SATURDAY DECEMBER 24: Real GDP to expand by 3.9 percent in fiscal year 2012, 4.2 percent in fiscal year 2013: World Bank report

ISLAMABAD: The World Bank has said that the real GDP of Pakistan is projected to expand by 3.9 percent in 2011-12 and by 4.2 percent in 2012-13 while the current account may run small deficits despite expected robust exports and remittances. The World Bank in its recent report, titled 'Country Partnership Strategy Progress Report FY2010-14', has said that the fiscal balance of Pakistan is expected to make marginal improvements in the next two years.
Inflation has demonstrated a declining trend during the first three months of FY12. The combination of a projected current account deficit, low financial inflows and significant debt repayments (including to the IMF) may result in a drawdown of gross reserves.
The report says that the overall macroeconomic risks continue to be significant. The IMF program, off-track for a year, closed in September 2011 and it is unlikely that a new program will be agreed in the near term, though dialogue between the Government and the IMF continues. Higher than projected fiscal deficits or a fall in exports and remittances due to a global slowdown could result in a more significant economic deterioration.
The Country Partnership Strategy (CPS) Report is a mid-term implementation assessment by the World Bank's Board of Executive Directors on July 8, 2010. Recognising the challenges faced by Pakistan, the CPS was kept flexible by design. The economic, political and security challenges Pakistan has gone through over the past two years validated this approach. This Report assesses changes in the program during the past two years and proposes adjustments for the remaining CPS period.
The report says that the World Bank would remain engaged in Pakistan with a robust program projected at up to $4.0 billion in new IDA/IBRD lending over FY12-14. IDA would likely be frontloaded in the FY12-13 period (contingent on implementation performance and absorptive capacity) so as to ensure continued attention to critical social services and safety nets for vulnerable populations to address any negative implications during a weak economic growth period.
Improvements in governance did not materialise A range of governance, corruption and business environment indicators suggest that these areas remained a challenge. Current Freedom of Information (FOI) legislation of Pakistan remains weak, though new legislation has been introduced in the National Assembly which, with suitable amendments, has the potential to raise transparency and improve accountability.
The report says that there are indications that Pakistan saw an impressive decline in poverty trends during most years of the past decade, with the poverty rate falling from 34.5 percent in 2001/02 to an estimated 17.2 percent in 2007/08. Over the past two years there have been signs that poverty levels could be increasing due to the downturn in the economy, floods and inflation. On the other hand, the rapid post-floods recovery in parts of the agriculture sector (those not hit by back to back floods), market price for wheat, and a surprisingly strong growth in remittances would likely have benefited the poorest (mainly rural) income groups. While Pakistan's overall level of inequality remains steady and relatively low compared to other developing countries, some of the volatile border regions and some rural areas within the other provinces have a higher than average level of poverty.
A key shift in FY11 was the effort that went into putting together the floods' response. The World Bank and the Asian Development Bank jointly carried out a 'Damage and Needs Assessment' (DNA) to estimate recovery and reconstruction cost. The World Bank Group delivered emergency support to the tune of $550 million, including $300 million for a quick disbursing import financing operation.
CPS highlights that due to the slow pace of structural reforms, particularly in tax policy and administration and the power sector, followed by the recent closing of the IMF program, the Bank has been unable to extend the development policy funding under the CPS proposed series of Poverty Reduction Support Credits (PRSCs). Given limited progress and lack of the PRSC instrument, the original CPS goals of reducing the fiscal deficit to 3.5 percent and raising the tax-to-GDP ratio to 12.7 percent by 2012-13 are no longer realistic and have been updated to more modestly to help the Government contain the deficit to below 5.5 percent of GDP and bring the tax-to-GDP ratio back in the double digits.
Supply expansion and improving reliability and efficiency of power and gas systems are central to Pakistan's growth and development and they remain a priority, though progress has been slow, both on the reform and investment fronts. On the investment side, performance of the ongoing electricity distribution and transmission project has also been unsatisfactory due to implementation delays and the expected system efficiency gains could not be achieved.
The program of activities in the crises affected regions of Khyber Pakhtunkhwa (KP), Federally Administered Tribal Areas (FATA) and Balochistan is just getting underway. These activities are extended under the Multi-Donor Trust Fund (MDTF), administered by the World Bank, declared effective on August 5, 2010. As of today, 10 countries have pledged an equivalent of $140 million towards the MDTF, which has been largely programmed.
In FY11, IDA and IBRD (WB) extended $1.6 billion for 12 new operations and the IFC extended a record $695 million. In addition, nine new MDTF operations (with cumulative commitment of about $100 million) are expected to come on stream in FY12. The disbursement ratio improved from 29 percent in FY10 to 62 percent in FY11, partly as a result of the quick disbursing flood import financing operation. Beyond the MDTF for crisis affected areas, other key areas supported by trust funds were governance, mining, environment and water. The Pakistan trust fund portfolio currently has 54 active grants with a total commitment of $117 million.