The World Bank (WB) has approved a package of assistance worth $1 billion to support Pakistan’s economic reforms.
The assistance package consists of two development policy credits (DPCs) to support the government of Pakistan’s efforts to improve the power sector, and reinvigorate growth and investment for reducing poverty and building shared prosperity.
“The government of Pakistan deserves appreciation for stabilising the economy, initiating reforms in the power sector as well as revenue mobilisation and drawing in the private sector for spurring growth,” said Philippe H Le Houerou, Vice President of World Bank Group’s South Asia Region.
“Staying on the structural reform path is important for competitiveness of the economy which in turn is essential for creating jobs and lifting millions out of poverty in Pakistan,” he added.
The power sector reform DPC of $600 million (with additional co-financing support of the Asian Development Bank and Japan) supports Pakistan’s goal of developing an efficient and consumer-oriented electric power system that meets the needs of its people and economy.
PAKISTAN’S MODEST ECONOMIC RECOVERY CONTINUES
Pakistan’s fast-growing remittances rising investments under the China Pakistan Economic Corridor (CPEC) had supported economic growth of the country, World Bank’s latest report said.
According to the Bank’s latest report, Pakistan’s modest economic recovery would continue. However, growth remains well below the 5.5 percent target envisaged in Pakistan’s annual plan and the South Asia average of 7.5 per cent, the Bank’s report on Pakistan said.
Pakistan growth, the bank said, was expected to pick up to 4.5 per cent from 4.2 per cent. Like the rest of the region, Pakistan is benefitting support by low oil prices, high remittances and CPEC investment from low oil prices which had reduced the trade deficit (in spite of a notable decline in exports) and increased consumption, the report said.
The World Bank was of the view that structural challenges prevent Pakistan from growing as quickly as its neighbours. The effects of the high remittances and low oil price windfall (driving such high growth rates in the rest of South Asia) were somewhat hampered in Pakistan by its continuing domestic structural challenges, it added.
The Bank said the government was making progress on the structural reforms which would be essential to safeguard growth. It further said that the government had made great strides in increasing foreign reserves and had recently made progress in power sector and revenue reforms but its ambitious reform agenda was necessarily a medium-to-long-term plan.
Given the risks presented by the current global economic situation, these reforms would be necessary to safeguard Pakistan’s growth, the Bank said. In particular, the Bank report observed that while low oil prices boosted consumption and reduced the import bill, sustained cheap oil may reduce public investment in GCC countries, ultimately lowering Pakistan’s remittance receipts.
Private sector loans for long-term investment have increased substantially compared with the corresponding period in the previous year. However, while national savings tend to be the most reliable source of funds for investment, Pakistan’s historical rate of savings has been very low. National savings were 10 per cent of GDP in the 1960s, increasing to 15 per cent in the 2000s but remaining below that level ever since. The government’s annual plan has identified a savings rate target of 16.8 per cent rate.
