Official PDF , 144 pages

Public Disclosure Authorized

Document of The World Bank Group FOR OFFICIAL USE ONLY Report No. 84645-PK

Public Disclosure Authorized

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL FINANCE CORPORATION AND

Public Disclosure Authorized

MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY FOR THE ISLAMIC REPUBLIC OF PAKISTAN

FOR THE PERIOD FY2015–19

Public Disclosure Authorized

April 4, 2014

Pakistan Country Management Unit South Asia Region International Finance Corporation Middle East and North Africa (MENA) Region Multilateral Investment Guarantee Agency

    This document has restricted distribution and may be used by recipients only in the performance of

their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS:    

CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 4, 2014) Currency Unit: Pakistani Rupees US$1.00 = PKR 98.2 GOVERNMENT’S FISCAL YEAR: (July 1–June 30) ABBREVIATIONS AND ACRONYMS   AAA ADB AIDS AML/CFT BISP CASA1000 CEM CPS CPSPR DFID DPC DPL Disco DLI DPs DSA EAD EFF FATA FBR FDI FMIS FTA GDP GEF GFDRR GPE GST GTFP HIV IBRD ICR IDA IDF

Analytical and Advisory Activities Asian Development Bank Acquired Immunodeficiency Syndrome Anti-Money Laundering/Combating Financing of Terrorism Benazir Income Support Program South Asia Central Asia Electricity Transmission and Trade Project Country Economic Memorandum Country Partnership Strategy Country Partnership Strategy Progress Report Department for International Development (UK) Development Policy Credit Development Policy Loan Distribution Company Disbursement Linked Indicator Development Partners Debt Sustainability Analysis Economic Affairs Division Extended Fund Facility (of IMF) Federally Administered Tribal Areas Federal Board of Revenue Foreign Direct Investment Financial Management Information System Free Trade Agreement Gross Domestic Product Global Environment Facility Global Facility for Disaster Reduction and Recovery Global Partnership for Education General Sales Tax Global Trade Finance Program Human Immunodeficiency Virus Int’l Bank for Reconstruction and Development Implementation Completion and Results Report International Development Association Institutional Development Fund

IEG IFC IMF JICA KOEL KPK LNG MDGs MIGA MSME MTDF NEPRA NFC NLTA NWFP OSS PEFA PER PHRD PIFRA PPAF PPF PPP PRSP SME SEZ SOE SRO TA TARP TTF WBG WDR WEF WSP

Vice President: Country Director:

IBRD and IDA Philippe Le Houérou Rachid Benmessaoud

Task Team Leader:

Uzma Basim, Jose R. Lopez Calix

Independent evaluation Group International Finance Corporation International Monetary Fund Japan International Corporation Agency Karachi Organic Energy Limited Khyber Pakhtunkhwa Liquefied Natural Gas Millennium Development Goals Multilateral Investment Guarantee Agency Micro, Small, and Medium Enterprise Medium-Term Development Framework National Electric and Power Regulatory Authority National Finance Commission Non-Lending Technical Assistance North West Frontier Province One-Stop Shop Public Expenditure and Financial Accountability Public Expenditure Review Japan Policy and Human Resource Development Project to Improve Financial Reporting and Auditing Pakistan Poverty Alleviation Fund Project Preparation Facility Public–Private Partnership Poverty Reduction Strategy Paper Small and Medium Enterprise Special Economic Zone State-Owned Enterprise Special Regulatory Orders Technical Assistance Tax Administration Reforms Program Trade and Transport Facilitation World Bank Group World Development Report The World Economic Forum Water and Sanitation Program

Vice President: Regional Director/ Country Manager: Task Team Leader:

IFC Dimitris Tsitsiragos Mouayed Makhlouf Nadeem Siddiqui Shabana Khawar

The World Bank Group greatly appreciates the close collaboration of Pakistan’s authorities in the preparation of this Country Partnership Strategy and the feedback from stakeholders. The preparation of the document involved extensive discussions with government representatives at federal, province, and regional levels, as well as other stakeholders, for example, the private sector, parliamentarians, the academia, youth groups and civil society. The strategy is a result of a team effort and the document received many useful contributions from the Pakistan Country Team and individuals across the WBG. Although it is impossible to name them all, we gratefully acknowledge and thank them for sharing their guidance, knowledge, and experience.

   

CONTENTS I. 

EXECUTIVE SUMMARY ......................................................................................................................... i 

II.  COUNTRY CONTEXT: DIAGNOSIS AND DEVELOPMENT AGENDA ..................................................... 1  A.  Political and Social Context .............................................................................................................. 1  B.  Poverty and Shared Prosperity Trends .............................................................................................. 1  C.  Recent Economic Developments ...................................................................................................... 2  D.  Economic Prospects .......................................................................................................................... 3  E.  Development Challenges and Opportunities ..................................................................................... 5  F.  Government Priorities and Medium-Term Strategy ....................................................................... 10  III.  WORLD BANK GROUP PAKISTAN COUNTRY PARTNERSHIP STRATEGY 2015–19 ......................... 11  A.  Lessons Learned from Previous CPS 2010-14 and Stakeholder Feedback .................................... 11  B.  Proposed WBG Country Partnership Strategy ................................................................................ 13  C.  Implementing the FY15–19 Pakistan Country Partnership Strategy .............................................. 28  IV.  MANAGING RISKS .............................................................................................................................. 35   

Figures Figure 1: Poverty and Growth....................................................................................................................... 2  Figure 2: The Electricity Deficit ................................................................................................................... 6  Figure 3: Private Sector Credit and Private Investment (as percent of GDP) ............................................... 7  Figure 4: Agriculture and Water Productivity .............................................................................................. 7  Figure 5: Pakistan on Human Development Index ....................................................................................... 8  Figure 6: Financial Access .......................................................................................................................... 20  Figure 7: Public Expenditures ..................................................................................................................... 23  Figure 8: Pakistan CPS Results Chain: Results Areas and Outcomes ........................................................ 26 

Boxes Box 1: The Program with the IMF, 2013/14 – 2017/18 ................................................................................ 4 

Tables Table 1: Key Economic Indicators................................................................................................................ 5 Table 2: FY15-19 CPS Financing Envelope ............................................................................................... 29 Table 3: First Two Years Indicative Lending and Analytical Program ............................................. 31

   

ANNEXES Annex I(a): Annex I(b): Annex II: Annex III: Annex IV: Annex V: Annex VI: Annex VII: Annex VIII: Annex IX: Annex X: Annex XI: Annex XII: Annex XIII: Annex XIV: Annex XV Annex XVI: Annex XVII: Annex XVIII: Annex XIX: Annex XX:

Summary Matrix Pakistan CPS Selectivity and Impact on WBG Goals Pakistan CPS FY2015-19 Results Matrix Pakistan CPS FY2010-14 Completion Report Pakistan CPS Stakeholder Consultations Poverty and Shared Prosperity in Pakistan Status of Millennium Development Goals (MDGs) Government of Pakistan Vision 2025 (proposed) Filters for Selectivity for the Pakistan CPS (FY15–19) World Bank Group – Pakistan Energy Initiative Promoting More and Better Jobs for Pakistan A New Tax Reform Strategy for Pakistan Strategizing WBG’s Role under Devolved Setup WBG’s Governance Action Plan Investing in Women in Pakistan Youth Inclusion in Pakistan Restoring Trust between Citizens and Governments in KPK, FATA and Balochistan Climate Change in Pakistan Pakistan’s Growth Potential as the Regional Economic Hub WBG’s Portfolio Management Overview of WBG’s Partnerships and Trust Funds Provincial Graphs

CPS Standard Annexes from SAP Business Data Warehouse i. Selected Indicators of IBRD/IDA Portfolio Performance and Management ii. IFC Investment Operations Program iii. Operations Portfolio (IBRD/IDA and Grants) iv. Statement of IFC’s Held and Disbursed Portfolio v. MIGA statement

   

I.

EXECUTIVE SUMMARY

 

"The Government of Pakistan’s Development Agenda is to address the 4Es: Energy, Economy, Extremism and Education” Mohammad Ishaq Dar, Federal Minister for Finance, Pakistan i. Pakistan now has a “window of opportunity”. A democratically elected government came to power a year ago with a strong mandate for change. It has taken on this agenda with strong commitment and leadership, including new plans for energy and revenue mobilization, and an International Monetary Fund (IMF) program. At the same time, however, many of the underlying challenges that have held Pakistan back in making progress in the past remain strongly embedded – corruption, violence, vested interests and bureaucratic inertia. It is the right time to support change, but with due consideration of sequencing and risks. ii. The Country Partnership Strategy (CPS) for Pakistan is therefore structured to help the country tackle the most difficult—but potentially transformational—areas to reach the twin goals of poverty reduction and shared prosperity. The four strategic pillars—results areas—of the CPS are anchored in the Government’s framework of 4Es: Energy, Economy, Extremism and Education; and the priorities of the proposed Vision 2025: 





Transforming the energy sector. The World Bank Group (WBG includes the International Bank for Reconstruction and Development, IBRD; the International Development Association, IDA; the International Finance Corporation, IFC; and the Multilateral Investment Guarantee Agency, MIGA) is committed to support reforms and large investments in the power sector to reduce load shedding, expand low-cost generation supply, improve governance and cut losses. Key outcomes will be to reduce average daily blackouts from 8 hours to 5 hours; reduce average generation costs from 12¢/kWh to 10¢/kWh, target subsidies on the poorest—reducing them from 1.8 percent to 0.4 percent of gross domestic product (GDP); and improve collection of billed electricity from 86 percent to 94 percent. Supporting private sector development. The WBG will aim to expand policy-based support for strengthening the business environment, including in the provinces, to improve competitiveness and expand investment, improve productivity of farms and businesses, and make cities more growth friendly to create productive and better jobs (especially for youth and women). Key outcomes will be to strengthen the business environment as evidenced by the Doing Business report indicators; restructure/privatize at least five state-owned enterprises (SOEs) including three in energy; increase yields of major crops by 20 percent; increase the number of trainees in skills programs by 20 percent; and improve trade logistics. Reaching out to the underserved, neglected, and poor. This requires a stronger focus on micro, small and medium enterprises (MSMEs), women and youth, fragile provinces/regions and poorer districts, social protection, and resilience and adaptation to the impact of climate change. Key outcomes will be to increase access to finance for MSMEs by 25 percent with a focus on women borrowers; reduce vulnerability to income shocks by expanding the coverage of the Benazir Income Support Program (BISP) by 20 percent with females as major beneficiaries; increase girls’ gross primary enrollment faster (15 percent) than overall; and improve resilience to natural disasters. i   



Accelerating improvements in services. The pace of improvement is far too slow. At the federal and provincial levels this means increasing revenues to fund services and setting more ambitious stretch targets for areas that are not producing change fast enough (especially education and health). Key outcomes will be to increase tax revenue from 9.6 percent of GDP to 11.5 percent and no special tax exemptions issued; increase provincial non-wage expenditures on education and health by 20 percent; improve public financial management; expand use of modern contraceptive methods from 26 percent to 30 percent; increase child immunization by 20 percent; increase gross primary enrollment rates by at least 10 percent; improve adoption of education quality assessments and learning outcomes; and increase the number of public departments/services with a citizen feedback system by 30 percent.

iii. Leveraging regional markets. Interwoven with the four results areas, this cross-cutting program focuses on energy and trade, including critical building blocks of an integrated regional electricity market in South Asia with power transmission links to Central Asia and India; subregional Punjab–Punjab (Pakistan–India) collaboration; and other opportunities to capture the potential of cross-border trade between Pakistan and its neighboring countries. Sustained regional cooperation has the potential to add 2 percent to Pakistan’s GDP per year, help create viable transit corridors, and contribute to overall stability in the region. iv. 







Getting transformational change also requires a shift in instruments and engagement: Increase Development Policy Financing. For the past five years, no development policy financing was possible, as the difficult but necessary reforms were not taken. In FY14, the Bank would propose extending two operations – Power Sector Reform and Fiscally Sustainable and Inclusive Growth DPCs. Both the DPCs have been designed as parts of a series and will form the backbone of the program. The reforms have been frontloaded in light of the country’s track record and past failure to follow-through. The Bank will also explore province-specific policy operations. The policy operations are expected to amount to 20–30 percent of the financing envelope. Leverage large, private sector funding to complement public sector reforms. The WBG will mobilize significant private funding, particularly for low-cost energy production. Addressing the business environment constraints will also help bring new players beyond existing vested commercial interests. This involves IFC using a mix of instruments to support private investors; MIGA providing risk mitigating instruments; and use of IDA/IBRD guarantees. The goal is to catalyze more funds from the private sector than WBG puts in directly (aided by stronger collaboration between the World Bank, IFC, and MIGA). Increase focus on results. The WBG has had good success with results-based operations in Pakistan in education. This approach was recently extended to urban, health and governance projects. More of the investment portfolio is to be results-based, with “stretch targets” to strengthen accountability. More emphasis will also be placed on reviewing results at strategy and portfolio levels, and expanding the use of third-party monitoring and impact evaluations. Build knowledge partnerships, facilitate evidence based dialogue and develop deeper understanding of political economy to strengthen public and private institutions, ensure wider ownership of the development narrative and generate greater confidence in reforms. A particular emphasis will be placed on introducing more transparency into systems to help create the demand for good governance. ii   





Reduce fragmentation in subnational engagements. This means establishing provincespecific programmatic engagement and bringing different sectors together at the province level to focus the dialogue on key barriers to poverty reduction and results. It also means developing a better understanding of intergovernmental relations and local governments; and strengthening coordination with the development partners to reduce overlap. Focus on governance as an integral part of the WBG program. This means systematically identifying ways to enhance accountability and transparency in all public and private institutions and systems we are working with. It also means helping the Government to implement its stated zero-tolerance policy for corruption in all transactions.

v. The CPS envisages an indicative financing envelope of about $11 billion over the CPS period. This includes an IDA lending of about $1.1 billion per year (subject to SDR/$ exchange rate). Pakistan could also benefit from additional regional IDA allocations, particularly in trade and energy. IBRD lending would require strengthened macroeconomic balances, evidenced among other things by foreign exchange reserves equal to at least 2½ months of imports of goods and services and a stable or declining public debt to GDP ratio. If IBRD lending resumes, it would be limited to investment lending of $500 million a year and a maximum of $2 billion in total over the CPS period. IFC will also expand its efforts to bring in more private capital, investing $500 million–700 million a year from its own sources and mobilizing another $50 million–100 million per year from other investors. Altogether with MIGA and MDTF, the financing envelope would represent a 20 percent increase over the last CPS period. vi. Leveraging financing from other sources. Several donors are committed to cofinancing the Power Sector Reform DPC (Asian Development Bank, Japan International Corporation Agency), or use the Fiscally Sustainable and Inclusive Growth DPC as a foundation to provide their own support. This also means that the Bank would use the Multi-Donor Trust Fund (MDTF) for Khyber-Pakhtunkhwa, the Federally Administered Tribal Areas (FATA) and Balochistan to strengthen coordination of interventions beyond those provided by MDTF itself. vii. The WBG’s analytical support will help implement key activities. The CPS has benefited from a “Country Economic Memorandum: Finding the Path to Job-Enhancing Growth” and 16 sector policy notes under “Pakistan: The Transformative Path”. During the first half of the CPS, analytical work will focus on implementing the strategy, particularly on private sector development and intergovernmental finance. In the second half, further work will focus on other critical challenges e.g. population, climate change and water to help inform the next CPS. viii. The risks are high. These include the risk of a declining commitment to reform in the CPS outer years, as well as corruption, deeply embedded public and private vested interests and a volatile national and international security situation. This is why this CPS is structured to provide the maximum change from the start. If a negative scenario unfolds, the areas of focus would likely remain but the instruments would be expected to shift. Without a stable macroeconomic framework or IMF program, the Bank could not extend new Development Policy Financing operations. Instead one could expect an even stronger push toward using knowledge instruments and on investments in social protection, inclusion, and working with the provinces on critical social sector outcomes. Similarly, IFC will focus on portfolio management, selective counter-cyclical investments, and high impact advisory support. Any such shifts would be reflected in a revised strategy in the mid-term CPS Progress Report (CPSPR). iii   

II. A.

COUNTRY CONTEXT: DIAGNOSIS AND DEVELOPMENT AGENDA

Political and Social Context

1. In May 2013, Pakistan’s orderly democratic political transition brought in a new government with a strong reform mandate. Led by the Pakistan Muslim League–Nawaz it had a clear majority at the federal level. At the province level, PML-N retained its mandate to govern Punjab, the biggest province. It also got favorable numbers in Balochistan and chose to become a partner in the coalition there. Of the two main opposition parties, Pakistan Tehreek-e-Insaf won a mandate in Khyber Pakhtunkhwa (KPK) and the Pakistan People’s Party managed to maintain its stronghold in Sindh. 2. A second key political change is the devolution of power to the provinces. The 18th Constitutional Amendment passed by the National Assembly on April 8, 2010, enhanced provincial autonomy and reshaped federal–provincial relations. A total of 43 departments in 18 ministries were abolished in 2011/12 and transferred to the provinces. In parallel, a new resource redistribution formula under the 7th National Finance Commission (NFC) Award of 2010 shifted greater funding to the provinces. The provinces’ taxing powers was expanded, including a sales tax on services; internal and external borrowing by provinces was also permitted. 3. Pakistan’s security environment and law and order situation remain volatile. Security challenges are deepening: militancy, sectarian, and ethnic violence alongside rising crime undermine the state’s writ. More than 50,000 citizens, including members of the armed forces, civilian law enforcement agencies, and paramilitary organizations have been killed in the last seven years. Pakistan also faces uncertainty over the post-2014 transition in Afghanistan and possible spillovers. The new national and provincial governments are beefing up efforts to address militancy and law and order. Also, recent developments in rebuilding ties with Afghanistan and India, though tentative, could help develop trust and peace in the region. B.

Poverty and Shared Prosperity Trends

4. Pakistan has made considerable progress in reducing absolute poverty and improving shared prosperity over the last two decades. Between 1991 and 2011, the proportion of people with an income of less than $1.25 a day was more than halved, led by rural areas (Figure 1). The percentage of the population below the national poverty rate has fallen from 34.7 percent in FY02 to an estimated 13.6 percent in FY11. Though a majority of the nation’s poor people still live in rural areas, growing urban slums are very much a part of the poverty picture. The real per capita consumption of the bottom 40 percent of the population—a measure of shared prosperity—grew faster than among the top 60 percent. Progress, however, slowed in FY09–11 due to two massive floods hitting the country, conflict, and the global economic slowdown. Estimated poverty among females is slightly higher than among males—13.7 percent versus 12.8 percent—but without reliable data on the allocation of resources within households it is hard to be accurate. Similarly, we cannot draw a clear picture on shared prosperity by gender because it is not well defined by population group (see Annex IV on Poverty & Shared Prosperity).

1   

Figure 1: Poverty and Growth

Source: World Bank staff calculations using Pakistan HIES/PSLMS data.

5. Despite gains in poverty and shared prosperity, nearly three-quarters of the population are still either poor or vulnerable. Pakistan’s recent poverty gains remain fragile in part because many households are clustered near the poverty line. Households just above the poverty line and the share of the population considered vulnerable climbed from 53.1 percent in 1999 to 60.1 percent in 2011. Poverty remains widespread in all provinces, and varies little across them (except Balochistan). 6. Pakistan’s progress against human development and MDG targets has been poor. Despite some improvements, Pakistan remains one of the worst performers against MDG goals in the South Asia Region. Although data is unreliable, progress against many of the MDGs (education, gender, health) appears off-track. Such slow progress is inadequate to address the large burden caused by a growing population and needs to be accelerated (see Annex V). 7. Poverty reduction in Pakistan is highly correlated with growth. Growth incidence analysis confirms the pro-poor characteristic of Pakistan’s growth, which reinforces the importance of growth. According to the WBG’s estimates/simulations,1 in a baseline moderate growth scenario (average GDP growth rate of 4.3 percent), Pakistan would be on track to meet the WBG goal of reducing extreme poverty to 3 percent by 2030. But higher growth (7 percent) would advance reaching this milestone by about a decade. The high case scenario also reduces the population under the vulnerability threshold from 74.2 percent in 2011 to about 64.0 percent in 2018, a decline of 2 percentage points a year (versus 1 percentage point a year under the baseline). C.

Recent Economic Developments

8. Growth over the past five years has been weak. Recovery from the 2008–09 global financial crises has been the weakest in South Asia, with GDP growth averaging 2.9 percent in                                                              1

Projections using the MAMS model follow those assumptions used in Pakistan: Finding the Path to Job-Enhancing Growth – A Country Economic Memorandum (CEM) 2013. Elasticity estimates for shorter periods are highly volatile and very sensitive to the starting value in each period. This becomes a problem especially in periods with high fluctuation in GDP growth as is the case for Pakistan.

2  

FY09–13, about half the FY04–07 rate. Fiscal deficits of 6 percent or more prevailed for four years in a row, and the deficit of 8.5 percent of GDP for FY12 was the second highest ever. These deficits stem largely from high and untargeted power subsidies and from poor tax collection. Financing the deficit has crowded out private sector credit, dampening growth further. 9. External accounts and reserves have also been under pressure. While the current account has improved, mainly on rising remittances, international reserves have been affected by declining financial inflows and sizable debt repayments. Barely improving short-term imbalances were hit further by the floods. Armed conflict too has hit investment: it fell from a peak of 19.3 percent of GDP in FY06 to 14.2 percent in FY13, as foreign direct investment (FDI) plunged from $5.3 billion in FY08 to $744 million in FY12. With output below potential, supply-side factors have kept inflation high. Borderline stagflation, for now at least, prevails. 10. Under a three-year IMF Extended Fund Facility (EFF), the government has taken steps to stabilize fundamentals and change the growth trajectory. The country aims to achieve 6–7 percent growth and cut inflation to 7 percent. The perception of an investment-friendly country with solid macro fundamentals and much lower risk is a prerequisite for accelerating growth. Key measures under the EFF (Box 1) include rebuilding reserves and ensuring fiscal consolidation (2 percent of GDP). But stabilization alone will not succeed: so, working closely with international financial institutions, the government is committed to structural reforms, particularly in energy, taxes and SOEs to secure a positive response from private investors and lower Pakistan’s future needs to draw foreign aid. D.

Economic Prospects

11. Encouraging preliminary data from the first semester of FY14 suggest the economy might be about to turn. Growth seems to be picking up, driven mainly by services and manufacturing. The past year’s lower interest rates, settlement of the circular debt in the energy sector, increased credit to private business, faster economic activity, continued strong remittances, and dynamic exports have all helped. FDI also grew by 18 percent during July, 2013-February, 2014. Notably, reserves have recovered somewhat from their lows and are now back over one month of imports. If recovery and reforms continue, reserves may pick up and are projected to reach 1.8 months of imports by end FY14. Inflation was in double digits at end-2012 due to hikes in the General Sales Tax (GST) and in administered prices of electricity, gas, and perishable food items, but appears containable at 10 percent as the economy strengthens. A stronger global economy may also improve the outlook. 12. Pakistan’s economy is expected to stabilize and gradually recover from stagflation. Real GDP growth for 2013/14 should remain above 3.6 percent. In the medium term, and under a baseline scenario that mainly assumes compliance with the three-year EFF, growth is expected to climb gradually (Table 1). The fiscal deficit (excluding grants) is projected to decline to 4.4 percent of GDP by 2017/18. The cornerstone is an expected improvement in tax revenue by about three percentage points of GDP and reduction of current expenditures by about two percentage points of GDP, mainly due to lower electricity subsidies. Total public debt (including IMF obligations) is projected to fall to around 58 percent of GDP by 2017/18. Any delay in undertaking tax reforms, or in non-materializing nontax revenues, or in reducing power subsidies poses risks to this outlook. Similarly, a recalibration of monetary policy and relatively stable or 3  

declining international commodity prices are expected to help reduce inflationary pressures and gradually bring average inflation down to around 7 percent by 2017/18. Though, structural bottlenecks in agricultural production, floods or any adverse international commodity price shock pose the risk of a return to higher inflation. Strong remittances and recovery of private sector credit are also projected to support consumption. Box 1: The Program with the IMF, 2013/14 – 2017/18 Overall goals: The government envisages stabilizing the economy, bringing inflation down to the 6–7 percent range; and accelerating growth to 6–7 percent by 2017/18 or earlier. This implies the following: Stabilization (preventing a balance-of-payment crisis)  Moving to fiscal consolidation. The goal is to reduce the fiscal deficit from 8.0 percent of GDP in 2012/13 to 3.5–4 percent in 2016/17. To do this requires: (i) tax policy measures to increase revenues by over 1 percent of GDP annually, up to a tax-to-GDP ratio of 14–15 percent; (ii) no increase in tax rates, but elimination of tax expenditure exemptions and zero rates under SROs ; (iii) reduced corporate tax rates to ensure regional equity and encourage foreign investment; (iv) rationalized sales tax by ensuring a standard rate for all items and broadening the scope of GST; (v) increased provincial revenue; (vi) austerity in expenditure management based on significant reductions in ministries’ nonwage current expenditures; (vii) rationalized social outlays while strengthening the safety net (BISP); (viii) reduced power subsidies and losses from SOEs; and (ix) active public debt management.  Rebuilding the external position and tightening monetary policy. The goal is to rebuild international reserves up to a comfortable level (3 months of imports). The main measures involve: (i) scaling back monetary accommodation of fiscal deficits by limiting government borrowing; (ii) setting up policy rates to keep real interest rates positive; (iii) strengthening the central bank’s independence; (iv) rebuilding the external position by repurchasing reserves to cushion against major shocks; and (v) taking steps to eliminate money laundering. Major growth-enhancing reforms  Reforming the power sector comprehensively. The goal is to reduce power subsidies; restructure boards of power distribution and generation companies; make new investments; strengthen the power sector regulator; expand alternative sources of energy; and lower cost. This includes: (i) transmission and distribution losses to be brought down to 10 percent (from 33 percent); (ii) collection of 100 percent of billed amount of electricity; (iii) power subsidies only for users below 200 units; (iv) privatization of generation companies; (v) corporatization and privatization of DISCOs; (vi) rationalization of energy tariffs in line with international prices; (vi) tariffs to be determined and notified by the National Electric and Power Regulatory Authority; (vii) tariff rationalization in the gas sector; (viii) improved wellhead pricing for oil and gas exploration and production companies; and (ix) set up a wholesale market for electricity.  Reforming SOEs. This entails privatizing or restructuring—the latter requiring professional chief executives and board members with a corporate structure in line with corporate governance rules. A list of 31 companies has been drawn up.  Increasing openness and normalizing trade relations with neighbors. The goal is to return to a simple and transparent framework trade regime with four slabs and a maximum tariff of 25 percent with few exceptions. Policies include: (i) gradually simplifying tariffs; (ii) phasing out trade-distortive SROs on 4,000 products; (iii) following a “trade not aid” policy; (iv) strengthening regional cooperation forums like the South Asian Association for Regional Cooperation (SAARC); (v) ensuring preferential trade agreements (with e.g. Malaysia and China); and (vi) obtaining GSP+ preferential access (zero duty) on 75 line items for exports to the European Union.  Enhancing the business climate to raise investment. The goal is to increase the investment-to-GDP ratio to 20 percent (from 14.2 percent). On the business climate, this requires Pakistan to (i) enforce contracts through a new draft bankruptcy law; (ii) establish a virtual and physical One-Stop Shop for registering limited liability companies; (iii) strengthen the Board of Investment in facilitating implementation of investment-friendly regulations. Promoting investment requires it to (i) approve a package of incentives to investors; (ii) draw up PPPs in power, gas, and other areas; (iii) convert 50 percent of remittances into investments; (iv) push though with large infrastructure projects including highways, dams, and housing; and (v) set up a Bureau of Infrastructure Development to coordinate private sector participation in infrastructure and to develop financing schemes.

4  

13. The external position is expected quickly to rebuild a reasonable buffer. The external current account deficit is projected to remain modest, increasing to 1.6 percent by 2016/17. Exports are expected to regain dynamism with the recovery in global trade and increased market access in Europe, while imports should expand with rising consumption and investment. Strong remittances are expected to cushion trade deficits. Unfolding privatization plans and other economic measures introduced by the government are expected to attract FDI and financial inflows. Foreign exchange reserves are projected to improve to close to three months of import coverage in 2017/18. The risk to this positive outlook comes from any external shock that cuts workers’ remittances, lowers external demand for exports or raises oil prices, or from any delay in privatization. Table 1: Key Economic Indicators 2009/10

2010/11

2011/12

2012/13

2013/14

Output and prices (annual percentasge change) Real GDP at factor cost Consumer prices (period average)

2.6 10.1

3.7 13.7

4.4 11.0

3.6 7.4

3.6 10.0

4.0 9.2

Balance of Payments (in percent of GDP; unless otherwise indicated) Current account balance Exports of goods & services Imports of goods & services Remittances Gross official reserves (in months of imports of G&S) 1/

(2.2) 14.0 21.5 5.0 3.6

0.1 14.6 20.4 5.2 3.9

(2.1) 13.2 21.6 5.9 2.7

(1.0) 13.3 20.5 5.9 1.4

(1.0) 14.9 22.5 6.4 1.8

14.3 20.2 15.8 (6.2) 61.3

12.6 18.9 16.0 (6.5) 59.4

12.9 21.5 17.8 (8.8) 63.7

13.1 21.0 16.0 (8.0) 63.0

14.3 19.9 15.5 (5.8) 64.2

Public Finance (in percent of GDP) Revenue and grants Expenditures of which: Current Overall fiscal balance 2/ Total public debt (incl. obligation to IMF) Memorandum items: GDP at market prices (in billions of Pakistani Rupees) Notes:

14,867

18,285

20,091

22,909

26,139

2014/15 2015/16 Projections

2016/17

2017/18

4.4 8.4

4.7 7.3

5.0 7.0

(0.8) 15.0 23.1 6.6 2.6

(1.0) 15.0 23.3 6.7 3.0

(1.4) 14.8 23.3 6.8 2.9

(1.6) 14.5 23.3 6.8 2.8

14.7 19.9 15.2 (5.4) 63.5

15.3 19.6 14.4 (4.5) 62.1

15.5 19.8 14.3 (4.4) 59.5

15.5 19.8 14.2 (4.4) 58.0

29,485

33,171

37,217

41,795

1/ Excluding gold and foreign currency deposits of commercial banks held with the State Bank of Pakistan. 2/ Excluding grants.

Source: International Monetary Fund and WB staff

E.

Development Challenges and Opportunities

14. The most important challenges are to sustain reforms and move Pakistan onto a higher growth trajectory to create more productive jobs. Although poverty reduction in Pakistan is aligned closely with growth in per capita income, growth (hence poverty reduction) comes only in spurts. To sustain this conversion of growth into poverty reduction the country must address its weak fundamentals and create more productive jobs—by making the energy sector itself more sustainable, addressing barriers to private sector development, improving human capital and skills, and increasing trade. The binding constraints to growth are both emerging and structural.2 Emerging constraints include massive cuts in electricity availability and macroeconomic instability leading to high country risk and a sudden decline in external and domestic financing. Structural constraints that have a long history, block transition from low- to high-productivity jobs and include government and market failures (micro risks) that impede investment, entrepreneurial 15.

                                                             2

Pakistan: Finding the Path to Job-Enhancing Growth – A Country Economic Memorandum (CEM) 2013.

5  

activity, and competitiveness—limiting job-enhancing growth by holding down total factor productivity. 16. Energy emerged as the biggest constraint on growth. Pakistan has not invested in generation capacity to keep up with growth and has the highest power losses compared to other countries. Severe institutional shortcomings constrain electricity supply, resulting in widespread power outages and load-shedding (Figure 2). Figure 2: The Electricity Deficit 19,000

Shortfall or Surplus

18,000

Peak demand

10,000

FY05

FY06

-7018

FY10

FY11

435

11,000

-86

12,000

-6151

236

13,000

-6408

14,000

-1247

-2645

15,000 197

Mega Watts

16,000

-5454

Peak supply

17,000

-8393

Electricity shortfall is increasing over time

FY02

FY03

FY04

FY07

FY08

FY09

FY12

Source: Enterprise Survey 2007; Ministry of Water & Power presentation (January 26, 2010); and State Bank of Pakistan 2010–12 annual reports.

 

17. At the same time, weak private sector participation is holding back growth and jobs. The private sector should drive the country’s growth, but a poor business climate and structural weaknesses limit its role in the economy. About 90 percent of Pakistan’s GDP originates in the private sector. Contrary to other developing economies, about 70 percent of firms are classified as small, and most of them do not aspire to expand in scale, given the costs associated with formalization of businesses, which also explains the predominant informality and low registration of firms as taxpayers. The private sector is faced with numerous challenges including macro-instability, severe energy shortages, security, a weak business climate, low access to finance and crowding out by large public sector borrowing (Figure 3). The SOEs also constrain private sector growth because of poor service provision while they crowd out private provision in product and factor markets. At the same time, cities and thriving urban centers are important to address weak connectedness and to attract both investors and higher skilled job seekers.

6  

Figure 3: Private Sector Credit and Private Investment (as percent of GDP)

18. Productivity at all levels is low. Agriculture contributes about 80 percent of export earnings directly and indirectly through its forward links to agriculture-based industries; but its growth suffers from low water productivity (Figure 4) -- largely due to weak investment in irrigation and slow adoption of new technologies; weak extension services; and lack of financing. Further, the highly protectionist agricultural trade policy stifles competition and innovation. Increased agricultural productivity (especially among smallholders) would help diversify manufacturing, expand services, generate new jobs, and promote inclusion. Figure 4: Agriculture and Water Productivity

Source: WDI; Yu and others (2012 draft), Climate Risks on Water and Agriculture in the Indus Basin of Pakistan; Planning Commission (2005), Medium-Term Development Framework, 2005–10

19. Similarly, the country has the lowest labor productivity among its regional competitors. Pakistan’s population is projected to almost double to over 350 million by 2050, with mostly unskilled working age youth not ready for high quality productive jobs. Having one of the highest fertility rates worldwide, the country ranks 145 of 187 countries on the UNDP’s Human Development Index (Figure 5). Gaps are particularly large among youth and women, with wide gaps between urban and rural areas, and across provinces. Low labor productivity is often related to chronic demand for low-skilled jobs and growing labor supply of low quality human capital. Pakistan should therefore invest in its people, as an educated, skilled and healthy workforce is a 7  

central plank of any strategy aimed at creating more and productive jobs and sustaining higher growth. Figure 5: Pakistan on Human Development Index Pakistan ranks very low on Human Development Index, 2012 Country rankings (Total 186 countries, 1= high; 186 =low) 0 50 100 150 Pakistan Bangladesh India Indonesia Philippines Egypt Thailand China Sri Lanka Malaysia

200

146

Source: World Economic Forum 2013; UNDP Human Development Report 2013; PSLMS Government of Pakistan; and Pakistan Economic Survey 2012-13.

20. Severe disparities persist, as devolution increases complexity of economic management and service delivery. Uneven development progress and resulting inequalities constrain the country’s achievement of poverty reduction and shared prosperity goals, as growth by itself does not translate into equal opportunity (see Annex XX on Provincial Graphs). The different growth paths for the provinces and their underlying factors and growth constraints need to be tackled. The 7th NFC Award sharply raised the share of the provinces in the divisible pool of federally collected taxes, from 46.3 percent to 57.5 percent, increasing provincial dependence on fiscal transfers and lowering provincial incentives to generate their own revenue. Provincial budget allocations and expenditures on poorer districts do not match needs. Social outcomes are dismal, and gender inequities continue to be huge. Pakistan ranked3 124 on women’s health and survival, 129 on women’s educational attainment (key education and health indicators, particularly for girls, show little or no progress), and a staggering 135 on equal economic participation and opportunity (see Annex XIII on Investing in Women). Provincial governments struggle with limited management capacity, and coordination across provinces is unclear. These challenges will increase with new local governments as elections are held in the coming months. 21. Corruption puts development efforts at risk, by undermining growth, private investment, and service delivery. Four-fifths of Pakistanis view government corruption as widespread.4 The National Accountability Bureau claimed that corruption costs PRs 10 billion– 12 billion a day. In 2012, Transparency International ranked Pakistan 139 out of 176 countries (with 1 being the least corrupt).5 This is worse than India, better than Afghanistan and the same as Nepal. The World Bank’s Control of Corruption indicator6 shows Pakistan on a slight negative trend since 2007. Incentives not to be corrupt (pay and promotion linked to performance, and effective penalties) are rare. The country ranks among the weakest performing                                                              3

 World Economic Forum Report 2013.  Gallup poll http://www.gallup.com/se/ms/154259/Pakistan-Troubled-State.aspx. 5 Transparency International Corruption perception Index 2012 http://cpi.transparency.org/cpi2011/results/ 6 TI Pakistan: National Corruption Perception Survey. 4

8  

countries on governance indicators worldwide. Of six governance indicators Pakistan ranks lowest in the region (where scores are already low) on political stability and below average on all other indicators except regulatory quality. 22. Deteriorating security environment is imposing heavy economic and social costs and negatively impacting the development efforts. Most recent Bank estimates show the annual costs of conflict in Pakistan at no less than 2 percent of GDP. The perception that Pakistan is a high risk country discourages private and foreign investment for growth and job creation. Violence is correlated with poverty as well as inequitable growth: provinces with the highest conflict intensity have higher poverty rates. 23. Pakistan is highly vulnerable to shifting climatic patterns with risks further exacerbated by a growing population, water scarcity and uncontrolled urbanization. The country has seen a considerable increase in frequency and intensity in extreme weather events and natural disasters, causing huge losses. The floods in 2010 and 2011 caused damage of $10 billion and $3.7 billion, respectively; while the earthquake in 2005 resulted in 73,000 deaths and $5 billion in losses. The country has also had its share of droughts and cyclones in recent years. The risks are projected to increase. The melting of the Hindu Kush-Karakoram-Himalayan glaciers could affect water flows into the Indus River system with implications for energy and food security. The government has launched a National Climate Change Policy outlining mitigation and adaptation measures. To preserve its poverty and shared prosperity gains, Pakistan needs to make concerted efforts at adaptation to conserve water and build resilience. 24. The foregoing challenges notwithstanding, Pakistan has several opportunities. It needs to exploit them better. 

