Overview

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Context
Strategy
Results

Pakistan’s Gross Domestic Product (GDP) growth slowed as economic policies to address the twin deficits took effect. Growth slowed to 3.3 percent in FY19—a 2.2 percentage points decline compared to the previous year, due to the stabilization measures undertaken by the authorities. Over the past year, the exchange rate was allowed to depreciate, with a cumulative depreciation of 25.5 percent, the development budget was cut, energy prices were increased, and the policy rate was raised by 575 bps. As a result, private consumption growth decelerated from 6.8 percent in FY18 to 4.1 percent in FY19 while investment contracted by 8.9 percent. On the supply side, the industrial sector growth slowed to 1.4 percent in FY19 compared to 4.9 percent in FY18. The services sector grew at 4.7 percent—1.5 percent lower than in FY18. Adverse weather conditions have dampened agricultural performance and reduced growth to 0.8 percent in FY19, significantly lower than the targeted growth of 3.8 percent. Average headline inflation increased to 7.3 percent in FY19 compared with 3.9 percent in FY18, primarily because of the exchange rate passthrough.
The Current Account Deficit (CAD) declined. The CAD narrowed to US$13.5 billion (4.8 percent of GDP) in FY19 compared to US$19.9 billion (6.3 percent of GDP) in FY18. The decline was primarily driven by lower import growth (goods imports declined by 7.4 percent while services imports fell by 14.9 percent). The largest decline in imports was for transport and machineries, because of the slowdown in investment and industrial growth, followed by food items and metals. However, petroleum related imports continued to grow (5.0 percent), albeit at a lower rate than last year (25 percent). Exports, on the other hand, did not respond to the exchange rate depreciation, as regaining competitiveness after an extended period of an overvalued exchange rate will take time. The growth in remittances by 9.7 percent year-on-year in FY19, due to higher flows from USA, Malaysia, and GCC countries, also supported the current account. The narrowing of the CAD has continued in FY20, as the CAD declined to US$1.3 billion in Jul-Aug FY20, compared to US$2.9 billion in Jul-Aug FY19. Imports declined by 23.4 percent year-on-year in Jul-Aug FY20, while exports recorded a marginal recovery of 1.4 percent year-on-year.
Aided by bilateral, IMF, and other multilateral flows, international reserves have started to recover. Financial flows had a boost in FY19 due to a significant increase in central bank deposits and bilateral inflows from China, UAE and Saudi Arabia. The approval of the IMF Extended Fund Facility in July 2019 coupled with the resumption of multilateral budget support have contributed to an increase in the international reserves to US$9.4 billion (1.9 months of import coverage) in September 2019 compared to US$7.6 billion (1.6 months of import coverage) in January 2019. The gradual accumulation of reserves is also being supported by reduced pressures on the exchange rate.
The fiscal deficit (including grants) increased to 8.8 percent of GDP in FY19 from 6.4 percent in FY18. The higher deficit was primarily due to revenue underperformance and higher interest payments. Tax revenues, at both the federal and the provincial level, stagnated at last year’s level. In addition, non-tax revenues declined by 44 percent as the exchange rate depreciation reduced the profits of the State Bank of Pakistan (SBP), resulting in lower transfers to the government. As a result, overall revenues contracted by 6.3 percent. Total expenditures increased by 11.5 percent year-on-year in FY19, as current expenditures increased by 21 percent driven by the almost 40 percent increase in interest expenditures, year-on-year. Development spending was curtailed by 25 percent year-on-year in FY19, as the federal and provincial governments attempted to adjust their fiscal balances.
Public debt increased during FY19, primarily because of the exchange rate depreciation. Pakistan’s public debt (comprising general government and State-Owned Enterprises (SOE) external debt) stood at 86.5 percent of GDP at end-June 2019—13.5 percentage points higher than end-June 2018. The debt level is in breach of the Fiscal Responsibility and Debt Limitation Act (FRDLA) 2005 (amended in 2017) that stipulates a reduction of total public debt to 60 percent of GDP by end-FY18[1]. The increase in public debt was primarily driven by the depreciation of the Pakistani rupee (PKR) against the US dollar in FY19. External debt accounts for 37.9 percent of the total and is held by multilaterals (44.2 percent), bilaterals (34.3 percent), commercial creditors including international bonds (20.0 percent) and others (1.6 percent).
Real GDP growth is projected to decelerate to 2.4 percent in FY20 as the government tightens fiscal and monetary policies. Pakistan’s adjustment entails a rebalancing from domestic to external demand. While domestic demand will slow down quickly, net exports are expected to increase gradually. Growth is expected to recover gradually to 3.0 percent in FY21 as external demand picks up, macroeconomic conditions improve, and the package of structural reforms in fiscal management and competitiveness take effect. This recovery is conditional on relatively stable oil prices and reduced risks. Inflation is expected to increase slightly in FY20, driven by the second-round impact of exchange-rate pass-through to domestic prices. Thereafter, inflation is projected to decline gradually.

[1] The amendment to the FRDLA also stipulates a reduction of total public debt by 0.5 percent each year from FY19-FY23 and by 0.75 percent each year from FY24-FY33 after which public debt would be maintained at a level of 50 percent of GDP or less.

Last Updated: Oct 21, 2019
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 this fiscal year. A Systematic Country Diagnostic is currently also underway. Both CPF and SCD will draw from the flagship Pakistan@100: Shaping the Future initiative. The initiative 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 $9.2 billion in Pakistan ($6.1bn IDA, $2.7bn IBRD, $147mn 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: Oct 21, 2019
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 84%, 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 77% 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 their girls in school. At the same time, Punjab is also trying to reach children as early as possible by developing a 2-year early childhood education (ECE) curriculum. Currently 2,700 ECE classrooms meet new quality standards, which include the presence of a trained teacher and caregiver. 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 an advanced 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 the World Bank’s Teach classroom observation tool to provide feedback to teachers on their pedagogic practices. The focus is now on changing what happens every day in every classroom.
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 1,197 students with more industry relevant training programs. It also benefited 38,183 trainees through short-term training.
Sindh
The government implemented a comprehensive Education Sector Reform Program 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 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. The Government has successfully 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 to expand access to quality education. 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. The Balochistan Education Project has received additional financing of $10 million from EU and will build on its previous achievements to further improve access to quality education through upgrading another 100 primary schools to middle and supporting quality in a total of 300 schools.
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 to an anticipatory risk management approach, rather than after an event occurs. 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. 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 through the development of a national and provincial disaster risk financing strategies.
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 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: Oct 22, 2019