The World Bank Group’s decision to support Pakistan’s poverty reduction and development agenda comes at a crucial time for Islamabad, where senior government officials have lately taken to talking up the economy even as most important indicators present cause for worry. Firstly, the bank’s decision eases concerns about bottlenecks in donor inflow in the post-IMF environment. Traditionally, multi- and bi-lateral donors tend to see the Fund as the classic lending litmus test for engaging with struggling countries in the economic south. Minus the Fund, securing funds becomes that much more difficult.
And perhaps more importantly, the funding, if properly channeled, will ease pressure on the PSDP. It is not commonly known that a big chunk of the development budget is financed through foreign assistance. In times like the present cycle of stagflation, when the government’s fiscal space is reduced, the PSDP comes under intense pressure. Not only are indigenous funds diverted to non-development heads, but foreign assistance meant to bankroll the PSDP is used elsewhere. That low growth and high unemployment actually demand a more focused use of the development fund is simply ignored.
Therefore, the World Bank’s commitment to ‘ensure continued attention to critical social services like education, health and safety nets for vulnerable populations’ is appreciated. These investments are necessary, and it is just because they have been ignored far too often in the past that we are in the present quagmire. At the same time, the government must mobilise the other important factor of the PSDP by initiating targeted fiscal expansion to stimulate the job market. It is when the economy is weak that the development budget is most important.