Democratic transition. Pakistan has the window of opportunity offered by the orderly democratic political transition that brought a new government with a strong mandate for reform. This bodes well for political stability and continuity that is important for sustained development. The initial steps of the new government have been promising.



Rich natural resource base and strategic location. Balochistan alone has an estimated $3 trillion in mineral resources. Unexploited hydrocarbon reserves are estimated at 27 billion barrels and 280 trillion cubic feet of natural gas. Unexploited hydroelectric potential is estimated at more than 100,000 Megawatts, enough to make Pakistan a regional power supplier. Pakistan is the only overland route between India and the energy-rich countries of Central Asia and the Persian Gulf. It is also China’s most direct overland route to the Arabian Sea and the Persian Gulf. Gwadar’s underused port also carries huge potential for supporting the country’s trade and regional cooperation.



Regional cooperation. This could support growth acceleration because South Asia is one of the most dynamic but least economically integrated regions. (Intraregional trade accounts for just 5 percent of its total trade, versus about 25 percent in ASEAN.) This reflects historical mistrust. Pakistan has yet to fully benefit from economic relations with China, or with India, if most-favored-nation status is granted.

9  



Economic resilience. Three factors cushion the economy against international shocks: the heavy weight of agriculture; the informal economy; and remittances (see below). Agriculture still generates about 21 percent of GDP, 45 percent of jobs, and about 80 percent of export earnings directly and indirectly. And despite malnutrition among the poor, it ensures there is no risk of nationwide food shortages or famine. Pakistan has strong potential as a food exporter—it bounced back quickly from the floods—to meet rising demand for food from China, India, and Southeast Asia. In addition, as much economic activity is informal—above 70 percent—paradoxically the situation is rarely as bad as official statistics indicate.



Strong worker remittances. Remittances totaled almost $14 billion in FY13, equivalent to about half of total exports. They raised consumption among the rural and extreme poor; helped reduce income inequality; and contributed to housing improvements, primary school enrollment, and investments by small businesses. In most provinces in 2007/08, about 72 percent went to rural areas, and the balance to urban areas. Punjab and KPK received the highest shares, while Balochistan had less than 1 percent of the total.



Rapid growth of the female labor force. There are now more women than men in colleges and universities. If female labor force participation rises from 23 percent to 27 percent as expected, with a million well-educated and trained women joining the workforce every three years, many will take jobs in the modern sector.



National Poverty Registry. Pakistan is one of the few countries in the world that has developed a comprehensive National Poverty Registry (NPR), validated by the National ID system, containing welfare information on more than 27 million households (170 million people). This serves as a robust mechanism for targeting the development effort for the poor.

F.

Government Priorities and Medium-Term Strategy

25. The new government’s vision is supported by an ambitious economic agenda. This sets targets for the end of its five-year term: raise the tax-to-GDP ratio from 9.6 percent to 15 percent, bring inflation down to 7–8 percent, and raise investment from 12 percent to 20 percent of GDP. It involves large infrastructure projects including dams. The government also set ambitious goals on the human development side to double social assistance, to increase resources for education to 4 percent of GDP, and increase health spending to 2 percent of GDP. In the first 5 months, it has taken important first steps to stabilize the economy. It entered into an IMF program on September 4, 2013, setting the stage for fiscal and structural reforms (see Box 1). 26. The Government Energy Policy 2013 and a new approach to mobilizing revenue appear promising platforms for reforms. Issued on July 31, 2013, the energy policy provides for phasing out the energy subsidy over three years, except that targeted to the poor; retiring and limiting the recurrence of the circular debt; prioritizing new investments and attracting private sector; improving performance in energy companies and piloting privatization of some Distribution Companies (Discos) immediately; smart metering with transparent billing and cutting off nonpayers; and energy conservation and efficiency standards. Similarly, the tax reform approach is based on three pillars: tax policy; measures to increase the tax base (particularly eliminating exemptions supported by distortive Special Regulatory Orders (SRO), 10  

which should increase revenues by some 1–1.5 percent of GDP); and improved tax administration. This way, the government expects to avoid the need for further increases in tax rates. The plan aims to incorporate 300,000 new taxpayers into the income tax net, with 75,000 first notices dispatched by end-March 2013. Finally, in December 2013 the FBR launched a plan to enhance revenue administration for sales tax, excise, and customs (see Annex X on New Tax Reform Strategy in Pakistan). The government is in the process of developing a more comprehensive development framework. The WBG’s CPS is anchored in the Government’s five-year development vision through a framework of 4Es: “Energy, Economy, Extremism and Education;” sector policies (e.g. energy); and the priorities listed under the draft Vision 2025 (see Annex VI on Pakistan Vision 2025). Provincial governments have also developed or are working on their own development visions and strategies, which will guide the WBG’s engagement in the provinces over the five-year CPS period. 27.

III.

WORLD BANK GROUP PAKISTAN COUNTRY PARTNERSHIP STRATEGY 2015–19

 

A.

Lessons Learned from Previous CPS 2010-14 and Stakeholder Feedback

 

28. The CPS has been informed by a rich set of knowledge work,7 evaluation and lessons from the previous country strategy (Annex II), two rounds of country-wide consultations (Annex III), and federal and provincial governments’ strategic priorities (see previous section). Recent knowledge and analysis work on poverty, investment climate, job-enhancing growth, policy notes on key reforms, provincial expenditure reviews, and access to finance, contributed to the strategy formulation. This work, with stakeholder feedback, helped identify persistent and emerging constraints to poverty reduction and shared prosperity, and the key priorities for the WBG support in the next five years. Lessons from the CPS Completion Report 29. The draft completion report (CR) of the CPS 2010–14 notes many lessons to inform the new strategy. These include (see Annex II on CPS Completion Report): a) Key strategic engagements take time. For many years efforts on fiscal reforms/tax policy and energy made little or uneven progress. Yet these engagements have laid the foundation for more recent, productive engagements. These are long-term issues because problems are deeply embedded in political-economy and structural, institutional conditions. b) Coordinating donor responses can make a big difference. Coordination on responses to challenges—as for floods, social protection and the MDTF—underscores the value of partnerships with stakeholders. Such partnerships also help to build a common narrative and maintain focus on long-term issues.                                                              7

Pakistan: The Transformative Path 2013; Pakistan: Finding the Path to Job-Enhancing Growth – A Country Economic Memorandum (CEM) 2013; World Development Report 2013: Jobs.  

11  

c) Traditional approaches to capacity building have only been moderately effective. Technical assistance (TA), training, just-in-time analyses, and IFC advisory services have helped, but staff turnover in the civil service is so high that it is hard to gain long-term traction. Focusing more on improving “systems” than “training” could therefore be more effective. Outsourcing activities to the private sector or NGOs where feasible could also be considered. d) There is a need to focus more on monitoring and evaluation and on results reporting from the start. Data on many sector/project implementation indicators are only collected at project completion—too late for mid-course correction. e) A simpler CPS results framework with fewer outcomes would help keep the engagement focused. A simpler results matrix would also make it easier to monitor and report on simple results everyone understands and remembers. f) Strengthened attention at province level is not a choice; it is a necessity. Devolution (the 18th Amendment and the 7th NFC award) has fundamentally changed operational modalities. While remaining engaged with the federal government, the WBG has increased its outreach to provinces. g) The Pakistan program must become more selective. There is no way that a World Bank portfolio of over 30 projects and an IFC portfolio of 40 projects can be effective. Selectivity criteria can help, but there is no substitute for strong leadership, led by the country, to make trade-offs and enforce selectivity. h) A strong counter-cyclical role played by IFC has helped ramp up support to the private sector even in difficult circumstances. IFC has increased its short-term trade finance and enhanced investments in infrastructure, especially low-cost and renewable power, to address one of the major constraints faced by Pakistan’s private sector. i) IFC-World Bank collaboration, built around an explicit agreement on joint priorities, helped increase the impact of services provided. Keys to success included a strong field presence with co-location, regular communication at all levels, and use of private networks to leverage policy dialogue. Feedback from Stakeholder Consultations and Client Survey 30. The WBG consulted with over 4000 individuals across Pakistan through a combination of face-to-face meetings with stakeholders, interview-based Client Survey and an online Facebook survey (see Annex III on CPS Stakeholders Consultations). The stakeholders represented a diverse range -- civil society organizations, parliamentarians and political leaders, civil servants, academics, think tanks, youth groups, media representatives, private sector, and other development partners. In addition, over 700 clients and stakeholders participated in a Client Satisfaction Survey conducted through Gallup Pakistan and 3000 provided feedback through a Facebook survey.     31. There were common messages heard across the government and non-government stakeholders:   

12  

a) Tackling the energy crisis with low-cost generation options like hydro-power and improving access to community-led small-scale off-grid and renewable energy sources, such as solar for remote areas of Balochistan and FATA. b) Fostering entrepreneurship and access to finance, increasing economic opportunities and productively engaging youth and women. c) Improving social service delivery, particularly investing in education and health and focusing on women and children d) Addressing inequity in all shapes and forms (with special attention to lagging regions and vulnerable groups). e) Combatting climate change and improving water management – disaster preparedness and recovery support, storage dams, modern irrigation techniques, improving availability and quality of drinking water. f) Engaging with local communities, especially women and youth. g) Enhancing economic growth and human development and partnerships with the private sector was considered essential for reaching the development goals of ending extreme poverty and building shared prosperity. h) Expanding WBG engagement with academia, youth and local governments, and communicating development results. 32. There were some unique features in priorities among the provinces and regions, reflecting the different development contexts and needs. Punjab’s focus is on energy and improving the investment climate to attract the private sector, while in Khyber Pakhtunkhwa, improving the security situation and creating jobs were identified as foremost priorities to create conducive conditions for economic and social progress. In Balochistan, water scarcity, transparency and benefit sharing in development of natural resources, girls’ education and private sector’s access to finance came out as major concerns. For FATA, governance and constitutional reforms and bringing the region at par with the rest of the country were identified as crucial to achieving development results. Energy, economy, education, youth skills enhancement, revenue mobilization, restructuring of state-owned enterprises, and climate change were highlighted as the top priorities at the federal / national level. B.

Proposed WBG Country Partnership Strategy

33. The overarching goal of the Pakistan CPS (FY15–19) is to help the country accelerate poverty reduction and build shared prosperity. The CPS follows the WBG interim guidelines on the overarching poverty and prosperity goals and strategy products. This will be a transition strategy to help set the framework for aligning country engagement with the twin goals. To that end, the WBG would work with the government to strengthen institutional capacity for generating credible data for consistent reporting and for adopting policies to support and monitor progress toward the twin goals. With the client, the WBG will also review and restructure the portfolio (where justified) to ensure that operations are contributing to the twin goals and geared to create a beneficial impact on the poor and vulnerable. 34. The CPS is structured around four strategic themes, or result areas. The four strategic results areas are energy, private sector development, inclusion, and service delivery (see Figure 8). Taking into account new realities, it proposes fundamental game changers for the next CPS 13  

period. First, it deals with vulnerable macroeconomic external and domestic conditions that mark the initial CPS period. Second, it addresses the country’s essential development challenges and focuses on two key constraints on growth —energy and private sector development. It explicitly recognizes the critical role of the private sector to help respond to these development challenges, and of the WBG in creating the enabling environment for more effective development solutions and in using its limited resources to leverage other development and private funding for maximum impact. Third, it supports the role of inclusion for dealing with what appears to be the most significant challenge in the medium term: materializing the population dividend and reaching out to the marginalized. Fourth, it accommodates the realities that the devolution of more responsibilities to provinces, in line with the 18th Constitutional Amendment, implies for the development process in terms of governance and service delivery. Finally, while the CPS consolidates the response to conflict-affected areas in particular, it also foresees WBG’s initiatives to support a new regional dimension opening up for Pakistan. Overall, the CPS builds upon the new administration’s framework of 4Es and the key priorities identified as part of the Vision 2025. 35. The CPS also mainstreams several high priority development themes for Pakistan. On governance, the WBG will systematically identify ways to enhance accountability and transparency in all of the public and private institutions and systems we are working with. This also means helping the Government to implement its stated zero-tolerance for corruption in all transactions (see Annex XII). On gender, most WBG projects in Pakistan are currently gender informed and all new projects will be screened for this. Further specific attention will be paid to promoting women’s participation in education, health, labor and private sector (see Annex XIII). In light of the demographic trends, the CPS recognizes youth engagement as a critical theme, and within this a particular emphasis on innovative approaches to promoting economic opportunity for youth (see Annex XIV). The CPS seeks to address sources of fragility and conflict, with an emphasis on restoring trust between citizens and the Governments of KP, FATA, and Balochistan (see Annex XV). And finally, an underlying theme of the CPS is creating more and better jobs, particularly by building the business environment, competitiveness, marketable skills for a growing labor force, and facilitating cross-border trade (See Annex IX). Results Area 1: Energy 36. The WBG aims to address energy security, particularly power sector needs, as the top priority and necessary condition for growth. Power sector goals could not be met in the previous CPS for several reasons – lack of clear government/sector policy; poor implementation of reforms and setbacks from political opposition, public and private vested interests; and limited WBG engagement and instruments to influence policy reforms. By making energy a stand-alone results theme in the CPS, the WBG is placing greater focus on the sector’s issues. With an IMF program in place, there is a broad consensus across government and major donors (WBG, ADB, JICA, DFID, USAID) on the key policy reforms and investment needs of the sector. This also opens up the possibility of using a combination of instruments, particularly Development Policy Financing, which was not available earlier. All these factors help the WBG to be in a unique position to support energy reforms in a comprehensive and coordinated manner.

14  

37. The WBG interventions will be at both the policy and investment levels, with an increased focus on hydropower and other renewable energy. On the policy side, the World Bank, with ADB and JICA, will extend a series of Development Policy Credits (DPCs) aimed at strengthening the policy and institutional framework within the energy sector. On the investment side, it is supporting major public investments, while IFC will play a significant role by mobilizing large private investments in the sector, using its debt and equity instruments, with MIGA political risk insurance. 38. The WBG has started a Transformational Energy Initiative to support new investments and reforms in the power sector. The program entails ongoing WBG investments including IDA lending in the Tarbela-IV Extension; upcoming investment in the large hydropower project— Dasu Hydropower Stage 1 (2,160 MW); and first two in a series of DPCs to improve financial viability, investment climate and transparency of the power sector. IFC has been supporting lowcost generation using indigenous gas and hydropower resources as well as promoting alternative sources (wind, solar, waste to energy), and has invested in (i) two private sector hydro projects— Laraib (84 MW) & Star Hydro, joint project with MIGA (147 MW); (ii) one private power project based on indigenous gas—Uch-II (404 MW); (iii) two wind projects—Zorlu and Metro Wind (100 MW); and (iv) a waste to energy project KOEL(25 MW). The Uch-II (404 MW) will come on stream in 2014, while most of the other projects will become operational during the next two to three years. In addition, IFC has financed about 800 MW of electricity generation for the first privatized integrated electricity utility (K-Electric). IFC is expected to mobilize substantial equity investment with international investors for the establishment of a platform company to develop hydro, thermal, and wind power over the next five years. In addition to its own direct funding, IFC will leverage and mobilize significant capital from international equity investors and lenders to support the large pipeline of power projects in Pakistan. Finally, IDA and IFC are working together to bring Central Asian power to Pakistan through Afghanistan (CASA-1000), to help address energy shortages during the summer and support regional cooperation and Afghanistan’s role as a transit country (see Annex VIII on WBG–Pakistan Energy Initiative). Outcome 1.1: Reduced Load Shedding 39. Reducing load shedding in the short term is key to revitalizing the economy. The strategy addresses the immediate need to reduce load shedding through a combination of strong policy dialogue and program support using DPCs as instruments. These will address shortcomings in tariff setting and targeting of subsidy, and the weak sector governance and accountability. These underlie the chronic liquidity crisis in the sector, known as the circular debt, which contributes to the high levels of load shedding experienced particularly during the summer months. Longer term measures to increase generation capacity and improve operational and technical performance of the distribution companies, as well as reforms in the gas and petroleum sectors are also needed and are discussed below. The key outcome to be monitored from all these activities will be to reduce load shedding from 8 hours to 5 hours a day over the CPS period.

15  

Outcome 1.2: Reduced Cost of Electricity Production 40. The World Bank Group aims to mobilize substantial investments (up to $10 billion) over the next five years to reduce power generation costs. The focus of the WBG strategy is to shift the generation mix to low-cost sources and prioritizing supply of natural gas to thermal power generation, thus making electricity more reliable and affordable. Hydropower development along the Indus River Cascade will be the cornerstone of the WBG strategy, for more and lower cost power generation. The WBG will support large public sector hydropower projects, including Tarbela and Dasu, while IFC will engage with domestic and international sponsors (from China and the Republic of Korea) to finance large private hydropower and renewable power projects over the next three to five years. It will support the development of small, predominantly renewables-based, electrification schemes to bring affordable electricity to those not served by the grid, particularly in Balochistan. IFC will also invest in developing a storage and regasification terminal to facilitate liquefied natural gas imports. The WBG is supporting enhancing the supply of natural gas through the Natural Gas Efficiency Project. The Power Sector Reform DPC will support the government in putting in place a policy framework mandating expansion in generation through a least-cost plan, for all new future power generation. The DPC will also help the government establish the policy and incentive framework that allows direct contracting between gas producers and open access to the transmission system, including determining transportation wheeling tariffs and starting a market for all new gas discoveries. The key outcome to be monitored will be to cut the average generation cost from 12¢/kWh to 10¢/kWh over the CPS period. Outcome 1.3: Improved Financial Sustainability of the Electric Power Sector 41. Reforms for enhancing the financial viability of the power sector need to proceed in tandem with new investments. Clearly it is not possible to make the fiscal situation sustainable without heavily cutting the huge power subsidies. The government has initiated a plan to phase them out, targeting them toward the poorest and most vulnerable. Similarly, improving sector governance, system efficiency and management, especially in Discos, is crucial for sustainability of the sector in the long term. In addition, management autonomy and accountability needs to be introduced in the Discos, including through privatization where feasible. Operational and technical performance can be improved across a wide spectrum—(losses, theft, voltage, and other indicators of service quality), commercial areas (collection), etc. The WBG will support these efforts through policy dialogue and a series of budget support operations (DPCs) prepared with the IMF and other key development partners (ADB, JICA, DFID). Based on the government’s request, IFC’s PPP advisory work will look at options to support the government in privatizing the Discos. To help the poorest offset the impact of reduced subsidies, the WBG will work with the government to enhance coverage of the BISP cash transfers and other mechanisms. The key outcomes to be monitored will be to reduce untargeted subsidies from 1.8 percent to 0.4 percent of GDP; and improved collection of billed electricity from 86 percent to 94 percent over the CPS period.

16  

Results Area 2: Private Sector Development 42. It is critical for the WBG to help Pakistan change the trajectory of growth with greater private sector development. Under this results area, the WBG will focus on policy reforms at the federal and province levels to enhance the enabling environment, including legal framework and unlock constraints on the private sector participation. These reforms and policy interventions will also support outcomes under other results areas (such as energy). The Bank and IFC along with MIGA support will help Pakistan attract and mobilize private investment. The WBG will also focus on improving competitiveness and productivity of farms, small businesses, and key economic sectors—which account for the bulk of the country’s GDP and employment—as well as enhance skills, especially for youth and women in Balochistan, KPK and FATA. Outcome 2.1: Improved Business Environment for Private Sector 43. Raising private investment is crucial for the government’s ambitions to accelerate growth. Supported by the WBG, the Board of Investment has formulated a plan to improve its Doing Business ranking. It includes federal actions to improve power access, streamline tax payments, setting up a One-Stop Shop for business registration, and approving the credit information law (all actions supported by the Fiscally Sustainable and Inclusive Growth DPC and ongoing TA). Further assistance can be channeled through Indicator Based Reform Advisory. At the local level, provincial governments are creating new courts to resolve commercial disputes with support from IFC—one in Sindh and another in Punjab. The Punjab Land Records Project is helping computerize land registration and easing procedures for approval of construction permits. The Bank and IFC will work together to improve competitiveness including focusing on (i) labor intensive manufacturing by rehabilitating and developing industrial estates (e.g. Punjab Apparel Park); (ii) reforming regulations and procedures for construction permits; and (iii) attracting strategic investors into the agribusiness sector to support conversion to high value added export. Support for revitalizing the private sector in Balochistan, KPK and FATA will contribute to the development of local natural resources. The key outcome to be monitored will be to make progress on Doing Business indicators such as cutting the number of days required to start a business from 21 to 15 44. The WBG will promote increased private sector development through SOE reform, including privatization. State Owned Enterprises (SOEs) are a heavy burden on already strained fiscal resources, deliver poor services, and create market distortions—all of which harm private investment. Eight initial SOEs have already been cleared as priority for the first drive of privatization during FY15 and the Bank’s DPC on Fiscally Sustainable and Inclusive Growth as well as IFC’s Investment Climate and PPP advisory are supporting these efforts. The IFC will support privatization transactions in the financial and infrastructure sectors through technical advisory and strategic investments (subject to government inviting IFC to be part of the process). Also, with the ongoing TA on SOE reforms, the WBG will continue supporting the government in improving corporate governance and accountability of SOEs, amending the regulatory framework for PPPs, and approving new regulations—allowing the swift opening of special economic zones (SEZs). The key outcome to be monitored will be to help the government restructure or privatize at least five SOEs (including three in the power sector).

17  

45. The WBG will support financial-infrastructure improvements. A key reform area in financial intermediation to the private sector relates to reducing the underlying risks by strengthening creditors’ rights through reforms in credit information and in secured transactions. Credit bureaus and credit registries are essential parts of the financial infrastructure and facilitate access to formal finance, reduce information asymmetries, increase access to credit for small firms, lower interest rates, improve borrower discipline, and support bank supervision and credit risk. The Bank’s DPC on Fiscally Sustainable and Inclusive Growth will support reforms to enhance financial intermediation to the private sector by strengthening creditors’ rights. IFC will support the deepening of financial markets through equity and debt investments in financial institutions including further private participation, and expanding its advisory services to the banks. IFC will also explore opportunities to support long-term market development through local currency bond issuance and support to housing finance. Outcome 2.2: Increased Productivity in Farms in Selected Irrigation Schemes 46. The WBG operations thus far have been focused on increasing efficiency of water distribution and use, as well as promotion of agricultural value chains. Ongoing and planned investment operations in Punjab, Sindh, and Balochistan will contribute to productivity outcomes. Water resource management, particularly small-scale community water infrastructure and storage in Balochistan will be a priority. Agricultural trade–distortive policies will be indirectly tackled through eliminating SROs supported by the Fiscally Sustainable and Inclusive Growth DPC. Fostering agricultural value chains is part of planned TA. IFC will continue to provide PPP support for grain storage facilities in Punjab and Sindh. In addition, it will support supplier finance in agriculture, and TA to commercial banks to expand finance to agribusiness. The key outcome to be monitored will be to raise yields of major crops (wheat, cotton, rice) in selected areas by 20 percent. Outcome 2.3: Improved Youth’s Skills for Business 47. Part of the efforts to increase productivity relies on unlocking cities’ potential for jobenhancing growth, and improving youths’ skills so that they can perform these jobs. The World Bank has operations to improve urban management in Punjab, FATA, and KPK, and will be providing TA for Karachi. But if cities are to become growth-friendly clusters, skills will have to be upgraded. (The Bank’s 2007 investment climate survey found that less than 5 percent of firms had provided training to their employees.) Technical and Vocational Education and Training in Sindh, and the IFC-led Business Edge skills program are expected to provide training, job-search assistance, internships, and microenterprise support to foster entrepreneurship. Youth skills program for Balochistan and other regions will also be considered. The key outcome to be monitored will be to increase the number of trainees in skills development programs by 20 percent. Outcome 2.4: Improved Trade Tariff and Ports / Borders Logistics 48. Pakistan’s ability to compete globally and boost exports should improve after tariffs are simplified and trade regulations streamlined. Supported by the Bank’s DPC on Fiscally Sustainable and Inclusive Growth and related TA, the government expects to gradually return to 18  

four tariff slabs, while phasing out SROs. Tariff reform would reduce the average tariff rate to close to 10 percent, with reduced dispersion, and would pay off in the longer term by allowing all Pakistan’s producers to benefit from cheaper inputs. The key outcome to be monitored will be to reduce average tariff rate from 14.4 percent in FY13 to 10 percent and no special tax exemption issued. 49. Improvements in port operations and border post management are equally important. A sound trade facilitation and logistical system can play a decisive role in attaining export-led growth—by reducing trade costs, upgrading service quality, improving connectivity between domestic and foreign markets, and moving up the supply chain. Projects include the IBRDsupported Karachi Port Improvement Project, the IFC Qasim International Container Terminal, the Pakistan International Bulk Terminal and Intercity Transport Projects. Pipeline operations are Wagah Border logistics improvement, and IFC’s Freight Train Project. Over the CPS implementation period, the WBG will consider other opportunities to facilitate cross-border trade between Pakistan and its neighbors and to help all provinces and regions achieve their full trade potential. Particular focus will be on activities to increase local resource generation and exports in Balochistan, KPK and FATA. The key outcome to be monitored will be to reduce waiting time at Wagah by 20 percent and improve occupancy rate of selected Karachi Port berths from 74 percent to 50 percent. Results Area 3: Inclusion 50. Pakistan needs targeted measures to benefit the poor and other disenfranchised groups to address persistent disparities. There is uneven progress with rural-urban gaps and inequities within and across provinces. Among the poor, women and girls and those living in the conflictaffected areas are particularly vulnerable. The development efforts should reach these disadvantaged regions and groups to provide equal opportunity, if the WBG were to achieve its shared prosperity goal for the bottom 40 percent of the population. 51. The WBG will support inclusive growth by reducing inequities for vulnerable groups, including women and youth, and those in poor or conflict-affected areas including Balochistan, KPK and FATA. It will bring increased attention to these groups and areas that are denied access to resources and services, hindering their full participation in society. One key component will be efforts to increase financial access of MSMEs, particularly among women. Another will be to address vulnerable groups either through stand-alone projects such as safety nets or as part of activities supported under other results areas. The WBG will also help Pakistan reduce its vulnerability to disasters, which usually has the biggest impact on the poor. To measure the distributional impact of all the WBG interventions and to strengthen evidence on development impact, the WBG will work with the Bureau of Statistics and relevant institutions in the provinces to improve reliability of data (Figure 6 on Financial Access).

19  

Figure 6: Financial Access

Source: World Bank Financial Inclusion Data.

Outcome 3.1: Increased Financial Inclusion for MSMEs and Women 52. Promoting financial inclusion for women, households in the poorest districts and MSMEs particularly in Balochistan, KPK and FATA will help increase economic opportunities for the disadvantaged. Given Pakistan’s low access to finance (only 14–16 percent), the WBG’s DPC on Fiscally Sustainable and Inclusive Growth will support reforms to enhance financial intermediation and access to finance by strengthening credit information. The Bank will focus its analytical work on supporting development and implementation of the Financial Inclusion Strategy under Pakistan’s first Reimbursable Advisory Services (RAS) to include product development for MSMEs, low-income housing, and crisis-prone sectors (crops and livestock), and insurance markets. On the investment side, IFC’s Global Trade Finance and Supplier Finance Programs will assist businesses and support commercial banks to expand guarantees for increased access to finance for SMEs, while investments in four microfinance banks will continue to expand outreach in the microfinance sector. IFC will also expand its investments in banks with MSME focus, and enhance advisory and technical assistance in areas including agriculture supply chain management, gender finance, entrepreneurship and management skills, corporate governance, and sustainable finance. A key outcome to be monitored will be to enhance MSME outreach by at least 25 percent, with women’s participation increased by 10 percent. The WBG would also seek to increase overall financial inclusion by 10 percent (including women’s access by at least 3 percent). Outcome 3.2: Reduced Vulnerability for Groups at Risk 53. The WBG has played a central role in strengthening social protection systems for the poorest and will help take these programs to the next level. The WBG will support the government’s commitment to minimize the potential negative impact of fiscal adjustment and 20  

structural reforms on the poor and vulnerable. The government has significantly increased spending on safety nets and transitioned to a stronger institutional framework to cushion vulnerable households from the negative effects of transitory income shocks. However, a large share of public expenditure is still devoted to regressive and inefficient universal subsidies. Administrative efficiency of social assistance programs should also be upgraded, in part through further consolidation and coordination of interventions. The WBG will build on ongoing engagements through BISP, the Pakistan Poverty Alleviation Fund, and interventions under the MDTF for KPK, FATA, and Balochistan. Part of this will be to support innovative pilot programs to focus on medium- and long-term interventions to help families move out of poverty. This includes the livelihoods grants and conditional cash transfer programs to improve school enrollments and attendance as well as transfers linked to improving their health status. Facilitating access to productive assets for income generation is also important, and the WBG support to microfinance, entrepreneurship, and skills development will contribute to that objective. The key outcome to be monitored will be to expand BISP coverage by 20 percent and expand the use of conditional cash transfers to 25 districts. 54. The WBG will have focused interventions for the second vulnerable group comprising women and girls. Within each activity, not just health and education but also infrastructure, finance, governance, training, and agriculture, the WBG will identify approaches to ensure that women have increased access to services. In education, the WBG will seek stronger access for girls as a priority, such as Promoting Girls Education in Balochistan (MDTF). The key indicators to be monitored will be to increase girls’ gross primary education enrollment by 15 percent more than the overall rate. 55. Those living in border areas affected by violence form a third vulnerable group. WBG will continue to support the government in the implementation of the Post-Crises Needs Assessment (PCNA) and the Balochistan Development Needs Assessment (BDNA), with continued emphasis on addressing the drivers of crises. The engagement will focus on increasing employment and livelihoods opportunities and improvements in delivery of basic services. Over the past three years, the World Bank has piloted an MDTF for KPK, FATA, and Balochistan for a total of $160 million from 11 donors. The MDTF has been used in basic health and education services, emergency road rehabilitation, rural development, governance, and economic revitalization. The WBG has learned a great deal on how to operate in these areas and plans to expand operations under a second phase (targeted at more than $200 million) with a programmatic approach to reduce fragmentation with each of the three regions. The WBG will use the MDTF to help provide a framework through which all donor interventions can be coordinated in these areas and build capacity of the government to lead the donor coordination effort. There is no stand-alone indicator to be monitored, as operations in the MDTF will be integrated into the rest of the program. Outcome 3.3: Increased Resilience to Disasters in Targeted Regions 56. The WBG will work with the government to improve understanding of disaster risks to build resilience and strengthen disaster risk management and early warning systems. It will build on existing programs and expand dialogue. The WBG will support efforts for multi-hazard risk assessments for major urban centers, updated provincial disaster risk management plans and 21  

standard operating procedures, and enhanced disaster response and coordination capacity at the national, provincial, and district or city level. The key outcome to be monitored will be to increase the number of provinces with disaster risk management plans, improved management, and early warning systems. Results Area 4: Service Delivery 57. Weak institutional governance and service delivery disproportionally affect the poor. The poor and disadvantaged are overwhelmingly dependent on public services, and lack of quality access restricts human opportunity as well as negatively impact growth. The recent Lancet Commission on Global Health notes that investing in health has a huge payoff. Mortality reductions account for 11 percent of recent economic growth in low- and middle-income countries. Evidence suggests similar economic pay offs for education. Investing in people is therefore critical not only for human development gains but to sustain growth and development outcomes. However, increasing funding alone is not sufficient. Addressing weaknesses in the public service delivery mechanisms and promoting transparency are also necessary. 58. The WBG aims to break through the “good enough” barrier on services. The pace of improvement is far too slow and needs to be accelerated. This requires the governments to improve resources management – increasing revenues and allocations, as well as improving targeting and efficiency of pro-poor expenditures. Pakistan’s revenue collection -- tax-to-GDP ratio is the lowest in South Asia and most of the country’s resources go on non-development expenditures (Figure 7). At the same time, lack of administrative capacity and transparency are also contributing to poor outcomes. The WBG will work with federal, provincial and local governments to help improve revenues and expenditures to fund services, and setting more ambitious stretch targets for areas of past WBG involvement that are not producing change fast enough (such as health and education). Previous WBG strategy dealt with resources, social services and governance aspects under separate pillars. Yet the nature and scale of these interlinked challenges call for a more integrated approach. They also call for greater focus on the roles of federal and provincial governments, with the former providing coordination or stewardship, even as service provision is devolved to the latter. The WBG will also facilitate innovative approaches and delivery mechanisms involving the private sector.

22  

Figure 7: Public Expenditures

 

Outcome 4.1: Improved Public Resources Management 59. The WBG will focus on helping government mobilize revenue and improve development expenditures to create fiscal space. As documented in the CPS Completion Report, WBG could not achieve the revenue mobilization targets under the previous strategy for several reasons – including lack of political will, public and private vested interests resisting tax reforms, institutional capacity, and lack of the WBG’s instruments to influence policy reforms to compliment interventions supporting administrative efficiency. Building on the lessons and the opportunity to use the policy instruments, the WBG’s DPC on Fiscally Sustainable and Inclusive Growth is supporting the government’s comprehensive national tax reform agenda to increase the tax-to-GDP ratio. Ongoing analytical engagement and investment operations at subnational level through PERs, PEFAs, and DSA in KPK, Balochistan, Punjab, and Sindh aim to support provincial tax reforms as well. PIFRA-II will support the launch of a medium-term budgetary framework at federal and provincial levels. The Punjab and Sindh Public Management Improvement Program will also support more efficient use of public resources, while subnational PEFAs aim to support expenditure reform focusing on improvements in the efficiency of provincial departments. The key outcomes to be monitored will be (i) to increase the tax-to-GDP ratio by two percentage points from 9.6 percent to 11.5 percent at federal level, no special tax exemptions issued, and expand tax revenues at province level; (ii) to increase nonwage recurrent expenditure by provinces in education and health by 20 percent; and (iii) improve quality and timeliness of government accounting, auditing, and reporting at federal and province levels against PEFA scores.

23  

Outcome 4.2: Improved Access to Maternal and Child Health Services 60. Health outcomes are very poor, as public delivery systems struggle to keep pace with an ever-increasing population. The WBG’s engagement in the health sector will primarily focus on improving maternal and child health for the poor. Specifically, it will support efforts to improve coverage of immunization services to address recurrent outbreaks of vaccine preventable diseases in children, including polio. Building on the multi-sectoral dialogue on nutrition from previous years, it will support provinces in rolling out plans for scaling up nutrition interventions and strengthening cross-linkages across health, agriculture and related sectors. Besides addressing maternal mortality and fertility rates, the WBG will engage in a broader dialogue and analytical work on population management. The WBG will help strengthen health systems as well as capacity and stewardship in provincial governments, such as the ongoing support for Punjab, in the context of post 18th Amendment. The key outcomes to be monitored will be (i) to increase the percentage of births attended by skilled health personnel from 52 percent to 60 percent; (ii) to increase use of modern contraceptive methods from 26 percent to 30 percent; and (iii) to increase fully immunized children by 20 percent. Outcome 4.3: Increased School Enrollment and Adoption of Education Quality Assessment 61. Pakistan needs to address its education emergency as a matter of urgency. The WBG’s investment in the sector is over $1 billion, with a focus on improving access, quality and learning outcomes at primary and secondary levels in Sindh, Punjab and Balochistan and higher education standards at the federal level. The results-based approach and community-managed schools under these programs have supported improvements in the quality and accountability of teachers and the leveraging of PPPs in education. The Global Partnership for Education is considering complementing these efforts with two education projects of up to $100 million in Sindh and Balochistan. At the federal level, the WBG will continue to support the government in developing standards, quality assurance, and monitoring and evaluation to address disparities and facilitate attainment of the objective of education for all. In higher education post 18th Amendment, the WBG will continue to strengthen quality and relevance at federal and province levels. IFC will aim to explore its E4E (Education for Employment) initiative to include Pakistan, with a view to improving the quality of private post-secondary education to better suit the needs of the labor market. The key outcomes to be monitored will be to increase gross enrollment rates at primary school by at least 10 percent; have at least three provinces carry out annual student achievement tests; showing positive trend in learning outcomes. Outcome 4.4: Adoption of Performance and Transparency Mechanisms in Selected Institutions 62. Weak implementation capacity and lack of transparency and accountability are contributing to deteriorating service delivery standards. The WBG will support efforts to improve performance and transparency in public institutions, by continuing to provide technical and advisory support for enacting right to information legislation and establishing performance monitoring mechanisms at federal and province levels. The MDTF and IDA Governance Support Operations in KP, FATA and Balochistan; Punjab Public Reform Management Project, and Punjab Cities Governance Project would help establish credible performance management and citizen’s feedback systems in target institutions. The key outcomes to be monitored will be to 24  

increase by 30 percent the number of departments/services with citizen feedback in place, and to increase number of service delivery units in the federal and provincial governments with improved performance management systems. Cross-Cutting Themes Interwoven within these four pillars is a cross-cutting program to leverage cross-border and regional opportunities and markets. In energy, this will mean helping Pakistan put in place the policy, institutional, and infrastructure arrangements to import electricity from energy-rich Central Asia (beginning with CASA-1000) and potentially establish an interconnection with India, which will be a key building block of the planned South Asian Association for Regional Cooperation Electricity Grid. The Bank and IFC will continue the recently begun support to the government and private sector to expand trade with Pakistan’s neighbors by reducing barriers, thereby stimulating competitiveness, productivity, and consumer welfare. This effort will also support confidence-building measures (such as dialogue and joint investments in economic infrastructure with Afghanistan and potentially between Pakistan Punjab and Indian Punjab), contribute to improving the overall investment climate, and position Pakistan as an attractive investment destination as well as a viable transit route between the West/Central Asia and the more rapidly growing countries further east (Annex XVII). 63.

