Overview

  • Pakistan’s growth continues to accelerate but macroeconomic imbalances are widening. Macroeconomic stability is a major concern for the near-term economic outlook. Pakistan’s GDP growth increased by 0.8 percentage points over the previous year to reach 5.3 percent in FY17. Major impetus came from improved performance of services and agriculture sector. Industrial sector also saw some recovery. Low interest rate environment contributed to the growth in private sector credit, which supported businesses. On the demand side, consumption made up almost 92 percent of GDP, and contributed nearly eight percentage points towards GDP growth at market prices. Average headline inflation for Jul-Feb FY18 remained 3.8 percent compared to 3.9 percent in Jul-Feb FY17, well below the target of 6 percent for FY18.

    The balance of payments is under stress due to relatively high current account deficit (CAD) at 4.1 percent of GDP (US$12.4 billion) in FY17. This trend continued in Jul-Jan FY18, and CAD reached US$9.2 billion (2.8 percent of GDP). Exports, after contracting for three consecutive fiscal years, have started to recover in FY18, but relatively stronger import growth has resulted in a higher trade deficit. Government imposed regulatory duties on some imports to slowdown import growth. In addition, the exchange rate depreciated in December 2017 (by 5 percent) and March 2018 (by 4.2 percent) .The  policy interest rate was also raised by 25 bps in January 2018 to ease demand pressures. Despite this, official international reserves have declined to US$12.2 billion by mid-march 2018 (2.3 months of imports), compared to US$16.1 billion at end-June 2017. To support declining reserves, government issued international bonds of US$2.5 billion in November 2017.

    The fiscal deficit deteriorated rapidly to 5.8 percent of GDP in FY17, 2.0 percentage points higher than the target set at the start of the year and 1.2 percentage points higher than that of the previous year. The fiscal deficit has been somewhat lower in H1FY18 at 2.2 percent of GDP compared to 2.5 percent in H1FY17. Tax revenues of Federal Board of Revenue (FBR) during Jul-Jan FY18 stood at PKR1,992 billion compared to PKR1,696 billion in the same period last year—17.5 percent Y-o-Y growth.

    The projected poverty rate continued to decline. Poverty at the $1.90 international poverty line is estimated at 4.9 percent in FY18, down from 6.1 in FY13 when latest actual figures are available. Over the same period, a 12 percent reduction in poverty is also projected for the $3.2 poverty line, while a lower improvement (4 percent) is projected at the $5.5 poverty line.

    Pakistan remains one of the lowest performers in the South Asia Region on human development indicators, especially in education and stunting. The Net Enrollment Rates in education have been increasing in Pakistan but still lag behind other South Asia countries. Infant and under five mortality rates represent a similar story. Gender disparities persist in education, health and all economic sectors. Pakistan has one of the lowest female labor force participation rates in the region. Nutrition also remains a significant cross-cutting challenge, as 44% of children under five are stunted. The spending on health, nutrition, and education, now totaling 3 percent of GDP, significantly lower than most other countries. Increased allocation will only be possible after increasing government revenues. The tax-to-GDP ratio, at 12.4 percent, is one of the lowest in the world and it is still half of what it could be for Pakistan. Continued reforms to broaden the tax base and increase revenues will therefore need to remain a priority. Service delivery is the responsibility of subnational governments, whose capacity varies, but the federal Government needs to play an assertive stewardship role as increased financing has to be accompanied by meaningful improvements in quality of services. A strategy to greatly improve development outcomes would therefore need to combine efforts to increase the level of public spending as well as improving its quality, with a focus on provincial level capacity.

    Over the past couple of years, greater decision-making authority has been assigned to provincial governments. The Eighteenth Constitutional Amendment has devolved a number of key functions to the provinces. In total, functions in 17 federal ministries have been devolved, including Agriculture, Education, Environment, and Health. In addition, a greater share of revenues has been passed to the provinces through the National Finance Commission Award (NFC) in order to enable them to perform these functions. As expected, the devolution has posed institutional and capacity challenges at the provincial level, and meeting these challenges will require concerted efforts to enhance sub-national capacity and institutional development, which varies across provinces.

    Last Updated: Apr 17, 2018

  • The Country Partnership Strategy (CPS) for Pakistan for FY2015-19 was extended to 2020 during a Performance and Learning Review conducted in FY17. The CPS was formulated after an extensive, country-wide consultations process with a diverse set of stakeholders. It is structured to help the country tackle the most difficult—but potentially transformational—areas to reach the twin goals of poverty reduction and shared prosperity.

