World Bank approves $6.2bn Pakistan loan

WASHINGTON, July 8 – The World Bank on Thursday approved a four-year $6.2bn lending program for Pakistan that seeks to boost tax revenues, make energy supplies more reliable and improve conditions in conflict-hit areas.

While the lending strategy from 2010 to 2013 is slightly less than the $6.5bn committed during the last four-year period, the program hones in on specific trouble spots in Pakistan.

Pakistan’s battles with al-Qaeda-linked militants have uprooted nearly 3m people since 2009 and put an extra burden on the country’s struggling economy.

The World Bank said it will intensify its efforts to help the government increase tax revenues, which has caused chronic underfunding of key services and made the country reliant on foreign aid.

Pakistan’s tax-to-GDP ratio is one of the world’s lowest.

“Raising the ratio of tax to GDP – currently only 10.2 per cent of GDP – is essential to mobilize resources to invest in human development and infrastructure, build resilience to future shocks, and guard against costly and disruptive growth reversals,” the Bank said in a statement.

Pakistan was due to implement a value-added tax or a reformed general sales tax of 15 per cent by July 1, but the 2010/2011 budget deferred the move to October 1 because of a failure to reach consensus among provinces. The Bank’s plan envisages working with provinces to boost revenues.

In the energy sector, the Bank said it will help Pakistan tap its huge hydropower potential to make power supplies more reliable and improve the distribution of natural gas system, which through leakage or inefficiencies has higher than average losses.

The country has long suffered from chronic power shortages that have angered the public and stifled industry. In April, the government announced measures to cut state electricity consumption by half.

The World Bank said it will also focus its lending on addressing problems in Pakistan’s conflict-hit areas. These include Federally Administered Tribal Areas near the Afghan border, and Khyber-Pakhtunkhwa province, formerly known as North West Frontier, which has been targeted by militants but is not an Islamist stronghold.

In particular, the World Bank said funding will be aimed at health and education, and improving the livelihoods of people, particularly for young men, living in these areas.

“This strategy recognizes that to steer Pakistan back on a path of broad-based growth, create jobs, and reduce poverty, a prolonged period of macroeconomic stability, financial discipline and sound policies is required,” said Rachid Benmessaoud, World Bank country director for Pakistan