP on social sectors compared to 2 per cent of 1980s, and 2.5 per cent of 1990s.

The World Bank has noted less than 5 per cent of the GDP spending on defence compared to 7 per cent of late President Zia ul Haq’s period.

But the bank has asked the government to implement Shahid Hussain report on tax administration to improve revenues and plug leakages. The government’s enhancement of General Sales Tax (GST) coverage, nonetheless, is seen with appreciation.

In the changed scenario, the World Bank has been assured that the government will not amend 1973 Constitution to bring any changes in the revenue matters and that provincial and local governments could raise their taxes without violating any provision of National Finance Commission (NFC) award.

The WB believed that the government had improved export rebate system and that interest rates of the banks were reasonably good. Improvements in exchange rate management were also appreciated. “Macro-economic environment today is better than what it was a few years ago but the law and order situation will have to be improved to restore the investors’ confidence,” a source said.