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Overview

  • In July 2019, Pakistan entered into a 39-month Extended Fund Facility (EFF) arrangement with the International Monetary Fund.  Stabilization measures under the EFF were expected to moderate aggregate demand pressures in the economy. Leading indicators suggested a slowdown in growth in the first 7-8 months of FY20[1]. The output of large-scale manufacturing (which accounts for around 50 percent of industrial output) contracted by 3.4 percent in Jul-Jan FY20. The agriculture sector, however, registered growth in the rice and livestock sub-sectors.

    However, the rapid spread of the COVID-19 virus since February 2020 has brought economic activity to a near-halt. Most of the country has been placed under a partial lockdown.  The closure of non-essential businesses and domestic supply chain disruptions are having a significant impact on wholesale and retail trade and transport, storage and communication, the largest sub-sectors of the services sector. The drop in domestic and global demand is also compounding the strains on the industrial sector, which is hit by both supply and demand shocks. In addition, the country’s main industrial sector – textiles and apparel – is highly exposed to COVID-19-related disruptions due to its labor-intensity.

    Average inflation increased to 11.8 percent during Jul-Mar FY20 (from 6.8 percent in Jul-Mar FY19) reflecting upward adjustments in administrated prices and exchange rate depreciation pass-through. The State Bank of Pakistan (SBP) maintained a tight monetary stance during this period, keeping the policy rate at 13.25 percent to dampen inflationary expectations. However, as the COVID-19 pandemic spread, it reduced the policy rate to 11.0 percent in March 2020.

    The Current Account Deficit (CAD) narrowed to 1.0 percent of GDP in Jul-Feb FY20, from 3.5 percent in the same period in FY19, thanks to a 17.5 percent decline in goods imports. This, together with large multilateral disbursements and higher foreign investment flows, helped shore up gross international reserves to US$13.2 billion (as of March 27th, 2020)—or equivalent to 3.5 months of imports. However, due to global developments, foreign investors have offloaded more than half of their position in domestic securities since February 2020. The exchange rate, which had remained relatively stable through June-February FY20, depreciated by 7.3 percent in March.

    In the first half of FY20, the fiscal deficit stood at 2.3 percent of GDP, compared to 2.7 percent in the first six months of FY19. The fiscal adjustment was achieved through increases in domestic revenue collections and slower growth in non-interest recurrent expenditures. However, the COVID-19 pandemic is likely to put significant pressure on expenditures whereas revenue collections are expected to be negatively impacted. Pakistan’s public debt, which stood at 87.5 percent of GDP at the end of FY19, may rise as a result.

    Real GDP growth is projected to contract by 1.3 percent in FY20 as domestic and global economic activity slows down sharply in the last four months of the fiscal year. The outbreak of COVID-19 will impact growth beyond FY20. Under the baseline scenario, growth will remain muted in FY21 before reaching 3.2 percent in FY22. Inflation is expected to average 11.8 percent in FY20 and to gradually decline thereafter.

    The current account deficit is projected to narrow to 1.9 percent in FY20, as imports contract more than exports. Export growth is expected to remain negative in FY21 but to subsequently rebound. Similarly, imports are expected to recover slowly from FY22 onwards, as domestic industrial activities pick up. Remittances are expected to contract in FY20 and FY21, respectively, due to lower growth in the Gulf Cooperation Council economies. Increased multilateral and bilateral flows are expected to be the main financing sources over the medium-term.

    The fiscal deficit is expected to remain elevated in FY20 and FY21.  Revenue mobilization efforts will be negatively impacted by subdued domestic activity, while expenditures will increase to contain the spread of COVID-19 and support the economy. The fiscal deficit is expected to fall gradually by FY22 as the impact of the crisis tapers-off. However, the public debt-to-GDP ratio is expected to increase and remain elevated over the medium-term, with Pakistan’s exposure to debt-related shocks remaining high.

    There are considerable downside risks to the outlook. The immediate challenge for the government is to contain the spread of the COVID-19 pandemic, while minimizing economic losses and protecting the poorest. In the medium-to-long term, the government should remain focused on implementing structural reforms to boost private investment sustainably.

    [1] Fiscal year in Pakistan runs from July 1st to June 30th.

    Last Updated: Apr 10, 2020

  • The Country Partnership Strategy (CPS) for Pakistan for FY2015-20 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 Pakistan team is engaging with stakeholders on the next Country Partnership Framework (CPF) this fiscal year. A Systematic Country Diagnostic (SCD) is currently in final stages of preparation. Both CPF and SCD will draw from the flagship Pakistan@100: Shaping the Future initiative which seeks to identify the main changes necessary for Pakistan to become an upper middle-income country by the time it turns 100 years old in 2047.

    The four results areas of the current CPS are:

    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 transmission, 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 WBG has a portfolio of $9.08 billion in Pakistan ($6.2bn IDA, $2.7bn IBRD, $187mn in Trust funds). The portfolio is supporting reforms and investments to strengthen institutions, particularly in fiscal management and human development. Partnerships are being strengthened at provincial levels, focusing on multi-sectoral initiatives in areas such as children's nutrition, education and skills, irrigated agriculture, tourism, disaster risk management, and urban development. Clean energy, and social/financial inclusion, both remain major priorities.

