Pakistan faces significant economic, governance and security challenges to achieve durable development outcomes. The persistence of conflict in the border areas and security challenges throughout the country is a reality that affects all aspects of life in Pakistan and impedes development. A range of governance and business environment indicators suggest that deep improvements in governance are needed to unleash Pakistan's growth potential.
Political: Pakistan has faced significant political, economic and constitutional challenges over the past five years. These include continuing pressures of coalition politics, militancy crises, sectarian tensions and consequent violence in many parts of Pakistan, recurring natural disasters like the 2010 and 2011 floods, implementation challenges of devolution of increasing responsibilities to the provinces, and a difficult economic situation. The democratic process has proved resilient and the country recently witnessed a smooth transition from one democratically elected government to another.
Main Economic and Social Challenges: Pakistan’s economy continued to underperform. There was no improvement in the security situation; political tensions have grown in anticipation of elections; there was no abatement in energy crisis, which continued to dampen the growth prospects and impacting the fiscal situation (the fiscal deficit increased to the 8.5% of GDP in FY12 – the highest level in two decades; the monetary financing of the deficit kept inflation in double digits ; tax collection improved but was mainly due to delay in release of $1.9 billion of Coalition Support Fund (CSF) by the US administration; external vulnerabilities increased with the current account deficit rising to 2% of GDP; exports declining by 3%, while imports increasing by 12%. Capital inflows continued to be weak while debt servicing liabilities, including those to IMF, continued to mount; net foreign exchange reserves of State Bank of Pakistan declined by $6 billion; and the rupee depreciated by almost 12% during this period. Faced with such a gloomy scenario, economic growth at 3.7% in FY12 showed the economy’s remarkable resilience. This was partly a result of a strong increase in private consumption related to robust increase in workers’ remittances (18%).
Progress in human development remains slow and at the current rate of progress, it will be difficult for Pakistan to meet the MDG targets on health and education by 2015. Net Enrollment Rates in education kept increasing, but still lag behind other South Asia countries. Infant and under five mortality rates showed a similar story. Gender disparities persisted in education, health and all economic sectors. Pakistan has one of the lowest female labor force participation rates in the region. Nutrition also remained a significant challenge, as 44% of children under five are stunted. Overall, the resource allocation as a percentage of the GDP remained low, ranking Pakistan among the lowest spenders on education and health in the region (at about 2% of GDP).
Poverty gains of over the past decade have been impressive but difficult to sustain. Pakistan saw a decline in poverty trends, with the poverty rate falling from 34.5% in 2001/02 to an estimated 17.2% in 2007/08. Over the past few years there have been signs that poverty levels may have further decreased, despite the downturn in the economy, floods and inflation. These gains might have been supported primarily through remittances, faster than expected recovery of the agricultural output and exports following the floods, a broader-based economic growth, and strengthening of, and greater funding for, social safety nets programs. While Pakistan’s overall level of inequality remains steady and relatively low compared to other developing countries, some of the volatile border regions and some rural areas within the other provinces have a higher than average level of poverty.
The Bank’s support is focused on, inter alia, helping the country maintain economic stability by addressing critical long-term constraints to growth (power, irrigation, roads, ports); assisting the government to put in place a safety nets system that adequately and effectively protect the poor from economic shocks; and supporting education reform programs to increase school participation, reduce gender and rural-urban disparities, and improve quality and governance. The Bank is also helping Pakistan cope with the consequences of conflict while reducing the prospects of future conflicts through its engagement in the country’s border areas.
Investing in Education: The Bank supports government programs to improve access to quality education that focus explicitly on the achievement of results. Since 2006, the International Development Association (IDA) has extended over $1 billion in assistance to support increased investment and reform in the elementary education sector in Balochistan, Punjab, and Sindh, and for tertiary education and skills development sectors. Efforts in Punjab and Sindh, including reforms in teacher recruitment, provision of free textbooks and payment of stipends for girls’ attendance, have translated into increased access to, and improved quality of, education. For instance, the Punjab Education Sector Project supports provision of stipends to 380,000 female students in grades 6-8, free textbooks to all students in public schools, improved access to quality education for over 857,096 students (52% girls) in 1,768 low cost private schools and capacity support to 54,000 school councils.
