Pakistan: Achieving Results in a Challenging Environment

Challenges

Pakistan faces significant economic, governance and security challenges to achieve durable development outcomes. The persistence of conflict in the border areas and security challenges throughout the country is a reality that affects all aspects of life in Pakistan and impedes development. A range of governance and business environment indicators suggest that deep improvements in governance are needed to unleash Pakistan's growth potential.

Political: Pakistan has faced significant political, economic and constitutional challenges over the past five years. These include continuing pressures of coalition politics, militancy crises, sectarian tensions and consequent violence in many parts of Pakistan, recurring natural disasters like the 2010 and 2011 floods, implementation challenges of devolution of increasing responsibilities to the provinces, and a difficult economic situation.  In May 2013 Pakistan completed its first democratic transition of one civil government to another. The country marked a record high 60% voter turnout.  Local government elections have been held in Balochistan and are awaited to be held in the rest of the country. While security related threats have been heightened in the last few months, democratic process has gained stability in Pakistan. 

Main Economic and Social Challenges: Pakistan continued to struggle to regain macroeconomic stability since the global crisis of 2007/08. Following these crises, and hit by the floods and political and security concerns, real economic growth over the last four years has averaged 3.6% – about half the rate of early 2000s. Supported by strong workers’ remittances and high level of public spending, economic growth continues to be driven by private consumption.  Investment remained on a declining trend and the share of private investment in Gross Domestic Product (GDP) has dropped to 10.3% in 2012/13 from 14.5% in 2006/07. Fiscal situation has remained weak as poor revenue mobilization and high government spending, especially on untargeted subsides, has contributed to large fiscal deficits, which were financed mainly through borrowing from the banking system due to paucity in availability of external financing for the budget. High consumption, coupled with supply side bottlenecks, rising energy prices and sharp depreciation in exchange rate has led to sustained inflationary pressures. However, after remaining at very high levels, inflation has started to decline and in 2012/13 reached 7.4%, down from 17.0% in 2008/09. Despite the lower growth and high inflation, Pakistan has shown remarkable progress in reducing poverty. Preliminary unofficial estimates show headcount poverty at 13.6% in 2010/11, a sharp drop from 34.7% in 2001/02. To improve country’s economic fundamentals, the elected government has initiated a program of economic reforms, which is supported by the International Monetary Fund (IMF) and other multilateral and bilateral donors. The program is expected to stabilize the economy and promote economic recovery. Significant improvement in economic indicators is projected in the first year of implementation, and economic growth reaching about 4%  with some recovery in private investment.

Accelerating progress in human development remains the key underpinning for sustained economic gains.  The Net Enrollment Rates in education have been increasing in Pakistan but still lag behind other South Asia countries. Infant and under five mortality rates represent a similar story. Gender disparities persist in education, health and all economic sectors.  Pakistan has one of the lowest female labor force participation rates in the region. Nutrition also remains a significant cross-cutting challenge, as 44% of children under five are stunted.  Despite the worrying state of education and health, especially amongst the poor, the resource allocation as a percentage of the GDP remained low. Pakistan is ranked as one of the lowest spenders on education and health in the region (at about 2% of GDP). At the current rate of progress, it will be difficult for Pakistan to meet the Millennium Development Goal (MDG) targets on health and education by 2015.

Poverty gains of over the past decade have been impressive but may be difficult to sustain. Pakistan saw a decline in poverty trends, with the poverty rate falling from 34.5% in 2001/02 to an estimated 17.2% in 2007/08. Over the past few years there have been signs that poverty levels may have further decreased, despite the downturn in the economy, floods and inflation. These gains might have been supported primarily through remittances, faster than expected recovery of the agricultural output and exports following the floods, and broad economic growth. While Pakistan’s overall level of inequality remains steady and relatively low compared to other developing countries, some of the volatile border regions and some rural areas within the other provinces have a higher than average level of poverty.

Over the past couple of years, greater decision-making authority has been assigned to provincial governments. The Eighteenth Constitutional Amendment has devolved a number of key functions to the provinces. In total, functions in 17 federal ministries have been devolved, including Agriculture, Education, Environment, and Health. In addition a greater share of revenues has been passed to the provinces through the National Finance Commission Award (NFC) in order to enable them to perform these functions. As expected, the devolution has posed institutional and capacity challenges at the provincial level, and meeting these challenges will require concerted efforts to enhance sub-national capacity and institutional development, which varies across provinces.

Solution

The Bank’s support is focused on, inter alia, helping the country maintain economic stability by addressing critical long-term constraints to growth (power, irrigation, roads, ports); assisting the government to put in place a safety nets system that adequately and effectively protect the poor from economic shocks; and supporting education reform programs to increase school participation, reduce gender and rural-urban disparities, and improve quality and governance. The Bank is also helping Pakistan cope with the consequences of conflict while reducing the prospects of future conflicts through its engagement in the country’s border areas.

Results

Investing in Education: The Bank supports government programs to improve access to education that focus explicitly on the achievement of results. Between 2004 and 2011, International Development Agency (IDA) extended over $1.1 billion to support increased investment and reform in the education sector in the two largest provinces in Pakistan: Punjab andSindh. These efforts, including reforms in teacher recruitment and payment of stipends for girls’ attendance, have started to translate into increased enrollment rates. For example, overall net primary school enrollment in Punjab increased from 66% in 2005 to 74% in 2012. Female primary enrollment in rural areas went up from 57% to 69 %.