    Last Updated: Apr 10, 2020

  • EDUCATION

    Punjab

    Basic Education: Primary education in Punjab is achieving remarkable results in both participation and quality improvement, following an ambitious reform program supported by the PESP-III program. Between 2014 and 2018, school participation rates have gone up from 76% to 81%, and there are now roughly 14 million children enrolled in primary education. For girls, the growth has been particularly large, from 78 to 85% in the primary age group (6-10 years old), and from 65% to 70% in the secondary age group (11-15 years old). School participation has been targeted through perhaps the largest public-private partnership program in the world that now enrolls around 2.6 million children. The province also provides conditional cash transfers to families to keep girls in school, and this is helping the lowest performing districts to substantially increase girls’ enrolment in schools. At the same time, Punjab is trying to reach children as early as possible by developing a 2-year early childhood education (ECE) curriculum. Currently around 4,000 ECE classrooms meet new quality standards, which include the presence of a trained teacher and caregiver as well as a kit with instructional material. These classrooms are monitored by field-based inspectors using smartphone apps, that feed data into a live dashboard, helping policy makers to directly address problems in the field.

    The quality of education is also improving, although challenges remain. In a recent survey that tracks learning outcomes over time, we found that there has been some progress in both basic Urdu and basic math performance across schools in the province. For instance, between 2004 and 2006, only 32% children in rural schools could answer a three-digit subtraction problem (‘What is the solution to 238-129?’). In a recent survey carried out in 2018, we found that 48% of students could now correctly answer the same question, in the same schools that were surveyed 15 years prior. Moreover, we found that the quality differences between public schools and (low-cost) private schools in both Urdu and math have virtually disappeared (although private schools are still more advanced in English instruction). Further increasing learning outcomes remains the priority of the second-generation reform program in Punjab. In 2016, the province hired almost 100,000 teachers using a standardized test that helped weed out the worst performers. Moreover, the province is leading the way with an innovative way to support better teaching practices in the classroom. School mentors (called AEOs) have started using a the World Bank’s Teach classroom observation tool to provide feedback to teachers on their pedagogic practices. This tool has been providing feedback to 15,000 teachers per week. The focus is now on changing what happens every day in every classroom.

    The challenges posed by the current COVID-19 crisis and the related school closures have been front and center over the last few months. The World Bank program is supporting the government to develop easy to understand messages on health behaviors, as well as the Taleem Ghar program, which provides distance education over television and digital channels. The Bank is also helping to design re-enrolment campaigns to encourage families to send their children back to schools the moment that the schools re-open.

    Punjab Skills: The government of Punjab also addressed its strong commitment to build human capital in its Punjab Growth Strategy. It recognizes human capital enhancement as a critical path to improving quality employment and acknowledged skills training as an important tool to achieve this target. To support its objective, Punjab Skills Development Project (2015-2020) has contributed to three strategic areas, including: (i) strengthening of the skills training system, (ii) improving the quality ad relevance of training programs, and (iii) increasing access to market relevant trades. The project developed and implemented new competency-based training and assessment systems in 16 different trades, developed mechanisms for industry-linkages and benefited 2,513 students with more industry relevant training programs. It also benefited 54,818 trainees through short-term training.

    Sindh

    The government implemented a comprehensive Education Sector Project between 2014-2018 to improve governance and accountability in the education sector and benefited cumulative 8.5 million students over the project period. A special effort is being made to improve access and retention in selected schools through an improvement of infrastructure of approximately 1,800 classrooms, 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. The Government has successfully trained or placed 18,000 additional qualified teachers at government primary schools. The government is providing necessary resources to schools through school specific grants and school management committee grants. 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 schools are monitored monthly through the Sindh School Monitoring System, which includes teachers’ biometric attendance monitoring, allowing the Education Department to make evidence-based decisions for education improvements.

    Balochistan

    The Government of Balochistan received $34 million through the Global Partnership for Education and EUR 10 million from the European Union to expand access to quality education. To date, the Balochistan Education Project has helped to functionalize 828 schools across the province including 708 schools with new or renovated buildings and 120 upgraded schools from primary to middle and middle to high. 112,463 children enrolled in the project specific schools with 81% retention of children, of these 77% are girls. All 828 schools have a comprehensive Early Childhood Education (ECE) Program with trained teachers and ECE specific learning material. More than 1,800 project specific teachers have been provided training on pedagogy, subject content especially math and science and ECE. More than 4,000 community members around the school sites have been provided training to support monitoring of school construction, ensure children’s participation in education and ensure teacher presence in schools. Real-Time Monitoring of more than 14,000 public sector schools across the province targeting more than 1 million children enrolled in the schools. Another 1000 classrooms are expected to be functionalized and 100 primary schools are planned to be upgraded to middle schools, supporting an additional 300 government schools and impacting an additional 77,000 students.

    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 has suffered chronic strain from prevailing and likely future threats of hazards. 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 to an anticipatory risk management approach, rather than ex post. 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). The project has supported restoration of more than 200 kilometers of flood protection infrastructure along with strengthening of government capacity to manage disasters and climate variability. Till date the project has improved disaster and climate resilience of nearly 2.5 million beneficiaries across 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. About 3.3 million people across the province have benefitted from project interventions till date. The drought mitigation component of the project, comprising construction of small groundwater recharge dams, has already started generating strong development impacts for the target communities.

    The Bank has also approved the Pakistan Hydromet and DRM Services Project which aims to strengthen Pakistan’s public-sector delivery of reliable and timely hydro-meteorological services and enhance climate resilience.

    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.

    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.

    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 has a total of $278 million in resources to support reconstruction and economic development in the border regions of Khyber Pakhtunkhwa and Balochistan. The work of the MDTF is particularly important after the passage of the Thirty-First Amendment to the Constitution by the National Assembly on May 24, 2018, which has merged the seven agencies of FATA with the province of Khyber Pakhtunkhwa.

    Last Updated: Apr 10, 2020

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LENDING

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

*Amounts include IBRD and IDA commitments



PHOTO GALLERY

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Additional Resources

Country Office Contacts

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