64. Another interwoven theme is deepening engagement at the province level, while further clarifying the roles between the provinces and the federal government. On the finance side, the Bank’s engagement with the DPCs on Fiscally Sustainable and Inclusive Growth, governance projects at the province level, and further related TA at federal and provincial levels will provide a focus to help the government further clarify and strengthen intergovernmental finance flows as well as support local governments. At the sector level, service operations at the provincial level will focus increasingly on results but also help to build space as feasible for a "stewardship" role for the federal government. This approach will help to empower provinces to take greater charge of service delivery with the finances necessary, while recognizing that the federal government can continue to play a role in advocacy, information campaigns, research into alternative models of delivery, and building countrywide standards and data systems. Informally, the WBG has also established province-level teams that can come together across sectors (Annex XI on World Bank’s Role under Devolved Setup). 65. The third cross-cutting area is climate change adaptation and mitigation in public and private sectors, focusing on energy, water and agriculture investments. Climate change threatens the water, food and energy security of Pakistan. The WBG efforts aim to reduce vulnerability, improve readiness and achieve low-carbon green growth and resilient development. This would involve supporting (i) preparedness towards disasters and climate related emergencies; (ii) water conservation and management by modernizing irrigation networks and installing high efficiency irrigation systems; (iii) efforts for low-carbon development, particularly in energy (renewables) and industries (see Annex XVI on Climate Change).

25  

Figure 8: Pakistan CPS Results Chain: Results Areas and Outcomes

26  

66. The CPS is more selective than in the past. Given limited resources and principles of comparative advantage, the WBG cannot extend help in all areas (see Annex VII on Filters for Selectivity). The results areas are therefore kept quite focused in identifying only a few outcomes and indicators under each. In the last CPS, 17 outcomes and 42 indicators were identified, which made the focus too diffuse and hard to monitor regularly. This CPS cuts the number to 14 outcomes and 25 indicators. The CPS results and targets have been set to reflect the WBG contribution to the broader country level outcomes. 67. The most important filter in selectivity is to ensure that the CPS outcomes under the four results areas are tightly linked to poverty reduction and shared prosperity goals. The impact of CPS outcomes on poverty reduction and shared prosperity is appraised and articulated under Annex I(a) - Summary Matrix Pakistan CPS Selectivity and Impact on the WBG Goals. 

The Result Area 1 addressing energy has the highest priority. The WBG and Pakistan led studies have demonstrated the direct link between power supply and growth, and similarly, between growth and poverty reduction and shared prosperity. These studies indicate annual GDP losses due to power load-shedding equivalent to about 2 percentage points; and direct and indirect employment losses for the poor.



The Result Area 2 addressing private sector development has mixed impact in terms of reducing extreme poverty but very high impact on shared prosperity. Studies show the correlation between policies improving the business climate and rising rural productivity to growth -- based on the link between higher efficiency and productivity. Similarly, improved job skills are correlated to quality jobs. These findings are most relevant for the large mass of individuals that are just above the poverty line and able and willing to benefit from new opportunities, whereas the very poor might have much less possibility to directly benefit. WBG interventions under inclusion and service delivery areas will help bridge this opportunity gap.



The Result Area 3 addressing inclusion is critical in terms of its impact on reducing extreme poverty. By directly supporting women, youth and the most vulnerable the WBG will be providing support to the poorest and disadvantaged. But just as importantly, by supporting girls’ education and programs, such as micro-lending to bring them into the economy, they will contribute to the economic growth of Pakistan.



The Result Area 4 addressing service delivery is also high priority in terms of development impact, especially for human development outcomes for the poor. Analysis shows strong correlation between education and health outcomes and productivity and growth. Since the poor are dependent on public services, improvements in fiscal space and administrative efficiency targeting human development outcomes, are all strongly linked to rapid growth and poverty reduction.

68. Beyond their contributions to the twin poverty goals, further filters have been established to ensure that WBG operations remain focused where they can have the most impact. The most important of these is government ownership and commitment, as evidenced by clear national and province level strategies and sectoral plans. Priority would also be given to larger, more transformational operations where the WBG can play a catalytic role, and areas where the WBG has a comparative advantage and which involve cross-sector collaboration, 27  

where others find it hard to operate. Balance is also needed between Federal/Province and between provinces. Additional selectivity filters would be whether an operation is grounded in sound analytic work; and if the implementation readiness of a project allows for speedy disbursements. The IFC and MIGA will continue to pay close attention to the integrity of potential private sector partners (see Annex VII for further details on selectivity filters). 69. The CPS envisages enhanced partnerships with development partners to maximize impact. The WBG is closely coordinating with the IMF, ADB, JICA, DFID, and USAID for supporting Power Sector Reform DPC and Fiscally Sustainable and Inclusive Growth DPC and investments. Similarly, the WBG will build on its partnership with DFID in education, safety nets, and financial inclusion. MDTF Round II will consolidate coordination with bilateral donors. Also, working relationships with partners such as the Gates Foundation and the Global Partnership for Education will help contribute to CPS outcomes. Donor coordination will be used as a key mechanism to identify those areas that the WBG will work on together with others because of synergy, and those areas that are best implemented separately according to comparative advantage. But even where we are working separately, enhanced knowledge sharing and common program/results frameworks will be needed to avoid fragmentation.   C.

Implementing the FY15–19 Pakistan Country Partnership Strategy

i)

Financing and Principles of Engagement

70. The CPS envisages an indicative financing envelope of about $11 billion over the fiveyear CPS period (see Table 2). This includes an IDA lending of about $1.1 billion per year (or $5.5 billion over the CPS period). These levels are notional, as actual allocations will span two IDA replenishment cycles -- IDA-17 and the first two years of IDA-188. Pakistan could also benefit from additional regional IDA allocations for participation in projects that promote regional integration, particularly in energy and trade. 71. IBRD lending would require strengthened macroeconomic balances, evidenced among other things by foreign exchange reserves equal to at least 2½ months of imports of goods and services and a stable or declining public debt to GDP ratio, lower than the 64.2 percent projected for end-2013/14. If IBRD lending resumes, it would be limited to investment lending of $500 million a year and a maximum of $2 billion in total over the CPS period. Within this, lending amounts would be further modulated according to improvements in Pakistan’s creditworthiness, and would also depend on IBRD’s lending capacity and demand from other borrowers. 72. IFC intends to continue expanding its investments in Pakistan with an envelope of $500 million–700 million a year from its own account, and another $50 million–100 million per year from other investors. About half this amount will be in short-term supplier and trade finance, while the rest will focus on catalyzing private investments in high development impact                                                              8

IDA17 financing will be projected in June 2014 (the projections will include the final allocation for FY15 and indicative allocations for FY16 and FY17). Pakistan allocation is fixed at 7% of the total country-allocable envelope and is assumed to be in the proximity of the IDA 16 levels (SDR 2,110 million). The financing is indicative and could change depending on exchange rates, and adjustments to terms of IDA assistance introduced in the context of the IDA17 Replenishment. The strategy assumes that IDA18 allocation will be on the same order of magnitude as in IDA17.

28  

projects in (i) infrastructure, including low-cost and renewable energy; transport; logistics and communications; (ii) expanded access to finance and development of long-term capital markets; and (iii) selected industrial, agriculture, manufacturing, and services growth sectors with an emphasis on jobs and exports. IFC will also focus on expanding its TA to improve the business climate, corporate governance, and capacity building of MSMEs, as well as support PPP projects. IFC will also look at options for supporting the government’s efforts at privatization of key SOEs. MIGA’s commitments will be firmed up as the program takes shape. 73. The MDTF for the areas bordering Afghanistan will be expanded. The first round of the MDTF working with 10 donors covering FY12–14 amounted to about $160 million. The Bank is in the process of replenishing this at a larger level (notionally shown here at $200 million but actual amounts will be set by MDTF donors). But more importantly than the size is that, based on experience, we will reposition the MDTF in two important ways: (i) the WBG will establish programmatic engagements with each province for a holistic dialogue on priorities (rather than via discrete small operations as now); and (ii) the WBG will use the MDTF as a forum to coordinate and catalyze other donor funding (to reduce fragmentation across donors). Table 2: FY15-19 CPS Financing Envelope Period FY15–19

IDA9

IBRD

MDTF10

IFC

MIGA11

Total

Total Financing

$5.5 bln

$2.0 bln

$200 mln

$2.5-3bln

$50-200 mln

About $11bln

74. All projects and programs will be vetted against the outcomes of this CPS (see Table 3 on indicative program). The CPS deliberately does not contain a detailed list of future projects, except for those already planned. Instead, the WBG plans to engage the government in an annual work program planning exercise to review progress against the CPS outcomes and agree on a pipeline of projects and analytical activities that will best deliver these outcomes. The CPSPR will then report on these activities as identified and extended. Key criteria will be those operations (i) that have a line of sight impact on the outcomes sought in this CPS; (ii) where WBG has knowledge leadership and/or can play a catalytic role in bringing financing from others; and (iii) where commitment of the federal and provincial governments is strong. The WBG will also build flexibility to reallocate resources within the country’s IDA portfolio to further support a rapid response in eligible crisis and emergency situations. 75. The “legacy” program and activities will be reviewed. The strategy includes and duly reflects the ongoing projects as well as pipeline to be delivered in FY14. While all ongoing projects in some way contribute to the attainment of CPS goals, many are fragmented and are not as results oriented as they could be. This also includes several projects that were developed during FY14, but because of IDA allocation limitations had to wait until the first quarter of FY15 to be delivered. During the CPS period, the World Bank will review these operations, as needed                                                              9

IDA allocations are in SDR terms and the US dollars equivalent may change depending upon the prevailing exchange rate. This amount is notional and is not intended to pre-empt MDTF donor discussions. 11 Tentative volume of gross guarantee issuance by MIGA over the CPS period; to be determined by client demand and on a case by case basis  10

29  

and decide with the government whether and how these could be consolidated, restructured, or even partially cancelled to make room for more transformative, higher impact activities. 76. Getting the CPS results and impact on the twin goals of poverty reduction and shared prosperity will also require a shift in the instruments and engagement as follows: 

Increase in Development Policy Financing. For the past five years, no Development Policy Financing was possible. In FY14, the Bank would propose extending two DPCs – Power Sector Reform and Fiscally Sustainable and Inclusive Growth DPCs. These DPCs have been designed as a series and will form the backbone of the WBG reform program. The WBG will also explore province-specific policy operations. Policy operations are expected to amount to 20–30 percent of the total IDA/IBRD financing envelope.



Leverage large private sector funding to complement public sector reforms. The WBG will mobilize significant private funding, particularly as regards low cost energy production along the Indus River Cascade. This includes IFC supporting large international private investors, MIGA providing risk mitigating instruments, and IDA/IBRD guarantees. The goal would be to catalyze more funds from the private sector than the World Bank puts in directly (aided by the close collaboration between the institutions, and drawing on comparative advantages of the Bank, IFC, and MIGA together).



Increase focus on results. The WBG has had good experience with results based operations in Pakistan in the education sector. In the last year, the WBG has also extended this to an urban, health and a governance project. The WBG would target an increasing number of its investment portfolio to be results based, with stretch results, and with much stronger accountability for results. This also includes more emphasis on reviewing results at the strategy and portfolio levels, and expanded use of project level third party monitoring and impact evaluations.



Reach out to the underserved, neglected and poor. This means a stronger focus on poorer districts, crises-affected provinces, women and youth. The WBG will target increased development resources, improvements in health and education outcomes and service delivery, financial inclusion, safety nets to protect against income shocks, and building more resilience to the impact of natural disasters and climate change.



Build knowledge partnerships and capacity, develop deeper understanding of the political economy and facilitate evidence based dialogue to strengthen public and private institutions, ensure wider ownership of the development narrative and generate greater confidence in reforms.



Reduce fragmentation in subnational engagements: This means establishing province specific programmatic engagements and bringing different sectors together at the province level to raise the dialogue and focus on key barriers to poverty reduction and results.

77. WBG’s analytical and advisory support will be focused on implementing key activities. The CPS has benefited from having a Country Economic Memorandum and 16 sector policy notes at the start. Thirteen AAA pieces were delivered in FY13 and eighteen pieces are planned for FY14. These include critical pieces on business registration and State-owned Enterprise (SOE) reforms; policy notes on subnational fiscal management; and a competitiveness study. 30  

Analytical work during the first half of the CPS will prioritize activities that will both support lending and provide knowledge transfer. This means a strong focus on private sector development and intergovernmental finance. Towards the second half, a new stocktaking exercise to determine a new generation of AAA will be undertaken to help inform the next CPS. Population, climate change and water are likely to figure prominently in this work. Table 3: First Two Years Indicative Lending and Analytical Program12 Tentative Lending and AAAs FY15 Lending

AAAs Linked to Lending:  TA in Support of Implementing the DPCs (power, tax, commerce, private sector development, social protection)  Intergovernmental Finance and Local Governments  Political Economy Analysis of the Power Sector  Provincial Public Expenditure Reviews  Advisory to support PPP and SOE Privatization  Analysis of Wheat Sector and Grain Storage Management  TA and Reimbursable Advisory Service (RAS) on Financial Inclusion and Infrastructure Support  Reproductive health/Population Policy TA  Jobs, Competitiveness and Skills Study Advocacy/Quick Notes:  Continued support for Poverty Analysis and Data  Youth Engagement Strategy  Climate Change and Water  Girls Education and Women Entrepreneurship  TA on Regional Trade  TA on Karachi Transformation

IDA/IBRD:  Pakistan: Power Sector Reform DPC II  Pak-India Power Connectivity  Pakistan: Fiscally Sustainable and Inclusive Growth DPC II  Sindh Irrigated Agriculture Productivity Enhancement Project  Sindh Water Sector Improvement AF  Sindh Agriculture Growth Project  Sindh Public Sector Reform Project  Punjab Skills Project  Financial inclusion project  Enhanced Nutrition for Mothers & Children IDA/IBRD Total MDTF IFC MIGA

US$ m 300 100 300 200 160 76.4 50 50 tbd 40 1,276 50 500 50

FY15 Grand Total

1,876

Tentative Lending and AAAs FY16 AAAs Linked to Lending:  TA and advisory to banks and MSMEs to improve access to finance and investment climate  TA and advisory support on competitiveness and regional economic cooperation  Agriculture, health and nutrition nexus  SME Portal developed for Regional Trade Advocacy/Quick Notes:  TA on Water and Sanitation  Continued support for Poverty Analysis and Data  Urban Poverty  Food Security

Lending

US$ m

IDA/IBRD:  Dasu Hydropower Project II  Punjab Agriculture Competitiveness Project  Sindh Barrages  Trade Facilitation & Logistics Project (Wagah Border)  Social Safety Net   Health  National Immunization support IDA/IBRD Total MDTF IFC MIGA

700 100 150 100 tbd tbd 50 1,100 100 600 50

FY16 Grand Total

1,850

                                                             12

  Mix of IDA, IBRD to be determined once Pakistan meets the criteria / parameters for IBRD lending; MDTF amount is indicative and subject to donor Round II pledges; IFC and MIGA commitment figures are indicative – number, scope and size of projects to be determined by client/country demand.

31  

ii)

Portfolio Management

78. The total portfolio commitment has increased over the past CPS period, but disbursements have not kept pace. On December 31, 2013 the Pakistan portfolio of active projects under implementation consisted of 36 investment operations, including 12 funded from the Multi-Donor Trust Fund (MDTF) for the conflict-affected areas bordering Afghanistan. Total net commitments for this portfolio were about $4.5 billion for IDA/IBRD, and $0.1 billion for the MDTF. The portfolio is balanced with a mix of fast disbursing DLI based operations and more traditional projects. However, the amount disbursed during the Bank Fiscal Year (July to June) has decreased from $807.5 million in FY11 to $554 million in FY13. Disbursements in FY14 are expected at around $600 million, not counting DPCs. 79. Key factors contributing to overall slow disbursements and implementation of the portfolio include staff turnover, weak capacity to deal with procurement and financial management, and delays in government approvals. Building on lessons from implementation and as part of ongoing practice, the World Bank will continue to conduct frequent joint reviews with the Government of Pakistan counterparts to identify measures to remove these bottlenecks and accelerate disbursements. These reviews and engagement will be strengthened at: (i) the federal level, by having high-level reviews of flagship projects at the Economic Coordination Committee of the federal cabinet that can track and influence the pace of implementation; (ii) the provincial level, working with Chief Ministers’ offices and a core group of provincial cabinet ministers, as well as the delivery units that some provinces like Punjab and KPK are already setting up to strengthen implementation; and (iii) the federal, provincial and local government levels, to strengthen public financial management programs focusing on the weakest areas of accounting, internal and external audits, procurement systems, budget transparency, and social accountability. Specific attention will be on meeting readiness criteria for implementation, encouraging use of available tools such as retroactive financing, and building in flexibility in project design for emergency response including increased attention to preparedness and shared approaches for managing disaster risk. Additionally, efforts are underway to build partnerships with leading institutes in the country for capacity building support. WBG will strengthen capacity through building systems; and facilitating outsourcing / contracting out to the private sector (e.g. for community mobilization). (See Annex XVIII). 80. IFC and MIGA’s portfolios expanded over the past few years. As of February 28, 2014, IFC’s committed portfolio in Pakistan amounted to $809 million in 38 companies. Infrastructure represents the largest exposure of about 56 percent of the committed balance, while general manufacturing and services represents 25 percent, and financial markets 19 percent. MIGA’s current gross commitment is $310 million ($217 net) in 3 projects. These are in the financial services, power and manufacturing sectors’ and were signed in FY11, FY12 and FY13 respectively. A weak macroeconomic environment and persistent energy crisis have negatively affected the private sector (including IFC clients), and increased overall risk perception in the last five years. However, IFC has maintained portfolio quality through proactive engagement including assisting clients to address operational issues (restructuring, etc.) and policy-related issues in a timely manner. Having a strong portfolio team on the ground has also helped maintain portfolio quality.

32  

iii)

Communications and Knowledge Sharing

81. The WBG will continue to communicate results and share knowledge. In light of development priorities identified during CPS consultations, especially areas of improvement pointed out by the Client Satisfaction Survey 2013, the WBG will (i) expand development dialogue through partnerships with the academia, media, civil society organizations, and other stakeholders; (ii) increase development effectiveness by using political economy analysis and embedding strategic communication in operations; (iii) establish the relation between the WBG’s knowledge and operational work and how it helps reduce poverty and build prosperity; and (iv) regularly communicate CPS progress on results, share results stories, and solicit feedback using traditional and online platforms. To sustain economic reforms and ensure development effectiveness, broad public ownership is important. The WBG’s support to federal and provincial governments for effective communication will help them broaden support for, and sustainability of, development initiatives and reforms. iv)

Collaboration and Partnerships

82. The WBG coordination has improved over the years and the WBG will continue to work across IDA/IBRD, IFC and MIGA to present the best solution to the client. The last strategy period saw credible efforts for WBG joint and coordinated tasks, particularly in energy and access to finance. The four results areas under the CPS provide further opportunities for WBG institutions to work together. The WBG will continue to improve on this front by leveraging the newly established global practices and program leaders, and by building on its knowledge partnerships with the World Bank Institute and the Water and Sanitation Program. 83. The WBG will continue to emphasize working with multilateral and bilateral development partners to address the key constraints to poverty reduction and shared prosperity. There has been a strong track record of donor coordination in the last strategy period and the WBG will build on it. Close coordination around managing dialogue on pressing economic issues during the political transition in 2013 and the IMF program are good examples. Also, the results-based instruments and MDTF proved to be good platforms for partnerships. Similarly, several donors are committed to co-financing the Power Sector Reform DPC (ADB, JICA) or to using the Fiscally Sustainable and Inclusive Growth DPC as a foundation to provide their own support. Donors and government continue to seek coordinated financing mechanisms and enhanced policy and strategic dialogue to increase aid effectiveness and reduce the strain on government capacity. The WBG is committed to fostering trust and better coordination among development partners, and will continue to engage in a constructive manner in related working committees and other forums. 84. A strong trust fund portfolio indicates the strength of our growing partnerships. The Pakistan trust fund portfolio has 64 active grants with a total commitment of $117 million. Disbursements over the last CPS period were $165 million (equivalent to 6 percent of IBRD/IDA disbursements over the same period). During previous CPS period of FY10–14, trust funds mainly complemented IBRD/IDA project funding and around 85 percent of the total commitment was recipient executed. Major donors in the current portfolio include the Gates Foundation ($68.6 million), DFID ($11 million), Japan ($6.31 million), UN Foundation ($9.2 million), and USAID ($2.14 million). DFID had also funded large co-financing TF grants during 33  

the CPS period. Going forward, the Global Partnership for Education (GPE) is considering to fund two education projects of up to $100 million in Balochistan and Sindh. The major sectors supported through trust funds are Human Development ($78.9 million) and Social Protection ($11 million). Some of the other sectors mobilizing trust fund resources include Water and Sanitation. A recent trust fund assessment helped ensure greater alignment with country and regional strategies and a tighter focus on demand- versus supply-driven programs. Based on lessons learned, the current portfolio mainly includes programmatic TFs to reduce fragmentation. Also, TF sources are increasingly being used to fund TA and advisory services (see Annex XIX on Partnerships and Trust Funds Overview). 85. The MDTF has been successful in coordinating donor programs for crisis-affected regions. With the financial contributions of eleven donors, the MDTF has been instrumental in supporting the development priorities of the crisis-affected KPK, Balochistan and FATA. Such mechanisms can help bring together many different actors for common goals. The WBG is discussing the replenishment and scaling up of the MDTF to meet the continuing needs of the targeted regions, and to help mitigate the likely impact of the 2014 transition and ISAF drawdown in Afghanistan (see Annex XV on Restoring Trust between Citizens and Governments in KPK, FATA, and Balochistan). 86. Partnerships with private sector and other stakeholders, including academia, civil society, youth, parliamentarians and political leaders will be expanded. The WBG will continue to consult these groups when designing strategies and programs, and taking it a step further will encourage their feedback and participation throughout to support implementation and advocacy. Also, the WBG will enhance its dialogue with the private sector seeking regular feedback on key reform areas. v)

Monitoring and Evaluation

87. Increased focus on results will guide CPS monitoring and evaluation at the strategy as well as project level. The results framework will guide the monitoring of the CPS implementation. The framework lays out 14 priority outcomes aligned with the government’s plan with 25 indicators—many of them common to the World Bank, IFC, MIGA, and the MDTF—to reflect their aggregate contribution to program outcomes. The CPS outcomes are a narrower but aligned sub-set of the broader country-level goals the government is seeking, and reflect the selective focus and level of WBG’s contribution. Achievement of these results would derive from the ongoing portfolio and pipeline of future programs. As the program develops and legacy operations are more thoroughly reviewed or restructured to enhance their link and impact on the twin goals, the outcomes and indicators may need adjustment. Any such revisions will be documented and reported in the mid-term CPS progress report. 88. Annual results reviews are being introduced to strengthen strategic monitoring and evaluation. These will be dedicated to a discussion of results and will be, in addition to the regular six-monthly portfolio reviews, conducted with the federal and the provincial governments. The rationale for such reviews is to focus on outcomes at the program level rather than the physical progress of individual projects.

34  

89. Third-party monitoring and impact evaluations will continue. These tools have been successful in supporting WBG’s monitoring and evaluation efforts, particularly in difficult-toreach areas, and for the MDTF. The WBG will expand their use. Community / Beneficiary engagement in program design, implementation and monitoring; as well as use of social accountability mechanisms will be enhanced.  

IV.

MANAGING RISKS

90. Achieving the results and outcomes supported by this CPS entails mitigating economic, political, security, and implementation risks. 91. Reform fatigue may set in. Pakistan has a history of starting strong and finishing weak, but it is more likely to stay the course if results are good. Still, changing political dynamics, vested interests in public and private sector, weak implementation and negative external shocks, such as a fall in remittances, slow recovery of FDI and other inflows, terms-of-trade shock, severe drop in demand for exports, or a natural disaster, might undermine growth and reform momentum, in turn leading to suspension of the IMF Program. This likelihood is partly mitigated by WBG efforts to bring reforms upfront, strengthening political economy analyses to address likely roadblocks, and by a strong TA program providing implementation and hands-on support. If the program performs well, the World Bank may be able to bring in additional IBRD lending, but if reforms are not maintained, including a possible suspension of the IMF Program, the World Bank could not continue its Development Policy Financing. It would need to reorient its program, while maintaining the critical social sector support. Any such shifts or reorientation would be brought to the Board in the CPSPR. 92. Slow reform progress may hold back private sector development. Private sector investment and FDI might not pick up as expected given increased political, economic and security risks. The private sector may be affected by lack of progress in privatization, tax simplification, enhancement of the investment climate, and market-based energy tariffs in power and gas. WBG will work with development partners and other stakeholders to sustain dialogue on an enabling policy environment for private sector. IFC will mitigate such risks by standing ready to provide counter-cyclical support to help current (and new) private sector clients continue their operations and maintain their workforce, aiming to offer flexible and timely assistance. IFC will also ensure proper sequencing of activities with the World Bank to improve WBG’s ability to attract private investment into Pakistan. 93. Pakistan’s weak implementation capacity, coupled with risks of violence and natural disaster, could derail results. Project implementation has suffered long delays in recent years due to staff turnover and capacity constraints. Poor security adds a further constraint, while renewed conflict in Afghanistan could bring more stress to Pakistan. Similarly, any natural disaster may well affect the pace of the WBG’s work. The CPS therefore assumes much higher operational risk. Some of these risks are beyond the WBG’s capacity to mitigate fully, but it will seek higher level reviews of key projects to improve progress, address capacity issues, improve disaster risk management as well as help improve economic opportunities as a means to reducing the risk of conflict.

35  

94. Overall, CPS implementation risks are substantial/high, but opportunities to make a difference are enormous. The WBG approach is to accept informed risks and undertake proactive mitigation, drawing on the findings of the World Development Report 201413 and lessons from past engagement in Pakistan. The WBG will (i) build stronger partnerships at various levels of governments – federal, provincial, local levels; (ii) mainstream broader stakeholders’ engagement in sector/policy dialogue beyond official government circles to build a deeper constituency for reforms and WBG interventions; (iii) provide timely TA and capacitybuilding support on key reform issues, especially at province level; and (iv) continue producing timely and focused analytical and advisory work, for advocacy and to identify and mitigate sectoror reform-specific risks.

                                                             13

 World Development Report 2014 on Risks and Opportunity: Managing Risks for Development.

36  

Annex I(a) Page 1 of 2

Annex I(a): Summary - Pakistan CPS Selectivity and Impact on WBG Goals Expected Outcomes

Specific Problem Areas or Challenges Addressed

Theme 1: Energy 1. Reduced load shedding

Frequent power outages disrupting lives and economic activity

2. Reduced cost of production of electricity

High production costs and inefficiencies in power sector and low private sector participation

3. Improved fiscal Heavy dependence on non pro-poor sustainability of the government subsidies and poor electric power service management sector Theme 2: Private Sector Development 4. Improved Low and falling private investment business and FDI environment for private sector Heavy SOEs losses and contingent liabilities 5. Increased productivity in farms in selected irrigation schemes 6. Improved youth’s skills for business 7. Improved trade tariff and ports/border logistics

Inefficiencies in water delivery systems

Widening skill gap, and limited adoption of technical knowledge Distorted Customs tariff regime. Fragmented institutionally towards trade facilitation and logistics. High port and border costs.

Impact WBG Goals Poverty Sh.Pros p.

Development Solution: WBG Tailored Package of Services

Key Target Indicators

Mix of Bank and IFC investment lending for power generation, distribution, and transmission planned with Development Policy Credit (DPC) to support power sector. Natural gas efficiency WBG lending shifting to low cost sources and prioritizing provision of natural gas to thermal plants generation. AAA on renewable energy resource mapping and on design of strategy to scale-up renewable energy. Plan to phase out subsidies supported by Bank’s Power DPC combined with IFC PPP Advisory work on Discos privatization. Planned AAA to improve sector governance, reduce theft and corruption, and improve targeting of power subsidies.

Average daily hours of power load shedding reduced from 8 to 5 hours Average generation cost reduced from 12¢/kWh in FY 2013 to 10¢/kWh

High

High

Medium

High

Government subsidies reduced from 1.8 percent of GDP to 0.4 percent

High

High

IFC lending and Bank’s Growth DPC support to privatization and to One Stop Shop business registration. WBG TA to divestment of large bank shares and strategic sales, the improvement of Doing Business indicators, capacity building of the Institute of Capital Markets, and the Punjab land record and commercial disputes centers. Bank’s six regional competitiveness studies. Bank financing on water sector improvement, management and productivity in three provinces: Sindh, Punjab and Balochistan. Bank support for improving irrigated agriculture in Sindh and Punjab. IFC TA for farmers, suppliers, businesses and banks. Bank interventions in KP/FATA on rural livelihoods, economic revitalization and development of competitive industries. Ongoing Sindh Skills Development project and future Punjab Skills project. Bank’s Growth DPC support to tariff simplification. Bank lending and TA support for trade facilitation and logistics at the Wagah border. IFC support on intercity transport and freight trains. Planned TA on international trade to Ministry of Commerce is planned by the Bank.

At least 5 SOEs restructured/ privatized.

Low

High

Number of days required to start a business reduced from 21 to 15 days. Increased yields of major crops in selected irrigation schemes by 20 percent.

Low

High

High

High

Theme 3: Inclusion 8. Improved Low access to finance, especially for IFC ongoing projects on Trade Finance to support SMEs and financial inclusion MSMEs and women. Lack of financial microfinance, and planned operation on financial inclusion and debt

Increased number of trainees Medium supported by skill development programs by 20 percent. Average statutory Customs tariff Medium rate reduced from 14.4 percent to at least 10 percent; and no special tax exemptions issued. Average waiting time at Wagah Border reduced by 20 percent; occupancy rate of targeted Karachi port berths improved from 74 percent in FY13 to 50 percent. Number of MSME and women borrowers from banking system

High

Medium

High

   

High

Annex I(a) Page 2 of 2 Expected Outcomes for SMEs and women 9. Reduced vulnerability for groups at risk

Specific Problem Areas or Challenges Addressed inclusion strategy and weak capacity of banks and MSMEs. Low and institutionally fragmented pro-poor public expenditures focused on vulnerable groups

Development Solution: WBG Tailored Package of Services

and equity investments to support MSME and agri-related investments. Bank AAA on Financial Inclusion Strategy. WBG engagement through BISP, the Pakistan Poverty Alleviation Fund and the MDTF. Bank Growth DPC addresses BISP budgetary protection. Follow-up Social Safety Net project should support expanded coverage and primary education conditional cash transfers. MDTF girls project in Balochistan. AAA on disaster recovery, social protection and poverty updating to PBS. 10. Increased Little understanding of disaster risk Bank’s support to Balochistan on disaster risk management; and AAA resilience to management to inform timely on risk assessment, risk financing, and strengthening of Pakistan’s disasters in Targeted decision-making and investments for urban disaster response capacity. Regions building resilience. Theme 4: Service Delivery 11. Improved Low tax revenue, poor tax WBG will combine Growth DPC actions, TA-related activities on tax public resources administration, narrow tax base and administration, investments under a Bank Punjab Public Reform management skewed tax structure Management project and a future Sindh public sector reform project. IFC support to Punjab Revenue agency. 12. Improved access to maternal and child health services

Dismal maternal and child health, and nutrition indicators; with low immunization coverage of vaccine preventable diseases

13. Increased school enrollment and adoption of education quality assessment 14. Adoption of performance and transparency mechanisms in selected institutions

Wide gaps in access to education with regional and gender disparities

Low Public Expenditure Financial Assessment (PEFA) ratings. Weak implementation capacity, low accountability and lack of transparency of public institutions.

Key Target Indicators increased by 25 percent and 10 percent. BISP coverage of unconditional cash transfers expanded from 4.5 to 5.5 million families. Conditional cash transfers expanded to 25 districts from 5 districts in FY13. At least 2 provinces set up an operational Disaster Risk Management and Early Warning System.

Tax ratio increased to at least 11.5 percent of GDP from 9.6 percent in FY13 and no special exemptions issued; improved collections in provinces Bank’s interventions in polio eradication and health, and planned Increased births attended by lending on national immunization support, and nutrition for mothers skilled personnel from 52 percent and children. AAA on reproductive health and immunization coverage to 60 percent, and child evaluation. immunization coverage increased by 20 percent from 54 percent in FY13. Bank’s ongoing operations supporting teaching quality and Increased gross enrollment rates for accountability in Balochistan, Sindh, Punjab and, at the Federal level, on Primary education by 10 percent. improved access and quality of primary, secondary and tertiary Student achievement tests done in education services. IFC expansion of E4E initiative for Arab youth. at least 3 provinces; showing positive trend in learning outcomes. Bank lending for improvement in financial reporting and auditing. Increased number of provincial Future AAA on PEFAs ratings will improve financial management. departments adopting citizens’ Bank lending on cities governance, municipal services, land record feedback and performance management in Punjab. MDTF-supports governance in KP/FATA/ management systems. Balochistan and strengthens institutions of accountability in public services. Sindh governance project planned. Bank’s TA capacity building and support of anticorruption units in KPK and Punjab.

Impact WBG Goals Poverty Sh.Pros p.

High

High

High

High

High

Medium

Medium

High

High

High

High

High

High

Medium

   

Annex I(b) Page 1 of 11

 

Annex I(b): PAKISTAN CPS FY15-19 Results Matrix Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

World Bank Group Program (ongoing and planned)

provincial Plans)

Overarching Goals Poverty Reduction: Shared Prosperity:

An efficient, sustainable, affordable and consumer oriented electric power system that meets the needs of its people and economy.

Frequent power outages disrupting lives and economic activity across the country The sector relies heavily on government subsidies; not targeted to the poor High costs, and inefficiencies that prevent the sector from financing all its costs.

Lack of institutional mechanisms linking supply and demand side governance result in poor service management

RESULT AREA 1: ENERGY Additional 500 million cubic 1.1 Reduced Load Shedding feet of gas per day available for electricity generation  Average daily hours of power 6,000 Additional MW of load shedding reduced from power generation capacity eight hours in FY13 to five 1.2 Reduced Cost of Production of Electricity 

Average generation cost reduced from 12¢/kWh in FY 2013 to 10¢/kWh

1.3 Improved Financial Sustainability of the Electric Power Sector 

Reduced electricity subsidies (except for the poorest) allocated in Federal budget from 1.8 percent of GDP in

12,000 MW public and private investments in power generation projects (hydro, thermal, wind, biomass and solar) facilitated by WBG Level of WBG facilitated private investment for off-grid solar, renewable and clean energy. Policy guidelines on tariff mgmt. and subsidies with pro poor targeting developed, adopted and implemented Publicly-owned generation companies (Gencos), distribution companies (Discos), the transmission

Ongoing Operations/Portfolio:  Tarbela 4th Extension Hydropower project  Electricity Distribution and Transmission Project  Natural Gas Efficiency Project  Water Sector Capacity Development Project  AKRSP Renewable Energy Community Development Carbon Finance Project  IFC Energy Projects: Engro Energy Project, KESC Project, Uch-II Power Project, Laraib Energy Project, KOEL Energy, Zorlu Energy and Metro Wind Project  IFC/MIGA Star Hydropower Project Planned Pipeline Operations:  Dasu Hyrdopower Project  Power Sector Reform DPC 2  CASA-1000 Electricity Transmission Project

   

Annex I(b) Page 2 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

World Bank Group Program (ongoing and planned)

provincial Plans)

FY13 to 0.4 percent of GDP 

Improved collection of billed electricity from 86 percent of billing in FY13 to 94 percent.

company (NTDC) and the power purchasing agency (CPPA) establish commercial relations. First Report on the implementation status of the National Power Policy published by mid FY15

 

Pak-India Power Connectivity IFC’s expected investment in CSAIL Power;  IFC new investments in : (a) At least 3-4 private power projects; (b) LNG import for Power; and (c) Investment in one privatized Disco  MIGA At least one power deal Ongoing Analytical/AAA/TF Activities:  Community-based Renewable Energy Development  Renewable Energy Resource Mapping  Strategy to Scale-up Renewable  SAWI Glacier Monitoring  IFC PPP Advisory on privatization; Punjab Power; SBA for small renewable projects. Planned Analytical/AAA/TF Activities:  Political Economy Analysis of the Power Sector including the issue of theft/corruption.

RESULT AREA 2: PRIVATE SECTOR DEVELOPMENT Develop an enabling environment to foster private

Steady decline in investment and deterioration of real

2.1 Improved Business Environment for Private Sector

Establishment of a virtual onestop-shop (OSS)

Ongoing Operations/Portfolio:  Punjab Cities Governance Project

   

Annex I(b) Page 3 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

World Bank Group Program (ongoing and planned)

provincial Plans)

investments and improve Pakistan’s performance (measured as improvement in Pakistan Doing Business index).

fixed capital formation



Distortionary incentive regime to diffuse competition

The number of days required to start a business decreases from 21 in FY13 to 15 days



Restructuring / Privatization of at least 5 State-owned Enterprises (SOEs). Baseline: no privatization transaction took place in last 6 fiscal years.

