Pakistan failed to achieve major policy objectives: WB

Pakistan has failed to achieve major policy objectives to reduce fiscal deficit at or below 3.5 percent of the GDP and improving tax-to-GDP ratio to 12.7 percent by 2012-13, a World Bank mid-term progress report said.
The World Bank in its mid-term progress report said the fiscal deficit target had now been set at 5.5 percent for 2013-14, down from 6.6 percent of the GDP in 2010-11. The fiscal deficit was above six percent of the GDP during the last two years and above the target of 5.1 percent of the GDP in baseline fiscal year 2009-10.
The fiscal situation has deteriorated, while the current account had improved, but fiscal space for priority public investment in key sectors remained constrained, it said.
Instead of gradually moving down to four percent, fiscal deficit had risen to 6.3 percent of GDP due to lower economic activity, less than expected revenue mobilization and continued untargeted subsidies particularly in the power sector and other loss making entities. The World Bank said the major policy objective to reduce fiscal deficit at or below 3.5 percent of the GDP and improving tax-to-GDP ratio to 12.7 percent by 2012-13 could not be achieved. Therefore, the lending programme would need to be extended from three to four years — from 2013 to 2014. The World Bank said improvements in governance had also not materialized.
“A range of governance, corruption and business environment indicators suggest that these areas remain a challenge,” the report said. The targeted tax-to-GDP ratio had been missed. However, the bank noted that the broad based VAT was dropped (and instead the government introduced the reformed general sales tax (RGST) bill to the parliament) due to a lack of political consensus. Only Sindh province had introduced RGST on services, the bank said.
“No strategy for restructuring or privatization of public sector enterprises could be developed. But $800 million are expected in fiscal year 2012 budget as receipts from Etisalat, the buyer of Pakistan Telecom shares. Also, no closure on restructuring of any corporate entity is expected by end of 2014,” it said. The World Bank has revised its policy objective under the $5.5 billion four-year Country Partnership Strategy, saying that macroeconomic, political and implementation risks had all increased in the recent years. It was not sure if the revised policy adjustments would turn into reality.
It said the country partnership strategy period would be extended to include fiscal year 2014 to better coordinate it both with the national political cycle and the international development assistance cycle, to allow time to move the agreed strategy forward following the adjustments.
“The government took some effective counter-terrorism measures but violence still persists. In addition, political uncertainties and the risk of a surge in social tension resulting from a precarious economy remain significant. The devolution has posed institutional and capacity challenges at the provincial levels, dispersal of some retained functions at the federal level and the requisite expenditure rationalizing given the tight fiscal space,” the bank said. “As a result, the real GDP growth rate in 2010-11 was 2.4 percent and inflation remained in double digits for the fourth year in a row. Translated to per-capita terms, the GDP growth rate was close to nil.”