World Bank greenlights $350 million for Pakistan’s fiscal reforms

The Board of Executive Directors of the World Bank gave its approval on Wednesday for a financing package of $350 million to support Pakistan’s fiscal and competitiveness reforms.

This funding is allocated for the Second Resilient Institutions for Sustainable Economy (RISE-II) Operation, with the primary goal of strengthening fiscal management and promoting competitiveness for sustainable and inclusive economic growth, according to a statement from the World Bank.

Najy Benhassine, the World Bank Country Director for Pakistan, stressed the urgent need for fiscal and structural reforms in Pakistan to restore macroeconomic balance and establish the groundwork for sustainable growth.

He highlighted that RISE-II builds upon previous phases of tax, energy, and business climate reforms, aiming to generate additional revenues, improve expenditure targeting, and stimulate competition and investment.

The RISE-II Operation is designed to enhance fiscal management by improving fiscal policy coordination, increasing debt transparency and management, strengthening property taxation, and enhancing the financial viability of the power sector.

Additionally, the operation seeks to boost growth and competitiveness by reducing the cost of tax compliance, improving financial sector transparency, promoting digital payments, and facilitating exports through reduced import tariffs.

Derek H. C. Chen, Task Team Leader of the operation, emphasised the crucial opportunity for Pakistan to address long-standing structural distortions in its economy after the upcoming general elections.

Failing to seize this opportunity, he warned, could lead the country back into stop-and-go economic cycles.

Recently, the World Bank projected a decrease in remittance flows to Pakistan, estimating a decline to $24 billion in 2023 and a further drop below $22 billion with a 10 per cent decline in 2024.

The report attributed this trend to growing economic turmoil, a balance of payment crisis, and high debt, resulting in a loss of public confidence and a shift of remittances from formal to informal channels.

Addressing Pakistan’s economic challenges, Martin Raiser, the World Bank’s Regional Vice President for South Asia, noted difficult situations, floods, and climate change.

He highlighted that the country is trapped in a low-growth scenario with poor human development outcomes and increasing poverty. Raiser urged Pakistan to make crucial decisions for a brighter future, emphasising the need for difficult but necessary steps.

In its October report, ‘South Asia Development Update Towards faster, cleaner growth,’ the World Bank projected positive growth for Pakistan in fiscal years 2023–24, albeit at a modest rate of 1.7 per cent.

The report underscored the country’s dependence on capital inflows to finance substantial fiscal and current account deficits.