Structural issues as a result of burdensome administrative and regulatory frameworks

Restructured and professional Boards of SOEs constituted and Corporate Governance Rules applied Regulatory framework for PPPs, credit bureau & secured transactions approved.; AML/CFT law enacted At least one SEZ established

SOEs losses posing a major drain on country’s fiscal position

Improved urban management in targeted cities

Inadequate urban infrastructure and services

Sustained growth in agriculture, with enhanced productivity of farms and generating linkages for rural non-farm economy

Inefficiencies in water delivery system. Low crop yield and production not sufficiently diversified into higher value agriculture products

2.2 Increased Productivity in Farms in Selected Irrigations Schemes 

Increased yields of major crops (wheat, cotton, rice) in selected irrigation schemes by 20

Water Storage capacity increased by 295 million cubic meters Irrigation and drainage systems improved / rehabilitated 2,632,011 hectares

 FATA Urban Centres Project Planned Pipeline Operations:  Growth DPC 2 Ongoing Analytical/AAA/TF Activities:  Trade Finance  Consumer Protection and Financial Literacy  Business Registration Reform  SOE Reforms; CG Rules  FIRST: Strengthening Insurance Regulatory Framework  Punjab Jobs &Competitiveness  Punjab Investment Policy  Construction Permits Reforms  Capacity Building of ICM  Regional Competitiveness studies on 6 priority sectors.  PK:AML/CFT TA Planned Analytical/AAA/TF:  PPP Advisory for SOEs  NLTA- Planning Commission  NLTA- Karachi Transformation  NLTA- Trade and tariff reforms Ongoing Operations/Portfolio:  Sindh Water Sector Improvement  Sindh On-Farm Water Mgmt AF  Balochistan Small Scale Irrigation  Punjab Barrages Improvement II  Punjab Irrigated Agriculture  Water Sector capacity project

   

Annex I(b) Page 4 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

World Bank Group Program (ongoing and planned)

provincial Plans)

Lack of adequate storage capacity for major crops/grains leading to high wastage and lower incomes for farmers

percent. Baseline at country level: Wheat: 2714 kgs/ha; Cotton: 815 kg/ha; Rice: 2396 kg/ha.

634,180 farmers adopted improved technologies for efficient water use Grain silos established in provinces ( especially in Sindh and Punjab) Supply chains for linking of corporates to famers developed

 Pak Poverty Alleviation Fund  FATA Rural Livelihoods  KPK Southern Area Development  IFC Engro Asahi project  IFC Engro Fertilizer Project  IFC Packages Project Planned Pipeline Operations:  Sindh Irrigated Agriculture  Sindh Water Sector AF  Punjab & Sindh Agriculture  Sindh Barrages (Guddu) Project  Balochistan: Porali & Nari River Basin Water Resource Mgmt Ongoing Analytical/AAA/TF Activities:  IFC Grain Silos Projects (Punjab and Sindh)  Public Grain Stocks and Price Stabilization Policy  Financing water and energy conservation projects in agri Planned Analytical/AAA/TF Activities:  IFC Advisory /TA on Agri; Gender; Sustainable Finance  Climate Smart Agriculture  Analysis of Wheat Sector and Grain Storage Management

   

Annex I(b) Page 5 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

2.3 Improved Youth’s Skills for Businesses

Performance management contract and tracer studies institutionalized in skill development programs

World Bank Group Program (ongoing and planned)

provincial Plans)

Accelerate the growth of MSMEs sector through increased productivity and policy interventions Development of competitive skills base to enhance productivity

Improve infrastructure to support economic activity, trade and extend outreach to remote areas

Widening skill gap resulting in low productivity and competitiveness.



Technical knowledge and expertise not widely adopted

A fragmented approach towards trade facilitation and transport logistics High port and border costs and long dwell times

Increase in number of trainees supported by skills development programs by 20 percent (with gender disaggregation). Baseline: 35000 trainees

2.4 Improved Trade tariff and Ports/Border Logistics 

The simple average statutory tariff rate reduced to below 10 percent, from 14.4 percent in FY13; and no special Statutory Regulatory Orders (SROs) granting tax exemptions are issued by FBR except for those with Parliament approval.

A non-discriminatory Policy on International Trade developed and approved by the Cabinet

Ongoing Operations/Portfolio:  Sindh Skills Development Project  Economic Revitalization Project in KP/FATA (MDTF)  Competitive Industries in KP(MDTF) Planned Pipeline Operations:  Punjab Skills Project  IFC Supplier Finance Program Ongoing Analytical/AAA/TF Activities:  IFC Corporate Governance program for SMEs; and  IFC Business Edge skills development program for SMEs Planned Analytical/AAA/TF Activities:  SME Portal developed for regional trade.  Skills for Jobs Study  Financial Inclusion and Infrastructure Strategy Ongoing Operations/Portfolio:  Karachi Port Improvement Project  KPK Roads Project (MDTF)  FATA Rural Roads Project (MDTF)  IFC Qasim International Container Terminal (QICT) Project

   

Annex I(b) Page 6 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

World Bank Group Program (ongoing and planned)

provincial Plans)





IFC Pakistan International Bulk Terminal ( PIBT)  IFC Intercity transport project Planned Pipeline Operations:  Trade Facilitation & Logistics Project (Wagah Border)  IFC Freight Train Project  IFC investment in telecom, transport, logistics) Ongoing Analytical/AAA/TF Activities: Planned Analytical/AAA/TF Activities: -

Average waiting time at Wagah Border reduced by 20 percent from 6.5 hours average in FY13; and improvement in occupancy rate of targeted Karachi port berths from 74 percent in FY13 to 50 percent.

RESULT AREA 3: INCLUSION Support private sector led growth and job creation through access to finance to SMEs

Low access to finance, especially for MSMEs and Women Lack of financial inclusion strategy

3.1 Improved Financial inclusion for MSMEs and Women 

The weak capacity of banks and MSMEs 

Number of MSME borrowers increased by 25 percent from 2.95 million borrowers in FY13, with women borrowers increased by 10 percent from 0.7 million in FY13. Number of accounts by financial institutions increased by 10 percent from 35 million accounts in FY13; with women accounts increased by 3 percent from 5.3 million accounts in FY13.

Financial Inclusion Strategy, covering MSMEs, rural finance, housing finance, payment systems, branchless banking, developed Capacity of commercial and microfinance banks, SMEs enhanced Credit information on MSME borrowers available to all financial institutions

Ongoing Operations/ Portfolio IFC: Global Trade Finance with 12 banks;  IFC investments in 4 microfinance banks; 1 in medium sized bank; and 1 investment in largest commercial bank-HBL (with highest SME market share) Pipeline Operations:  Financial inclusion project  IFC Global Trade Finance program roll over with 12 banks;  IFC’s new trade facility for oil / potential gas imports; and financing for warehouse and trade working capital programs



   

Annex I(b) Page 7 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

World Bank Group Program (ongoing and planned)

provincial Plans)



Develop sound social protection programs to empower the poor and protect the most vulnerable through social mobilization, safety nets, and facilitating access to productive assets for income generating activities.

Insufficient pro-poor expenditures and fragmented programs Lack of mechanisms to cushion households from the negative effects of transitory income shocks. The weak institutional arrangements and capacity at devolved level Limited coordination at the federal and

3.2 Reduced Vulnerability for Groups at Risk 



Basic cash transfers for BISP beneficiaries expanded by 20 percent from baseline of 4.5 million beneficiaries in FY13; and Conditional Cash Transfers for primary education expanded to 25 districts from baseline of 5 districts in FY13. Increase girls gross enrollment rates for primary education by 15 percent from 63 percent in FY12

Improved reliability of poverty and shared prosperity data at national and provincial level Wider application of the Safety Net System in the federal and at least 2 provincial programs Enhanced investments in human capital amongst the poor through complementary safety net graduation programs

IFC debt/equity investment in large/mid-sized banks with MSME Ongoing Analytical/ Advisory  Secured transactions law under DPC 1  IFC Banking Advisory with 2 banks- HBL; Alfalah Planned Analytical/AAA/TF Activities  Financial Inclusion and Infrastructure Strategy  IFC Advisory to banks/FIs with focus on MSME, Gender, Agri and Sustainable Finance (2 new banks) Ongoing Operations/Portfolio:  Social Safety Net Project  Floods Emergency Cash Transfer Project  PPAF III Project Planned Pipeline Operations:  Social Safety Net Ongoing Analytical/AAA/TF Activities:  Labor Supply and Vulnerability  Disaster Recovery and Social Protection  NLTA: Integrated SP Systems Planned Analytical/AAA/TF Activities:

   

Annex I(b) Page 8 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

World Bank Group Program (ongoing and planned)

provincial Plans)

provincial levels Reduce vulnerability to disasters by development of a holistic disaster management program

Lack of consensus and understanding of disaster risk to inform decision-making and guide investments for building resilience.



baselines 3.3 Increased Resilience to Disasters in Targeted Regions

Multi-hazard risk assessments for major urban areas prepared



Provincial DRM plans and SOPs updated

Number of provinces with operational Disaster Risk Management and Early Warning Systems increases from 0 in FY13 to 2

NLTA on poverty data with PBS

Ongoing Operations/Portfolio:  Balochistan Disaster Management Project (MDTF) Ongoing Analytical/AAA/TF Activities:  GFDRR Development of National Platform for Risk Assessment and Catastrophe Risk Financing  GFDRR Program for Hazard and Risk Assessment in Urban Areas  PHRD Strengthening Pakistan’s Urban Disaster Response Capacity Planned Analytical/AAA/TF Activities:  NLTA Disaster Risk Management Authorities

RESULT AREA 4: SERIVCE DELIVERY Improved domestic revenue mobilization to finance Pakistan’s development needs Improve allocations, expenditure efficiency and financial mgmt.

Inefficient tax administration, narrow tax base and skewed tax structure The weak financial management and spending inefficiencies Low expenditure and

4.1 Improved Public Resources Management

Intra-government transfer policies adopted



Urban Immoveable Property Tax (UIPT) automation completed in 5 large cities of Punjab

Tax revenue ratio increased from 9.6 in FY13 to 11.5 percent at Federal level and no special exemptions issued; improved collection in targeted provinces

E-procurement strategy developed and 25 percent

Ongoing Operations/Portfolio:  Second Project for Improvement in Financial Reporting and Auditing (PIFRA II)  Punjab Public Reform Management Project  Punjab Cities Governance Improvement Project

   

Annex I(b) Page 9 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones



Non-wage recurrent expenditure by provinces in education and health increased by 20 percent from PKR 50 million in FY12.

procurement staff trained



Quality and timeliness of government accounting, auditing and reporting improves at Federal and Provincial level against PEFA scores of assessments undertaken in FY12 and FY13 (specifically PI-22 to PI-25) (P122 was rated D+ at Federal and B in Punjab in FY13; PI-24 and PI25 were rated C+ in Federal and Punjab in FY13)

World Bank Group Program (ongoing and planned)

provincial Plans)

economic deprivation in backward and conflict affected areas

Enhanced focus and improved management of health, nutrition, population and sanitation services with good progress towards MDG

Poor management of health and population and sanitation services Persistent low immunization coverage and recurrent outbreaks of vaccine preventable

4.2 Improved Access to Maternal and Child Health Services 

percent Births attended by skilled health personnel increased from 52 percent in FY13 to 60 percent

Performance management and coverage evaluation studies institutionalized in Immunization program Provision of family planning products and services through all public health outlets in

Planned Pipeline Operations:  Growth and Revenue Mobilization DPC (1 and 2)  Sindh Public Sector Reform Project Ongoing Analytical/AAA/TF Activities:  Tax Administration NLTA  Sindh PEFA Assessment  Subnational Fiscal Policy Notes  MDTF Subnational Fiscal Mgmt  IFC Punjab General Sales Tax project Planned Analytical/AAA/TF Activities:  PEFA Updates  Performance Mgmt Assessment for Supreme Audit Institution. (Auditor General`s Office)  Punjab Expenditure and Service Delivery Survey  NLTA for provincial tax administration  KPK DEMPA Ongoing Operations/Portfolio:  3rd Partnership for Polio Eradication Project  Punjab Health Sector Reform Project  Revitalizing Health Services in KPK

   

Annex I(b) Page 10 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

World Bank Group Program (ongoing and planned)

provincial Plans)

targets

diseases High malnutrition among children and pregnant and lactating women





Increased use of modern contraceptive methods from 26 percent in FY13 to 30 percent Increase child immunization by 20 percent from 54 percent in FY13 to 65 percent.

Persistently high fertility and stagnating contraceptive use. High population growth continues to impose stress on public sector delivery systems with adverse impact on social indicators. Better educational outcomes through improved access and quality of primary, secondary and tertiary education services

Gaps in access to education persist, with regional and gender disparities

4.3 Increased School Enrollment and Adoption of Education Quality Assessment 

The weak implementation and management capacity across administrative levels and schools  Student learning levels are low and quality of teaching needs improvement

Gross enrollment rates for Primary (6-10 yrs) increased by at least 10 percent from 68 percent (M:72 percent;F:63 percent) in FY12 baselines Annual student achievement tests for grade 5 and 8 implemented in at least 3 provinces; and showed positive trend in learning outcomes

Punjab Provincial plans for scaling up nutrition interventions rolled out in all provinces Change in behavior of 5 million people and 5,000 villages certified as ‘open defecation free’ reducing the incidence of diseases







Teacher recruitment against school specific, needs-based teaching posts implemented in target provinces Expansion of low-cost private schools in target provinces School specific non-salary budgets

Planned Pipeline Operations:  National Immunization support  Enhance Nutrition for Mothers and Children Analytical Work Ongoing, Planned  WSP Provincial Sanitation TA  Reproductive health/Population Policy Note/TA  Hospital and Private sector AAA  Financial Risk Protection study  Immunization Coverage Evaluation

Ongoing Operations/Portfolio:  Balochistan Education Support Project  MDTF Promoting Girls Education in Balochistan  Sindh Education Sector II  Punjab Education sector II  Tertiary Education Support project Planned Pipeline Operations:  Global Partnership for Education Project – Sindh and Balochistan Analytical Work Ongoing, Planned  Early Childhood Care and Development (ECCD) TA

   

Annex I(b) Page 11 of 11

  Government Strategic Development Objectives (federal,

Key Issues and Constraints

CPS Outcomes and Indicators

Indicative Milestones

4.4 Adoption of Performance and Transparency Mechanisms in selected institutions

Right to Information (RTI) Acts passed and implementation mechanism established at national and provincial levels

World Bank Group Program (ongoing and planned)

provincial Plans)

Revitalized and strengthened institutions of implementation, improved transparency and accountability of public services.

Lack of implementation capacity and accountability of public institutions



Lack of transparency and disclosure of information 

Departments / Services with citizen feedback in place increased by 30 percent (from 5 Departments and 13 Services with citizen feedback in FY14) Service delivery units, with improved performance management systems, increased from 0 in FY13 to at least 4

Improved performance management framework developed for service delivery units ICT-based data collection, analysis, presentation and disclosure mechanisms, set up in selected provinces

Ongoing Operations/Portfolio:  Punjab Cities Governance Improvement  Punjab Municipal Services Project  Punjab Public Reform Management Project  Punjab Land Record Management Project  KP/FATA/Balochistan Governance Support Project  FATA Urban Centers Project Planned Pipeline Operations:  Sindh Governance Project  MDTF Governance AF Ongoing Analytical/AAA/TF Activities:  MDTF Governance TA  Strengthening Forum of Pakistan Ombudsman- IDF grant Planned Analytical/AAA/TF Activities:  WSP TA: Peshawar Water CO  WSP TA on inter-governmental fiscal transfers to WASAs  Supporting implementation of RTI in KPK and Punjab

   

Annex II Page 1 of 43

 

Annex II: FY10-14 Pakistan Country Partnership Strategy Completion Report Country: Date of CAS: Date of Progress Report: Period covered by CPS Completion Report: CPS Completion Report completed by:

Pakistan FY10-14 November 16, 2011 July 2010 to June 2014 Roger Grawe

I. Introduction and Background 1. This Completion Report is a self-assessment by the Pakistan country team of results under the World Bank Group1 Country Partnership Strategy FY10-13 (Report No. 53553-PK), July 30, 2010 (CPS) and the Country Partnership Strategy Progress Report (CPSPR) FY10-14 (Report No. 65286-PK), November 16, 2011. The self-assessment focuses on two summary evaluations: (i) CPS program outcomes, which would contribute to the achievement of country development goals; and (ii) World Bank Group (WBG) performance, which assesses the WBG’s contribution to the CPS’s design and implementation. It is important to note that these are not assessments of Pakistan’s progress toward its development goals, but rather of program achievements directly linked to WBG-supported activities and to the WBG’s engagement in Pakistan. 2. Overall, the Completion Report rates the achievements of the CPS program outcomes as moderately unsatisfactory.2 While the majority of outcomes were either mostly or partially achieved, with the IFC strategy and program exceeding expectations, key transformative outcomes were not achieved. The Completion Report rates overall WBG performance as good. On design, the CPS pillars were appropriate and well linked with Pakistan’s PRSP II, and the inclusion of a Multi-Donor Trust Fund for conflict affected areas was positive. The main weaknesses were the underestimation of implementation risks and inadequate mitigation measures, and the realism of the initial CPS results framework; the latter was substantially revised during the CPSPR. The WBG showed good ability to adapt to changing circumstances, including addressing support for unforeseen floods in 2010 and 2011, strengthening analytic and technical support during a period of lagging reform commitment, thereby building the foundation with other partners for renewing policy reforms prior to and after the 2013 elections. The WBG struggled during implementation to understand and adapt to the devolution of responsibilities to the provinces.   3. The CPS came two years after the 2008 elections had returned Pakistan’s government to civilian hands. The Government had prepared a second Poverty Reduction Strategy Paper (PRSP II) and an IMF program was in place. However slowing reform momentum, massive floods in 2010 and 2011, and continuing security concerns dampened progress. The CPS Progress Report (CPSPR) in November 2011, reported low growth, accelerating inflation and deteriorating public finances, the latter exacerbated by the 18th Amendment to the Constitution, enacted in 2010, which devolved most government services to the Provinces and the related 7th National Finance Commission award which allocated a significantly                                                              1

In this report, the World Bank Group (WBG) constitutes the World Bank (WB), the International Finance Corporation (IFC), and Multilateral Insurance Agency (MIGA). The WB lending windows are the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). MIGA activities during the CPS period were mostly in conjunction with IFC investments and are not covered separately. 2 This report follows guidelines issued jointly by the Operations Policy and Country Services unit and the Independent Evaluation Group in November 2013 with respect to ratings methodology and categories.

   

Annex II Page 2 of 43

  increased share of revenue to the provinces. The IMF program had been off-track for over a year before it closed in September 2011. Elections held in June 2013 brought a successful democratic transition, with the convincing win by the PML-N providing a mandate to implement growth-oriented reforms and increase public investment. The Government entered into a new arrangement under the IMF’s EFF in August 2013, and has been on-track with this program since then. 4. The CPS built on Pakistan’s own priorities as laid out in the PRSP II, consolidating these into four pillars: i) Improved Governance and Public Sector Performance, ii) Improved Human Development and Reduced Vulnerability; iii) Improved Infrastructure to Support Growth and iv) Improved Security and Reduced Threat of Conflict. Under these pillars, the CPS identified three “transformational” activities: i) assisting the government to raise the ratio of tax revenue to GDP through strengthened tax policy and administration; ii) supporting power sector reform to ensure a sustainable expansion of power supply; and iii) addressing security issues related both to coping with the consequences of conflict and reducing the risk of future conflict. The CPS also laid out a broader “core” program comprising activities in human development (primarily education), skills, social protection, and livelihoods, ports, water management and financial management. The CPS foresaw engagement in additional areas such as urban development and provincial fiscal management as contingent on the readiness and likelihood of success of individual activities as well as progress in the transformational agenda. Finally the CPS identified selected areas in which the WB would not significantly engage: these included coal, civil service and judicial reforms, health, agriculture, telecoms, and highways. 5. IFC expected to support the energy sector with a focus on renewable power generation (hydro and wind) and energy efficiency, privatization of utility and distribution companies with the objective of improving efficiencies. IFC also expected to support access to finance to underserved groups, especially micro, small, and medium enterprises (MSMEs), by strengthening financial intermediation, improving business management and corporate governance practices at enterprise level. Other areas of IFC program included investment opportunities in logistics, transport health, education, and agribusiness (including warehousing and logistics) as well as supporting PPPs. IFC also expected to step up its program of advisory services. 6. The CPSPR underscored the significance of the political and macroeconomic risks; but confirmed WBG commitment to the transformational agenda and core program, emphasizing that the transformational challenges were long-term. The CPSPR updated the CPS Results Matrix to reflect slow progress in economic governance and power and better align outcomes with the WB operational program. 7. The CPS put forward a financing program of $3.7 billion over the initial three years of the CPS period, approximately $1 billion of which would be IBRD. IFC anticipated investing $1.3 - $1.5 billion during the CPS period. The CPS also anticipated mobilizing up to $150 million in a multi-donor trust fund (MDTF) to support security under Pillar 4. Confirming the strategic focus of the CPS, the CPSPR extended the period to FY14 and anticipated a total IDA allocation of $4.5 billion and IBRD commitments totaling $1 billion. Based on approved projects through mid-FY14 and anticipated operations during the remainder of FY14, IDA commitments will total $4,975 and IBRD $762 during the CPS period3. IFC far exceeded its CPS targets, both in the investment and advisory areas, and committed over $2.3 billion (during FY10-13) with record investments of $696 million in FY11.

                                                             3

Project details are reported in Table 2. Anticipated operations during the second half of FY14 include two DPLs totaling $600 million, which would constitute about 12 percent of the total IDA allocation if planned commitments are confirmed.

   

Annex II Page 3 of 43

  II.

Progress Toward Key Development Goals

8. Economic performance in Pakistan was disappointing during the CPS period with slow growth, low investment, deteriorating public finances and a weak external sector. GDP growth averaged less than 3 percent p.a. between 2009 and 2013 as private investment declined from 14 percent of GDP to less than 11 percent. The public sector deficit expanded from 6.6 percent of GDP in 2010/11 to over 8.5 percent in 2012/13 underscored by a declining tax ratio that hovered slightly below 10 percent of GDP (one of the lowest in the world). The share of trade in the economy also declined while Pakistan’s external reserves dipped to dangerously low levels. Severe floods in 2010 and 2011 and continuing security crises stretched management capacities, especially at the provincial level. Significant declines in security expenditures failed to translate into increases in public sector development expenditure while energy and untargeted subsidies continued at high levels. 9. Pakistan continued to lag in human development with insufficient progress to meet MDGs in education and health; however social protection measures were modernized and coverage improved. Access to education remained low at all levels with only marginal increases in net enrollment ratios. Disparities in gender, income, location and social groups continued to influence participation significantly. The primary completion rate remained extremely low and the limited data available suggest that poor learning outcomes persisted Improvement in health outcomes was slightly greater but still inadequate relative to the MDGs and Pakistan’s own goals. Declines in child and infant mortality lagged behind those achieved elsewhere in the region while child and mother nutritional status continued to stagnate at unacceptably low levels. High fertility rates persisted with contraceptive prevalence stagnant. Health service coverage improved in maternal care and immunization though not sufficiently to affect outcomes in the short term. Both education and health expenditures remained extremely low. 10. Significant improvements were made in Pakistan’s delivery of social protection services. Pro-poor social protection expenditures rose significantly during the CPS period to 0.79 percent of GDP in 2012, approaching the target of 0.9 percent of GDP set in PRSP II. The main safety net mechanism, the Benazir Income Support Program (BISP), developed a comprehensive objective targeting mechanism through a national household census thereby increasing coverage of the poor. The introduction of good governance and accountability arrangements propelled BISP to the forefront of internationally recognized good practice in delivering social protection; cash transfers to disaster victims also achieved global standards. Partly as a result, overall poverty in Pakistan appears to have declined significantly to 13.6 percent in FY11, although data reliability remains an issue4. 11. Infrastructure shortfalls, especially in power, worsened with significant adverse effects on economic performance. Between 2010 and 2013, effective energy generation capacity stagnated while demand continued to grow resulting in peak demand (at current prices) shortfalls of around one-third for electricity and one-quarter for gas with economic losses estimated close to 10 percent of GDP, with untargeted energy subsidies around 2 percent of GDP. Transport, communications and water infrastructure also continued to underperform in both physical and financial dimensions. Transport inefficiencies alone led to economic losses equivalent to 4.6 percent of GDP while public finances were strained by continuing financial losses of both railways and the national airline. Delays in 3G licensing also cost both the economy and government finances. Productivity growth in agriculture, a key contributor to poverty reduction and broader structural change, has remained flat during the past decade.                                                              4

  Pakistan will meet the poverty reduction MDG. Data issues include an outdated poverty line, which led the previous government to disallow any official poverty statistics (including the WB’s 2011 Poverty Assessment); however the current government has made the 2010/11 estimates official and appointed a commission to review poverty statistics.

   

Annex II Page 4 of 43

  12. Insecurity continued to exact a toll on economic and social well being, although there were some notable improvements in governance. Progress on institutional reforms such as Right to Information legislation, legal ombudsman, and public expenditure consultations demonstrated that government could be responsive to citizen concerns. Access to border regions remained difficult with inevitable impact on development activities; nonetheless many pilot activities demonstrated the feasibility of scaling up development activities in conflict-affected regions with a strong emphasis on capacity and institution building. The 18th Amendment to the Constitution and related National Finance Commission 7th award fundamentally changed the institutional environment for service delivery with significant complications for public finance, institutional reform and regional equity. Continued uncertainty regarding local government elections and implementation of the local governance systems in three out of four provinces added to this complexity. 13. Pakistan’s performance during the CPS period fell short of Pakistan’s own goals in many areas and created many challenges for the implementation of the CPS and WBG support.   III.

Program Outcomes of the WBG CPS 2010-2014

14. A series of sector consultations and country team meetings resulted in the CPS Program SelfEvaluation Summary (Table 1). The country team gave greater weight to outcome clusters associated with transformational activities. Data gaps weakened some outcome assessments, particularly those related to delayed or on-going WB operations and unspecified benchmarks characterized some qualitative outcomes. While not minimizing these shortcomings, the country team was confident in making a reasonably robust overall assessment. Overall, the Completion Report assesses the CPS program outcomes as moderately unsatisfactory. 15. Pillar 1: Improved Governance and Performance of the Public Sector - moderately unsatisfactory. Outcomes related to improved macroeconomic management and the transformational goal of improved tax policy and administration were not achieved, notwithstanding adjustments made to the relevant deficit and tax indicators at the time of the CPSPR. Outcomes in public sector management capacity and those in public expenditure management were mostly achieved building on the Government’s strong financial management systems. Outcomes clustered under the heading of improved market governance were partially achieved with stronger performance in micro-finance (with important IFC contributions) than in the areas of labor and trade. Implementation of the CPS under this pillar relied primarily on analytic support and limited investment lending as the planned series of policy-based operations could not move forward. Public sector performance across all dimensions was significantly impacted by devolution under the 18th Amendment and the accompanying reallocation of public finances as mandated by the 7th National Finance Commission (NFC). 16. WB support to strengthen macroeconomic management and tax administration contributed to deeper and broader understanding of the underlying issues but failed to stem continuing deterioration in fiscal and revenue outcomes. The WB was unable to initiate the planned series of policy-based operations as the Government’s macroeconomic program came off-track already by mid2010. Efforts to resuscitate the program were complicated by the economic and social shocks emanating from the 2010 and 2011 floods. The WB played a major role in ameliorating the crisis through a highly collaborative Damage Needs Assessment followed by the mobilization of significant support for oil imports from restructured IDA credits ($300 from the unused portion of the 2005 Emergency Earthquake Credit) and technical and financial support to the cash transfer program for flood affected households. IFC also stepped up its investments in agri-business with $30m additional financing and facilitated access to finance to support MSMEs. The implementation of the 18th Amendment and the 7th NFC award significantly reduced flexibility on the expenditure side. WB analytic work contributed to a better understanding of the need to reduce subsidies and raise tax revenue. The CPSPR adjusted program outcome targets; but fiscal outcomes continued to fall short. The new Government entered into a program    

Annex II Page 5 of 43

  with the IMF in September, 2013 and the WB’s analytic work and policy dialogue helped lay the groundwork for a renewal of WB policy based support which took place towards the end of the CPS period with the preparation of DPCs focused on growth and energy reforms. 17. Investment lending support to tax administration reforms failed to improve tax revenue performance. The failure of the Tax Administration Reform Project (TARP) to lead to improved tax revenue performance underscored the limitations of administrative reforms in the absence of complementary policy and legal reforms. The TARP ISR also detailed other shortcomings, which contributed to poor results including insufficient TA, underestimated implementation risks including the institutional and political environment, and inadequate monitoring and evaluation effort. At the provincial level, IFC advisory services initiated work for streamlining General Sales Tax processes and improving private sector compliance in Punjab. 18. A combination of investment lending, non-lending technical assistance (NLTA) and analytic work contributed to significant progress in public expenditure management and government accountability. Investment lending to improve financial reporting and auditing (PIFRAI- II) supported the implementation of a world-class financial management system (FMIS) at the federal level leading to the achievement of almost all financial reporting targets and substantial progress procurement institutions and capacity. The WB supported the use of country systems through the inclusion of fourteen WB projects in the FMIS. Analytic support through public expenditure reviews and NLTA contributed to the full implementation of a medium term budgeting framework at the federal level and its initiation at the provincial level. Although aggregate institutional ratings (WEF Global Competitiveness and WB CPIA) deteriorated slightly during the CPS period, institutions and systems of accountability received support from the WB Punjab Land Records Management and Information Systems project (LRMIS) and the MDTF Governance Support project with some notable achievements. In Punjab the transformation of land records has already reached high levels of customer satisfaction with significant impact on the ability of households to manage their major asset more efficiently. In KPK, pro-active advocacy and technical support contributed to international best practice Right to Information legislation (under development in Punjab as well) and other accountability initiatives, including proposed anti-corruption legislation, and the use of mobile devices to enhance citizen feedback and internal monitoring. 19. Measures to improve the governance and performance of markets relied on WB analytic and advisory instruments with only partial success although related IFC investment and advisory services exceeded targets. In the absence of the intended policy-based lending, WB interventions consisted primarily of assessments (e.g. ICA, Doing-Business) and NLTA. Labor, trade and other product market outcomes were not significantly affected. Measures, including IFC investments, to support financial sector deepening contributed to the growth of active micro-credit borrowers. IFC’s trade finance program, aimed primarily at SMEs, also expanded significantly, though partner banks faced the challenges of non-performing loans. IFC advisory services ramped up in areas of access to finance, investment climate, PPPs and sustainable business, exceeding targets in most areas. Two significant initiatives in this cluster of activities involved the extension of doing-business assessments to the subnational level and the heavy emphasis in WBG support on improving financial access for women entrepreneurs. IFC focused on gender based results through its investments and advisory programs, including enhancing the number and quality of women on boards, training of women entrepreneurs, a study on women-owned SMEs for financial institutions, and investments in microfinance and SME banks. The WB also contributed a key piece of analytic work on gender and access to finance. 20. Pillar 2: Improved Human Development and Reduced Vulnerability - moderately satisfactory. The majority of outcomes in the education cluster were mostly achieved, although improvements in targeted indicators (net enrollment rates) were modest. Safety net outcomes were also mostly achieved with exceptional support to the use of the poverty score card and the computerized national identity card to improve targeting. Health outcomes were only partially achieved in spite of    

Annex II Page 6 of 43

  their relatively narrow focus on two vertical programs, polio and aids. Rural livelihoods outcomes were achieved though household impact was uncertain. Lending played the lead role in the education sector and was prominent in all clusters while AAA made particularly prominent contributions to social safety nets and health. Improved governance and accountability was a major focus of capacity building efforts. 21. WB operational activities responded to decentralization challenges in education and broadened support beyond basic education to skills development and tertiary levels. The CPSPR refocused education outcomes on net primary enrolment in Punjab and Sindh where WB operations were concentrated. These outcomes were met in Punjab but not in Sindh.5 Overall, enrolment gains were modest relative to Pakistan’s needs and MDG goals; although Pakistan’s relatively high population growth rate did put additional pressure on net enrollments. The substantial lending for education (an aggregate portfolio of $1.2 billion in education) was structured to disburse against a set of quantitative and qualitative indicators (DLIs) that supported measures to improve sector governance, increase accountability and introduce quality criteria. Achievements in these areas marked good progress toward the milestones identified in the CPS.6 The focus on DLIs strengthened collaboration with key development partners (notably DFID) and, especially in the second generation of projects, involved counterparts at the provincial level contributing to capacity and institutional development. During the CPS period, the WB also broadened its education interventions to include skills development and tertiary education. Although data on anticipated outcomes was not yet available,7 these operations signaled the intention of the WB to provide greater support to the key issue of jobs growth. 22. Analytical and advisory work supported by strategic, timely financial support contributed to Pakistan’s ability to protect vulnerable citizens and help households recover from natural disasters. Building on Pakistan’s system of unique citizen identification numbers and poverty score cards, WB inputs contributed to a world class safety net mechanism through BISP, currently benefiting 4.9 million households.8. The use of cash transfers to help 1.2 million families recover from the 2010/11 floods created an internationally recognized benchmark for disaster relief, including best practice in donor coordination. Innovations in FM included the use of debit cards and electronic verification systems to replace the archaic postal money order system. A monthly reconciliation system monitored fund flows and internal audits covered cash transfer payments. This resulted in a high percentage of beneficiaries getting money in an efficient and transparent manner. 23. Experience from the programs on polio and AIDs combined with the impact of the 18th amendment contributed to a shift in WB health sector support to a broader systems approach embracing cross-sectoral challenges such as nutrition. The CPS foresaw little additional operational support in the health sector beyond carryover activities related to vertical programs combatting polio and a national initiative against AIDS. A high profile outbreak of polio led to additional funding to polio eradication and targets were achieved; but formulation of a national AIDS project was stalled and replaced by a provincial intervention in Punjab (a consequence of the 18th Amendment) necessitating a revised outcome in the CPS PR. WB interventions were incorporated into a more systematic approach to the health sector in two provinces (Punjab and KPK) linked to a strategic health public expenditure                                                              5

The impact of the 2010/2011 floods especially in Sindh province affected school access and is likely to have affected the reliability of data on school attendance. 6 IEG ICR reviews of the Punjab and Sindh Education Sector Projects confirmed progress across a broad range of education management outcomes, rating both operations as moderately satisfactory. 7 Project support to tertiary education met with bottlenecks early on due to ownership issues and then later on account of the 18th amendment, there were pressures to make the higher education commission at the federal level redundant in favor of provincial management of the sector. 8 An estimated 7.2 million households are eligible for assistance. The shortfall will be progressively closed as households receive their unique identification number.

   

Annex II Page 7 of 43

  review; The broader approach to the sector developed during the CPS period also led to the preparation of WB’s Immunization Support Program (going beyond Polio) and to a multi-donor “Partnership for Improved Nutrition Program.” Both initiatives focused on mothers and children health in line with the CPSPR. 24. Building on a long history of engagement with Pakistan’s Poverty Alleviation Fund (PPAF), WB support helped shift PPAF focus to livelihoods in the poorest districts/regions, building linkages to the private sector and strengthening PPAF capacity in monitoring and management systems. At the beginning of the CPS period, the WB had entered its second decade of support to PPAF with a third project. The emphasis in this operation broadened from a primary focus on microfinance to rural institution building for sustainable livelihoods, especially through linking community and farmer organizations with the private sector and with government line departments. CPS outcome targets for such linkages were fully met. In addition the WB encouraged PPAF to go deeper into the poor regions and develop a broader institutional perspective, building capacity for monitoring and evaluation, introducing management systems, and encouraging a more integrated approach to PPAF activities. The WB also supported PPAF to develop its role in promoting cross cutting issues, notably gender and nutrition. A key lesson for a poverty-focused institution such as PPAF is the importance of developing a strong results framework with a continuous M&E feedback loop to determine better what is working and what isn’t and to operationalize evolving perspectives on poverty (such as the role of inclusion). 25. Pillar 3: Improving Infrastructure to Support Growth - moderately unsatisfactory although IFC exceeded its investment targets in energy, transport and logistics. Outcomes in the key sector of energy, which emerged as the key constraint to Pakistan’s prosperity and growth prospects, were not achieved. Transport, irrigation and agriculture outcomes were partially achieved while urban and environment outcomes were mostly achieved. Lending was the primary vehicle for WBG support under this pillar. Analytic and advisory activities made important contributions in agriculture and urban and were the sole source of WB support on the environment while IFC pursued an active investment program in alternative energy sources to support its focus on climate change. Informal TA, often linked to project implementation support was also an important contribution particularly in energy and irrigation. 26. The WBG ramped up financial support to the energy sector although improvements in sector performance remained elusive; several investments by IFC supporting alternative energy sources and privatization had promising results. After a long hiatus in direct support to the energy sector in Pakistan (1995-2008), the WB renewed lending first to electricity transmission and distribution (ETDP) in 2008 and to gas distribution and hydropower generation (Tarbela IV extension) in 2012. Both distribution projects have fallen short of expectations. Tarbela IV extension (which accounts for about two-thirds of the WB’s approximately $1.2 billion in financial commitments to the sector) has started satisfactorily in its early construction phase. Recognizing long-standing institutional constraints and the impact of the 2010/11 floods, the CPSPR modified outcome targets related to transmission and distribution losses, load-shedding and financial performance; but even these more modest targets were missed. On the positive side, WB informal technical and analytic support was markedly successful in rebuilding relationships with government counterparts and other development partners in the sector. , IFC contributed to private sector innovation through pilot and precedent-setting activities, including wind power, waste-to-energy and run-of-the-river hydro in addition to low-cost thermal. IFC’s investment in the Karachi Electric utility company helped ensure the success of that privatization and was deemed by the client as best practice in terms of hands-on financial and institutional support. IFC’s combined investments including supervision of the only privatized integrated utility in the power sector are expected to contribute to about 1,640 MW by 2016. By the end of the CPS period, sector dialogue and coordination with key partners improved sufficiently so that the WB was able to initiate the preparation of a DPC focusing on energy reforms linked to the eventual achievement of program outcomes.

