ISLAMABAD: The World Bank's Board of Executive Directors has approved $500 million in financing for the Resilient Institutions for Sustainable Economy program (RISE) to help Pakistan strengthen fiscal management, promote transparency and private sector growth, and undertake foundational reforms in the energy sector to transition to low-carbon energy.
"Pakistan is suffering a significant fiscal shock from the economic fallout from the pandemic and the increased spending on crisis response, including emergency healthcare, social protection, and business support," said Illango Patchamuthu, World Bank Country Director for Pakistan.
"The RISE program supports the government efforts to achieve macroeconomic stability, accelerates long-delayed policy reforms, and sets the course for a strong and competitive economy."
These reforms are critical to building fiscal resilience and stimulate recovery from impacts of the COVID-19 pandemic.
The programme supports reforms to broaden the tax base and reduce distortions in tax policy, strengthen debt management and transparency, and implement urgently needed reforms to achieve financial viability of the power sector.
In tandem, reforms to lower barriers to the formalisation of firms, increase the use of digital payments, and better regulate real estate developments will help create an enabling environment to attract private investment. "RISE supports reforms such as harmonizing sales tax and making the trade tariff structure more competitive. This could help the country attract new investments and spur economic recovery," said Shabih Mohib, Lead Country Economist for the World Bank. "Taken as a whole, we hope that RISE can build a foundation for sustainable growth driven by the private sector." The programme supports the foundations for a move toward a low-carbon and more financially viable power sector.
The programme includes reforms to improve the integrity of the banking sector, promote digital finance, and create a more competitive national tariff policy to promote trade and reduce costs to consumers.
The digital finance component of the programme will help deepen electronic money transactions and digital payments will benefit populations with limited mobility, such as women and low-income populations.
The RISE is aligned with the government's COVID-19 crisis response, which aims to scale up spending on health and social protection, while pursuing macro-fiscal reforms in the face of economic contraction.
The RISE complements the Securing Human Investments to Foster Transformation (SHIFT) programme, which focuses on human capital, and an upcoming Program for Affordable and Clean Energy (PACE), which will tackle power sector reforms.
The PACE, which will include critical power sector reforms needed to put the country on sustainable fiscal path, will precede the second programmes of RISE and SHIFT.
The project will be financed by a $250 million credit from the International Development Association (IDA) and a $250 million loan from the International Bank for Reconstruction and Development (IBRD). The IDA credit has a maturity of 30 years with a 5-year grace period, and the IBRD loan has a maturity of 25.5 years and 5.5-year grace period. According to the programme, the risks to this operation are high. Macroeconomic, political, and institutional risks are high.
The macroeconomic situation in the near term is likely to remain fragile, with elevated risks now due to the impact of global COVID-19 pandemic on the economy, which could decelerate progress on key reforms. In addition, a delay in the adjustment process or volatility in oil prices could significantly worsen the economy's prospects.
Macroeconomic risks are mitigated, in part, by the financing from the ADB, the AIIB, the IMF, and the World Bank. Political risks are high because in the past, reforms that seemingly benefited from broad support stalled because they challenged an existing equilibrium of power and those benefiting from the status quo.
These risks are partly mitigated through efforts to secure buy-in from political leaderships across the spectrum.
Institutional risks are high because of weak federal-provincial coordination and technical capacity on taxation and fiscal policy.
These risks are mitigated, in part, through taking an all-of-government approach by engaging with the federal government and provinces address long standing and long-delayed structural reforms, strengthening of institutions responsible for inter-governmental coordination, and provision of technical assistance for implementation.
The World Bank is collaborating with the ADB, the AIIB, the IMF and other development partners, to provide a coordinated support programme to the authorities, both in terms of financing and reform implementation, including on the COVID-19 response, it added.
Copyright Business Recorder, 2020
Comments
Comments are closed.