ISLAMABAD, April 10: The World Bank (WB) and International Monetary Fund (IMF) have urged the government to end “political opposition to their reform agenda” to ensure continuation of political and economic policies.

The WB and IMF’s Joint Staff Assessment (JSA) report obtained by Dawn here on Thursday identifies four risks to the implementation of reforms in Pakistan, including political opposition to reforms, lack of continuity, insufficient institutional capacity and exogenous shocks.

The report finalised early this month and handed over to the government on April 9, evaluates the strength and weaknesses of poverty reduction objectives and strategies, and considers whether the Poverty Reduction Strategy Paper (PRSP) or Interim Poverty Reduction Strategy Paper (I-PRSP) provides a sound basis for concessional assistance from the bank and fund, as well as debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) debt initiative.

Both the donors indirectly linked their financial and technical support to making improvements in the I-PRSP targets. They believed that while four risks were still prevalent, their relative importance shifted.

While some of the measures taken, for example, the gas prices increase, were highly unpopular, they were implemented in the end. The government, the report says, has clearly stated its commitments to the PRSP policy content and process. There is a substantial continuity of the economic team of the cabinet.

“However, with the government holding only a small majority in parliament, reforms could slow down due to the need to build consensus in the coalition government and parliament,” the report believes.

It says that in particular, building support in parliament for the devolution initiative will be important for ensuring its success. “Insufficient institutional capacity continues to be a problem, even though some progress has been made since the formulation of the I-PRSP. The authorities will have to intensify their efforts in this respect to ensure that the reforms translate into tangible improvements for the people and the poor in particular,” the report says. It also warns that exogenous shocks still constitute a significant risk and that slower than expected winding down of regional tensions or a conflict in the Middle East could adversely effect growth and fiscal projections in Pakistan.

The Joint Staff Assessment about I-PRSP also identifies some important gaps in the poverty reduction strategy for Pakistan which includes: a detailed rural development strategy; a more focused human development strategy; a coherent fiscal framework taking into account mechanisms for the transfer of resources and responsibilities from federal and provincial governments to the district governments (in the context of ongoing devolution exercise); costing of programmes to achieve targets, particularly in the health and education sectors; and a monitoring framework— particularly for tracking intermediate indicators in the social sectors and anti-poverty programmes.

The authorities in Pakistan have pursued an ambitious tax administration reform agenda that appears to have started bearing fruits. “However, lack of significant improvements in the performance of some public sector enterprises, notably in power sector, is imposing a serious drain on public finances,” the joint report says. It recommends that the authorities should monitor carefully these macroeconomic developments and develop perhaps two different macroeconomic scenarios in the final PRSP: a cautious baseline scenario and a more optimistic one reflecting a rapid implementation and impacts of economic reform.

While the increase in poverty-related expenditures is a positive development, both the donors recommended the full PRSP forcefully address implementation problems at the local level.

The growth strategy envisioned in the I-PRSP could be strengthened by identifying the sources of growth and making the links between growth, employment and poverty, to example the key factors that would translate into poverty reduction.