   

Annex II Page 8 of 43

  27. The WBG maintained engagement in the transport sector through contributions to construction activities; but support to logistics and trade facilitation was less successful. Both the WB and IFC supported rehabilitation of berths at Karachi port;9 but the CPS outcome relating to reduced container transit time remained unmeasured pending the completion of the relevant project. IFC exceeded its target with four investments in container and bulk shipping, projects that are currently performing well. However WB support to trade and transport facilitation (TTF), which should have been the core of institutional reforms to promote a more open economy, proved less satisfactory. The WB’s TTF project encountered serious implementation obstacles due to a shift in national priorities and a complex institutional environment lacking reform champions.10 Although not included as a CPS outcome, the WB’s on-going support to highway rehabilitation (with additional financing fully disbursed during the CPS period) contributed to notable improvements in road condition, road safety and travel time. 28. Continuing assistance for irrigation and water management combined with AAA to step up engagement on the broader issues of agriculture sector reform and growth. On-going operations during the CPS period continued the long-standing WB focus on upgrading and improving irrigation infrastructure in the Indus basin and supporting water management institutions in Punjab, Sindh and Balochistan. The targeted equity improvements in water delivery performance remained undocumented pending the completion of WB projects; but proxies indicated improvements in system reliability and efficiency. O&M and financial recovery target assessments were also pending. The same portfolio of activities also contributed to the use of improved agriculture techniques as indicated by increased cropping intensities and crop yields11.During the CPS period the WB responded to a Government request to help accelerate agricultural growth and productivity. This led to a number of AAA inputs and preparation of Punjab Irrigated Agriculture (FY13) and Sindh Agriculture projects (FY15). IFC initiated several activities to strengthen its agriculture and agribusiness portfolio including three investments. 29. Good progress in urban service delivery and management benefited from innovative WB operational support in Punjab supplemented by technical assistance and sector analysis. WB efforts focused on institution building for improved service delivery in all towns and cities in Punjab linking financial support to agreed service delivery indicators chosen by the municipalities themselves. Punjab’s five largest cities made considerable headway toward managing each metropolitan area and its service providers through a single authority with accountability and appropriate managerial and fiscal autonomy 30. Environmental policy formulation in the public sector and demonstration investments by the private sector received timely support from the WBG, though challenges remain in mainstreaming responses to environment challenges. WB supported a dispersed institutional structure with analytical and advisory activities, focusing on the formulation and implementation of a national strategy culminating in the cabinet approval and launch of a National Climate Change Policy in 2013. IFC placed great emphasis on climate change, especially through its program of energy investments in renewable sources. IFC exceeded its targets in this area and has built a strong pipeline for continued investments in renewable energy sources. IFC also provided key advisory services linked to guidelines for sustainable energy finance and renewable energy sources. 31. Pillar 4: Improving Security and Reducing the Threat of Conflict - moderately satisfactory. This rating takes into account that activities took place in areas significantly affected by conflict. As postconflict activities, results were assessed at an earlier stage of the results chain largely focusing on the achievement of project implementation targets. With this caveat, outcomes clustered under the objective of increased employment and livelihood opportunities for conflict-affected areas were mostly achieved                                                              9

 IFC withdrew from its investment due to the inability of its partner to meet the necessary conditions. The Government commented that the TTFP was overly complex, involving too many implementing agencies. 11  Data from Sindh and Balochistan only.  10

   

Annex II Page 9 of 43

  and increased responsiveness and effectiveness of the state were partially achieved, as delays in the initiation and implementation of the relevant projects suggest caution in translating project inputs to sustained results. While MDTF-financed projects were the primary instrument supporting Pillar IV outcomes, AAA activities (also MDTF-supported) helped lay the basis for project support. 32. After a slow start, MDTF supported projects are making good progress and largely on track to achieving the set objectives in the CPSPR. The slow start-up period for the MDTF was effectively utilized in developing a stronger analytic base through a public expenditure review in KPK and a Development Needs Assessment in Balochistan. Even more important, extensive NLTA and project preparation activities created strong relationships with implementing agencies and local stakeholders that contributed to progress on the portfolio. The 2013 annual donor review cited these activities as contributing significantly to the goal of rebuilding confidence in government and the state, which they consider as an essential step in achieving a lasting peace. While results related to employment opportunities and community infrastructure did not fully achieve the targets set in the CPSPR results framework, progress has accelerated since the CPSPR and activities are on course to achieve these goals. IV.

Performance of the World Bank Group

33. The Completion Report assesses the performance of the World Bank Group as good. This rating reflects both the design of the CPS aligned to the Pakistan’s needs and the effectiveness of the WBG response to adapting to challenging and difficult circumstances during the implementation of the CPS by strengthening partnerships and analytic underpinnings while building a stronger pipeline. The WBG was overly optimistic in the initial design of the CPS with disappointing results in the transformative areas that the CPS designated as high priority. The CPSPR reflect these developments, and put the WBG on track to build a strong pre- and post- election dialogue that enabled it to engage strongly with the new Government through both AAA and a series of policy DPCs. 34. The CPS design was well aligned with Pakistan’s development priorities; but weaknesses emerged in the original design of some WB interventions as country circumstances evolved. The CPS mapped well into the priorities of the Pakistan’s PRSPII (2009) with corresponding emphases on macroeconomic stability, protecting the poor and vulnerable, human development, energy, agricultural productivity, private sector involvement in infrastructure through PPP and improved governance. The CPS explicitly recognized the security challenges facing Pakistan and translated WB support for the 2009 Post Crisis Needs Assessment (PCNA) into a full pillar under the strategy. The CPS also built on a key lesson from the previous CAS by increasing the focus on long-standing structural issues - designating tax revenue, power availability, and security/conflict as transformational issues. While this built greater risk into the program, it correspondingly raised its potential development impact. However, weaknesses in the design of WB interventions emerged soon in the CPS period. The off-track Government program precluded the planned series of DPCs, which were the cornerstone of WB support to the transformational objectives in tax reform and energy. Investment operations in these areas were unable to deliver the intended results without policy leverage. With regard to the security objective, the direct WB role was limited to administering the MDTF after a shift in government priorities led to the cancellation of an approved IDA credit12. This left the MDTF on its own relatively limited resources and reduced the “footprint” of security/conflict related activities within the WB.                                                              12

The IDA credit focused on the provision of cash transfers to poverty affected families and had been prepared and negotiated with representatives of the KPK and FATA authorities; however after approval, the Provincial Core Committee requested the WB to shift the financing to infrastructure. The WB could not comply under the approved objectives of the project and consequently the Government requested its cancellation. Thereafter the provincial government focused on grant support, thereby limiting opportunities to leverage complimentary IDA financing.

   

Annex II Page 10 of 43

  35. The CPS tackled the perennial issue of selectivity explicitly but disconnects emerged with the adequacy of interventions under some objectives and also failed to consider adequate mitigation measures for some key risks. The CPS proposed a hierarchy of transformational, core and contingent activities defined by sector and also indicated a number of sectors in which the WB would not expand lending activities. This sector specific approach limited achievements of several CPS objectives and dialogue with the authorities. CPS performance could have been facilitated better by selectivity criteria that put more emphasis on WB comparative advantage and project development impact rather than including or excluding particular sectors. The CPS also took insufficient account of the impact of the 18th Amendment and 7th FC award on the dissolution of federal ministries and the challenges of aligning CPS objectives with WB instruments at the provincial level. In recognizing the macroeconomic risks, the CPS failed to consider mitigation options if the planned DPCs couldn’t proceed.13 The CPS also underestimated the extent of the capacity and institution building necessary to mitigate risks related the implementation of devolution. WB sector teams and provincial authorities both cited capacity gaps at the provincial level as a key constraint to achieving a higher level of performance under the CPS. Although the CPS failed to anticipate the risks of natural disasters, the CPSPR took these into account and linked mitigation measures to program flexibility and enhanced preparedness planning. 36. The quality of the CPS Results Framework improved in terms of less reliance on process indicators but realism and relevance of outcomes and indicators fell short. The CPS Results Framework identified 17 outcome clusters, 42 outcome indicators and 60 milestones. Only six indicators relied on process measures: all others were intermediate outcomes of varying impact on or relevance to the CPS higher-level objectives. Lack of realism in relation to available data, inadequate linkage to WBG interventions or lack of progress toward outcome targets resulted in revisions to about 30 percent of the original outcomes in the CPSCR. Nine additional outcomes were added linked to these revisions. Many of the new and revised outcomes “retrofitted” to on-going WB activities. The resulting matrix was highly complex, difficult to monitor and consequently unhelpful in evaluating overall progress toward CPS outcomes. Although the results framework covered IFC activities as part of the array of CPS implementation instruments, IFC input into the formulation of outcomes and milestones was not evident. 37. In the implementation of the CPS, the WBG tackled significant program management challenges. Through an intensive upgrading of office and country security measures and sustained recruitment the international staff complement in Islamabad increased from one to twelve by the end of the CPS period including the key positions of lead economist and operations advisor. This reinforced a pro-active approach to managing portfolio quality that included biannual federal and provincial portfolio reviews. Third party monitoring provided additional oversight over MDTF activities in the border areas. As a result the number of projects at risk declined from 20 percent in FY11 to 15 percent in FY14 and commitments at risk from 27 percent to 13 percent over the same period. The use of DLIs at the provincial level encouraged mainstreaming fiduciary capacity and the WB aligned 12 projects with country information systems with two more in the pipeline. IFC also made significant contributions to corporate governance with both its advisory services and in the implementation of its investment programs. Overall, safeguard and fiduciary activities were well integrated into the WBG program. 38. The WBG used analytic and advisory assistance (AAA) effectively both in project development and as direct support to CPS objectives. AAA was the sole instrument supporting over one-third of CPS outcomes across all four CPS pillars (Table 3). The high profile and wide dissemination given to the CEM, Finding the Path to Job-enhancing Growth, and to the set of policy notes prepared for the new Government in 2013, Pakistan, the Transformative Path, helped to build a                                                              13

The fiscal bind created by the combination of the 18th Amendment and the award of the 7th National Finance Commission imposed constraints on federal finances that reduced the options to undertaking unpopular, politically difficult fiscal reforms quickly and drastically or missing program targets. The government chose the latter.

   

Annex II Page 11 of 43

  broader understanding of reform options and to lay the groundwork for Government actions leading to an IMF program and the renewed prospect of WB policy support. The Flood Damage Needs Assessment and the Post-Crisis Needs Assessment were key inputs, along with a Poverty Assessment, Safety Net review and less formal reports, to WB contributions to BISP and other measures (such as the cash transfer program for flood victims) to protect vulnerable households. The two needs assessments were also major vehicles for enhancing partnerships with other development agencies. Sector and regional PERs effectively laid the groundwork for expanding operational activities more strategically in health and in KPK. During the CPS period, IFC’s advisory services program in Pakistan grew significantly to become one of the largest in the region, with over 40 projects and a funding commitment of over $10 million, an increase of two-thirds over the previous period. Advisory services contributed to enhancing access to finance for MSMEs, building capacity of small businesses, improving corporate governance, creating a better business environment, and encouraging mediation. In addition, IFC carried out a Jobs Study with a leading bank to assess the impact of access to finance on growth and job creation in SMEs. Overall, WBG AAA was directly relevant to the CPS objectives and contributed significantly to CPS results. 39. Coordination with development partners improved significantly during the CPS period. At the onset of CPS implementation, other development partners were looking to the WB to provide leadership in responding to both the security crisis and back-to-back flood disasters and in coordinating that response with a more effective policy dialogue with the Government. The Government insisted that resources devoted to crisis response be additional to amounts pledged some years earlier in Tokyo in the context of the Friends of Democratic Pakistan forum. The Government was also unwilling to link (stalled) reforms to additional resources and at the same time was engaged in the initial stages of implementing the 18th Amendment, which put crisis response burdens more directly on provincial governments. Flood damage and foreign exchange shortages associated with both conflict and floods had also exacerbated Pakistan’s long-standing energy crisis leading to the creation of a special energy task force headed by the ADB. WB relationships with other partners and the Government in energy issues had suffered from technical and analytic lapses and needed rebuilding. Responding to this demanding situation, the WB mobilized a large multi-sectoral team to coordinate needs assessments and in particular brought in top global expertise to develop an early recovery cash transfer program for flood victims. The WB team mobilized broad support from both development partners and the concerned Government agencies, and coordinated the development partners’ support to the cash transfers program, which covered over one million affected households. As coordinator of the MDTF, the WB played a pivotal role in the overall donor response to the security crisis. A subsequent donor review of the functioning of the MDTF appreciated the progress and highlighted areas for improvement to which the WB effectively responded.14 On the energy front, the WB took decisive steps to strengthen its technical position and work closely with the ADB and other DPs to development a coordinated position on energy sector issues.15 In addition the WB helped mobilize and coordinate development partners’ support to several cross-cutting and challenging areas including: i) chairing. the Inter-Agency Group on Gender and Development from January - June 2013 and developing a gender policy note for the new government; ii) providing leadership in nutrition and social expenditures at the D-10 forum leading to the Government’s adoption of the Scaling Up Nutrition (SUN) framework16 and to provincial PERs to improve efficiency and composition of social spending. IFC strengthened collaboration with DPs in the areas of access to finance and investment climate with advisory services and programs.                                                              14

MDTF partners confirmed their satisfaction with the WB response to the donor review, though some noted that the WB could have been more pro-active in responding to donor concerns prior to the review. 15 ADB and UASID both confirmed the effectiveness of current working relationships in the energy sector. 16 The SUN movement is an alliance of over 100 partners from member countries, international donors and governmental agencies and UN agencies. It seeks commitment and actions by member countries to address undernutrition, scaling up cost-effective nutrition interventions.

   

Annex II Page 12 of 43

  40. The IFC and WB worked to strengthen synergies during the CPS period. With an investment program approaching $2 billion representing an increase of approximately 50 percent over the previous four years, IFC emerged during the CPS period as a leading provider of foreign exchange financing to Pakistan’s private sector. While IFC faced institutional constraints on its ability to expand in priority areas (such as SMEs) due to high country risk ratings for Pakistan and the inability to lend in domestic currency, IFC was nevertheless able to exceed its investment targets across its operating units. In line with the CPS priorities, IFC stepped up its engagement with the power sector and other infrastructure, including transport, ports, and logistics with the aim to support the modernization and efficiency of the entire sector value chain. IFC continued to support access to finance through its international trade finance program- the GTFP, and working with banks to develop SME-specific instruments, also focusing on women and rural clients. In addition IFC explored possible investments in health and education in line with Pillar 2 of the CPS. Parallel financing between IFC and the WB proved problematic due to differing time lines and operating procedures. However management commitment to a stronger strategic alliance improved coordination and led to better exchange of information at sector and task team levels. 41. WBG implementation of the CPS responded strongly both to the challenging situation at the outset of the CPS and to changing circumstances during the CPS period. Particularly notable in this effort was a program of NLTA around key economic issues during the political transition both before and after the June, 2013 elections. Outreach to youth, academia, media, politicians, and policy makers with the participation of WB and global experts significantly increased the WB’s contribution to broadening the development dialogue in Pakistan. AAA, NLTA and policy dialogue paid dividends with the renewal of policy support to macroeconomic and energy objectives. The WB also responded flexibly to changing circumstances in sectors that the original CPS had precluded in its sectoral approach to selectivity. As a result, the CPS period closed with strong prospects for effective WB support to development objectives in health, agriculture, transport and governance. As the implications of the 18th Amendment and 7th NFC award became more apparent, the WB increased its analytic work and implementation support to the provinces and adjusted CPS outcomes to reflect the increased provincial focus. IFC responded to the volatile and difficult operating environment in Pakistan by increasing its short-term finance interventions, especially through trade finance support to the private sector. 42. The CPS Progress Report (PR) was a timely and pertinent update of the CPS. The CPSPR was prepared on a timely schedule early in FY12 and appropriately documented the impact of changing country circumstances on the CPS program and outcomes. The CPSPR also extended the CPS timeframe through FY14 to align better with Pakistan’s political cycle and IDA16, documenting an increase in total WB resources available to Pakistan from $3.7 billion over the original three years to an estimated $5.9 over five years. The PR proposed a program of fewer but larger operations, increased engagement with the provinces and increased performance based operations. The first two goals were achieved: i) average project size increased from approximately $115 million in FY11 with eight operations (not counting the flood emergency credit and two additional financing operations) to an average of almost $200 million (not counting IBRD and two additional financing operations) for eight operations spread over the three years following the PR and ii) lending to the provinces (primarily Punjab) increased to approximately 50 percent of total commitments in FY12-14 as compared to less than 10 percent in FY11. The proportion of performance based lending using DLIs also increased from 29 percent of total commitments in FY11 to 34 percent midway through FY14. The PR also reviewed the risks identified by the CPS noting that overall risks had increased particularly those associated with political transition, macroeconomic performance and program implementation. Mitigation measures identified by the PR concentrated on intensive engagement and dialogue, especially at the provincial level and front-loading IDA assistance to support critical expenditures on social spending and growth enhancing infrastructure. This risk and mitigation assessment provided a more realistic framework for CPS implementation.

   

Annex II Page 13 of 43

  V.

Lessons, Learning and Recommendations

43. Detailed lessons arising from the individual output clusters are reported in the relevant column of the Summary of CPS Program Self-Evaluation (Table 1). Broader, more generic lessons include those drawn from the previous CAS CR re-validated by experience during the current CPS and lessons newly generated from the current experience. 44.

Lessons revalidated from the previous CR include the following: 

A focus on long-term strategic issues take time. Progress on core long term issues, such as fiscal reforms/tax policy and energy is very likely to be uneven because problems are deeply embedded in political economy with structural, institutional parameters. During much of the CPS period, WB efforts on fiscal reforms/tax policy and energy made little or uneven progress. But over time, these efforts laid the foundation for more productive engagements, which carried over to lay the basis for progress during the next CPS period. IFC’s leadership and confidence boosting role helped support the private sector and attract foreign investors at a difficult time in Pakistan. This highlights the importance of remaining engaged and playing a counter-cyclical role even in difficult and volatile situations. The sustained improvement in PFM and the development of a world-class financial management system over the last 15 years is testament to the value of supporting long-term strategic issues.



Flexibility is essential in taking a long-term view and adapting to uneven progress. WB needs to adapt to changing circumstances using all available instruments, remaining open to opportunities.



Enhanced partnerships – coordinating donor responses can make a big difference. Coordination on responses to challenges during this CPS period -floods, social protection and MDTF, energy -- underscores the value of partnerships with stakeholders. Such partnerships help to build a common narrative and maintain focus on long-term issues.



Take a realistic approach to capacity building and institutional reform-traditional approaches to capacity building have only been moderately effective. Enhanced project implementation support, just-in-time analyses and NLTA (including IFC advisory services), rapid response facilities, and frequent presence “on the ground” have all contributed to capacity and institution building; but staff turnover in the Pakistan civil service is so frequent that long term benefits remain elusive. In such circumstances, focusing more on improving “systems” than “training” could be more effective. Outreach to non-governmental parties, as the WB did prior to the elections, can pay capacity dividends. Institutionalizing self-paced online courses and regular training of operational staff in partnership with local institutions such as IBA, LUMS, could help.



Timely, reliable M&E – There is a need to focus more on M&E and results reporting from the start. Data on many sector/project implementation indicators is only collected at project completion, too late to provide information for mid-course correction. Systemic reviews of M&E status for the CPS could be useful; but only if there is a strong commitment to mainstream.

45.

In addition to these “revalidated” lessons, new learning from the FY10-14 CPS included: 

 

Strengthened attention at the province level is a necessity. Devolution (18th Amendment and 7th NFC award) fundamentally changed operational modalities. The WBG has increased its outreach to provinces, enhancing the potential for bringing services closer to the people but also raising challenges of regional inclusiveness, capacity building and institutional development at state and local levels, and ensuring partner harmonization across provinces. Engagement with the federal government should support national standards, guidelines, targets and regulatory  

Annex II Page 14 of 43

  frameworks to guide provincial governments and ensure that national goals (such as MDGs) remain on target. The WBG will need to explore options for engaging in “lagging” provinces; 

Pakistan is a high risk – high reward environment. Risk analysis and mitigation strategies need greater attention. Risk-reward trade-offs could be more explicit in program design and mitigation strategies could take a more central role both in design and implementation, enhancing the importance of M&E and more frequent program re-alignment as experience accumulates.



Program selectivity needs continuous management attention – CPS experience suggests identification of selectivity criteria at the level of CPS program objectives (not sector activities) taking into account development impact and WBG comparative advantage with frequent reality checks during implementation is a useful way forward. This approach confirms that there is no substitute for strong country management engagement and accountability to promote and enforce selectivity. CPS pillars and outcome “clusters” should be supported through the full range of WB instruments if possible, taking advantage of opportunities to promote integrated, multi-sector approaches to achieving CPS outcomes.



A simpler CPS Results Framework with limited numbers of outcomes would help keep the engagement focused. A simpler results matrix would also make it easier to monitor and report on simple results everyone understands and remembers. Country management and the country team should apply selectivity stringently to the number of outcomes and objectives for which the CPS will be accountable and then determine the appropriate mix of sectors and instruments to achieve these goals, undertake frequent monitoring and evaluation of the progress toward those goals and identify adjustments to the program accordingly. This approach would imply greater integration across sectors, proactive project restructuring and cancellations for non-performing projects.



Success in transformational activities requires that institution building and support to reforms go hand in hand (a key lesson of the Tax Administration and Reform project). This will inevitably create a challenging environment when lack of progress precludes policy-based lending. Such circumstances may require reassessing the mix of instruments or their sequence.



Just-in-time AAA and NLTA demonstrated high pay-off and could figure more explicitly in the results framework through mechanisms such as rapid response facilities.



IFC has been able to ramp up support to the private sector even in difficult circumstances. Increased short-term trade finance. Investments in infrastructure, especially in low cost and renewable power, and the use of private sector networks to leverage policy dialogue were all effective. IFC’s confidence boosting role helped support the private sector and attract foreign investors at a difficult time in Pakistan. The WB and IFC could further pursue these ‘countercyclical” efforts as part of their joint outreach efforts.



IFC-WB collaboration, built around an explicit agreement on joint priorities holds promise. Keys to success included a strong field presence with co-location, regular communication at all levels, and appropriate sequencing of collaborative activities. 

Annex Tables: Table 1: Summary of CPS Program Self-Evaluation Table 2: Planned Lending Program and Actual Deliveries (FY10-14) Table 3: Planned Non Lending Services and Actual deliveries (FY10-14)    

Annex II Page 15 of 43

  Table 1: Summary of CPS Program Self-Evaluation CPS PR Outcomes and Milestones

Status and Evaluation Summary

Lending and AAA

Lessons and suggestions for the new CPS

Completed AAA:  Country Economic Memorandum (CEM) (2013)  Series of Policy Notes (FY 13)  Poverty Assessment Update (FY11, FY12)  Poverty Monitoring (FY 11)  PPP Assistance (FY 10, FY 11)  Private Sector – Planning Commission TF (FY 11) On-going AAA:  Poverty Update II (FY 14)  SOE Reforms (FY 14)  Trade Finance (FY 14)  Sub-national Fiscal Policy Notes (FY 14)



Outcome Pillar 1: Improved Governance and Performance of Public Sector Rating: Moderately Unsatisfactory 1.1: Improved Macroeconomic Management Rating: Not Achieved 1.Fiscal deficit target (including  Not achieved; fiscal deficit estimated grants) is at or below 5.5 percent in at 8.0 percent of GDP in 2012-13 and 2013-14, down from 6.6 percent of projected at 7.8 percent in 2013-14. GDP in 2010-11(Revised PR) (IMF Article IV baseline scenario) with IMF 2013-14 revised program Milestones: target of 5.2 percent  Expenditure levels consistent  On the expenditure side, untargeted with macro stability subsidies remain a key issue  Strategy for restructuring or especially those in the power sector, privatisation of public sector which have remained constant at 2 enterprises developed percent of GDP since 2010.  At least one public sector  The failure to privatize any State enterprise restructured and/or Owned Enterprises (SOEs) since 2007 privatised has contributed to continued budget losses and lack of potential non-tax revenues. Government currently designing restructuring plan for 40 SOEs with some steps taken to improve SOE governance and procurement. 1.2: Strengthened Tax Policy and Administration Rating: Not Achieved  2.Federal Tax to GDP ratio  Not achieved: Tax revenue to GDP improved to at least 10 percent of ratio estimated at 9.7 percent in 2012GDP (from 9.4 percent of GDP in 13 and is projected at 9.8 percent in 2010-11 by 2013-14) (Revised PR) 2013-14 by IMF Article IV in baseline scenarios. IMF revised program target Milestones: for 2013-14 is 10.6 percent  Risk-based tax compliance  Tax compliance audits not management implemented (tax implemented systematically payer audits reintroduced,

Completed Lending:  Tax Administration Reform Project (TARP) Completed AAA/ Advisory  Pakistan Tax Policy Report  Federal Expenditure Review (FY 10)  IFC Technical assistance to Punjab Revenue Authority for



 

In the absence of lending operations, continuous engagement through advisory services together with nonlending technical assistance has been well-received and contributed to richer understanding of issues; but has had little impact on outcomes during CPS period though arguably helped lay groundwork for current IMF program and laid groundwork for DPCs under preparation. The WB should be cautious in selecting higher-level country outcomes as CPS program targets given political economy risks.

Reforms of tax administration and tax policy have to be undertaken in tandem to enhance revenues. Assessing tax administration reform by enhanced revenue is insufficient in capturing the full set of results; such indicators may lead managers to undertake ad hoc and/or shortterm measures to enhance revenues

   

Annex II Page 16 of 43

  CPS PR Outcomes and Milestones 

enforcement efforts stepped up) Broad-based VAT introduced

Status and Evaluation Summary 



VAT not introduced Punjab introduced Reformed General Sales Tax (RGST) in 2011 and Sindh introduced RGST on services. 

Lending and AAA streamlining GST processes and compliance for private sector (FY 10)

 

1.3: Strengthened Public Expenditure, Financial and Procurement Management Rating: Mostly Achieved  3. Medium Term Budget Framework  Mostly achieved: MTBF is being On-going Lending: (MTBF) functional at the federal implemented in all federal ministries.  Second Project for Improvement level and launched at the provincial of Financial Reporting and All frameworks, budgets and level Auditing (PIFRA – II) – closing strategies prepared at the federal level date extended till Dec 31, 14 are ratified by the Cabinet on an 4. Increased timeliness of annual basis.  PIFRA II Additional Financing government financial data: in-year – closing date extended till Dec  MTBF implemented in KPK since reports within 10 days of month 31, 14 2011 (with initial DFID end; year-end reports within 3 support).Annual budgets and Completed AAA: months of year-end. strategies are prepared and ratified by  Public Expenditure Review (FY the cabinet on a regular basis. MTBF 2010) 5. Improved quality and timeliness introduced in Punjab but not sustained  Financial Sector Assessment of government audits: audit reports following initial ADB support. The Update (FY 2010) consistent with ISA completed implementation of MTBF is being  Regional Conference on within 7 months of-year end piloted in Sindh. Economic Stabilization and  Financial reporting target achieved.

Lessons and suggestions for the new CPS but do little to change the overall administrative structures.  Establishing IT systems for improved tax administration and collection needs continued dialogue on institutional reform and business process re-engineering to ensure that systems are utilised. Continuity of the Bank’s task team also necessary for sustained focus on bigger picture.  It is Important to have flexible and results-orientated lending instruments supporting a tax reform strategy with sequencing of actions, recognition of political economy factors, provision of technical assistance and sustained policy dialogue. Technical assistance requires ownership from the key institutions involved.   

 



PFM reforms need long-term support and consolidation across government levels to lead to ultimate goal of improved service delivery. 18th Amendment led to significant capacity gaps at provincial levels particularly in line departments. PFM reforms can benefit from governance initiatives (e.g. increasing transparency and accountability) as demonstrated in KPK. Building broad ownership essential to sustaining PFM reforms after donor support for initial

   

Annex II Page 17 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

6. Inclusion of new WB lending in FMIS for real-time entries leading to improved accuracy of accounts and use of country systems. (New PR) Milestones:  Sectoral reviews and Budget Strategy Papers prepared to guide the MTBF process  Strategy for reform of public investment processes and institutions prepared  Treasure Single Account fully functional and expanded to cover provinces  Fully integrated country-wide financial management information system functional  Timely and reliable fiscal operations tables and in-year civil accounts published  Completion of audits within 6 months of end FY and delivery of audit reports to the legislature within a month of audit completion

 





 

Civil accounts are prepared within 10 days of month-end (compared to 1520 in 2010) while year-end accounts are prepared within 2 months of end of fiscal year (compared to over 2 months in 2010). Audits target mostly achieved. Audit reports, consistent with ISA completed within 8 months (compared to over 8 months in 2010). Use of country system target achieved. A total of 14 WB projects have been brought onto the FMIS system. Milestones achieved and documented in CPSPR Overall procurement performance review achieved for federal, Sindh and Punjab governments through PEFA and BIS. Procurement regulatory framework gaps bridged. In Sindh, SBDs and RFPs were developed and notified, implementing regulations drafted, second tier of appeals mechanism developed. In Punjab, procurement rules notified and resources allocated for development of SBDs and RFPs. In KPK, the revised procurement law approved. All PPRAs collaborated to form a common platform and develop a draft national procurement strategy. Auditor general’s office and procurement regulators aligned to conduct procurement performance audits. All PPRAs (federal and provincial) collaborated to form common platform and develop a draft

Lending and AAA Recovery (FY 10) Improved Debt and Cash Management (FY 10, 11, 13)  Competition Policy II (FY 10)  FM and Procurement Harmonization (FY 10)  PEFA Updates (FY 11)  Procurement Performance Update (FY 12)  Access to finance and bank resolutions (FY 12)  Gender Notes (FY 12)  Financial Management: Federal and Provincial (FY 12)  Punjab Social Sector PER (FY 13) On-going AAA:  Sindh PEFA Assessment (FY 14)  Punjab Competitiveness (FY 14)  Government Debt Policy and Management (FY 14)  

Lessons and suggestions for the new CPS introduction.  Greater use of results based lending instruments can increase WB use of country systems but greater efforts needed to include other partners.

 

 

   

Annex II Page 18 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

national procurement strategy. 1.4: Enhanced Capacity and Accountability in Public Sector Management Rating: Mostly Achieved  7. Strategy developed for improving  Mostly Achieved. Four main effectiveness of institutions of benchmarks achieved or on track to accountability such as Ombudsman, support institutions of accountability: Public Accounts Committee,  Right to Information (RTI) in KPK, Auditor General represents international best practice. Punjab draft in process. Action plans 8. Improved land records service developed for implementing RTI at delivery, as measured by number of federal and subnational levels. districts/tehsils with operating  Anti-corruption legislation, Right to service centers in Punjab (at least 10 Public Services and local governance centers by June 2014); and issuance legislation underway in KPK of fard (land record extract) in less  Citizens’ feedback and grievance than 30 minutes at a service centers redress mechanism adopted at a large scale in Punjab and KPK. Milestones:  Two innovations - leveraging cell  Action plan for implementation phones to seek feedback from citizens of Freedom of Information and using smart phones to enhance  Ordinance developed and under internal monitoring - are in use at implementation scale in the Punjab and KPK.    Land records target achieved. A total of 60 Land Records Service Centers   operational. 30 min service adhered to; customer satisfaction over 95 percent  Land records data entry completed for approximately 60 percent of Punjab; data verification and quality control in progress. Roughly 10 percent of Punjab fully converted to new digital system   Overall WEF Global Competitiveness “Institutions” score declined from 3.34 in 2010 to 3.2 in 2013 

Lending and AAA

Lessons and suggestions for the new CPS

On-going Lending:  Punjab Land Records Management and Information Systems (LRMIS) Project (FY 07)  LRMIS Additional Financing (FY 13) Completed AAA:





Institutions of Accountability Report (and strategy)– internal (FY 12-13) Institutions of Accountability policy note (FY 13) Governance Policy Note (FY 13) RTI policy note/s (FY 14) KPK Charter of Good Governance (FY 13) Forum of Pakistan’s Ombudsmen (FY 15) Revenue Mobilization (FY 11) Strengthening FTO under Revenue Mobilization DLI) (FY 14) Strengthening KPK’s anticorruption establishment (FY 14)

       



Lack of Government responsiveness and culture of secrecy prevents implementation of Freedom of Information Ordinance/Right to Information laws and disclosure of information Frequent changes in project implementation offices have reduced ownership of reform efforts and prevent achievement of outcomes.

 

     

     

Annex II Page 19 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

1.5: Strengthened Governance of Markets Rating: Partially Achieved  9. Labor market flexibility enhanced  Not achieved. Labor market as measured by business surveys and characterized by high degree of private sector opens up informality, poor skills base and bad outcomes for vulnerable groups. . 10. Reduced anti-export bias Pakistan’s score in the Doing Business resulting from trade restrictions as rankings fell from 77 in 2009 to 110 measured by the average MFN tariff in 2013 Pakistan’s rating on the Global Competitiveness Survey 11. Increase in number of active declined from the 70th percentile in borrowers by 35 percent relative to 2008 to the 82nd percentile in 2012 baseline (1.8 million borrowers)  MFN tariff target not achieved. The budget support operation to leverage 12. New Government Growth reforms in this area could not Strategy and implementation plan materialize. Latest data on Overall for private sector led growth Trade Restrictiveness Index indicates adopted by Government (New PR) increase in protection (9.9 in 2010 vs. 9.0 in 2004) and calculations of Milestones: Effective Rates of Protection confirm  Strategy and implementation anti-export bias. plan for private sector adopted  Microfinance target achieved. by Government According to the numbers reported by  New Employment and Services the industry Conditions Act (ESCA) and (www.mixmarket.org/mfi/country/Pak Occupational Health and Safety istan and Act (OSHA) approved and www.microfinanceconnect.info/ provincial regulations proposed publications/category/Microwatch), there were 2.80 million active  Strengthened monitoring and borrowers (increase of 35.7 percent) as implementation of Doing of first quarter 2014 Business Reforms particularly around business entry, labor  New growth strategy target partially flexibility and creditor rights achieved. Pakistan Framework for Economic Growth, emphasizing  Financial Sector areas identified private sector led growth, developed for strengthening by the Planning Commission and  Improved policy and adopted by the Cabinet in July 2011. institutional foundation to However, it could not be fully support capital markets and

Lending and AAA

Lessons and suggestions for the new CPS

On-going Lending:  Pakistan Poverty Alleviation Fund (PPAF) – II  IFC supported microfinance loans to 572,112 borrowers through its portfolio of microfinance banks. In addition, IFC’s international trade finance program has been the second largest amongst 70 countries in 2011, providing financing facilities to SMEs. IFC rollover trade finance with 13 Banks in Pakistan. 4 MSME investments in SME & micro finance banks (NRSP, First Micro, Silk Bank, KASHF) especially focused to reach women and rural clients;  MIGA support to Habib; Metropolitan Bank expansion Completed AAA:  Investment Climate Assessment (FY 10)  NLTA: Strengthening the Insolvency Regime  NLTA: Support for PSD Task Force (FY 11)  NLTA: Export Competitiveness & Trade Policy (FY 12)  Doing Business in Pakistan Report –(FY 11)  NLTA: Regulatory Institutions (FY 12).  NLTA Sub-national Doing Business Follow Up (FY 12)

 



Increased access to finance stimulates employment growth in small and medium enterprises Smaller firms could be helped to grow and expand into medium sized businesses – to achieve higher scale and impact on growth and job creation. Supporting SMEs in key sectors of high potential for job growth and inclusion. The services (wholesale, retail and trade) and manufacturing sectors, particularly textiles, are among the greater contributors of job growth. 

   

Annex II Page 20 of 43

  CPS PR Outcomes and Milestones 

NBFIs Increased access to commercial liquidity by MFIs

Status and Evaluation Summary implemented for lack of ownership and ensuing political transition.

