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Overview

  • Economic update and outlook

    Pakistan’s economy has been growing slowly over the past two decades. Annual per capita growth has averaged only 2 percent, less than half of the South Asia average, partly due to inconsistent macroeconomic policies and an under-reliance on investment and exports to drive economic growth. Short periods of rapid consumption-fueled growth frequently led to sizable current account and fiscal deficits, that ultimately required policy tightening, resulting in recurrent boom-bust cycles.

    In early FY20, which runs from July 2019 to June 2020, following one such episode of external and fiscal imbalances, the country entered a 39-month IMF-Extended Fund Facility. The associated adjustment measures, including fiscal consolidation, contributed to a reduction of the imbalances over the year and improved macroeconomic stability.

    However, the containment measures adopted in response to the COVID-19 pandemic led to a severe contraction in economic activity during the final quarter of FY20. As a result, GDP growth is estimated to have contracted by 1.5 percent in FY20. Half of the working population saw either job or income losses, with informal and low-skilled workers employed in elementary occupations facing the strongest loss in employment. As a result, poverty incidence is estimated to have increased in FY20 from 4.4 to 5.4 percent, using the international poverty line of $1.90 PPP 2011 per day, with more than two million people falling below this poverty line. Moreover, 40 percent of households suffered from moderate to severe food insecurity. The government, therefore, focused on mitigating the adverse socioeconomic effects of the pandemic through a stimulus package equivalent to approximately 2.9 percent of GDP and a deferment of some of the fiscal adjustment measures.

    Over the first half of FY21 (July to December 2020), there have been signs of a fragile recovery. With increased community mobility, private consumption has strengthened, aided by record official remittance inflows. Investment is also estimated to have slightly recovered, as machinery imports and cement sales both recorded double-digit growth rates.

    On the production side, crop production was relatively weak in the first six months of FY21, as cotton production was adversely affected by heavy monsoon floods. Following the phased lifting of lockdown measures from May 2020 onwards, indicators of industrial and services activity have recovered, with “Large Scale Manufacturing” and business confidence indexes exceeding pre-COVID levels in December 2020. As a result, the majority of the informal workers affected by the crisis are expected have been able to return to work.

    Although headline inflation fell over July-February FY21 (y-o-y), it is still high at 8.3 percent on average, mostly on account of high food inflation. Since July 2020, the State Bank of Pakistan (SBP) has maintained the policy rate at 7.0 percent to support the economy. The capital adequacy ratio at end-December 2020 remained well above the minimum regulatory requirement, indicating banking sector resilience over the first half of the fiscal year.

    Compared to a deficit of US$2.0 billion for June-December 2019, the current account recorded a surplus of US$1.1 billion for June-December 2020, the first half-yearly surplus in almost a decade, as strong official remittance inflows more than offset a wider trade deficit. Both foreign direct investment and portfolio investment inflows decreased during this period, but the improved current account supported a balance of payments surplus. The Pakistani rupee appreciated by 5.4 percent against the U.S. dollar, from end-June 2020 to end-December 2020, and official foreign exchange reserves increased to US$14.9 billion at end-December 2020, equivalent to 3.3 months of imports of goods and services.

    The fiscal deficit widened over the first six months of FY21 (y-o-y), as expenditure growth outpaced an increase in revenues. In line with the recovering of economic activity, total revenues grew by 3.7 percent. Over the same period, total expenditures rose by 6.2 percent, partly driven by higher interest payments. Public debt, including guaranteed debt, reached 87.9 percent of GDP at end-December 2020, up from 86.7 percent of GDP at end-December 2019.

    Output growth is expected to recover gradually over the medium-term, averaging 2.2 percent over FY21-23, mostly due to contributions from private consumption. However, sectors that employ the poorest, such as agriculture, are expected to remain weak, and therefore poverty is likely to remain high. The baseline outlook is predicated on the absence of significant infection flare-ups that would require more extensive lockdowns.

