ISLAMABAD, Nov 5: The World Bank would accord top priority, under the new political setup in Pakistan, to the development of mining and natural resources sector through private investment as part of its fresh country assistance strategy (CAS).

Sources in the economic affairs division told Dawn on Monday that the sector has been identified as a major growth area because of its potential importance in improving macroeconomic stability through external and fiscal accounts and broadening access to growth and employment opportunities both geographically and socially.

The private sector country assistance strategy for Pakistan has been prepared in consultation with the military authorities but would have to be implemented by the new elected administration.

The Bank believed that Pakistan’s rich and extensive mineral resources like zinc, copper, gold, iron ore, marble and others, under conservative assumptions, could potentially contribute annual foreign exchange earnings of $1.7 billion or 3 per cent of GDP and tax revenues to central and local governments of $200 million a year.

Development of mineral resources would act as a powerful engine of growth for SMEs and local community development in largely remote regions of the country such as Balochistan. Currently, however, mineral exploration contributes barely 0.4 per cent of GDP despite government’s interest in developing the sector.

While the expected benefits will materialize beyond the planning horizon of this country assistance strategy, the immediate objective of the World Bank will be to support establishment of modern regulatory environment for mining that enhances Pakistan’s competitive position in attracting private investment and encourages environmental and social sustainability, these sources said quoting the CAS that was submitted to the federal government recently.

The strategy will focus on supporting the federal and provincial governments in their elaboration and implementation of a modern regulatory framework and improving their capacity to manage the instability of government revenues associated with extractive industries. The Bank will respond to client “pull” from both central and provincial governments for assistance in referring the legal, regulatory and fiscal frameworks and developing institutional capacity to facilitate and promote environmentally and socially responsible private sector mining development both for coal and for non-fuel minerals.

The Bank said that investment fell as share of GDP throughout the 1990s, reaching an all-time low in 2000/01. The rapid decline in investments by government and public enterprises accounted for most of the drop. Investment by the private sector was flat until the mid-1990s, followed by a slight, short-lived spike and then a sharp drop after the 1998 sanctions and ensuing macroeconomic crisis.

Averaging less than one per cent of the GDP, FDI remained small in Pakistan throughout 1990s with the exception of 1995-97. Between 1996 and 2001 most FDI was directed to domestic oriented and highly capital-intensive industries, notably power generation, oil and gas and chemicals but surprisingly little to export oriented industries.

Pakistan’s mining industry is dominated by the public sector through federal and regional development corporations with little foreign investor involvement. There is little or no modern exploration and what little development has occurred has been restricted to simple technologies and has been poorly planed and managed especially the environmental and social impacts.

The main reasons for the missed opportunities are the uncertainty created by the inadequacies of mining concessions rules which fail to meet international standards, lack of supporting infrastructure like railway freight and perceptions of political and security risk associated with the geographic location of the bulk of mineral resources.

The Bank said that the federal government has recently issued its national mineral policy which approaches international standards and provides a basis for improving the business environment.

It has also created an export processing zone arrangement for export oriented mineral development. These recent developments are steps in the rights direction but they remain untested and more remains to be done to bring the mining regulatory structure up to international standards and make it attractive to foreign investors, the Bank said.

Modernization of the regulatory framework rests largely with provincial governments but will also require further actions by the federal government such as foreign exchange and trade regulations to provide the right incentives to private investors and to provincial governments to modernize.