Lending and AAA  

   

Lessons and suggestions for the new CPS

Strengthening Market Governance (FY 12) Gender and Access to Finance study titled “Are Pakistan's Women Entrepreneurs Being Served by the Microfinance Sector?” (FY13) FIRST: Micro insurance Regulation and Supervision – Part I (FY 12) AML/CFT Support to Government of Pakistan– Phase I (FY 2013) Policy note: Reforming SOEs (FY13) Policy note: Enhancing the Business Environment (FY13)

On-going AAA:  Business Regulation Reform, One Stop Shop  The Global Trade Finance Program (GTFP) at IFC provides financing solutions for smaller companies to secure trade financing support and access to international markets. The GTFP network covers all major private banks, managing approximately 80 percent of the country’s trade flows.  Alternate Dispute Resolution Phase-1 Karachi; and, ii) Alternate Dispute Resolution Phase-II Lahore  Financial Sector Monitoring  Part II: FIRST assistance to SECP on Micro insurance

   

Annex II Page 21 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

Lending and AAA     

Outcome Pillar 2: Improved Human Development and Reduced Vulnerability Rating: Moderately Satisfactory 2.1: Improved Equitable Access to Quality Education Rating: Mostly Achieved 13. Primary NER in Punjab  Achieved for Punjab. According to increases from 71 percent in PLSM data, primary NER (ages 6-10) 2008/09 to 73 percent 2013/14 in Punjab increased to 74 percent in (Revised PR) 2011/12.  Primary NER in rural Punjab for girls 14.Primary NER in Punjab for rural in rural areas (aged 6-10 increased girls (6-10 years) increases from 63 from 63 percent to 69 percent. percent in 2008/09 to 65 percent in  Not achieved for Sindh. Primary NER 2013/14 (Revised PR) fell from 64 percent to 59 percent  Rural Sindh target not achieved. 15.Primary NER in Sindh increases Primary girls NER fell from 46

Lessons and suggestions for the new CPS

Pilot Program to Unleash the Competitiveness of Women Entrepreneurs (FY15) Capacity building of Regulators Consumer Protection & Financial Literacy Diagnostic Assessment (FY14) IDF: Capacity Building of Institute of Capital Markets IFC: 7 advisory projects in Access to Finance, Investment Climate and Sustainable Business (focusing on SME banking, rural finance, corporate governance and capacity building). HBL SME Banking, Bank Alfalah SME Banking, HBL Rural Finance, Jobs Study Corporate Governance, Program Business Edge Program, Pakistan Credit Bureau and Microfinance project

On-going Lending:  Punjab Education Support Project (FY 10)  Punjab Education – Additional Financing (FY 11)  Sindh Education Support Project (FY 10)  Sindh Education Additional Financing (FY 11)  Higher Education DPC (FY 10)





Devolution of power has allowed provinces to develop their specific capacities for improved service delivery. The federal government should support this process by ensuring national standards and monitor achievements and disparities in access. Sequenced interventions that build on past successes are essential to ensure continuity and

   

Annex II Page 22 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

from 64 percent in 2008/09 to 66 percent in 2013/14 (Revised PR)



16. Primary NER in Sindh for rural girls (6-10 years) increases from 46 percent in 2009/09 to 48 percent in 2013/14 (Revised PR)



17. Tertiary GER increases from 4 percent to 6 percent 18. Percent of trainees of youth development program who are employed and/or enrolled in continuing education three months after completion of training (Baseline – 28 percent in FY 10 and target – 40 percent by FY 14) (New PR) Milestones:  Educational institutional capacity and governance strengthened:  Improved governance and management of education service delivery  Better and strengthened measurements of student learning  Establishment of teacher standards and certification systems  Roll out of national and provincial programmes for Vocational Education and Training Reforms







percent to 41 percent Overall Pakistan NER increased modestly from 67 percent to 68 percent and rural girls NER increased from 56 percent to 59 percent. . Range between lowest (Balochistan) and highest (Punjab) province in NER has increased between 2009 and 2013 – from 54 percent - 71 percent in 2009 to 49 percent-74 percent in 2013. Inequality gap grew even more in case of girls NER. GER at the tertiary level not available, ISR data suggest an increase of 174,000 (38 percent) students attending HEI’s between 2011 and 2013, which suggests GER increases achieved. Youth training target partially achieved. Data on training and placement is not yet available on the Sindh Skills Development Project (SSDP) as training is scheduled to start in December 2013. Employment rate of JSDF financed trainees reached 35 percent in 2013. The original CPS milestones related to strengthened educational institutional capacity and governance. With the 18th Amendment, these efforts were concentrated in Punjab and Sindh. While improvements have been made in areas such as teacher recruitment, on-site support and school infrastructure rehabilitation, developing improved systems of performance and controls against malpractices remained weak.

Lending and AAA 

Balochistan Education Sector Project (BESP) (FY 06  Balochistan Education Sector Project Additional Financing (FY 10)  Tertiary Education Support Project (FY 11)  Sindh Skills Development Project (FY 11)  Punjab Education Sector Project II (FY 12)  Sindh Education Sector Project II (SEP II)(FY 13)  Promoting Girls Education in Balochistan (PGEB) FY 2013 Completed AAA:  Education Sector Review (FY 11)  Impact evaluations of Sindh Differential Stipends Program (FY 12)  Impact evaluations of Sindh PPP interventions (FY 12) On-going AAA:  Education Sector Review (FY 14)  IFC study on low cost private schooling models  IFC business management skills training program for science/technical graduates

Lessons and suggestions for the new CPS sustainability.  Donor coordination should be fostered where it is essential to gain traction in a sector.  Crosscutting issues should be proactively and strategically addressed.  Use of DLIs has demonstrated effectiveness in enhancing coordination with stakeholders and development partners and focusing greater attention on results as opposed to administrative implementation issues.  Experience with DLIs points to need to strengthen results chain (IEG finding in ICR reviews)

   

Annex II Page 23 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

Lending and AAA



Learning assessments have been designed and are under implementation in Punjab and Sindh but weaknesses remain in test design, administration, analysis and utilising results in policy although in Punjab test results have fed back to teacher incentives and targeting support to lagging schools. Test results have not been reported in ICRs or ISRs.  The WEF Global Competitiveness score for “quality of education” declined from 3.2 to 2.9 between 2011 and 2013. 2.2 Reduced Vulnerability Through Effective Safety Nets Rating: Mostly achieved 19. Number of families covered by  Mostly achieved. 7.2 million families social safety nets increases to 7 are eligible for cash transfer under the million by 2012 safety net program, of which a total of 4.9 million are currently covered. The 20. Improved targeting of safety net families not covered are in the process program of updating their CNIC, which will allow them to be included in the 21.At least one million floodprogram and raise the coverage to affected families receive cash more than 7 million. transfers (New PR)  Improved targeting achieved. Poverty 22. Improved response and scorecard (PSC) has been coordination capacities through implemented in 98 percent of the SOPs, emergency protocols etc. for country (except 2 agencies in FATA), DRM institutions at the Federal covering 27 million households level and in at least one province against a target of coverage in 80 (New PR) percent of the districts in the country. Targeting performance of safety nets Milestones: increased from about 40 percent to  Nationwide poverty scorecard over 65 percent. (PSC) roll out (in at least 80  Floods transfers target achieved. A percent of districts in the total of 1.2 million Flood affected country) completed and data families received cash transfers.

On-going Lending:  Safety Net DPC  SSN Additional Financing (FY12)  Flood Emergency Cash Transfer (FECT) Project (FY 11)  Balochistan Disaster Management Project (BDMP) (FY 12) Completed AAA:  Just in Time Policy Notes on Social Protection (FY 13)  Social Safety Net Rapid Impact Evaluation Report (FY 14)  Pakistan Safety Net Review (FY 12)  Sindh Floods Damage and Needs Assessment (FY 11)  Assessment of BISP beneficiaries’ financial inclusion and TA on financial literacy (FY 13)

Lessons and suggestions for the new CPS







Pakistan has the capacity to initiate, organize and deliver essential services overcoming gaps and logistic obstacles when there is political will, as demonstrated by the cash transfer flood relief program, and the BISP, both recognized as global good practice. The World Bank should develop a clear strategy on issues such as DRM; and, engagement with the Government to ensure continuity of policy frameworks and operating environments. Support needs to be provided to the government in streamlining the roles, responsibilities and mandates of the various entities responsible for different components of disaster risk management through a review of the existing legislations and

   

Annex II Page 24 of 43

  CPS PR Outcomes and Milestones



 

processed for eligibility determination National social protection policy (NSPP) updated; policies developed to increase informal sector employees’ access to social insurance; and provincial social protection programs harmonized with federal programs Graduation strategies for safety nets piloted and results evaluated Implementation agency for national safety net established and coordinated with relevant graduation program

Status and Evaluation Summary

Lending and AAA



DRM target partially achieved. The Government of Balochistan has developed and is implementing SOPs in the field of disaster response and management, Disaster Management Information System (DMIS) and Community-Based Disaster Response Mechanisms (CBDRM).





First draft of the National Social Protection Policy had been completed. Post-enactment of the 18th amendment, the Planning Commission is engaging the provinces to develop an integrated federal-provincial social protection policy framework The Government of Pakistan has notified the formation of a National Working Group on Risk Assessments led by the National Disaster Management Authority. This Working Group would own and steer the process of risk assessment with technical support from the Bank Prime Minister approved the Future Disaster Response Action Plan, endorsing early recovery support through cash transfers.





2.3: Enhanced Delivery of Health, Nutrition and Population Services Rating: Partially Achieved 23.HIV/AIDS prevention, care and  HIV/AIDs Not achieved. Punjab treatment services provided to 50 health operation only became

Process evaluation of BISP Waseela-e-Rozgar program (FY 13)  TA for Social Protection Reform (FY 12)  Relief in Disasters Study (FY 11)  Social Protection Report (FY 11) On-going AAA:  GFDRR: Pakistan Floods PDNA  Labor Supply and Vulnerability  Disaster Recovery and Social Protection  Dialogue with BISP on graduation program and financing  Employment of poor and vulnerable individuals  GFDRR: Development of a National Platform for Risk Assessment and Catastrophe Risk Financing Mechanism (with cofinancing from DFID)  GFDRR: Development of a Programme for Hazard and Risk Assessment in Urban Areas  Strengthening Pakistan’s urban disaster response capacity  Capacity building of the National Disaster Management Authority (NDMA) to improve risk mapping and disaster response.  Support to NDMA and MoF in undertaking a Fiscal Risk Assessment

On-going Lending:  Third partnership for Polio

Lessons and suggestions for the new CPS institutions working in the area.



Flexibility in terms of strategic direction is essential to address

   

Annex II Page 25 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

percent of target groups in Punjab (Revised PR)



24. Polio vaccine coverage is at least 90 percent in the targeted accessible populations in all high risk districts (New PR) Milestones:  Health service delivery systems strengthened  A plan for a publicly funded health insurance programme developed

2.4: Enhanced Rural Livelihoods Rating: Achieved 25. Expanded use of farmer and community organizations to link producers to markets (at least 20 percent of federated organizations report effective linkages with market and private sector)







 Milestones:  70 percent of community organizations have received requested skills training and/or livelihood grants  Centers linking farmers to markets and financial services created

 

effective in October 2013 Polio target achieved. OPV coverage in the targeted accessible populations in all high-risk districts currently stands at 95 percent against a baseline of 93 percent. Total immunized with OPV by May 2013 - 652.86 million. Polio cases reduced from 144 in 2011 to 24 in 2013. Health service delivery strengthened through People’s Primary Health Initiative; over half of Pakistan’s districts contracting out health services management BISP piloted a health insurance scheme to protect the poor from costs of catastrophic illness in Faisalabad District of Punjab financed by federal budget

Achieved. 22 percent of federated organizations successfully established links with markets and line departments. 10 percent received improved infrastructure to access markets. 44 percent of community organizations trained’ 50 percent of individuals received livelihoods training. 73 percent of mobilized families received productive assets. 15 Growth Centers created on a pilot basis linking farmers to markets and financial services. Institute for Development Innovation

Lending and AAA

Lessons and suggestions for the new CPS Eradication Project (TPPEP) (FY 10) rapidly evolving needs, such as the shift to access plus quality.  Punjab Health Sector Reform project (FY 2013)  KPK Revitalizing Health Services (FY 12) Completed AAA:  Health Sector Review (FY10)  Policy Note on Immunization (FY 12)  Health Public Expenditure Review (FY 13)  Investigating the financial impacts of health shocks in disasters (FY 13) On-going AAA:  Pakistan Nutrition Report Provincial/Policy Guidance Notes (FY 2013)  Multi Sector Nutrition Dialogue and TA

On-going Lending: Pakistan Poverty Alleviation Fund (PPAF – II) (FY 09)



Shift from PPAF focus on microfinance to livelihoods and community institution building needs to be accompanied by stronger M&E capacity

   

Annex II Page 26 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

Lending and AAA

survey showed PPAF beneficiaries’ incomes increased 178 percent over the period 2008-12 while nonbeneficiaries’ rose by only 41 percent over the same period. The survey reported a poverty graduation rate of 84 percent for beneficiaries  Gallop survey showed increment of 9 percent in increased personal income of PPAF beneficiaries 2012 over 2009 compared to 7 percent for nonbeneficiaries. Outcome Pillar 3: Improving Infrastructure to Support Growth Rating: Moderately Unsatisfactory 3.1: Increased Power Provision and Increased Efficiency and Reliability of Energy Supply Rating: Not Achieved 26. Losses in electricity expected to On-going Lending:  Not achieved. Power losses declined reduce from 22 percent to 20 percent  Electricity Distribution and to approximately 21 percent in 2011 and unaccounted for gas expected to Transmission Project (FY08) (last year available); gas losses reduce from 10 percent to 9 percent increased to 13 percent in 2013.  Natural Gas Efficiency Project (Revised PR) (FY12)  Not achieved. Power and load  Tarbela IV Extension Project 27. Average load shedding in power shedding situation increased reaching (FY12) sector presently at 30 percent of approximately 33 percent of peak  IFC: Six investments in power: peak demand not worsening; gas demand. Laraib Energy (FY10) load shedding not worsening  Viability target partially achieved. (renewable), UCH Power II (Revised PR) Financial viability has continued to (FY11), Zorlu Pakistan (FY12) worsen with tariff subsidies remaining (renewable), Star Hydro (FY12) 28. Improved financial viability: (a) at 2 percent of GDP. Rate of return on (renewable), InfraV-Koel zero budget support for tariff private investments in this sector are (FY13) (renewable), Metro subsidies; and (b) real rate of return positive; estimates from the Power (FY14) (renewable) on investments remains positive experience of the Karachi Electric  One new power investment(Revised PR) Supply Company (KESC) reveal that CSAIL (planned FY14.) annual profits increased by 156  IFC has continued to support the Milestones: percent in the year 2012-13. Partially sustainable turnaround of K Strengthened electricity and gas achieved. Electric as part of the strategy to networks leading to improved  Electricity and gas networks remain support privatization of technical and commercial generally weak although performance electricity utilities

Lessons and suggestions for the new CPS









Intensive engagement and stakeholder communications with the Government on priority interventions has resulted in increased ownership and renewed commitment as evidenced in Government Energy Policy 2013. The power sector requires coordinated interventions that focus on all three of the following: i) governance of the sector and ownership by the government; ii) strategy of engagement by the World Bank; and, iii) new generation of power to ensure that the demand does not outstrip supply. Realistic planning is essential to ensure that the proposed financing is in sync with the proposed interventions. Donor coordination to build consensus around energy policy

   

Annex II Page 27 of 43

  CPS PR Outcomes and Milestones

 



performance of energy networks, gas and electricity Expansion of public hydro generation capacity initiated under Tarbela Extension project Investments in cross-border energy supply infrastructure initiated under CASA 1000 project Catalytic investments to promote private investments in gas and energy

Status and Evaluation Summary



is highly variable with some distribution companies performing at levels exceeding comparator countries while others lag far behind. Continuing improvements in network should lead to achieving modified loss reduction targets albeit with delay. Investments in Tarbela, Casa 1000 and by private sector have been initiated.

Lending and AAA Completed AAA:  Pakistan India Power Interconnection (FY 13)  Power Sector Dialogue and Policy Notes (FY 11)  Energy Sector Circular Debt Note (FY 11)  Large-scale Efficient Lighting Program (FY 12)  IFC Advisory Services facilitating Punjab Energy Department to support off grid power provision reforms to encourage captive generation  PPP Advisory project on FESCO

3.2: Improved Efficiency and Reliability of the Transport and Logistics Network Rating: Partially Achieved 29. Transit time of containers from On-going Lending:  Transit time outcome partially Karachi Port to Lahore reduced from  Karachi Port Improvement achieved. The outcome cannot be 11 to 6 days at end of CPS period. Programme (KPKIP) (FY 10) measured before completion of project construction activities at the Karachi  Trade and Transport Facilitation 30. A railway revitalization strategy Port and ii) institutional strengthening 2 (FY 09) developed including an emergency as part of WB support. Two proxy  Highway Rehabilitation Project plan for keeping railways indicators measure interim progress: i) (FY 04) operational and afloat, while the birth occupancy rates, which have  Highway Rehabilitation Project longer-term actions are started. fallen from 74 percent in 2010 to 51 Additional Financing (FY 10) (New PR) percent in 2013; and, ii) ship turn IFC: Four investments in around time, which currently stands at Qasim International Container Milestones: 80.64 hours or 3 days and 9 hours. terminal (QICT I FY10) Consistent with transit time goals.  Logistics Performance Index QICT II - FY11 ,Pakistan from 2.62 in 2007 to 2.36 at end  Railway strategy target partially International Bulk Terminal of CPS period achieved. Railway Revitalization (PIBT - FY 2012); and Intercity Strategy has been developed but it is  Ports Master Plan prepared Transport (FY14) yet to be ratified and implemented by  Road sector review covering Completed AAA: the Government. financial, regulatory governance  M&E of Transport Sector (FY and institutional framework for  Pakistan’s rank in LPI improved from 13) national and subnational 110 in 2010 to 71 in 2012. Score

Lessons and suggestions for the new CPS issues is key to ensuring Government ownership;  WB financial share in new power generation investments too small to guarantee a “seat at the table.” Donor coordination and good diagnostic work can fill the gap.

           

 

Capacity and institutional assessments should precede and inform program design. Trade and Transport Facilitation involved too many agencies for effective implementation. Multifaceted operations require clear institutional framework with agency champions.

 

   

Annex II Page 28 of 43

  CPS PR Outcomes and Milestones highways completed

Status and Evaluation Summary

improved from 2.53 to 2.83 (original milestones indicator inverted) following deterioration between 2007 and 2010. .  Port Master Plan has been completed but the Highway Sector Review, which was planned as part of the National Trade Corridor Improvement Programme has not been completed. 3.3: Strengthened Irrigation Infrastructure and Agricultural Competitiveness Rating: Partially Achieved 31. Improved equity in water  Water distribution target partially distribution as measured by delivery achieved. Equity cannot be measured performance ratio from 0.4 to 0.6 until on-going investments completed. (with perfect equity equaling 1.0) Operations in Sindh and Punjab show evidence of increased channel 32. O&M spending increased by 20 conveyance efficiency –from baseline percent and cost recovery increased value of 52 percent to 71 percent at by 10 percent present. Ratio of available water to estimated demand has improved from 33. Expanded use of improved 39 percent to 59 percent. techniques for crop production and  In Balochistan, water conveyance animal husbandry efficiency has increased by 84 percent. Milestones:  O&M and cost recovery data not  Decentralization of water available until investments completed. management with more farmer  Improved techniques for crop participation production have been introduced in  20 percent increase in numbers Punjab. These include: a) A total of of farmers’ organizations and 1,190 laser leveling units provided to area managed by them. farmers; b) High efficiency irrigation  Strengthened capacity of water systems (HEIS) introduced on management institutions approximately 9,500 acres; c) A total of 1,594 water courses improved; d)  Initiation of rehabilitation and 130 road shows organized to modernization of 2 barrages demonstrate HEIS; e) 21 professional  Improved agriculture research, training courses organized on HEIS; f) extension services, training and A total of 55 technical courses on the policy analysis capacity

Lending and AAA  Mining and Regional Integration Study (FY 13  IFC Advisory Services:  Wagah Border Trade Facilitation: Identifying ways in which to streamline and simplify time, cost and documentation for trade facilitation across the Wagah border.

On-going Lending:  Sindh Water Sector Improvement Project Phase I (FY 07)  Sindh Water Sector Improvement Project Phase i: Additional Financing (FY 13)  Punjab Barrages Improvement Programme (FY 09)  Sindh On-Farm Water Management Project Additional Financing (FY 09)  Balochistan Small Scale Irrigation Project (FY 08)  Punjab Irrigated Agriculture Productivity Improvement Programme (FY 12)  Sindh On-Farm Water Management Project (FY 09)  Sindh Agriculture Growth Project (FY 13) IFC Lending: Four investments in the agribusiness sector.  Engro Corp Corporate Loan (FY 10)

Lessons and suggestions for the new CPS

     

   

Annex II Page 29 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

 

 

 

maintenance of laser leveling machines organized. No data on improved animal husbandry techniques. Cropping intensity of major crops in Sindh increased by 12 percent against a target of 10 percent and yields of cotton, sugarcane and wheat increased by 43 percent, 7 percent and 14 percent respectively from 2008 to date. Crop yields in Balochistan increased 30 percent on average and cropping intensity by 50 percent. Water management decentralization on track and exceeding targets The rehabilitation of Jinnah barrage in Punjab underway; feasibility study of Guddu barrage in Sindh completed. Augmentation of Band-e-Khushdil Khan (BKK) in Balochistan completed. Research, extension, training and policy analysis targets met Overall WEF index of “costs of agricultural policies” shows slight improvement between 2011 and 2013 with increase from 3.3 to 3.5

Lending and AAA  

Lessons and suggestions for the new CPS

Engro Polymer – RI (FY 10) Engro Corp – emergency loan for agri-business to counter the adverse impact of the 2010 floods (FY 11)  MATCO rice export (FY 12) Completed AAA:  Bank Netherlands Water Support Program (FY 12)  Improving procurement capability of TMA (FY 12)  Water Sector Capacity Building and Advisory Services (FY 2011)  Agriculture value added (FY 2011)NLTA: Agriculture Competitiveness (FY 2011)  . The Indus Basin of Pakistan: The Impacts of Climate Risks on Water and Agriculture FY2013)  Roundtable on Agriculture Policy Priorities (FY 2012)  NLTA: Irrigated Agriculture (FY FY12)  Agriculture value added (FY 11)  NLTA: Agriculture Competitiveness (FY 11)  The Indus basin of Pakistan: The Impacts of Climate Risks on Water and Agriculture (FY 13)  Roundtable on Agriculture Policy Priorities (FY 12)  NLTA: Irrigation Agriculture (FY 12)

   

Annex II Page 30 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

Lending and AAA 

Lessons and suggestions for the new CPS

IFC Agri/warehouse receipt financing workshop conducted in partnership with State Bank of Pakistan  Two public partnerships on grain silos in Punjab and Sindh  Assessment of investments in medium dairy farms  IFC: Needs assessment study of dairy sector. On-going AAA:  Pakistan Flood Management and Hazard Reduction study (FY 14) 3.4: Improved Urban/Municipal Infrastructure and Services Rating: Mostly Achieved 34. Improved urban planning and  Achieved. Improved urban planning management implemented in 38 and management in select Punjab select municipalities of Punjab. municipalities (TMAs) as indicated by Initiation of improvements in urban the following: In 11 TMAs, 53 management through improved percent of the households connected operational procedures and systems with water supply schemes (baseline in metro governments of five large 40 percent) In 105 TMAs, 73 percent cities in Punjab (Revised PR) of the street lights in functioning condition (baseline70 percent). In 105 Milestones: TMAs, 74 percent of solid waste disposed per day at landfill sites (baseline 0). Web-based performance  Metropolitan areas in Punjab management systems operationalized and their service providers in 105 TMAs, with real-time, managed by a single authority province-wide data available at TMA with accountability and level appropriate managerial and fiscal autonomy  Walled city of Lahore Act (2011) was promulgated, Walled City of Lahore  Improved database on land and Authority was established and pilot housing issues for the restoration of heritage assets in Lahore is underway.  Improvements in the city district

On-going Lending:  Punjab Municipal Services Improvement Project (PMSIP) (FY 10)  Punjab Cities Governance Improvement Project (PCGIP) (FY 13)  Walled City of Lahore Cultural Heritage Project (FY12). Completed AAA:  Urban Policy Reform (FY 11)  Urban/rural water supply and sanitation services sector study (in collaboration with Water and Sanitation Program (WSP)) (FY 2013)  Implementing Decentralization in Balochistan (FY 10)  Punjab Property Tax Reform (FY 10)  Integrated Solid Waste



Sequencing of activities is critical: WB should assist implementing agencies to put in place robust systems to address technical and crosscutting aspects of project implementation.

 

   

Annex II Page 31 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary





governments (CDGs) of five largest cities of Punjab include: i) contiguous planning boundaries with service delivery entities and joint consolidated annual development budgets; ii) consolidated, comprehensive fiscal reporting; iii) new business procedures for procurement, public disclosure, and grievance-redressal; and iv) electronic data base pilot in Sialkot to provide improved land and housing database. Achievements i) and ii) mark progress toward single accountable authority managing each metropolitan area and its service providers. Overall the percentage of urban households using hand pumps declined from 10 percent in 2008-9 to 7 percent in 2011-12 while the percentage of households with improved water piped on premises increased from 56 percent to 58 percent. The percentage of urban households with flush toilets increased from 94 percent to 97 percent and those with underground drains from 48 percent to 55 percent (Pakistan SLSM surveys).

Lending and AAA  

Lessons and suggestions for the new CPS

Management (FY 10) Punjab WASA Restructuring (FY 12) Post Disaster Housing Capacity Building (FY 12)

On-going AAA:  Pakistan Urban Sector Assessment  IFC: Waste paper supply chain strengthening advisory project

3.5: Environmental Sustainability for Better Health Outcomes and Improved Competitiveness Rating: Mostly Achieved 35. As a result of the Bank’s Completed AAA:  Mostly Achieved: Policy analytical work with the Pakistan recommendations delivered to 4  Environment Program (FY 10) Environment Protection Agency counterpart agencies. Engagement  Policy options to reduce the (EPA), Planning Commission, sustained in all but Ministry of costs of outdoor air pollution in Ministry of Industries and Industries. Pakistan (FY 11) Environment and Government of  Recommendations identified  Strategic Environmental,



Where Government institutional structures are not sufficiently robust or strengthened to ensure ownership, advisory services mixed with nonlending technical assistance has contributed to a richer understanding

   

Annex II Page 32 of 43

  CPS PR Outcomes and Milestones Sindh, policy recommendations will be available to the Government for adoption and furthering environmental management debate in the country. (Revised PR)

Status and Evaluation Summary



36. National strategy for Climate Change Adaptation designed and under implementation  Milestones:  Adoption of environmental and social sustainability criteria in manufacturing and transportation sectors  Strategic medium –term environmental action plans developed by provinces  Cleaner Production Advisory completed

 

environmental and social sustainability criteria for “green” industrial growth and trade and transport; but not yet adopted. Action plan under development only in Sindh The National Climate Change Policy (NCCP) was prepared, approved by federal cabinet in 2012 and launched in February 2013. Joint preparation of environmental and social sustainability analyses in industry and transport sectors completed. Implementation steps pending. Environmental action plan prepared and under discussion in Sindh Overall Pakistan’s score on the Yale/Columbia global Environment Performance index related to health outcomes increased marginally from 64.73 in 2010 to 64.97 in 2013; however this represented a 20.5 percent increase relative to Pakistan’s GDP peer set. Pakistan’s overall EPI score also increased marginally from 34.42 to 34.58 which however resulted in a fall of one position to rank 148 out of the 178 countries ranked.

Lending and AAA

 

     

    

Poverty and Social Assessment of Trade and transport reforms (FY 11) NLTA: Environmental sustainability and Industrial Competitiveness (FY 11) NLTA: Environmental management for growth and poverty alleviation in Sindh (FY 12) Climate Change and Environmental Priorities in Sindh (FY 12) Greening Freight Transport PSIA and SEA (FY 12) Climate Change and Water Adaptation (FY 12) Inclusive Green Industrial Growth (FY 12) Air Quality Management and Climate Change (FY 11) IFC: 5 investments in the power sector focused on renewable energy, including wind, hydro, and waste to energy (Laraib, Zorlu, Star Hydro, KOEL, Metro- See 3.1) IFC: G-4, Green Building investment. Cleaner production Sustainable Energy Finance Study Sustainable Energy Guidelines in Pakistan Advisory services in the clean production technology

Lessons and suggestions for the new CPS of issues and continued engagement.

   

Annex II Page 33 of 43

  CPS PR Outcomes and Milestones

Status and Evaluation Summary

Lending and AAA

Lessons and suggestions for the new CPS Pillar 4: Improving Security and Reducing the Threat of Conflict – Increased Employment and Livelihoods Opportunities in Conflict Affected Areas Rating: Moderately Satisfactory 4.1: Increased Employment and Livelihoods Opportunities in Conflict Affected Areas Rating: Mostly achieved 37. Economic recovery in targeted On-going Lending:  Mostly achieved. The Economic  Setting realistic targets. Of the total regions by creating sustainable  Economic Revitalization of Revitalization of KPK and FATA SMEs to be supported by ERKF, employment opportunities through KPK and FATA Project (ERKF) have extended support to 587 850, 3 percent are earmarked to be rehabilitation of Small and Medium (ERKF) (FY 12) SMEs (out of a projected total of 850) women (a total of 26 SMEs). Enterprises (SMEs), investment for upgrading, rehabilitation and However, in the relatively  Competitive Industries for KPK mobilization and institutional business development services. A total conservative environment of KPK Project (CIKPK) (FY 12) capacity building. At least 2,000 of 9 grants have been provided to and FATA, it is difficult to find a  FATA Rural Livelihoods and jobs/employment (direct and female SME owners (against a target sufficient number of SMEs that are Community Infrastructure indirect) generated in enterprises of 26 or 3 percent of the projected owned by women. Project (FATA RLCIP) (FY 12) supported by the MDTF project. total). In addition, the project has thus  KPK Southern Area  Commitment and ownership of the (Revised PR) far created an estimated 1428 direct Government and Bank teams is Development Project (KPK and 4284 indirect jobs against the essential for successful design. SADP) – (FY 13). 38. Supporting small-scale joint target of 2000. Because the teams involved in the community infrastructure and  Livelihood grants target achieved. In identification and preparation of livelihoods opportunities for the FATA, the Bank has supported 889 CIKPK were committed to the local communities in targeted areas farmers with livelihoods support. This project, it was prepared and declared through grants, skills development support is channeled through the effective in less than 10 months. and market linkages. Selected mobilization of 237 community Project design is innovative with full villages in targeted tehsils of FATA organizations that have helped buy-in from the Government. benefit from asset development and organize 7,110 households.  Sensitization of Government and livelihoods grants under MDFTF. communities is essential to ensure (Revised PR) effective design and smooth implementation. This requires Milestones: strategic communications to engage  Community based planning and communities. implementation of rural  Community Driven Development livelihoods enhancement (CDD) projects are effective in interventions enhancing government legitimacy  Commercial and small-scale and enhancing state-citizen trust. market-oriented agriculture Because CDD is a new concept for expanded the governments of KPK and FATA,  Regulatory reforms facilitate extensive handholding and technical ‘doing business’ in KPK and assistance is required to ensure FATA success.

   

Annex II Page 34 of 43

  CPS PR Outcomes and Milestones 





Status and Evaluation Summary

Lending and AAA

Lessons and suggestions for the new CPS  Flexibility in designing projects through the inclusion of quick-win activities is not only helpful in terms of achieving quick results (and disbursements) but is also useful in ensuring that vulnerable groups are targeted.  Rapid evaluations and proactive results monitoring ensures course correction particularly when exogenous factors negatively influence implementation.

On-going Lending:  Governance Support Project (GSP) (FY 12)  FATA Urban Centers Project (FUCP) (FY 12)  Revitalizing Health Services in Crisis (RHS KPK) (FY 12).  Promoting Girls Education in Balochistan Project (PGEBP) (FY 13)  KPK Emergency Roads Rehabilitation Project (KPK ERRP) (FY 12)  FATA Emergency Roads Recovery Project (FATA ERRP) (FY 13) Completed AAA:  Post Crisis Needs Assessment (PCNA) (FY 11)  Operationalization of the Post



Direct firm support through matching grants and challenge funds generate new private sector employment Social protection interventions secure minimum livelihoods for displaced persons and vulnerable crises-affected population implemented General education and TVET training programs developed and targeted to address market demands for specific skills and expertise

4.2: Increased Responsiveness and Effectiveness of the State Rating: Partially Achieved 39. KPK and FATA are able to  Achieved. Three ISUs have been manage and coordinate established, staffed and declared implementation of PCNA short and operational in KPK and FATA to medium term interventions and implement the recommendations of design longer-term interventions the PCNA and in Balochistan to measured by operationalization of implement the recommendations of PCNA Implementation Support Unit the BDNA. In addition, 28 planning in KPK and FATA documents, programmatic reports and concept papers for reform have been 40. Overall multi-year Governance prepared in KPK and 32 in FATA. Program designed  Governance program outcome partially achieved. Preparation of the 41. Improved access to a defined 10-year governance program initiated. package of health, nutrition and Initial consultations held. Reforms reproductive health services in already underway in complaints FATA handling and grievance redressal mechanisms. 42. Enhanced inter-district access  Access to health services not and mobility in KPK and FATA achieved. Activities on the health through two roads projects project not yet initiated  Road access and mobility outcome





Flexible project design is necessary for i) project interventions to be effective; and, ii) for the Government and communities to have ownership; Building capacity is necessary and should focus on at least: i) recruitment of qualified staff; and ii) development of systems for procurement, financial management, contract management, M&E etc. AAA activities have to be combined with recommendations that are combined with a detailed and robust action plan so that the Government can benefit from the knowledge being produced.

       

 

Annex II Page 35 of 43

  CPS PR Outcomes and Milestones Milestones:  Completion of PCNA with transition results framework and action plan  PCNA action plans contributes to enhanced governance, improved service delivery in fragile and conflict affected regions with direct community participation including CDD mechanisms  Key infrastructure and public services restored in conflictaffected areas.

Status and Evaluation Summary

Lending and AAA

partially achieved. A total of 15.5 km of provincial highway in Swat district In FATA, resettlement activities undertaken in advance of the 52 km road construction.

     

Lessons and suggestions for the new CPS

Crisis Needs Assessment (OPCNA) (FY 12) Public Expenditure Review – KPK (FY 12) Balochistan Development Needs Assessment (BDNA) (FY 13) On-going AAA: MDTF Sub-National Fiscal Management II (FY 2014) MDTF Governance TA in Conflict (FY 2014) Review of Anti-Corruption Establishments in KPK (FY 2014)



   

Annex II Page 36 of 43

  Table 2: Planned Lending Program and Actual Deliveries (FY10-14) Fiscal Year

Project

US ($ millions) IBRD IDA

Status

US($ millions) IBRD IDA

CAS Plans for FY10‐11 FY10

Higher Education Support Program Social Safety Nets DPC Subtotal Punjab Barrages Improvement Phase II Karachi Port Improvement PRSC I

100 200 300

146 112

NWFP Emergency Recovery Credit

FY11

NWFP Human Development PRSC II Enhance Nutrition for Mothers and Children Project Sindh Skills Development Project HIV/AIDS II Tarbela IV Hydropower Extension Gas Enhancement and Efficiency Improvement Central/South Asia Regional Electricity Transmission Improved Financial Report and Auditing II

400 200

Sub total

858

Subtotal: CAS Plans for FY10‐11

858

Actual Actual Subtotal Actual Actual 300 Dropped due to macro situation Actual ($250 mln) ‐ renamed KPK/FATA 100 Emergency Recovery. Canceled subsequently, at the request of GoP 100 Dropped due to change in client priorities 300 Dropped due to macro situation 55 Delayed 20 Actual 32 Dropped due to implementation issues in phase I Moved to FY12 ($840 mln) Moved to FY12 ($200 mln) 50 Delayed to FY14 24 Actual Additional Actual Projects Highways Rehabilitation Project Earthquake ERC (AF) Tertiary Education Punjab Education (AF) Sindh Education (AF) Flood Emergency Cash Transfer 3rd Partnership for Polio Eradication (AF) 981 Subtotal 1281

Subtotal: FY10‐11 Actual

100 200 300 146 116 250

21

24

262

130 300 300 50 50 125 41 1291

262

1591

CAS Plans for FY12‐14

   

Annex II Page 37 of 43

  Fiscal Year

Project

FY12

PRSC III Sindh Education Sector Project II Education Project (Region) Punjab Education Sector Project II Tertiary Education Project Electricity Transmission and Distribution APL II Safety Net – Graduation (AF) Balochistan Education (AF) Subtotal

US ($ millions) IBRD IDA 300 350 30 300 300 200 100 15

700 1340

Dropped due to macro situation Moved to FY13 ($400 mln) Delayed Actual Delivered in FY11 Dropped due to implementation issues in phase I Actual Financed under MDTF Additional Actual Projects Tarbela IV Hydropower Extension Punjab Irrigated Agriculture Natural Gas Efficiency Project Subtotal Actual (Revised title – Punjab Cities Governance Improvement) Actual Actual Actual Actual Subtotal Actual Actual CASA 1000 (includes regional IDA of $80 mln) On track ($600 mln) On track ($400 mln) On track ($565 mln IDA credit & $115 mln IDA credit guarantee) Subtotal

200

3079

Subtotal: FY12‐14 Actual

500

2204

1058

4360

Total (FY10‐14 Actual) 1/2/

762

3795

200

Punjab Large Cities FY13

1395 150

Punjab Land Records (AF) 3rd Polio Eradication (2nd AF)

70 24

Punjab Health Sector Project Subtotal Punjab Public Sector Management Reform Program

100 344 40

FY14

Power Sector Reform DPC Fiscally Sustainable and Inclusive Growth DPC

300 300

Dasu Hydropower Subtotal

Subtotal: FY12‐14 CAS Progress Report Plans



Total (FY10‐14 CPS/CPS PR Plans)1/

US($ millions) IBRD IDA

Status

350 150 400 100 500

440 250 100 1290 150 70 24 400 100 744 50 120

170

1/ As of April 2014.   2/ The total projected amount as of June 30, 2014 would be $5,475 million.

