Amir Khan

The $350 million loan approved recently by the World Bank for Pakistan should be used efficiently and effectively to tackle issues such as fiscal deficit, taxation, and financial stability, fiscal policy analyst Dr. Amanat Ali told WealthPK. He said the World Bank financing was an opportunity for Pakistan to address the long-standing structural distortions in its economy following the upcoming general elections, and warned that failing to seize this opportunity could plunge the country back into a stop-and-go economic cycle. Crucially, the $600 million combined program is expected to bolster Pakistan's foreign exchange reserves while concurrently enhancing the policy and institutional framework for improved fiscal management and regulatory conditions. The announcement from Washington-based multilateral lender underscores the loan's goal to “strengthen fiscal management and promote competitiveness for sustained and inclusive economic growth.” Co-financed by the Asian Infrastructure Investment Bank (AIIB) with an additional $250 million, this initiative is set to play a pivotal role in reshaping Pakistan's economic landscape. The funding aims to foster growth and competitiveness by reducing the cost of tax compliance, improving financial sector transparency, encouraging digital payments, and boosting exports through lower import tariffs.

The reforms outlined in the program focus on strengthening institutions for fiscal and debt management, broadening the tax base, eliminating trade barriers, and rationalizing power sector subsidies. The loan faced delays as the conditions required tax harmonization between the central government and provinces, but a significant breakthrough occurred last fiscal year when the federal and Sindh governments reached an agreement on harmonization of the general sales tax. In 2020, the AIIB and World Bank collaborated on RISE-I, the initial program in the series, contributing to improvements in macroeconomic management and business competitiveness. Notably, it helped reduce power sector subsidies and rationalize consumer tariffs, although circular debt remains a concern. Under RISE, measures are targeted at enhancing the regulatory framework, harmonizing the general sales tax, ensuring financial sector transparency through digitization, and reducing anti-export bias. This loan is a crucial component of the development policy financing, marking a significant step forward in Pakistan's economic rejuvenation.

Credit: INP-WealthPk