World Bank defers additional $70m IDA credit to Pakistan Raises Revenue

ISLAMABAD: The World Bank (WB) has deferred the approval of additional International Development Association (IDA) credit in the equivalent amount of $70 million to Pakistan Raises Revenue (PRR) project, which was aimed at providing additional investment financing to the Federal Board of Revenue (FBR), in support of its new Transformation Plan, official sources revealed to Business Recorder.

The World Bank’s Board of Executive Directors was scheduled to consider the additional credit of $70 million for the PRR project on Wednesdays (May 21, 2025); however, sources have confirmed that the Pakistani authorities and the bank would hold further negotiations next week. The board is now likely to consider the agenda in June 2025.

Official documents revealed the tax system raises little revenue, generates economic distortions, and imposes a high burden on the poor largely due to the revenue system. Recent analysis shows that Pakistan’s fiscal policies have a more pronounced impact on increasing poverty and a less significant effect on reducing inequality than average for lower-middle-income countries.

World Bank likely to approve additional IDA credit to PRR

The additional financing (AF) incorporates a Level 2 Restructuring to introduce new activities and change some activities under the existing investment financing component. It also updates the results framework to reflect revised outputs linked with the investment financing component, and extends the project end date to June 30, 2027. With this AF, the total project amount will increase to $470 million.

Project outcomes contribute directly to Outcome 5 of the CPF – More Public Resources for Inclusive Development. By increasing FBR collections to 10 per cent of GDP in fiscal year 2027, the project aligns with CPF outcome indicator 5.1, which aims to raise the tax-to-GDP ratio to 15 per cent by 2035.

Enhanced revenue collection will enable Pakistan to increase spending on essential services over time, meeting fiscal financing needs without generating excessive fiscal imbalances in the future.

Beyond the CPF’s outcomes and targets, the project also indirectly contributes to World Bank Group (WBG) Scorecard indicators related to improved access to services, better debt sustainability, and increased private investment.

PRR is an Investment Project Financing (IPF) with an original allocation of $400 million, with a results-based component and an investment financing component.

The results-based component ($320 million or Component 1) disburses against documented execution of eligible expenditures under the Eligible Expenditure Programs and the achievement of the Disbursement Linked Indicator (DLI) targets.

These DLIs are linked with four objective areas: (i) simple and transparent tax system; (ii) effective control of taxpayers’ obligation; (iii) facilitation of compliance; and (iv) institutional development for efficiency and accountability.

The investment financing component (original allocation of $80 million, Component 2) mainly focuses on investment in the FBR’s information and communications technology (ICT) systems, including ICT equipment, software and business process improvement, cargo weighing, contact-less scanning, and laboratory equipment for customs inspections (goods). It also finances consulting and non-consulting services for software development, technical assistance (TA), and training. AF activities will be conducted within the geographical scope of the existing project.

The proposed restructuring responds to the request of the Government of Pakistan to scale up project activities under Component 2 to meet the FBR’s emerging priorities, and to extend the duration of the Project.

The proposed Level 2 restructuring supports: (i) AF of $70 million for new activities under the investment financing component; (ii) extension in the duration of the project by 24 months (until June 30, 2027); and (iii) an update of the results framework to reflect revised outputs linked with the investment financing component (change of previously approved activities), as well as align with the extended project duration until June 30, 2027. With this AF, the total Project amount will increase to $470million.

Copyright Business Recorder, 2025