Similar enrollment results have been achieved in Sindh. Other achievements in Sindh include continuation of the merit based recruitment of around 20,000 teachers, and 300 new private coeducational primary schools in undeserved rural communities which are supported by public cash subsidies of $4–6 per student per month conditional on free schooling and stipulated school quality standards. These schools have over 26,000 students and evidence suggests that the school participation rate has increased from 30% to 80% in these communities, and that gender disparity in school participation has been eliminated.

Under the Balochistan Education Support Project, over 50,000 students have been enrolled in community and public-private partnership schools supported by the Project. Over half of those enrolled attend one of 635 community schools set up by the Balochistan Education Foundation (BESP), which have completed 3 years of successful operation in remote areas of Balochistan. Forty-four percent of these students are girls. The current enrollment of BESP supported schools contributes about six percent to the overall net enrollment rate of the province.

Protecting the poorest: In social protection, the Bank provided its support in setting up Benazir Income Support Program (BISP) as a core national safety net system. Through its technical support, the Bank assisted BISP in developing a robust targeting and delivery mechanism for its cash transfer initiatives aiming to provides benefits to 5.3 million families by 2015. The poverty registry developed by BISP and the best practices in program delivery are now being adopted by other Social Protection initiatives in the country. 4.18 million families received income support benefits of Rs. 1200 per month.

Connecting the Poorest: 

The Highways Rehabilitation Project achieved its development objective of sustainable delivery of a productive and efficient national highway network, contributing to lower transportation costs, through improved traffic flow measured by improved ride quality (reduced vehicle operating costs) as well as reduced travel time between Peshawar and Karachi. The project achieved – and in some cases, exceeded – the targets with regard to all the four outcome/impact indicators as detailed below. Major achievements include:

• The road network in poor/very poor condition reduced from 49% to 35% against an end of project (EOP) target of 35%.
• Average network-level roughness reduced from 5.4 International Roughness Index (IRI) to 4.49 IRI  against an EOP target of 4.4 IRI – this 17% reduction represents about 5.0% decrease on the vehicle fleet road user costs.
• Peshawar-Karachi travel time reduced by 16% from 47 hours to 39 hours exceeding the EOP target of 42 hours.
• Fatalities per 100 km on N-5 decreased by 63% from 107 to 39 fatalities far exceeding the EOP target of 96 fatalities.

Supporting rural livelihoods: Supporting rural livelihoods: The Bank has supported Pakistan Poverty Alleviation Fund (PPAF) since 2000 and during this time, the program has facilitated the formation of 122,000 community organizations and provided 6.3 million micro-credit loans, 23,000 community infrastructure schemes, and training support for 182,000 people in enterprise development skills.

Operating in crisis areas: The crisis in Khyber Pakhtunkhwa (KP) and the Federally Administered Tribal Areas (FATA) led to one of the worst security crises in Pakistan’s history, displacing millions of people and severely disrupting lives, livelihoods, and the provision of public services. The Bank is now administering the Multi-Donor Trust Fund (MDTF) for KP, FATA and Balochistan, which supports the implementation of a program for reconstruction and development aimed at facilitating the recovery from the impact of the armed conflict and reducing the potential for escalation or resumption. Eleven donors have contributed a total of $175.6 million for the MTDF. A Balochistan Needs Assessment Report has been prepared and a Public Expenditure Review (PER) report has also been produced for KP.

Bank Group Contribution

As of January 31, 2014, Pakistan's portfolio consisted of 24 active projects (IDA + IBRD) with a total commitment of $4.4 billion. The Bank manages a Multi-Donor Trust Fund for the conflict affected areas of about $175 million, which provides grants to KP, FATA and Balochistan. In addition, the Bank maintains an extensive and ongoing analytic work program on a wide range of economic and sector specific topics.

Partners

The World Bank works closely with a large number of donors in various activities. Partners include Asian Development Bank (ADB), the European Union (EU), United Nations (UN), US Agency for International Development (USAID), United Kingdom’s Department for International Development (DFID) and other bilateral partners.

A good example of employing synergies with partners is the Bank’s work with DFID, EU, and the Canadian International Development Agency (CIDA), around the medium term education sector reform programs of Punjab and Sindh.

Moving Forward

The Bank is deepening its engagement on social protection, community-led development, water management, agriculture, energy, infrastructure, and governance while maintaining strong programs in education, and irrigation.  We are exploring ways of supporting reforms in the energy sector and revenue generation, and are also expanding our efforts in health and nutrition.  We will also be exploring with donors and the Government a second round of grant resources to the conflict affected border regions  of KP. FATA, and Balochistan.  While some of our engagements will remain with the national government, a key element in our engagement going forward is working more closely with the provinces.  

Recognizing the challenges and uncertainties facing Pakistan in the coming few years, the Bank’s strategy emphasizes a more focused prioritization on key outcomes with flexibility to enable the Bank Group to meet emerging challenges and opportunities.