 

 

   

Annex II Page 38 of 43

  Table 2A: IFC – Planned and Actual Investments (FY10-FY14)

 

 

 

   

Annex II Page 39 of 43

   

Table 3: Planned Non Lending Services and Actual deliveries (FY10-14)   Fiscal Year

Type

Name of the Activity

Status

CAS Plans for FY10‐11 RPT RPT RPT

FY10

FY11



RPT HTG HTG HTG HTG IDP KSF KSF IDP IDP POL NLTA NLTA NLTA NLTA RPT RPT RPT RPT RPT POL RPT POL POL

Poverty Assessment Public Expenditure Review Financial Sector Assessment Update Government Debt and Cash Management Agriculture Value Added Urban Policy Reform Agricultural Adaptation to Climate Change Environmental Sustainability and Industry Country Economic Memorandum PEFA Updates Procurement Performance Assessment Institutions of Accountability Review Education Sector Review Social Protection Report Regional Transportation Study Climate Change Adaptation Export Competitiveness/Trade Policy

Completed (FY11) Completed (FY10) Additional Products Completed in FY10 Pakistan Health Sector Review Implement Decentralization Balochistan Improvement Debt and Cash Management Competition Policy II Pakistan PPP NLTA Integrated Solid Waste management Environment Program Improving Procurement Capability of TMA Punjab Property Tax Reform TA on FM & Procurement Harmonization Completed (FY11) Completed (FY13) Completed (FY12) On going Completed (FY11) Completed (FY12) Completed (FY12)

   

Annex II Page 40 of 43

 

Fiscal Year

Type

FY11

POL POL POL RPT RPT HTG HTG HTG HTG HTG IDP CDR KSF



Name of the Activity

Status Additional Products Completed in FY11 Post Crisis Needs Assessment NWFP Mining Sector Policy Note Revenue Mobilization Doing Business in Pakistan Relief in Disaster TA for Social Protection Reform Insolvency Framework GFDRR: Pakistan Floods PDNA Poverty Monitoring Agriculture Competitiveness PPP Assistance Air Quality Management &Climate Change Planning Commission

CAS Plans for FY12‐14

FY12‐ 14

FY12

POL POL IAR RPT RPT RPT RPT RPT

Export Competitiveness/Trade Policy Gender Notes Sector Governance Analysis Securities Market Poverty Update Province Revenue Mobilization National Education Assessment Social Safety Net Impact Evaluation Report Tax Administration NLTA Evaluation of Sindh Differential Stipends Labor Market & Vulnerability Environmental Management for Growth and Poverty Alleviation in Sindh Access to Finance & Bank Resolution

Completed (FY12) Completed (FY12) Completed (FY12) Completed (FY12) Completed (FY12) Additional Products Completed in FY12 Post Disaster Housing Capacity Building KPK PER Greening Freight Transport PSIA & SEA IE of Sindh PPP Intervention

   

Annex II Page 41 of 43

  Fiscal Year FY12

FY13



FY14

Type CDR CDR IAR IAR IAR IAR IAR IAR IAR IAR IAR IAR STS STS PER RPT EPD EPD EPD IAR IAR IAR IAR IAR IAR STS PFA RPT RPT RPT IAR IAR

Name of the Activity Consumer Protection & Financial Literacy Sindh PEFA Assessment Education Sector Review Labor Supply and Vulnerability Impact Evaluation of SSN Program Disaster Recovery and Social Protection Pakistan (Balochistan) EI‐TAF

Status Punjab WASA Restructuring Large Scale Efficient Lighting Program Resettlement & Land Acquisition Operationalization of the KPK/FATA PCNA Financial Exclusion of Women Entrepreneurs Subnational Doing Business Follow Up Strengthening Market Governance Bank Netherlands Water Support Program Financial Management: Federal & Provincial SOE Reform Sindh: Climate Change & Environment Priorities Inclusive Green Industrial Growth Additional Products Completed in FY13 Water Supply and Sanitation Sector Note Development Dialogue & Policy Notes Punjab Social Sector PER CEM Towards Accelerating Growth Pakistan India Power Interconnection Agricultural Competitiveness Pakistan AML/CFT Support Pre‐Post Election Development Dialogue Health Shocks in Disasters Mining and Regional Integration Balochistan Needs Assessment Debt Management M&E of Transport Sector Additional Products to be Completed in FY14 On going On going On going On going On going On going On going

   

Annex II Page 42 of 43

  Fiscal Year FY14

Type IAR IAR IAR IAR IAR IAR IAR IAR

Name of the Activity Multi Sectoral Nutrition Dialogues and TA Business Registration Reform Poverty Update II MDTF Subnational Fiscal mgmt. II MDTF Governance TA in Conflict Punjab Competitiveness Government Debt Policy Subnational Fiscal

Status On going On going On going On going On going On going On going On going

  CDR: Client Document Review  EPD: Event Proceeding Document  HTG: “How‐To” Guidance  IAR: Advisory Service Review  IDP: Institutional Development Policy  KSF: Knowledge Sharing Forum  POL: Policy Note  RPT: Report  STS: Sector or Thematic Study/Note 

 

 

   

Annex II Page 43 of 43

    Table 3A: IFC - Planned and Actual Advisory Services (FY10-FY14)

     

 

   

Annex III Page 1 of 2

 

Annex III: CPS (FY2015-19) Stakeholders Consultations for World Bank Group Pakistan 1. The process of developing the World Bank Group Pakistan CPS has been participatory and a diverse range of stakeholders and clients in Pakistan have been consulted. Beginning in July 2013 and lasting through January 2014, consultations under round one were conducted in various forms: in face-toface meetings, by mail, as well as online. Almost 30 meetings were held in five different cities across Pakistan by the CPS core team, attended by over 400 individuals. Meetings to discuss national development priorities were held in Islamabad while sessions with provincial stakeholders were conducted in Lahore, Quetta, Karachi, and Peshawar. Discussions for the Federally Administered Tribal Areas (FATA) were held in Peshawar; and for other regions in Islamabad. 2. The WBG met with individuals from civil society organizations, media representatives, parliamentarians, Chief Ministers and cabinet members, civil servants, academics, think tanks, youth groups, the private sector, and other local and international development partners.

Distribution of Stakeholders

Provincial Participation

Private Sector

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

7% 10%

Think Tanks/Academia/ Media/ Civil Society/ Youth Parliamentarians

5%

Sindh Punjab

20% 15%

22% 21%

Balochistan Fed KP FATA

Government

Others

  3. Along with this, the World Bank Group commissioned a Client Satisfaction Survey, conducted by Gallup Pakistan, and a short survey on its Pakistan Facebook page, to which 700 and 3000 people respectively responded. Consultation Sessions Round I: 4.

Below are some common messages and themes heard across various groups of stakeholders:



Jobs creation remains an important goal for the country, through a strategy that is private sector led, for which conducive investment conditions and a strong regulatory environment are necessary.  Partnerships with the private sector were considered essential for reaching the development goals of ending extreme poverty and building shared prosperity.  Governance and anti-corruption reforms came out as the third important theme, with an increasing recognition that support to devolution / local governments, public service delivery mechanisms, and promoting transparency is important.  Tackling the energy crisis with low-cost generation options like hydro-power, and improving access to community-led small-scale off-grid and renewable energy sources for difficult areas like Balochistan and FATA.  Fostering entrepreneurship and access to finance, increasing economic opportunities and productively engaging youth and women.    

Annex III Page 2 of 2

   Improving social service delivery, particularly investing in education and health and focusing on women and children.  Addressing inequity in all shapes and forms (with special attention to lagging regions and vulnerable groups).  Combatting climate change and improving water management – disaster preparedness and recovery support, storage dams, modern irrigation techniques, improving availability and quality of drinking water. 5. There were some unique features in priorities among the provinces and regions, reflecting the different development contexts and needs. Punjab’s focus is on energy and improving the investment climate to attract the private sector, while in Khyber Pakhtunkhwa, improving the security situation and restoring peace were identified as foremost priorities. In Balochistan, water scarcity, transparency and benefit sharing of development of natural resources, girls’ education and private sector access to finance came out as major concerns. For FATA, governance and constitutional reforms and bringing the region at par with the rest of the country were identified as crucial to achieving development results. For other regions, attracting private investment was of key importance to develop natural resources and reduce dependence on federal transfers. Energy, economy, education and youth skills enhancement, revenue mobilization, restructuring of state-owned enterprises; and climate change were highlighted as the top priorities at the federal / national level. Client Satisfaction Survey: 6. The Client Satisfaction Survey, administered by Gallup, asked questions about what Pakistan’s development priorities should be in the next five years. All in all, over 1000 hours of interviews were conducted and 711 responses received – 523 from stakeholders and 188 from World Bank Group clients. 7. Education and energy were identified as the two major priorities that the WBG should focus on. Other priorities identified included economic growth, job creation, agricultural development, law and justice, health, and anti-corruption. The organization was seen as the best among its category, although stakeholders and clients had divided views about the effectiveness and value for money of some Bank programs. The WBG was advised to work more with academia and local governments. Facebook Survey: 8. Conducted on the World Bank Pakistan's page, the survey reached approximately 20 percent of the country’s Facebook audience, receiving 3013 responses, from all regions of the country. More than two-thirds of respondents were less than 35 years old. Education was by far the most important development priority, with energy, job creation, and governance also featuring prominently. Consultations Sessions Round II: 9. Second round of stakeholder consultations meetings were held in March 2014 (Karachi, Lahore, Quetta, Islamabad) to validate the draft strategy. The proposed CPS result areas were endorsed and some further suggestions to improve focus and implementation were shared. 10. Full summaries of the consultation meetings (Round 1 & 2) and detailed findings of the Client Satisfaction and Facebook surveys can be found at: http://www.worldbank.org/en/news/feature/2014/02/06/world-bank-holds-country-wide-consultationsfor-new-pakistan-strategy

   

Annex IV Page 1 of 2

 

Annex IV: Poverty and Shared Prosperity in Pakistan   1. WBG is aiming to contribute to improvements in measuring progress towards poverty alleviation and shared prosperity and how programs and policies contribute them. A main goal during the CPS period is to put into place an institutional framework to regularly estimate, monitor, report and evaluate poverty and shared prosperity; and to analyze the impact of programs and policy measures. 2. Pakistan has made impressive progress in reducing absolute poverty and improving shared prosperity during the last two decades. According to World Bank Group’s estimates, the percentage of population below the national poverty rate fell from 34.7 percent in FY02 to an estimated 13.6 percent in FY11. This decline is impressive by international standards. From 2002 to 2008, the pace of poverty decline ranked 13th out of the 37 countries for which data are available. The factors explaining the FY0208 poverty rate decline are well known, but those suggested behind the FY08-11 decline (remittances, support to selected agricultural prices, better crop seeds, BISP targeted interventions) remain affected by data reliability issues. Nonetheless, the country has already achieved the first Millennium Development Goal (MDG) by more than halving the proportion of people whose income is less than $1.25 a day between 1991 and 2011. According to WBG’s estimates, assuming average moderate growth (4.2 percent), Pakistan would be on track to meet the WBG goal of reducing extreme poverty to 3 percent by 2030. Higher growth (7 percent) would advance reaching such milestone by about a decade. 3. Pakistan’s impressive progress against poverty is also reflected in broadly shared prosperity. Real per capita consumption of the bottom 40 percent of the population grew 5.5 percent in FY06-08. This rate of growth for the bottom 40 percent exceeded that of the top 60 percent, which grew by 4 percent over the same period. However, progress slowed down to 1.4 percent in FY09-11 due to a variety of shocks at the end of the decade, including floods, conflict, the global slowdown and the aftermath of the macro crisis of 2007/08. The improvement in living standards for the bottom 40 percent remains impressive by regional standards: Between 2002 and 2011, shared prosperity in Pakistan was higher than in all SAR countries, except for Nepal. 4. Despite this impressive progress, nearly 26 million people remain poor. Poverty rates remain sizeable in each province, and too many households are still vulnerable to falling back into poverty. Punjab has about 57 percent of the poor, followed by Sindh (23 percent), KPK (14 percent) and Balochistan (6 percent). Poverty rates do not vary significantly across provinces, except for Balochistan, as a sizeable portion of residents in Balochistan are nomadic and live in conflict areas that are difficult to reach. Since 2002 reductions in poverty have been fastest in KPK (28.5 percentage points); and in more populous—and rural—Sindh and Punjab, falling by 24.8 and 17.8 percentage points respectively between FY02 and FY11. Pakistan’s recent gains in poverty were rapid, but remain fragile, in part because many households are clustered near the poverty line. Therefore, a small reduction in consumption can greatly increase poverty rates, and vice versa. 5. Furthermore, poverty measurement remains controversial in Pakistan. An inordinate amount of energy and attention in the poverty debate has focused on the accuracy of a single number – the Poverty headcount rate – instead of on the underlying factors driving poverty and the programs that might improve the welfare of the poor. The large decline in headcount poverty has been met with considerable public skepticism, and respected economists in Pakistan are producing estimates that are at odds with the official figures. The 2007/08 poverty figures were never officially released and estimates of the 2010/11 poverty rate were only recently validated. Poverty estimates are indeed affected by several methodological imperfections. The Government has established a Technical Group to review poverty methodology, find sources of variance in poverty estimates, update the poverty line based on a revised consumption basket, and recommend final official estimates. Nonetheless, different estimates do not alter the main conclusion that poverty has fallen substantially.    

Annex IV Page 2 of 2

  

The poverty line has not been updated in many years. The official national poverty line is based on the simple food energy intake approach (with minimum caloric intake of 2350) using the 1998-99 data. As a result, the current reference basket may not accurately reflect the consumption patterns of the households in the bottom quintiles. A re-estimation of the poverty line is urgently needed to obtain accurate estimates.  The poverty line is updated using the inflation rate from the Consumer Price Index (CPI), applied to household data on consumption collected in the Pakistan Social and Living Standards Measurement (PSLM) Survey. The CPI may not be an adequate index to adjust for inflation over time, however, as PBS collects price data for the CPI only from big cities and ignores price changes in rural areas.  The CPI measures price changes for the average household, but the poor spend an above-average share of their budget on food. Since food prices have been growing faster than non-food process, the CPI has underestimated price increases for the poor. Correcting for this raises poverty by about 3 percentage points. Also, spatial price adjustment for expenditure is carried out using unit prices for food in the PSLM. As a result, spatial price adjustment is based entirely on food prices and its reliability declines when food and non-food prices change at a different rate over time.  PBS has not collected a population census data since 1998. The lack of a recent population census reduces the reliability of the sampling frame used to select the PSLM households and determine the population weights. This is a serious problem in Balochistan with a vast territory and a highly dispersed population. Migration and conflict may have also aggravated the sampling problem in Khyber Pakhtunkhwa (KPK) in the last few years.  The household survey questionnaire does not include sufficient information on the expenditure of durable goods. As the share of non-food consumption increases in Pakistan, consumption estimates without durable goods become more unreliable. 6. A new institutional approach is called for as the debate, among other things, needs to shift from poverty measurement to poverty analysis. Over the next several years, WBG’s efforts on poverty will shift towards institutionalizing the work through a constructive partnership with official authorities, donors and academia toward high-quality and timely poverty and shared prosperity measurement, analysis and program evaluation. WBG proposes to support the Pakistan Bureau of Statistics and the Ministry of Planning in their effort to foster a partnership among in-country professionals/think tanks that will carry out the poverty update with its publication at a fixed date each year, and refocus the poverty debate on programs and policies. 7. In the short term (1 to 2 years), we propose to make progress on two fronts. The first is to organize a national conference in mid-2014 on poverty measurement that will set a roadmap for poverty data upgrade. The WBG should contribute with a solid review of the relevant literature on poverty in Pakistan, presenting alternative indicators and robustness tests, and discusses the merits of different methods. At the same time, we plan to continue providing technical assistance to the Pakistan Bureau of Statistics with computer-assisted personal interviews (including mobile data collection devices) to collect price and household data, and if requested, support a new census. 8. In the medium term (3-5 years), the Bank’s efforts will shift towards using refined statistical tools to (a) improve poverty monitoring; and (b) to evaluate social policy and programs. Currently, poverty estimates are only representative at the province level, and additional proxies of poverty collected at the Moaza or Tehsil level could be used to generate more detailed estimates to help policymakers locate poor pockets within districts. In addition, there is a great need to generate more evidence on the effectiveness of different interventions in reducing poverty. Examples of programs or policies that could be evaluated include past expansions in education and infrastructure, particularly health programs such as lady health workers or childhood immunizations; income promotion such as the Pakistan Poverty Alleviation Fund; the impact of BISP transfers; or training programs designed to help households use remittances more effectively. Generating better evidence on the effects of these programs on poverty can provide valuable information to guide future efforts to reduce poverty.    

Annex V Page 1 of 3

 

Annex V: Status of Millennium Development Goals (MDGs) 1. Pakistan is signatory to the Millennium Development Goals (MDGs) and is regularly measuring its progress towards achieving the eight goals. Overall, Pakistan’s progress in achieving MDGs has been erratic and uneven and it is lagging behind its neighboring countries. Despite some improvements, it remains the worst performer in the South Asia Region, only Afghanistan has worse indicators. Review of data which is available only for 33 indicators, indicates that the progress is mixed with Pakistan on track to achieve the targets on 11 indicators and off track on the remaining 22 indicators. The achievement of MDGS varies for federating units across Pakistan. Punjab’s performance is significantly better than the other provinces followed by Khyber Pakhtunkwa. Both provinces’ performance is higher than the national average in 14 and 10 of the MDGs indicators respectively. Sindh and Balochistan lag significantly behind other provinces. The country is not likely to achieve the Millennium Development Goals (MDGs) related to human development (education and health), is partially on track to achieve those related to eradicate extreme poverty and on track to achieve those related to ensuring environment sustainability. Summary of Status of MDGs in Pakistan1 MDG Goal Eradicate Extreme Poverty and Hunger Achieve Universal Primary Education Promote Gender Equality & Empower Women Reduce Child Mortality Improve Maternal Health Combat HIV/AIDS, Malaria & other diseases Ensure Environmental Sustainability

Status Partially on Track Off Track Off Track Off Track Off Track On Track On Track

Indicators off Track 2/3 3/3 3/5 3/6 5/5 4/5 4/6

2. On reducing extreme poverty, Pakistan is on track by more than halving the proportion of people living on less than $1.25 a day between 1991 and 2011. The percentage of population below the national poverty rate has fallen from 34.7 percent in FY02 to an estimated 13.6 percent in FY11. 3. Pakistan has made some improvements in primary school enrollments and gender parity in primary and secondary education. However, despite improvements, efforts remain inadequate to address the large burden caused by the growing population and Pakistan is unlikely to achieve MDGs related to primary education, but it is on track for gender parity. 4. Pakistan’s performance in maternal and child health (MCH) has improved, but it remains a poor performer in the South Asia Region, only Afghanistan has worse indicators. Significant inequity exists in health service access and utilization, and little has changed for the poorest and rural population since the 1990s. 5. Pakistan is also off track on most MDGs related to health, nutrition and population. Given its current rate of progress, in 2015 Pakistan’s infant mortality rate (IMR) will be 65 deaths per 1,000 live births and the under-five mortality rate (U5MR) will be 78, considerably above the MDG4 targets of 33 and 43 deaths per 1000 births respectively. Pakistan will not achieve the MDG related to nutrition as the progress is off track on achieving target related to under nutrition where interventions coverage remains limited. Childhood malnutrition in Pakistan is higher than in sub-Saharan Africa, and the rate of decline is significantly slower than in the rest of South Asia. In addition, Pakistan’s fertility rate currently at 4.1,                                                              1

Pakistan MDG Status Report 2012, Government of Pakistan and UNDP Pakistan

   

Annex V Page 2 of 3

  although declining, is higher than its neighbors’ and predicted to remain so. While there has been some progress on improving health outcomes, the rate of progress is much slower and the poor, in particular, are being left behind. 6. Child mortality is declining but it is still high. The IMR and the U5MR at 74 and 89 deaths per 1,000 live births are significantly higher than Bangladesh and India. At these levels, it implies that almost 1 in every 10 children born in Pakistan between 2001-02 and 2011-12 died before reaching five years of age. Maternal mortality remains high at 276 per 100,000 live births however no recent data is available. The rate of births attended by skilled attendants and institutional delivery, often used as a proxy for the maternal mortality rate, are increasing significantly, which is likely to have an impact on maternal mortality. Pakistan also lags behind its neighbors in immunization coverage and contraceptive prevalence rate. Both have shown improvements in recent years however the rates are less than a third and less than half that of other South Asian countries. 7. Pakistan has made efforts to address issues related to human development in recent years but the efforts are inadequate and not enough for achieving MDGs targets. The slow and uneven progress is likely to negatively impact on economic growth. Interventions focused on improving MDGs outcomes are necessary for the sector to serve both as a catalyst to growth and as a beneficiary of it. To achieve this Pakistan needs to improve significantly its performance which requires strong leadership, good governance, and effective management, particularly at the provincial and district levels to implement fundamental reforms, restructure institutions, and strengthen systems in the context of the 18th Amendment to the Constitution In addition, the country requires substantial investments in human development to meet the growing basic health nutrition and education needs of the large population. Without this investment, Pakistan is unlikely to capture a potential demographic dividend and to enjoy high levels of economic growth.

   

 

   

Annex V Page 3 of 3

  Pakistan: Status of Millennium Development Goals (MDGs)   Goal Goal 1: Eradicate Extreme Poverty and Hunger Proportion of population below the calorie based food plus non-food poverty line Prevalence of underweight children under 5 years of age Proportion of population below minimum level of dietary energy consumption Goal 2: Achieve Universal Primary Education Net primary enrollment ratio Completion/survial rate Grade 1 to 5 Literacy rate Goal 3: Promote Gender Equality and Women's Empowerment Gender parity index, primary education Gender parity index, secondary education Youth literacy gender parity index Share of women in wage employment in the non-agricutural sector Goal 4: Reduce Mortality Under 5 mortality rate (deaths per 1,000 live births) Infant mortality rate (deaths per 1,000 live births) Proportion of fully immunized children 12-23 months Proportion of under 1 year children immunized against measles Proportion of children under 5 who suffered from diarrhea in the last 30 days Lady health worker's coverage (percent of target population) Goal 5: Improve Maternal Health Maternal mortality ratio Proportion of births attended by skilled birth attendants Contraceptive prevalence rate

2001/02

2007/08

2010/11

2011/12

Target (2015)

34.50 41.50 30.00

17.20 38.00 ..

12.40 .. ..

.. 31.50 ..

13.00 90 >90 90 55.00

..

..

..

0.04

Baseline to be reduced by 50%

20.00 181.00

30.00 181.00

40.00 230.00

.. ..

75.00 45.00

79.00

85.00

..

..

85.00

4.80 11.20 27,047 1.00 86.00 45.00

5.00 11.30 24,852 1.00 91.00 66.00

5.20 11.50 .. 0.60 87.00 66.00

5.20 11.50 .. .. 89.00 72.00

Goal 6: Compat HIV/AIDS, Malaria and Other Diseases HIV Prevalence amont 15-49 year old pregnant women Proportion of population in malaria risk areas using effective malaria prevention and treatment measures Incidence of tuberculosis per 100,00 population Proportion of TB cases detected and cured under DOTS (Direct Observation Treatment Short Course) Goal 7: Ensuring Environemental Sustainability Forest cover Land area protected for conseration of wildlife GDP (in 1980-81 Rs.) per ton of oil equivalent (energy efficiency) Sulfur content in High Speed Diesel Proportion of population with access to improved water sources Proportion of population with access to sanitation

       

6.00 12.00 28,000 0.5-0.25 93.00 90.00  

   

Annex VI Page 1 of 1 

 

Annex VI: Government of Pakistan’s Vision 2025 (Proposed) 1. The Ministry of Planning, Development and Reform is undertaking work on two development plans; a long term plan Vision 2025, and a five-year medium term plan for the tenure of the current government. 2. The Vision 2025 aims at transforming Pakistan into a developed and export-led economy with strong social values through promoting inclusiveness, peace and security and greater inter-provincial harmony. It aims to achieve a per capita income of US$ 5,000 by 2025 through private sector led growth, a responsive and accountable civil service, vibrant civil society, and strong democratic values and institutions. 3. As such, the objectives of Vision 2025 include a good quality of life and high living standard for all citizens, while depending on domestic resources, reducing poverty and investing in job creation and youth centric programs. The following are the proposed pillars of the Vision:1

4. i. ii. iii. iv.

v.

vi. vii.

viii. ix.

Energy security through a holistic and integrated approach espousing principles of availability, efficiency, affordability and competition. Sustained and inclusive higher growth in a stable macroeconomic environment. To achieve an annual average growth rate of 7 to 8 percent that is inclusive and endogenous. Private sector led growth through incentivizing innovation, quality and productivity enhancement in an open economy without distortionary concessions and exemptions. Modernization of existing infrastructure and creation of state of the art new infrastructure to support a vibrant and growing economy through innovative modes of financing like Public Private Partnerships and reducing the government footprint. Improving regional connectivity through trade corridors, motorways, energy corridors, and industrial zones. Improving Competitiveness in Industry & Trade: Transforming productive sectors into value-added and globally competitive sectors through facilitation, dynamic productivity growth, transparency, fairness, customer satisfaction, innovative and knowledge based production mechanism. Internal resource mobilization with focus on Taxes, Investment & Export promotion (TIE). Institutional and governance reforms: Strengthening democratic governance through institutional reforms in public, judicial, financial, and economic institutions. Ensuring supremacy of merit, transparency, community participation and digitalization. Introducing professional management in State Owned Enterprises (SOEs) in a transparent fashion and holding them accountable with periodic performance evaluation. Harnessing the potential of Social capital especially human resource development to reap demographic dividend through creating job opportunities. Revival of Confidence through extensive stakeholder consultations, improving security, enhancing competitiveness, providing incentives and establishing Business and Economic Councils.

                                                             1

http://www.pc.gov.pk/?page_id=145

   

Annex VII Page 1 of 2 

 

Annex VII: Filters for Selectivity for the Pakistan CPS FY15-19 1. The World Bank’s loan portfolio has grown to over 30, from about 24 projects a few years ago. This can be traced to three factors – (i) the tendency to extend ongoing projects rather than complete them, (ii) the desire to be in all provinces in all sectors, in light of the devolution of responsibilities to the provinces, and (iii) the establishment of the MDTF for border areas, with its large number of small projects. Similarly, IFC has ramped up its investments in the private sector since the last five years, with a portfolio of some US$810 million in 38 companies. These increasing trends across the WBG are understandable, but at the same time there are risks that the World Bank Group will be spread too thin, reducing rather than increasing its impact. Therefore it is critical that strong selectivity filters be established with buy-in from the Country Team, Government and Civil Society. 2. The most important filter for selectivity will be how the operation fits within the twin goals to (i) reduce extreme poverty and (ii) build shared prosperity. For this, the CPS has identified the four pillars or result areas of intervention (energy, private sector development, inclusion, and service delivery) and a few key outcomes sought in each area. Any project to be considered will first be viewed within this lens and for their ability to directly contribute to the two goals of poverty reduction and shared prosperity. The WBG would aim that our entire program be directly linked to the key CPS outcomes that in turn contribute directly to the twin goals. 3. The other top filter will be country, province and region level priorities. The Government has laid out significant goals in its political manifesto, has established several sectoral plans such as in energy and tax reform, and is working on a comprehensive national development framework. In addition, each of the provinces is either preparing a provincial strategy or has sectoral strategies within it. Taken as a whole, these documents can be used to guide WBG operations. Where these do not exist, it will be important to get clear guidance and commitment from appropriate authorities. Feedback of civil society, the beneficiaries, the poor and the private sector can also be used. The WBG would aim for all activities to be linked to one or more of these national / provincial priorities and would only go forward with a project with the clear guidance of the government as appropriate. 4. Beyond the above two overarching filters, the World Bank Group would take into account the following considerations in developing its programs: 

Priority should be given to larger, more transformational operations. This often means working with other partner organizations and the private sector to leverage our interventions. It can also mean finding ways of working across sectors within a particular province, or across provinces within a particular sector (while at the same time keeping projects as simple as possible). However, there will always be room for smaller pilot operations or continuing on a selected basis ongoing operations that have a good track-record.



Activities that work across sectors or between IFC/Bank/MIGA or between countries should be given special attention. The WBG Group is often at its best, and can add most value, when it works at the intersection of institutions, regions / places or sectors, where others find it hard to operate.



Balance is Needed Between Federal/Provincial and Between Provinces: The bulk of operations in the portfolio should be in the provinces, and there should be some balance between provinces (particularly between the two largest – Punjab and Sindh and the least developed Balochistan) in the portfolio. As a benchmark, a 30/70 split between Federal and Provincial operations would be aimed for.

   

Annex VII Page 2 of 2

  

Balance is Needed between Development Policy Financing and Investment Operations: As long as the macro-environment permits, budget support policy operations are appropriate. Synergy is greatest where you have areas supported by both policy reform in budget support operations and related investments. But budget support would remain within 20-30 percent of the program overall (inclusive of Development Policy Financing Operations at both the federal and provincial levels).



For MDTF, the first round started small, with the intention to scale up success. As we approach the second round, it will be important to make good on this promise and scale up those areas of success. It will also be important to make the MDTF the tool to coordinate funds from all sources going towards expenditures in a particular area.



For IFC and MIGA: In addition to the above filters (client priorities and large, transformation projects which exploit synergy among the World Bank Group) the IFC and MIGA also need to pay close attention to the sponsors and management (Integrity Due Diligence – IDD) of the operation to keep reputational risk manageable. At the same time, special focus will be on private sector development in the least developed Balochistan, KP and FATA to enhance local resource generation and employment opportunities.



For Analytic/Advisory Work: Analytic work should be prioritized around the same filters as for lending with three additional filters used to identify priorities: (i) analytic work that directly supports effective implementation of operations, (ii) analytic work that fills an important knowledge gap, and (iii) analytic work that plays an advocacy role on issues that are emerging in importance.

5. The CPS will rely on selectivity filters rather than pre-identifying specific sectors we would not be involved in. Nevertheless, the filters do suggest certain areas where WBG operations would be less likely. Such areas include mining development and clean coal power generation, which are currently being supported by private sector or development partner e.g. ADB. Other areas of great potential are highways and railways, but here the Government itself and other donors may be the best provider and the additional value the WBG would bring beyond financing is unclear. Nevertheless, these areas are not ruled out, and in fact some knowledge and capacity building efforts may be useful even when lending is not yet warranted.

   

Annex VIII Page 1 of 2

 

Annex VIII: World Bank Group – Pakistan Energy Initiative 1. Pakistan’s energy sector is facing a serious crisis, especially in electricity. Based on preliminary estimates, the poorly performing electricity sector is thought to have reduced GDP growth by 2 percent per annum for the past several years. The sector relies heavily on government support, through direct subsidies amounting to about 1.75 percent of GDP in FY12/13. Costs that cannot be recovered from consumers or the government accumulate on the books of the public electricity distribution companies (Discos). The Discos in turn fail to pay fully for goods and services they receive, especially electricity, thus spreading the shortfall throughout the supply chain. Commonly called the circular debt, these accumulated arrears amounted to about four percent of GDP in FY12/13. Actions are required to address two main distortions: the longstanding gap between the cost of service and revenues gained either from tariffs or subsides; and the unusually high cost of providing that service. At the same time, there is a need to address the inequities caused by poorly targeted subsidies and ensure that the sector develops in a socially and environmentally sustainable way. 2. For sustained economic growth, Pakistan needs to increase generation capacity by over 10,000 MW in the next 5 years. It must also reduce reliance on imported fuel oil/diesel based thermal generation. The sector requires huge investments requiring at least $3-4 billion in funding annually. This funding far exceeds the capacity of the public sector and development institutions combined. Innovative financing solutions and instruments are, therefore, required to attract private funding from new sources, especially in low cost hydro and renewable sources. Reforms of the sector are critical to sustain the investments in new generation and enhance the financial viability of the sector. 3. The WBG has embarked upon a “Transformational Power Initiative”, to support significant new investments and reforms in the power sector. The program aims to mobilize over $10 billion to support new generation in a mix of public and private projects that address current supply gaps and future needs. The program will also support significant reforms for enhancing the financial viability of the sector. The objectives pursued under this program include: significant reduction in load-shedding; reduction in energy production costs; and improve sustainability of the energy sector. The program comprises the following ongoing and new WBG initiatives: (I)

Ongoing WBG Energy Projects in Pakistan

 Tarbela fourth extension. Approved Feb 2012. The project installs a 1,410 MW hydro plant on an existing dam with an already constructed tunnel and adds 6 percent to the country’s installed capacity.  Natural Gas Efficiency Project. Approved Apr 2012. The objective is to reduce physical and commercial losses of gas in the pipeline system. It covers the south of the country (Sui Southern Gas Company Ltd). The project is being restructured.  IFC Energy investments: IFC has been supporting low cost generation using indigenous gas and hydro resources as well as promoting alternative sources (wind). IFC’s current portfolio comprises: two private sector hydro projects- Laraib (84MW) & Star Hydro (147MW); one private power based on indigenous gas- Uch-II (404 MW); two wind projects- Zorlu (50MW); and Metro (50MW); and a waste to energy- KOEL (25MW). In addition, IFC has financed about 800MW of electricity generation for the first privatized integrated electricity utility (K-Electric).  Laraib Energy, the first private sector hydro power with 84MW capacity came into operations in September 2013. Uch-II Power with 404MW capacity is expected to come on stream by mid-2014, while IFC-supported investment by Korea Water in Star Hydro’s 147 MW plant is expected to be operational by 2016. (II)

New Energy Reform Program supported by the World Bank:

4. The World Bank is preparing a series of Power Sector Reform Development Policy Credits (DPCs) with parallel financing by the ADB and JICA (the first DPC is scheduled for Board on May 1, 2014). The DPCs will support the following reforms in the near term:    

Annex VIII Page 2 of 2

   Opening up the gas sector: to give priority allocation of gas to the power sector; and improve third party gas access rules.  Addressing circular debt: Government to issue guidance for circular debt management related to payment of arrears by distribution companies  Reducing discretion in tariff setting: Revising regulatory rules to set tariffs faster and for a longer period through objective regulatory channels and publishing principles for setting tariffs.  Least-cost investment plan: for all new investments in the sector  Improving performance of energy companies, including corporatization/privatization: Reducing theft, arrears and losses; improved management with clear performance contracts; and privatization of few distribution companies.  Improving transparency: Widen the availability of information to consumers and others to increase accountability, including publishing the order and cost with which it takes the power. (III)

New WBG Energy Investment Projects:

 IDA plans to support the first phase of Dasu Hydropower Project (2160 MW) in FY14. This investment will alone bring down the overall cost of generation in Pakistan by as much as 5-12 percent, depending on assumptions.  IFC is engaging with local and international sponsors (Chinese and Korean) to finance private energy projects, including hydro, thermal, and renewables as well as LNG imports. IFC is expected to mobilize substantial equity investment with international investors for the establishment of a platform company to develop hydro, thermal, and wind power over the next five years. These efforts will leverage and mobilize significant capital to support the large pipeline of power projects in Pakistan.  IDA and IFC are working together to bring Central Asia power to Pakistan through Afghanistan (CASA-1000). IDA is also doing a feasibility study for an India / Pakistan transmission line. Pakistan Energy Program: Indicators of Transformative Effect Problem

Current situation

Situation in 2020 if program is successfully implemented

Insufficient generation capacity & supply

21,000 MW operational 93 TWh

33,000 MW1 145 TWh

Financing to be secured by 2020 if the combined program is successful.

High costs of energy

Average cost ¢12 per kWh

At constant 2014 prices

Carbon intensive energy

30 percent renewables in energy mix of capacity

Average cost ¢10 per kWh at least 20 percent lower 50 percent renewables in energy mix of capacity

High losses in production and consumption

Average distribution losses 19 percent; Average collections 85 percent Total subsidy 1.8 percent of GDP plus 4 percent of GDP in circular debt

Poor Sector Performance in a weak institutional setting resulting in financial deficit 2

Average distribution losses 16 percent Average collections 96 percent Total subsidy 0.4 percent of GDP

Comment

Since some renewables do not generate continuously the mix in the actual electricity generated will be lower Expected levels in line with requirements for Discos’ performance targets DPC actions support reduction in losses, improved collection, timely notifications through multi-year tariff keeping in view subsidy limitations.

                                                             1

WB investments Tarbela IV 1410 MW hydro, Tarbela V 1000 MW hydro, Dasu Stage I 2160 MW hydro, CASA importing 1000MW, India Pakistan Interconnector importing 1000, operationalizing existing capacity 2500 through additional 800mmcfd gas supplied at 40 percent higher cost. IFC investments additional 687 MW from existing portfolio (Star Hydro, Uch II, Zorlu and Laraib) and additional 2 370MW of hydro solar and wind through CSAIL. 2 Financial deficit accrue for following reasons: (1) actual distribution losses (19 percent) being higher than NEPRA target (16 percent), (2) non-collection of bills (current collection rate is 89 percent), (c) 6-9 months delay in tariff determination and notification particularly with rising cost and (d) late payment of subsidies.

   

Annex IX Page 1 of 2 

 

Annex IX: Promoting More and Better Jobs for Pakistan 1. With an entry of 1.2 million people every year, Pakistan has one of the fastest growing labor-force in the world and this number is likely to increase significantly in the coming years. During the next 20 years, over 2 million workers will be entering the labour force per year. As such the country’s strength, wellbeing and future economic prospects would depend on creating enough quality jobs to absorb these new entrants into the job market. The Government of Pakistan is fully cognizant of the issue and is geared to meet this challenge over the long term and is dedicated to building a sustainable foundation for a growing and prosperous country. The three key elements of the government’s better jobs strategy hinges on: 2. Improving business environment and productivity: With a significant potential of providing increased job opportunities, the growth of micro, small and medium enterprise (MSME) sector is severely constrained by several factors. Two central ones are the lack of access to finance and tax regulations. 

The key issue is that the commercial banks endure a much higher risk and cost in terms of identification of bankable MSMEs and conducting their due diligence for them. On the demand side, the MSMEs lack information on the requirements to qualify for bank financing. The government intends to enhance access to finance by developing an enabling environment that makes MSME lending safer, cheaper, and faster, rather than on prescriptive measures such as directed lending programs, which often lead to distortions. For this, the government is strengthening credit bureaus to help overcome adverse selection and moral hazard in lending, improving efficient secured transaction registries for available movable assets to address MSME’s lack of conventional collateral, and providing technical assistance and financial literacy training to MSMEs.



A cumbersome and inequitable tax system is another obstacle to higher productivity. Pakistan’s tax base is very small, and firms in the tax net bear a heavy tax burden. This dissuades new firms from voluntarily registering themselves as taxpayers. In addition, weak political will and inadequate administrative capacity to enforce tax laws causing the bulk of the tax burden to fall on a limited number of large formal manufacturing firms, thus penalizing the important creators of jobs. In addition, serious distortions have been created in the tax structure through large number of tax exemptions and concessions, which accentuate inequities in the system and discourage productivity increases. The Government is striving to enhance the efficiency and fairness of the tax system by bringing into the tax net a higher number of individuals and businesses; reducing tax exemptions and concession; and enhancing the transparency of the tax system. For this, the management and organization capacities of revenue administration are being enhanced; information technology is being updated and improved to efficiently process massive information flows from taxpayers; and investigative and enforcement capacity of tax authorities is being supplemented. A better functioning tax system would not only remove distortions which hamper economic activity, but by generating higher revenue will expand Government’s fiscal space for more crowding-in investments.