    The four results areas of the CPS are anchored in the Government’s framework of 4Es: Energy, Economy, Extremism and Education. These include:

    Result Areas

    •  
      • Transforming the energy sector: WBG interventions are supporting improved performance of the energy sector by supporting reforms and investments in the power sector to reduce load shedding, expand low-cost generation supply, improve governance and cut losses.
      • Supporting private sector development: A mix of budget support, investments and analytical work supports improvements in Pakistan’s investment climate, in overall competitiveness, agricultural markets and productivity, and skills development.  
      • Reaching out to the underserved, neglected, and poor: Investments support financial inclusion, micro, small and medium enterprises (MSMEs), women and youth (including through enrollment outcomes), fragile provinces/regions and poorer districts, social protection, and resilience and adaptation to the impact of climate change.
      • Accelerating improvements in service delivery: At the federal and provincial levels the Bank supports increasing revenues to fund services and setting more ambitious stretch targets for areas that are not producing change fast enough (especially education and health). At a provincial level, this involves support to better service delivery in cities.
      • Cross cutting themes for the program include women’s economic empowerment, climate change and resilience, and regional economic connectivity.

    The CPS envisages an indicative financing envelope of over $13 billion in FY15-20. This includes IDA lending of over $6.6 (subject to SDR/$ exchange rate), and allocations from IDA Scale-Up Financing, and regional and refugee windows. The IFC will also expand its efforts to bring in more private capital, investing $500 million–700 million a year from its own sources and mobilizing another $50 million–100 million per year from other investors.

    The Pakistan portfolio has 34 investment lending projects under implementation with a total net commitment of $5.58 billion. FY18 commitments to date are approximately $1.4 billion. IFC’s advisory services program comprises 21 mandates worth $41 million and its current investment exposure is 1.2 billion. MIGA’s current cross exposure is $316 million.

    Last Updated: Apr 17, 2018

  • EDUCATION

    Punjab:   Primary education in Punjab is achieving remarkable results, mostly because of what the Economist has dubbed “frenetic education reforms” that have been led by the Chief Minister. Between 2017 and 2018, Punjab has managed to increase enrolments by 1 million students, from 11.3 to 12.3 million students. Since 2016, the province also has managed to hire 100,000 teachers through a competitive, meritocratic hiring system. The increase in the number of teachers has reduced the number of schools with fewer than teachers from 23,000 down to 300. In January 2018, the province has adopted an Early Childhood Education Policy, and 11,000 early childhood classrooms have been established. As of today, 2.6 million students are studying in public-private programs led by the Punjab Education Foundation. In the past year alone, 4,000 low-performing public schools have been transferred to PEF. Basic literacy and numeracy also seems to be increasing in the 6-monthly LND exams Math, Urdu and English.

    The year 2017-18 has been declared the year of learning, that reserved an hour per week for basic literacy and numeracy instruction, increased data monitoring based on tablets, and a new hotline where parents can register complaints. The Bank has supported these changes through the PESP-III program. However, huge quality challenges remain in the system, particularly with regards to instruction and international standards. The Bank has an innovative Service Delivery survey in the field to validate what kind of progress has been made and to diagnose what kind of problems remain, focusing on teacher knowledge, classroom instruction practices, parental support and student learning outcomes.

    Sindh: The government is implementing a comprehensive Education Sector Reform Program to improve governance and accountability in the education sector. A special effort is being made to improve access and retention in selected schools through an improvement of infrastructure of approximately 4500 schools, assigning appropriate number of teachers to school to ensure there is a teacher available for every classroom in the school and train teachers and head teachers of the schools to improve the learning environment. These schools are expected to be role models for other schools in the area. The Government has initiated another round of recruitment for more than 6000 teachers, specifically focusing on Science and Mathematics subjects as well as Early Childhood Education to fill the gap of these teachers in the system. The government is providing necessary resources to schools through school specific grants and school management committee grants. These funds allow schools to manage minor repairs at the local level, alongwith ensuring the availability of teaching learning materials and to conduct co-curricular activities. The government is implementing a third party led, annual, large scale assessment of Grade 5 and 8 students to track learning outcomes of children in schools.

    The government is also implementing a school consolidation program to ensure school resources are efficiently utilized. The Government has placed more than 900, competitively selected head teachers in schools. The head teachers were trained prior to placement and have initiated school improvement activities in their respective schools.  The schools are monitored on a monthly basis through the Sindh School Monitoring System, allowing the Education Department to make evidence based decisions for education improvements.

    Balochistan: The Government of Balochistan has received $34 million through the Global Partnership of Education to expand access to quality education. Under this program the government is working very closely with the communities to operationalize new primary schools and upgrade existing schools to higher levels in areas that have no education facility or lack schools at the middle and secondary level. The remoteness of the communities and security issues in the province are key challenges, and community partnership is key to ensuring the schools are functional and safe places for the children and teachers. Approximately 850 schools are in various stages of rehabilitation, construction and upgradation. School sites have been identified through a third party site verification system, with geographic information system coordinates and confirmations of education needs with the involvement of communities.  Communities with higher level of out of school children have been prioritized for establishment of new schools.  Female teacher recruitment has been prioritized for the schools through a test based mechanism. More than 1000 teachers have been hired for the schools, and training has been provided on early childhood teaching methods. For the schools upgraded from Primary to Middle and High the training has focused on Science, Mathematics and Language subjects.