Sindh has seen an increase in its rural female-male primary net enrolment rate ratio from 61% in 2007 to 72% in 2011. Other achievements in Sindh include merit-based recruitment of around 13,000 teachers and 450 new private coeducational primary schools in underserved rural communities which are supported by public cash subsidies of $4–6 per student per month conditional on free schooling and stipulated school quality standards. These schools have over 26,000 students and evidence suggests that the school participation rate has increased from 30% to 80% in these communities, and that gender disparity in school participation has been eliminated.
Under the Balochistan Education Support Project, over 50,000 students have been enrolled in community and public-private partnership schools supported by the Project. Over half of those enrolled attend one of 635 community schools set up by the Balochistan Education Foundation (BESP), which have completed 3 years of successful operation in remote areas of Balochistan. Forty-four percent of these students are girls. The current enrollment of BESP supported schools contributes about 6% to the overall net enrollment rate of the province.
Social Protection support to the poorest and vulnerable: Through the social protection sector, the Bank's support to the Benazir Income Support Program (BISP), the largest safety net program in South Asia, has helped in rolling out door-to-door census by using the Poverty Scorecard (PSC) as the targeting instrument. As of today, more than 27 million households have been surveyed, about 7.2 million families have qualified the PSC eligibility, whereas 4.7 million families are receiving income support in the form of monthly cash benefits of PKRs 1000 ($11). In addition, a conditional cash transfer program, linked with primary education of beneficiaries' children has been launched in November 2012. In the next 3 years, BISP is expected to cover about 7 million poorest families or about one quarter of Pakistan’s total population for providing various benefits under the program, which include enrolment of 3 million out of school children of the poorest families through Co-responsibility Cash Transfers. The Bank is also helping towards institutionalizing the Government’s Future Disaster Response Action Plan that provides for using cash transfers in the early recovery phase. The Floods Emergency Cash Transfer (FECT) Project, which supports the government’s Citizen’s Damage Compensation Program (CDCP), is reaching out to more than one million households (roughly 9.5 million people), affected by 2010 floods, as a means to improve their lives and livelihoods. The operational mechanisms for both BISP and CDCP are strengthened through the use of innovative technologies; payment system; and monitoring, control and accountability mechanisms.
Connecting the Poorest: The Bank is working to address Pakistan’s vast urban and rural infrastructure deficits, often cited as the greatest constraint to sustained, rapid growth. Through its ongoing $495 million Highways Rehabilitation Project, the Bank is helping Pakistan to improve its road network since 2003. Major achievements include: (a) road network in poor condition reduced from 49% to 39.5%; (b) network-level ride quality (measurement of how bumpy or smooth the road is) improved by 18%; (c) travel time between Karachi and Peshawar reduced from 47 hours to 39 hours; (d) fatalities on Grand Trunk Road decreased from 107 to 39 per 100 km.
Supporting rural livelihoods: The Bank has supported Pakistan Poverty Alleviation Fund (PPAF) since 2000 and during this time, the program has facilitated the formation of 316,000 community organizations/groups in more than 90,000 villages/rural and urban settlements, provided 5.2 million micro-credit loans, completed 27,600 community infrastructure, health and education schemes that have benefited over 19.7 million people, and provided training support for 563,000 individuals in enterprise development & managerial skills, and transferred productive assets to 26,265 ultra and chronic poor families.
Operating in crisis areas: The crisis in Khyber Pakhtunkhwa (KP) and the Federally Administered Tribal Areas (FATA) led to one of the worst security crises in Pakistan’s history, displacing millions of people and severely disrupting lives, livelihoods, and the provision of public services. The Bank is now administering the Multi-Donor Trust Fund (MDTF) for KP, FATA and Balochistan, which supports the implementation of a program for reconstruction and development aimed at facilitating the recovery from the impact of the armed conflict and reducing the potential for escalation or resumption. Eleven donors have contributed a total of $159 million for the MTDF. A Balochistan Needs Assessment Report has been prepared and a Public Expenditure Review (PER) report has also been produced for KP.