Revenue collection efforts fall short of targets: Pakistan facing enormous challenges on all fronts: World Bank

The government of Pakistan is facing enormous challenges on all fronts as the revenue collection efforts have fallen short of the desired level, haemorrhaging of budget continues due to government's inability to reduce untargeted subsidies and monetary modes of financing high fiscal deficit thwarted attempts to tame double-digit inflation.
The World Bank in its report entitled 'Pakistan Electronic Newsletter August 2011' says that Pakistan has been faced with significant political, economic and constitutional challenges over the past four years. The sharp rise in international oil and food prices, combined with expansive domestic policies, had a devastating impact on the economy.
According to the document, as the fiscal and trade deficits increased sharply in Pakistan, economic growth slowed down from about 7 percent in 2006-07 to only 1.2 percent in 2008-09; inflation soared to over 20 percent; and the favourable debt dynamics stalled.
The devastating floods in mid-2010 further added to economic woes of the country. With an estimated damage of over $10 billion, the floods interrupted economic recovery and added to the inflationary pressure. As such, Pakistan's gains in poverty reduction over the last 7-8 years may have been partly reversed. Flood-related reconstruction activities will span over several years and therefore impose durable pressure on the already small fiscal space.
In addition, the rising levels of ethnic and religious strife and insecurity have further limited the country's capacity to deal effectively with persistent poverty. The conflict in Khyber Pukhtunkhwa (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 document says that 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 its potential for escalation or resumption. Ten donors have contributed total $140 million for the MTDF. In 2011, the Bank provided an IDA credit of $250 million, supplemented by $35 million MDTF grant,'to finance cash transfer to conflict-affected households in the KP and FATA.
About Pakistan Railways, the report says that it is one of the largest loss making public sector enterprises. Accumulated losses since 2006-07 now exceed 80 billion rupees; overdraft from State Bank is in excess of 40 billion rupees; and capital expenditures, pension and loan liabilities drain another 18 to 19 billion rupees each year. Pakistan Railways (PR) is thus now totally dependent on Government of Pakistan (GOP), not only for funding its renewals and new investment, but also for providing sufficient funds to enable it to undertake its routine operations - instead of PR supporting Pakistan's economy, Pakistan is supporting PR which is a medium sized passenger railway by general global standards - broadly comparable to Turkey or Poland -which also carries some freight; it carried 80 million passengers and 7 million tons of freight last year.
According to the document, earnings from freight reduced sharply in 2006-07 following the loss of some of the high yielding oil traffic and have since only partially recovered. Passenger tariffs in particular have not kept pace with inflation and have declined by over twenty percent in real terms. At the same time, unit costs have increased in real terms, mostly because fuel costs have increased sharply in real terms. The result has been a significant shortfall in revenue, which will only get bigger unless there are substantial above-inflation increases in tariffs; by the end of 2009-10 passenger tariffs needed to be increased in real terms (ie over and above inflation) by forty percent and freight tariffs by twenty percent. The recent tariff increase, of twenty five percent, is too late and insufficient to improve the revenues to the required level. PR is also unable to carry more traffic; despite enormous demand for its freight and passenger services.