    SKILLS

    Punjab government, has a strong focus on skills development and has set a target of 2 million youth being trained within 2 years. Skills development opportunities have expanded rapidly to keep the progress on track. However, many training programs are still supply-driven and involve limited interaction with the private sector. Labor market linkages and partnership with employers is still limited, resulting many training programs still not relevant to the labor market needs. There are pockets of good examples of industry and training provider partnerships in Punjab, supported by the current World Bank project. Similar attempts are needed within the other provinces, expanding the notion of skills development beyond the traditional TVET sector.

    The Punjab Skills Development Program supported by World Bank as of January 2018, 11,205 students passed out from labor market relevant courses, of which 2,570 are female. Implementation of three new competency-based training programs have been started in 5 institutions and 1,588 students benefited from newly established industry partnerships. Partnership Framework developed was used to seal four partnership agreements which were signed with industry for strengthening collaboration between training providers and employers to improve quality and relevance of training delivery. 62 percent of students enrolled in industry partnership courses were employed. Supported by the evidence of expedited implementation progress, the Government of Punjab expressed its interest in Additional Financing for supporting the expansion of the activities and scaling up the current successful interventions, and that initial ideas have been exchanged during the implementation support mission.

    ENHANCING DISASTER RESILLIENCE

    Being one of the most climate-change vulnerable countries in the world and recurrently affected by catastrophes, including the unprecedented 2010 floods which affected over 20 million people, Pakistan’s economy is under additional strain from prevailing and likely future threats by various hazards, being exacerbated by climate change. Since the 2005 Pakistan earthquake, which led to nearly 73,000 deaths and caused damages to over 570,000 houses, the Bank has been supporting the Government of Pakistan in shifting from an ex-post to an ex-ante risk management approach.  Initially, the Bank provided technical assistance to the government to highlight physical and fiscal risks from hazards, including risk assessments of federal and provincial capitals.

    In parallel, the Bank also used grant resources to build the capacity of Provincial Disaster Management Authority of Balochistan.

    Following the floods of 2014 and at the request of Government of Pakistan, the Bank prepared the $125 million IDA-funded Disaster and Climate Resilience Improvement Project (DCRIP) to support restoration of flood protection infrastructure and strengthen government capacity to manage disasters and climate variability in Punjab and Northern Districts.

    In 2016, the Bank also prepared and delivered the $120 million IDA-funded Sindh Resilience Project (SRP) to mitigate flood and drought risks in selected areas, and strengthen Government of Sindh's capacity to manage natural disasters. As part of pipeline investments, the Bank is preparing the Pakistan Hydromet and DRM Services Project which aims to strengthen Pakistan’s public-sector delivery of reliable and timely hydro-meteorological and disaster risk management services to user departments and communities.

    Further, as part of ongoing technical assistance, the Bank is engaged with federal and provincial governments to improve understanding of seismic risks, and enhance fiscal resilience to disaster shocks through the development of a national and provincial disaster risk financing strategies.

    SOCIAL PROTECTION

    The Benazir Income Support Program (BISP), Pakistan’s flagship national safety net program, provides income support in the form of predictable quarterly cash transfers of $46 to almost 5.43 million of the country's poorest families (approximately 22 million people). Almost $ 5 billion has so far been disbursed to beneficiaries. BISP has also rolled out the Co-Responsibility Cash Transfer (CCT) program in 32 districts across all provinces and regions, linking cash transfers to primary school education of the beneficiaries’ children. To date almost 1.9 million children of BISP beneficiaries have been enrolled in the program. The program is being expanded to additional 18 district with the target of enrolling 3 million children in schools by June 2019.

    World Bank has been supporting BISP since 2009 through the Social Safety Net Project that ended on June 30, 2017 with a total investment of $210 million. A new Program for Results operation for BISP (National Social Protection Program) became effective in April 2017. The new program with the investment of $100 million will span over the next four years. NSPP aims to strengthen the national social safety net system for the poor to enhance their human capital and access to complementary services.

    OPERATING IN CONFLICT AREAS

    The 2009 conflict in Khyber Pakhtunkhwa (KP) and the Federally Administered Tribal Areas (FATA) led to one of the worst security crises in Pakistan’s history, displacing an estimated two million people and severely disrupting lives, livelihoods, and the provision of public services.

    A Multi-Donor Trust Fund (MDTF) was established in 2010 to support reconstruction and recovery from the impact of the crisis and reducing the potential for escalation or resumption. The MDTF is currently in its second phase and has shifted its focus from immediate recovery to governance, service delivery, growth and job creation. Donors have contributed a total of $270 million for the MTDF since 2010, of which $86 million has been mobilized for the current Round II operations. An estimated 5.7 million people have benefitted from the program so far.

    Last Updated: Apr 17, 2018

Api


LENDING

Pakistan: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments



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Additional Resources

Country Office Contacts

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