    The current account deficit is projected to narrow to 0.8 percent of GDP in FY21, as a wider trade deficit is more than offset by stronger remittances inflows. However, it is expected to increase over the medium term. Exports are projected to grow from FY22 onwards, as external conditions become more conducive and tariff reforms gain traction, but imports are also expected to increase in line with stronger domestic activity and higher oil prices.

    While fiscal consolidation efforts are expected to resume, the deficit is projected to remain elevated at 8.3 percent of GDP in FY21, partly due to the settlement of arrears in the power sector. As critical revenue-enhancing reforms gain pace and expenditure rationalization efforts resume, the fiscal deficit is projected to gradually narrow over the medium-term. Still, public debt will remain elevated in the medium term, as will Pakistan’s exposure to debt-related shocks.

    Major risks to the outlook include the possibility of new waves of infections, the emergence of new vaccine-resistant strains, and setbacks in mass vaccinations. In addition, more delays in the implementation of critical structural reforms could lead to further fiscal and macroeconomic imbalances.

    Last Updated: Mar 29, 2021

  • 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. The Pakistan Systematic Country Diagnostic: Leveling the Playing Field (SCD) has recently been published. 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 $11.66 billion in Pakistan ($7.5bn IDA, $4bn IBRD, $244mn 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: Mar 29, 2021

  • HEALTH

    In the last few years, Pakistan’s health indicators have progressed steadily. The nutritional status of mothers and children has shown progress, though slow and uneven. Stunting rates for children under age 5 have dropped from 44% to 40% from 2011 to 2018. However, large disparities still exist. This prevalence varies from 36% in Punjab to 48% in Khyber Pakhtunkhwa (KP).

    While other Maternal and Child Health indicators have improved, significant challenges remain. The Maternal Mortality Rate (MMR) has improved from 276/100,000 live births in 2006-07 to 186/100,000 live births in 2019. The World Bank, through its Enhanced Nutrition for Mothers and Children Project, which closed last year, and the Sindh Enhanced Response to Reduced Stunting Project (SERRSP), currently under implementation, has supported the provision of nutrition specific and sensitive services.

    Immunization coverage for children aged 12-23, has increased considerably over the 5-year span from 54% in 2013 to 66% in 2018. Punjab has a coverage rate of 80% for Fully Immunized Children, Sindh and Balochistan are at 49% and 29% respectively. World Bank has been contributing towards this crucial achievement through its National Immunization Support Project (NISP), which has been under implementation since 2016.

    One of the areas that has remained relatively stagnant over the last few years is family planning. The Total Fertility Rate has declined very marginally from 3.8 in 2013 to 3.6 in 2018.  The Modern Contraceptive Prevalence Rate (mCPR) has declined from 26% in 2013 to 25% in 2018. In Punjab, where the Bank has been providing support through the Punjab Health Sector Reform Project, the mCPR has been 27%. In other provinces, the mCPR is even lower – as low as 23% in KPK and 14% in Balochistan.

    The current COVID-19 pandemic has posed extensive challenges and is expected to significantly impact health outcomes resulting from a disruption in provision of essential health services. As Pakistan is now recovering from lockdown, it is expected that regular service provision will resume to cover the gaps that may have developed.

    Source: Pakistan Demographic & Health Surveys 2006-07, 2012-13 & 2017-18, Maternal Mortality Survey 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 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 prepared and delivery the $188 million IDA-funded Pakistan Hydromet and Climate Services Project which aims to strengthen Pakistan’s public-sector delivery of reliable and timely hydro-meteorological services and enhance community resilience to shocks. The project is expected to improve weather forecasting in Pakistan and facilitate sustainable management of around 80,000 hectares of forest area.

    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 erstwhile 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 $282 million in resources is currently focusing on improving governance, creating jobs, and improving service delivery in 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. The MDTF was also a first responder to the COVID-19 crisis in Pakistan and helped with provision of emergency health equipment. 

    Last Updated: Oct 08, 2020

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LENDING

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

*Amounts include IBRD and IDA commitments



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Country Office Contacts

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