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Addressing Energy, Revenue, and Security-Related Constraints at the Center of New World Bank Strategy for Pakistan

July 8, 2010

WASHINGTON, July 8, 2010 — The World Bank’s Board of Executive Directors today discussed a new Country Partnership Strategy (CPS) for Pakistan, and endorsed a proposed lending program of up to US$6.2 billion for fiscal years 2010-2013.

The goal of the CPS which is in direct support of Pakistan’s own Poverty Reduction Strategy is to help steer its economy back onto a path of high growth by addressing the country’s key long-term constraints to growth: weak revenue mobilization, unreliable energy supply, and a fragile security situation. The Bank will also continue its strong support to improve education and health systems, strengthen the potential for increased and more productive labor force participation, reinforce safety net systems, and enhance the earning capacity of the poor and vulnerable.

“Throughout its history Pakistan has been plagued by cycles of high growth interrupted by shocks and crises,” said Rachid Benmessaoud, World Bank Country Director for Pakistan. “This strategy recognizes that to steer Pakistan back on a path of broad-based growth, create jobs, and reduce poverty, a prolonged period of macroeconomic stability, financial discipline and sound policies is required. The World Bank Group will therefore focus on the achievement of those outcomes that have the potential to be truly transformational. This means successfully addressing tax policy and administration and expanding power provisions.”

To address chronic underfunding of key services, reduce reliance on foreign aid and avoid episodic crises, tax revenue needs to be substantially increased and the Bank will intensify its support in this area. Raising the ratio of tax to GDP - currently only 10.2 percent of GDP - is essential to mobilize resources to invest in human development and infrastructure, build resilience to future shocks, and guard against costly and disruptive growth reversals. In addition, a new series of Poverty Reduction Support Credits (PRSC) is proposed to be the Bank’s primary lending instrument to support strengthening of macroeconomic management at the federal level.

The energy sector faces many challenges including significant supply shortages and financial uncertainty. The Bank will concentrate its support on helping Pakistan exploit its considerable hydropower potential, improve the efficiency of utilization of developed hydropower capacity and natural gas resources, and reduce energy losses.

The persistence of conflict in Khyber-Pakhtunkhwa (KP) and Federally Administered Tribal Areas (FATA) poses a threat to some of the most vulnerable and marginalized populations in Pakistan, while also challenging economic stability across the country.  The CPS seeks to help Pakistan cope with the consequences of conflict while reducing the prospects of future conflicts.  Support under the Bank’s strategy will likely include investment for agricultural/livestock-linked employment and livelihoods, expansion of general and technical/vocational education, investment in energy and transport, and social protection. The Bank will also administer a Multi Donor Trust Fund (MDTF) that will support a comprehensive reconstruction and development strategy in conflict-affected areas of the country.

“This strategy recognizes the challenges and uncertainties facing Pakistan, and allows us to be flexible and quickly adapt to emerging challenges and opportunities,” said Benmessaoud. “In addition, the Bank will continue financing programs with proven track records, notably in education and safety nets, as well as priority areas in the health sector, particularly maternal and child nutrition.”

In education, the Bank will support government programs that combine supply side interventions (constructing and upgrading facilities, need-driven and merit-based teacher recruitment) and demand-side measures (free textbooks, female stipends, subsidies to low fee private schools) to improve access to education with a focus on equity to address regional and gender imbalances. In social protection, the Bank will sustain its partnership with the Government in establishing the Benazir Income Support Program (BISP) as the country’s national safety net program with a focus on increasing its targeting efficiency and strengthening its operation. In the health sector, the Bank will focus on addressing chronic nutritional deficiencies amongst mothers and children, as well as continuing its support to polio eradication and HIV-AIDS prevention.

The International Finance Corporation (IFC), the Bank Group’s private sector arm, intends to invest up to US$1.5 billion during the same period. “Pakistan has a dynamic private sector, whose growth is still hampered by constraints in infrastructure support,” said Dimitris Tsitsiragos, Regional Director for IFC. "IFC will continue to increase investing in viable private sector projects in financial markets, infrastructure, health and education and agribusiness."

Media Contacts
In Islamabad
Shahzad Sharjeel
Tel : (92-51) 227 9641
In Washington
Sudip Mozumder
Tel : 202-473-3672