Washington DC, June 18, 2015 ─ The World Bank Group approved the Development Policy Credit (DPC) worth US$ 500 million to boost economic growth through fostering private and financial sector development, and mobilizing revenue while expanding fiscal space to meet social needs.
The Fiscally Sustainable and Inclusive Growth (FSIG-II) single-tranche policy credit is the second of a programmatic series of credits. The first credit addressed critical institutional and regulatory changes needed to jumpstart the reforms; whereas the second credit brings depth and sustainability to most actions of the first credit, while addressing new reforms on inclusion and governance.
Under this program, the revenue mobilization actions address well-known structural weaknesses in Pakistan’s tax system, thereby creating fiscal space for priority social and development expenditures without raising tax rates, and lowering the government’s domestic borrowing needs. In addition, the government committed to successfully complete the first equity and strategic sales of its privatization agenda; broaden the tax net and remove Federal Board of Revenue’s legal empowerment to issue discriminatory Statutory Regulatory Orders; approve a Customs Tariff Rationalization Plan; create the One-Stop-Shop for business registration; support the approval of a draft bill on private credit bureaus by the National Assembly; and increase Benazir Income Support Program (BISP) cash transfer benefit, while introducing conditional cash transfers in favor of primary school enrolment under it.
“Economic activity is picking up, inflation is significantly declining, tax revenue is increasing and fiscal deficit is narrowing down”, says Rachid Benmessaoud, World Bank Country Director for Pakistan. “The operation will contribute to the government’s strategy for further accelerating economic growth, increasing private investment, expanding financial inclusion, enhancing the openness of the economy, and ensuring fiscal consolidation while strengthening BISP programs and provincial social spending.”
The FSIG series promotes inclusion by supporting measures to foster private investment for creating more and better jobs; by raising access to credit, increase household incomes and consumption; by reallocating expenditures to priority education and health expenditure for the poorest segments of the population; by eliminating tax-exemption privileges; and by efficiently targeting cash transfers on the poor and vulnerable.
“The FSIG-II also supports measures that promote greater fiscal transparency”, says Jose Lopez Calix, Task Team Leader of The Project. “Fiscal transparency helps to ensure governments make informed economic decisions and allows legislatures and citizens to hold governments accountable for their use of public resources. Public disclosure and easy access to external audit reports and in-year budget execution report are a key element of fiscal transparency.”
The credit is financed from the International Development Association (IDA), the World Bank Group’s grant and low-interest arm. It will be on standard IDA terms, with a maturity of 25 years, including a grace period of 5 years.