3. Tackling energy shortages through a reliable energy sector. Pakistan’s poor electricity availability features prominently as a major obstacle. Approximately 75 percent of firms cite electricity as a major or severe constraint to business; and reported 69 hours of power outages, on average, per month, and lost revenue equivalent to 9.2 percent of sales. Reforming the power sector is, therefore, crucial for these firms to expand, and thereby create more jobs. This will mean addressing the energy sector deficit in Pakistan which is estimated to reduce growth by no less than 2 percentage points a year. The Government of Pakistan is pursuing a number of avenues to improve the financial and commercial viability of the power sector. These include: (i) increasing the level of tariffs to reflect the cost of supply and rationalizing tariffs to address cross subsidization; (ii) reducing losses by improving collection; (iii) curbing leakage and improving overall efficiency; (iv) enhancing efficiency through improved    

Annex IX Page 2 of 2

  governance and better management practices of the sector; and (v) improving the capacity and independence of regulatory agencies to ensure transparency and accountability in tariff-setting. 4. Enhancing marketable skills and competencies of Pakistani workers. The Government of Pakistan is making significant investments in education to equip its youth with the skills needed to compete effectively in the global market. Nevertheless, education completion levels in Pakistan remain low, especially for its rural and female population. Further, Pakistan’s record in student learning is modest, with a recent study showing that only 52 percent of students enrolled in Grade 5 were at the reading level expected of students in Grade 2, and only 34 percent of children enrolled in Grade 5 could do simple arithmetical divisions. 

Like many developing countries, in Pakistan too, the demand for low skilled workers is waning, while the demand for more highly skilled workers—those with secondary and tertiary education—is outpacing supply. This is reflected by higher wage premiums for students who have completed higher levels of education than those with little schooling in Pakistan. In 2008, there was a 26 percent wage premium for students who had completed higher secondary versus students who had incomplete primary schooling in Pakistan.



Given the increasing business’ demand for higher anlaytical skills, there is a need for higher public and private investments in tertiary education and pre-employment training systems. In addition, equity of these systems needs to be enhanced by improving the access of females to such systems and students from the poorer or crises affected regions, particulalry Balochistan, KPK and FATA. Preemployment vocational training, in particular, provides a viable alternative for students who do not pursue tertiary education. The Government has increased its investment in pre-employment training significantly, but as in other countries, it is critical that such training should be of high quality and impart skills relevant to the labor market. These include ICT, communication, analytical and behavioral skills. Moreover, it is important to encourage firms to invest more in on-the-job training. Firms in Pakistan, for instance, provide considerably lower levels of on-the-job training relative to comparator countries. The most recently available figures show that only 17 percent of medium-sized farms and only 35 percent of large farms invest in on-the-job training in Pakistan.

   

Annex X Page 1 of 2 

 

Annex X: A New Tax Reform Strategy for Pakistan 1. The Government has designed a Tax Reform Strategy aimed to increase tax collection from 9.7 to 14 percent of GDP by 2016/17. The GOP estimates that no less than two-thirds of such effort will have to come from the federal government and one quarter from the provincial governments. And success will rely on significant improvement in tax compliance and in the broadening of the tax base by improving registration, closing the tax gaps and making taxation more equitable. Such a goal is consistent with its commitment to achieve a sustainable deficit of around 4 percent of GDP by FY2016/17 where over half of such adjustment should come from revenue mobilization. As an initial step, since December 2013, FBR is implementing a Plan to enhance revenue mobilization for sales, excises and customs taxes. These efforts have been assisted by a WB Project Preparation Facility (PPF) for a Revenue Mobilization DLI project, the IMF and DFID. WBG will continue to actively provide technical assistance on tax administration in close liaison with our development partners. 2. Lessons learned from the success and failures of previous tax efforts have guided the preparation of the new strategy. The World Bank financed Tax Administration Reform Project (TARP) left important learning that helped shape the new strategy:  

 

A tax reform initiative is likely to be more successful if it integrates tax policy, with tax administration and legal measures. The institutional capacity of the Federal Board Revenue (FBR)--both managerial and technical-has been eroded over time and needs to be carefully assessed before ramping up reform amplitude and intensity. Any reorganizational plans need to be carefully phased with adequate safeguards and internal ownership. Hence institutional development, including strategic planning, change management, audit and enforcement controls, need to move in parallel with revenue mobilization efforts. An IT-supported performance monitoring and evaluation system should be in place from the beginning.

3. The FBR tax reform strategy relies on three pillars: tax policy measures, measures to increase the tax base (the elimination of exemptions rooted in distortive Statutory Regulatory Orders--SROs), and improved tax administration. 

Main initial tax policy measures were approved with the FY13/14 budget. These have been the one percent increase in the General Sales Tax (GST) last July and the Gas Infrastructure Development Cess (GIDC) introduced end-December. With a broader tax base and higher collection, GOP expects to avoid further increases in tax rates.



Broadening the tax net relies on a 3-year program of elimination of most tax exemptions and loopholes granted through Statutory Regulatory Orders (SROs). The ultimate objective of the SRO plan is to achieve an increase in revenues of some 1–1½ percent of GDP, with all designated SROs eliminated in no more than three years. So far, GOP has issued no new SROs granting socalled “special exemptions,” compared to some 56 in the previous fiscal year, and by endDecember 2015 legislation is expected to permanently prohibit the practice. FBR plans to start eliminating the first batch of SROs identified in the FY2014/15 budget, to be approved by endJune, as part of a package of identified actions totaling 0.75 percent of GDP. Necessary changes will also be made in the tax laws to prohibit a future resort to such ad-hoc policy measures.



Tax administration reforms are projected to gradually deliver further improvements in revenue collections. A massive initiative to incorporate 300 thousand new taxpayers into the income tax net is moving ahead. FBR is on track to issue 75,000 first notices by end-March and to follow up with a second notice to at least 75 percent of those who did not respond satisfactorily to their first  

 

Annex X Page 2 of 2

  notice within 60 days. FBR will also issue a provisional tax assessment to 75 percent of those who did not respond satisfactorily within 60 days to the second notice. So far, over 6,000 individuals have registered and filed returns as a result of the initiative, and this number is expected to rise in the coming months. In addition, FBR has reactivated ballot-based audit and published in mid-February a Tax Directory of all current parliamentarians at both the federal and provincial levels in an effort to foster a culture of transparency and compliance. 4. Greater government, and FBR ownership of the strategy enhances its chances of success. One of the critical success factors for reforms is its broad ownership by the country. In Pakistan with the exception of few occasions, there has never been a broad based ownership of reforms nor has any reform package been designed and formulated by the economic managers of the country. In most cases, the main motivation for reforms has been to secure infusion of short term liquidity to avert the impending foreign currency crisis. As soon as the liquidity situation improves, the will to continue with reform wanes. This moment is then utilized by powerful interest groups to reverse or at least dilute the policy content. Government policies are then reversed or at the minimum diluted. As such, inculcating a strong ownership of the tax reforms within FBR and the general government is the integral part of FBR strategy.1 In the next attempt promoting ownership on the strategy, FBR will prepare an appropriate communication plan to disseminate it among taxpayers. This plan will not only highlight the key features of the strategy, but also the rights and responsibilities of the taxpayers. This would be the first step towards protection of the taxpayers rights, especially of the small taxpayers. 5. But efforts at increasing tax collection cannot spare provinces. A well-known reason for a low tax-to-GDP ratio is the extremely poor tax effort by provinces. Although it is true that major broadbased taxes are in the federal domain, yet the provinces have not effectively utilized the tax bases assigned to them by the Constitution. Provincial taxes, on the average, have contributed less the 4 percent to overall tax collection (equivalent to less than 0.5 percent of GDP). However, this contribution increased to almost 7 percent after GST on services was transferred to the province in 2010/11 following the 18th Constitutional Amendment, for which Punjab and Sindh has set-up adequate mechanisms to collect revenue. Notwithstanding the increased contribution to revenue by province, there is significant scope for even more improvement. This could be achieved by:    

Expanding the base of services GST: by bringing import of services into the tax net or levying presumptive tax on informal services; Updating the evaluation of properties: by reducing the differential in rates of property tax for rented and owned properties, and devolving the property tax to city governments; Levying a presumptive agricultural income tax at marketing stage; and Strengthening provincial tax administrations: by modernizing them not only to support enforcement and audit, but taxpayers’ compliance and e-filing, one of the major obstacles identified by the Doing Business reports.

6. All these measures can help increase the provincial revenue collection to over 1 percent of GDP in next two years. In order to help provinces achieve this goal, the WBG is actively involved with the governments of Sindh2 and Punjab3 in improving tax policy and administration at provincial level.

                                                             1

As a start, the strategy was initiated in a workshop titled “A Real, Relevant and Owned Strategy for FBR” where the FBR management, the leadership of FBR field units and international experts openly discussed the future reform direction for FBR. 2 Under the Sindh Public Administration Reform Project 3 IFC is working Punjab Revenue Authority to improve business processes in collection of services GST.

   

Annex XI Page 1 of 2 

 

Annex XI: Strategizing WBG’s Role under Devolved Setup 1. Over the last two years there have been some significant changes in the federalism landscape of Pakistan. The Seventh NFC Award sharply increased the share of provinces in federally collected revenue, while the 18th Amendment has introduced some profound changes in multi-order governance in Pakistan, including devolution of significant number of additional functions from the federal to the provincial governments. Some other key functions, e.g. electricity generation, statistics, planning and regulation, have been made a shared responsibilities of the federal and provincial governments. These changes have also created significant challenges for World Bank Group (WBG) operations in the country requiring some fundamental adjustments in the type and modality of our engagement with the government, and the designing of our projects and programs. 2. Although the transitional process had been quite orderly it is by no means complete. The slow adjustment to these changes is mainly an outcome of weak political and administrative institutions, which are not yet strong enough to adequately manage changes of this magnitude. Insufficient coordination between the federal and provincial and among the provincial governments has been the main obstacle in the process. Going forward, significant inter-government coordination would be required to make decentralization work for the maximum benefit of the country, especially in critical areas of security, energy, social safety nets, resource mobilization, water management, regional cooperation and population growth. The federal government will need to build a more proactive role in meeting these critical challenges posed by the devolution process, and the World Bank Group and other development partners can support the federal and provincial governments in this endeavor through various instruments. 3. The most critical of decentralization challenges include: (i) complication of fiscal and financial management; (ii) fragmentation of debt management and increased riskiness of borrowing arrangements; and (iii) a marked shift in development and service delivery focus toward the provinces with insufficient attention on coordination and capacity. 4. The WBG has been working with the federal and provincial governments to meet some of these challenges: a) WBG is working with the federal and provincial governments to improve their fiscal and financial management systems. After the NFC Award and the 18th Amendment, fiscal management in Pakistan has become more complicated. Greater revenue transferred to the provinces, along with inherent rigidities in expenditure, has created acute fiscal difficulties for the federal government. In order to achieve overall fiscal stability and discipline, provinces would have to play a more prominent role than before. The WBG has been actively working with provinces to meet the fiscal management challenge. Over the last two years a number of analytical products were designed to develop awareness among the stakeholders and build consensus on some of the more important issues related to fiscal and financial management in the devolved set-up. These products include: two sub-national PERs, PEFA assessments of the federal and two provincial governments and an international workshop in the implications of the 18th Amendment. Moving forward, revenue mobilization is going to be critical area for ensuring sub-national fiscal discipline. Under its governance and TA projects in Sindh and Punjab, WBG is helping the provincial governments to strengthen their tax administration apparatuses. b) WBG is also engaged with the federal and provincial government to reduce the debt management risk created by the 18th Amendment. Weak fiscal management has led to a sharp increase in public debt, which needs to be carefully managed. In addition, by giving the provinces the right to borrow from international donors and financial markets, the 18th Amendment has heightened the debt concerns and has reinforced the need for more active debt management at the    

Annex XI Page 2 of 2 

  provincial level. Over the last two years, World Bank has helped the Punjab government to undertake a Debt Management Performance Assessment (DeMPA) and is presently working with Sindh government on a similar exercise. c) WBG is in the process of developing a comprehensive approach to engage with the provincial governments to meet the service delivery and development challenges. With increased revenue transfers, provinces are expected to play a much bigger role than before in economic and social development. Being closer to the people, province-centric development has many obvious advantages; yet there are some inherent risks. Most important of these are: i. Uneven development: Fiscal capacity varies significantly across provinces. As such, distribution of federal government’s development portfolio was an important source of ensuring developmental equity across provinces. Now with federal government likely to reduce its role in development, there is genuine risk of uneven development across provinces. ii. Weak capacity: The returns from the expected rapid growth in development spending by provinces can be jeopardized by weak institutional capacity of the provincial governments to design, execute and manage a larger portfolio of projects. There is a real risk, especially in smaller provinces, that the weak delivery mechanisms can adversely affect the quantity and/or quality of devolved services. iii. Inadequate ownership: Regarding the devolved functions, e.g. immunization, lady health workers and population programs, there is a risk that the provinces may have different priorities than the federal government and therefore may shift their level of commitment and financing for some of these activities. 5. Moving forward, donor coordination would be vitally important: Given the political, equity and client-relationship undertones behind each of these issues, it is critically important to develop a consensus among the donor community on the way forward and the role that each donor would play in different areas of each sector. These roles would depend on the capacity, comparative advantage and interest of each donor. For example, the World Bank can provide its knowledge and financial resources to help provincial governments meet these challenges, while it may be appropriate that institution and capacity building aspects of sector development be undertaken by bi-lateral donors through grant financing. 6. WBG, through its analytical and advisory work, will continue to deepen its dialogue with the federal and provincial governments on many areas of intergovernmental relationship to help them better manage the challenges and attain maximum benefits from the decentralization process. As a continuation of our engagement with the government on fiscal and financial management, an international workshop on national and sub-national fiscal rules is planned for April 2014 to highlight the role of appropriately designed fiscal responsibility laws in establishing fiscal discipline. As the deliberation on the next NFC Award would start early in the next fiscal year, WBG would be willing to assist the process through dissemination of knowledge on best global practices on modes and management of fiscal decentralization; and, if asked by the government, provide technical support to the NFC. 7. WBG will remain engaged and willing to provide support to the local governments when they are formed. The decentralization process in Pakistan is an evolving and on-going process. For logistical reasons, there have been delays in formation of local governments; however in each province elections for local governments are planned in the next few months. Local governments will provide new developmental opportunities, along with new risks and challenges. Moreover, as a deviation from the past, each provincial government has opted to define a different set of roles, responsibilities and powers of local government. Therefore the process of decentralized governance in the coming few months is likely to be even more complex than in the past. WBG will look for opportunities to work with the local governments when they are established to deliver local development solutions and strengthen capacity and accountability of local systems for better results.    

Annex XII Page 1 of 2 

 

Annex XII: WBG’s Governance Action Plan Governance Context in Pakistan 1. Pakistan is still facing significant governance challenges that may hamper attempts of policy changes leading to poverty reduction and economic growth. Pakistan is facing broad critical governance challenges ranging from rule of law, democratic governance and security to corruption legacy, resource management, and civil service effectiveness both at federal and provincial levels. Addressing these challenges will be critical to success of policy decisions aimed at improving the energy sector, service delivery, competitiveness, as well as stability in the country. 2. Meanwhile, progress has been achieved in terms of political governance. In terms of political governance, important milestones were achieved with the adoption of the Constitution’s 18th Amendment, which has delegated service delivery responsibilities and resources1 to provincial governments, and the completion of the full term of a civilian government for the first time in Pakistan’s history. Government Program Addressing Governance Challenges 3. At the federal level, Pakistan Vision 2025 is expected to include a broad governance agenda and measures to strengthen resources mobilization. Pakistan Vision 2025 governance agenda is expected to be articulated around the following priorities: (i) Strengthening democratic governance; (ii) Modernizing Public Sector Management through E-Government and Civil Service Reform; (iii) Introducing performance monitoring and professional management of SOEs; (iv) Enhancing revenue mobilization through establishing a broad and equitable tax system that facilitates tax registration and compliance. 4. At the provincial level, the governments of Punjab, Sindh, KPK, Balochistan, and FATA are formulating and implementing good governance strategies. The provincial governments’ programs are comprehensive and intend to improve government performance and service delivery by strengthening performance monitoring, public finance management, revenue mobilization, transparency and accountability. World Bank Group Response to Pakistan Governance Challenges 5. The World Bank Group is proposing an approach simultaneously selective and integrative to support Pakistan’s federal and provincial governments to address governance challenges. This approach is intending to integrate mainstreamed actions in each sector; to develop governance operations supporting specific governance reforms; and coordinate actions with other donors. Meanwhile, interventions will be selective, targeting priority areas and developing standardized instruments across sectors. The following main types of actions are foreseen: (i) Mainstreaming Governance and Corruption (GAC) in WBG Programs through Risk Management; (ii) Sector Governance; (iii) Donor Coordination on Anti-corruption; (iv) Projects supporting governance reforms; (v) Fiduciary safeguards in WBG Programs; and (vi) Private Sector Good Governance Program. (i)

Mainstreaming GAC in World Bank Programs through Risk Management 

IMPACT: A standardized governance risk management will be mainstreamed in each WBG Project. This risk management approach consists of a risk management diagnostic at                                                              1

The last National Finance Commission (2010) increased the provincial share in revenue from 46.25 percent to 57.5 percent.

   

Annex XII Page 2 of 2 

  preparation stage complemented with mitigating measures. A team has been set-up for this purpose and works in coordination with project teams. Disbursement rates will be used as proxy to output and outcome. I M P A C T

(ii)

ICT instruments to support monitoring of project outputs and outcomes. Management of Risk through systematic diagnostic embedded in the portfolio management process. Private Sector interventions: IFC will continue to enhance its Comprehensive Integrity Due Diligence (IDD) for each project before formally engaging with clients. Accountability measures through supporting Accountability Institutions and Social Accountability actions. Country systems strengthening for effective mitigation of risks in areas such as financial management, procurement, Ombudsman. Transparency interventions such as support to Right to Information, open government.

Sector Governance  At the Federal level: Governance and Political Economy analysis targeting four areas (Energy; Tax Administration; Large Procurement and Contracting activities; and SOEs).  At the Provincial level: Monitoring of Service Delivery Performance through ICT in areas including Education, Health, and Livestock.

(iii) Donor Coordination on Anticorruption The Anti-Corruption Action Group (ACAG) includes the Bank and other donors involved in governance, and functions as a cooperative to develop donors’ response/action to address corruption related issues. (iv)

Specific programs supporting Governance Reforms  Federal Level: Technical Assistance on Revenue Mobilization and SOEs funded by DFID.  Federal Level: IDF supporting Ombudsman institutions.  Punjab: Public Management Improvement Program (PforR) supporting government actions on tax administration; transparency; public procurement; and performance monitoring of service delivery. Program developed in cooperation with DFID.  Sindh: Public Sector Reform Program supporting government actions on tax administration; public financial management; public procurement; and monitoring and evaluation. Program developed in cooperation with the EU.  KPK, Balochistan, and FATA: Governance Support Program focusing on Judicial; Public Procurement; Service Delivery; and Anti-corruption. Program financed by the Multi-Donor Trust Fund.

(v)

Fiduciary safeguards in WBG Programs Enhanced fiduciary safeguards will be implemented in projects as described in the fiduciary section of each project. This will complement actions mentioned in this annex.

(vi)

Private Sector Good Governance Program  Collective action by business associations and relevant chambers of commerce will be explored for government to business (G2B) transactions where unethical or corrupt practices are detected.  Corporate governance program of IFC will be leveraged to support task teams to send a clear signal to the relevant private sector entities on the ethical standards expected under WBG financed projects. A guidance note will be prepared to facilitate this effort.

   

Annex XIII Page 1 of 2

 

Annex XIII: Investing in Women in Pakistan Pakistan’s Context 1. Gender equality and women empowerment are central to reducing poverty and achieving sustainable development. By prioritizing and integrating gender in education, health and labor policies, Pakistan can make meaningful progress towards achievement of its Millennium Development Goals. Just as importantly, empowering women and investing in women and girls can be key drivers of peacebuilding, social justice, economic growth and reducing inequality. Although Pakistan has come a long way in addressing these issues, it has progressed at a much slower pace when compared to other developing countries, particularly in South Asia. The World Economic Forum report 2013 suggests that Pakistan moved down in the rankings from 134th to 135th position due to a worsening in political empowerment this year and occupied the last spot in the Asia and Pacific region. The country ranked 124 on women’s health and survival, 129 on women’s educational attainment and a staggering 135 on equal economic participation and opportunity. Currently only 22 percent of women participate in the labor force. 2. At the core of the women’s exclusion and lack of women empowerment are the structural inequalities in Pakistan in which society and tradition can be powerful forces in differentiating access to resource and services and marginalizing women and girls, particularly in poor and rural areas and in time of natural disasters and insecurity. Lack of government resources, high poverty and low levels of literacy all contribute to the fact that very few women are aware of their rights, while also complicating the implementation and enforcement of reforms required to improve their situation. 3. The Government of Pakistan has a concrete agenda for women development and empowerment. Major efforts include: Protection Against Harassment of Women at the Workplace Act (2009), the Domestic Violence Prevention and Protection Act 2009, Ministry of Women Development’s ‘Gender Reform Action Plan’ aimed at undertaking a coherent gender reform agenda. The Poverty Reduction Strategy Paper (PRSP) and Medium Term Budgetary Framework have also incorporated various gendersensitive amendments. While these efforts have made some impact, the country needs a comprehensive gender development strategy with stronger implementation to create a substantive long term change. WBG Gender Portfolio Review 2013 4. The WBG Gender Portfolio Review 2013 assesses gender development changes in WBG’s operations in Pakistan building upon the findings of the earlier Gender Portfolio Review done in 2009. It was found that Gender mainstreaming at the Bank has made significant progress with regards to gender informed inputs. Inclusion of gender analysis in social assessments, gender specific interventions and gender sensitive results indicators are some of the areas where improvements have been made post gender portfolio review 2009. 5. Thirty one (31) projects were evaluated for their level of gender integration and were rated using a Threefold Rating Matrix along three separate dimensions, namely, analysis (assessed the quality of analysis), action (provided details of the gender interventions undertaken by project operations) and monitoring and evaluation (evaluated gender responsive impact of interventions). Any project was marked as gender informed if it included at least one dimension in its social assessment, safeguard policies or feasibility reports. 6. It was found that 92 percent of the projects from the human development sector were gender informed as opposed to only 66 percent from the economic sectors. The Education sector projects took the lead in embracing gender integration as an important tool for development. The Private sector (IFC) mainstreamed gender as an important cross-cutting theme in its advisory and investment services. On the Investment Services side, most of gender related impact has come from investments in the microfinance    

Annex XIII Page 2 of 2

  and SME sectors which have directly or indirectly facilitated women—both in terms of access to finance as well as in job creation. On the Advisory Services side, Corporate Governance and Business Edge projects were both gender inclusive and worked towards reducing gender-based barriers in the business environment. 7. However, there were a few gaps identified across sectors including energy, finance and infrastructure due to the fact that gender planning is technical in nature and involves a transformative process way. Overall, a continued effort needs to be made to ensure that gender equities are addressed throughout program design and implementation and quality based indicators are used in the results framework. Looking Forward 8. The World Bank Group chaired the Inter-Agency Group on Gender and Development (INGAD) from January - June 2013 and developed a note for the new government which highlights three critical areas—education, health and labor—where clear strategies, financing and implementation mechanisms are needed to tackle gender challenges, both at the Federal and Provincial levels. The WBG CPS 2015-19 mainstreams actions on these three dimensions and also provides a special focus on gender under the Result Area III on Inclusion. A central element in implementing these strategies will be the collection and analysis of gender-disaggregated data, and effective monitoring and evaluation of this data to enable policy makers to see what works and what does not, and holding service providers accountable. 9. Education: Article 25A ensures education for all, and this should be monitored and enforced. Increasing the education budget for all children and enhancing quality, efficiency and accountability of education expenditures are critical; however there is an equal need to focus on building gender based infrastructure and human resources. An effective strategy to address gender disparities in education should focus on increasing enrollments and decreasing dropouts of girls, particularly in the rural areas. Investments in improving the quality of teacher training, building gender aware infrastructure such as separate bathrooms and boundary walls, and standardizing a gender sensitive curriculum will also improve gender indicators in education. 10. Health: Gender sensitive health strategies and budgets, particularly at the provincial level, need to be shaped so that they address both access and availability, particularly for women’s health, contraceptives, child vaccinations and nutrition, and in rural and poor areas. Increased support for Basic Health Units and Rural Health Centers can significantly improve maternal and neo-natal health, as can the deployment of Lady Health Workers and roll-out of health insurance. Malnutrition can also be addressed through awareness campaigns as well as increased availability of nutrition supplements. 11. Labor: The upcoming youth bulge, has the potential of paying a demographic dividend, if and only if an investment is made now in empowering women. One of the greatest catalysts for robust economic growth is investment in women and girls’ access to labor markets, both formal and informal. To do so, it is important to ensure that both men and women have equal opportunity to increased education, vocational skills training, job placement and access to credit. Laws that address Workplace safety, social benefit and security, and gender harassment need to be properly implemented and monitored. 12. Private Sector: Ongoing and new work to advance gender focus in the private sector would include: (i) expanding opportunities for women entrepreneurs to grow their businesses with increased access to finance and access to markets; (ii) improving financial institutions’ understanding of women’s markets; and (iii) increasing women’s voice as leaders and stakeholders by expanding training for women directors on corporate boards.    

Annex XIV Page 1 of 2

 

Annex XIV: Youth Inclusion in Pakistan Why is Youth Important to Pakistan? 1. Pakistan today is one of the youngest countries in the world; and youth play an important role in the economy. Around two thirds (68 percent) of the population is under the age of thirty, and the median age is 22. Over the next several decades, Pakistan is poised to become the fourth most populous country in the world. With nearly 53 million active youth (under 25), the challenges of inclusion and empowerment of these young people will only continue to grow as the proportion of young people in the country rises. Youth in Pakistan is increasingly urbanized and tech-savvy segment of the population. More than a third of youth currently lives in urban areas and their share is expected to reach 50 per cent by 2030. The large numbers of Pakistani youth represent not only a source of labor but also the potential to bring innovation, entrepreneurship, new skills and ideas to the economy. Global experiences have demonstrated that the participation of a growing youth population into the economic fabric can contribute to accelerated growth and development in the country. In addition, nearly a fifth of the 85 million Pakistanis registered to vote are between 18 and 25. Looking beyond the short term promises made during the recent elections, it is important to recognize both the emerging trends and deeper changes taking place in Pakistan, as well as the increasing role that young people may play in these changes. What are the Key Issues and Priorities for Pakistan’s Youth? 2. Pakistan’s youth face unique issues alongside broader patterns of social exclusion. Pakistan’s youth are subject to broader forms of social, political and economic exclusion based on their gender, religion, and social class. However, youth face particular forms of exclusion that are specific to their social transitions to adulthood. Within a hierarchical culture, social norms dictate seniority over youth and this hierarchy persists even within gender, religious and social groups. Thus the ability to speak out, to voice ideas, to lead are mitigated in a context of where the young are expected to ‘know their place’ in society. With rapidly shifting values and norms, and multiple and often conflicting social identities, young people in Pakistan are fixed in traditional pathways to transitioning to adulthood that remain stifling and limit voice, opportunity and empowerment. 3. Youth face barriers to opportunities in two areas: employment and education. Longstanding unemployment is often linked with eroded trust and social cohesion, which could further exacerbate Pakistan’s fragility. While youth unemployment in Pakistan is comparable to many other countries (at 7.7 percent versus an overall unemployment rate of 5 percent), this figure translates to 3.7 to 4.6 million young people.1 Pakistan’s Planning Commission estimates that, in order to productively absorb the large number of youth, Pakistan’s real GDP needs to grow at an annual average rate in excess of 7 percent.2 For young people, access to employment opportunities not only signifies material improvements, but has important implications for social transitions to adulthood, political participation and belonging, and social cohesion. Second, the quality of education has not equipped young people with necessary skills. Pakistan spends less than 3 percent of GDP on education. Poor quality of education and outdated skills limit opportunities for youth. Pakistan has a relatively large proportion (32 percent) of uneducated youth with no vocational and life skills, who end up in elementary occupations or remain either unemployed or inactive.3 Eroding public services, particularly in critical areas such as education, undermine the future skill development and opportunities of the emerging generation. This, combined with underemployment                                                              1

World Development Indicators, 2008 Planning Commission 2011. “Pakistan: Framework for Economic Growth”, Planning Commission, Government of Pakistan, May 2011 3 Planning Commission 2011. “Pakistan: Framework for Economic Growth”, Planning Commission, Government of Pakistan, May 2011 2

   

Annex XIV Page 2 of 2

  is typically considered major structure factors to continued youth exclusion, and is linked with an increase in the likelihood of violence. While not predictive of conflict, countries with young age structures and a combination of unemployment, poor education, and weak governances are more highly correlated with violent conflict.4 Government Strategy and Program for Youth Engagement 4. Both the Federal Government and the provincial Governments, especially Punjab and Sindh have instituted youth programs to enhance skills and promote employment. For example the Federal government as a part of its broader youth program provides loans to youth for small businesses, as well as training and skills development.5 Both the Punjab and Sindh Governments also have youth programs aimed to address unemployment of youth by providing training and skills development e.g. The Sindh Benazir Bhutto Shaheed Youth Development Program (BBSYDP) 6 and the Punjab Youth Internship Program (PYIP).7 In addition the Government has several initiatives focused towards enhancing youth learning achievements. One such program is the federal governments Youth Laptop Scheme, where eligible students from public sector HEC approved universities receive laptops.8 The effectiveness of these programs is yet to be determined, as no systematic evaluations have been done to date. World Bank Group Support for Youth Engagement 5. The World Bank recognizes the importance of the role youth play in Pakistan’s development. Integrating youth and addressing needs and priorities of the younger generation is critical to Pakistan’s longer term development path. Over the past few years, the WBG has focused on better understanding the specific youth exclusion patterns, and improving engagement with young people in the development process. This was reflected in improved mainstreaming of youth participation in existing operations, and in collaboration between the MDTF and University of Peshawar where Youth Advisors were selected for Governments of KPK and FATA. This encouraged the development of valuable skills and created networks for long term engagement of youth in local development challenges. 6. The new CPS brings focused attention to supporting innovative pathways to social inclusion and youth employment under the Result Area III -- Inclusion. One area of increasing focus will be on youth employment opportunities, recognizing this as an important avenue for individual material security and broader economic growth, but also as a social transition to adulthood and social inclusion. To this end, innovative pathways to inclusion in the local, national and global will be supported to promote the expansion of employment. For example, opportunities in the fast-moving digital economy hold great potential for young Pakistanis. Studies estimate that the online contracting market is worth US$1 trillion globally.9 While the tech industry in Pakistan is still nascent, it may be well positioned to partake in this high growth sector. The World Bank hopes to support the Government of Pakistan in exploring innovative ways to expand economic and job opportunities for youth via technology solutions, and to support entrepreneurship and innovation that could create new employment avenues for young people.

                                                             4

In 1990s, countries with a very young structure were three times more likely to experience conflict than countries with a mature structure. Between 1970 and 1999, around 80 percent of all new outbreaks of civil conflicts occurred in countries in which 60 percent or more of the population was under age 30. (BARGAD 2010) 5 http://youth.pmo.gov.pk/ 6 http://www.bbsydpsindh.gov.pk/ 7 http://pypb.punjab.gov.pk/ 8 http://youth.pmo.gov.pk/?page_id=28 9 Connecting to Work, Raja, S. Imaizumi, S., Kelly, T.Paradi-Guilford, C., The World Bank, September 2013

   

Annex XV Page 1 of 2

 

Annex XV: Restoring Trust between Citizens and Governments of KPK, FATA and Balochistan Status of Engagement 1. The WBG engaged for several years with the provincial Governments of KPK, FATA and Balochistan, mainly through IDA window. The last CPS had dealt with crises-affected provinces and regions under a separate pillar supported by the Multi Donor Trust Fund (MDTF). The new strategy brings attention to mainstreaming the dialogue on special needs of the groups and regions at risk under the Result Area III - Inclusion. 2. The MDTF was established in 2010 as a mechanism to support the provincial governments in implementing their post-crises development priorities. The fund is supported by eleven development partners. Currently, the total funds allocated to MDTF stand at US$ 157.15 million, committed to 11 projects. 3. Since 2011, MDTF has made gains both in terms of establishing robust delivery mechanisms as well as achieving results on the ground and has moved from a funding mechanism for KPK, FATA and Balochistan to a strategic instrument aimed at contributing to PCNA (Post Crisis Needs Assessment) and BDNA (Balochistan Development Needs Assessment) objectives while helping provincial and regional governments to build their own capacity to address wider development needs. 4. WBG Global Center on Conflict, Security and Development (CCSD): During this period, MDTF benefitted from the support of the WBG CCSD hub in Nairobi, which helped design the MDTF strategy, from the PCNA operationalization report (OPCNA) to the new Programmatic approach, and provided guidance and global experiences/best practices on management of the Third Party Monitoring Agents (TPMAs), and results/monitoring for emergency projects.   5. External Donor Reviews: Since 2012 three donor reviews were completed, providing recommendations in the most critical areas of MDTF operations. The most important were aimed at building a more strategic MDTF i.e. contributing more efficiently to PCNA objectives and thus to peacebuilding through efforts for restoring trust between citizens and the governments. The recommendations of the reviews concentrated on (i) improving the MDTF Results Framework and project outcomes and indicators, (ii) measuring the performance of the Governance Support Program in its effort to build capacity of the local administration for basic services delivery, (iii) strengthening the MDTF Secretariat, and (iv) designing a communication strategy. 6. Following CCSD’s and Donors Recommendations, the MDTF Secretariat has developed a comprehensive results framework, which represents a collation of portfolio level results and maps these activities against the PCNA Strategic Objectives. The MDTF Consolidated Results Framework (CRF) presents a log frame for the portfolio and captures all deliverables. The CRF presents key outcomes and outputs outlined in the Operationalisation of the PCNA (OPCNA) document and the associated results, which are delivered through the portfolio. 7. In consultation with the governments and development partners, the MDTF is currently developing a round-II strategy and results framework to scale up engagement in the three regions. The strategic focus, however, needs to be strengthened in order to advocate for an increase in on-budget bilateral support and to help donors and governments to prioritize and harmonize their investments and align them with the agreed PCNA objectives.

   

Annex XV Page 2 of 2

  Lessons from Implementation and Emerging Needs 8. To that end, the MDTF has undertaken multiple analyses to identify i) those activities and sectors that would ensure capitalizing on the achievements/gains so far; ii) key lessons that can be drawn from implementation experience to date; iii) new needs that can be addressed by the MDTF; and, iv) undercovered sectors and geographical locations. These analyses have generated three broad conclusions. 

First, the studies found that MDTF activities to date are not sufficiently strategic in that the actual interventions undertaken by the MDTF may not significantly contribute towards the outputs highlighted in the PCNA.



Second, while MDTF activities to date have made considerable impact towards enhancing the capacity of provincial governments in piloting development interventions for greater state legitimacy and state-citizen trust, these interventions have been fragmented. Further, the PCNA financing to date has been skewed towards infrastructure, education and health sectors at the expense of investments in the areas of law and justice, communications, governance and social protection.



Third, the lack of flexibility has resulted in slow pace of implementation and disbursements. While the use of country systems is essential for capacity building, it does come at a price in terms of speed of implementation and the resource intensive nature of technical support. Initial concerns over slow implementation have resulted in improved understanding of government & Bank policies/procedures by all parties with more effective application in support of program delivery and consultations, such as the MDTF Advisory Committee to inform decision making and to raise and discuss impediments to implementation. These innovations need to be strengthened to make MDTF more efficient.

Towards a Programmatic Approach and Scaling up Existing Interventions 9. Noting the recommendations from the analyses that the MDTF should consolidate its programming, the MDTF will establish a single programming window for each of the two provinces and FATA. Each program would have components that align with the three MDTF engagement themes: (i) Growth and job creation, (ii) Policy reform and governance and (iii) Improved service delivery 10. In addition, the MDTF would manage a fourth program that provides a mechanism to allow for quick response in areas experiencing rapid deterioration of the economic and social environment, particularly in the context of the ISAF drawdown from Afghanistan. 11. Scalability will be essential to capture the economies of scale that are likely to accrue from Round I activities both in terms of i) building on previous success; ii) enhancing the geographical coverage of MDTF activities beyond the initial pilot phase; iii) moving from a project to program approach where MDTF-supported interventions become more strategic with a whole-of-sector focus; and (iv) possibly matching MDTF funds with IDA resources thus leveraging greater funding for development priorities. 12. Being also less fragmented and more flexible, MDTF will ensure that its development impact is transformational, increases exponentially and that the benefits are sustained. This requires that the MDTF adopts a new programmatic approach towards implementation. This programmatic structure would provide flexibility to shift resources between components as well as allowing greater capacity to adapt operations in response to changing security situation.

   

Annex XVI Page 1 of 2 

 

Annex XVI: Climate Change in Pakistan 1. Pakistan is the 54th most vulnerable country and the 25th least ready country for global climate disruption according to the Notre Dame Global Adaptation Index for 2012. In a 4°C hotter world without deep, fast reduction of global carbon emissions, Pakistan could face extreme risks this century including: (i) Seas higher by at least one meter leading to coastal erosion, saline sea water intrusion, and risk for coastal cities in particular; (ii) 6°C hotter temperatures with some 4 in 5 summers much hotter than usual1; (iii) Increased drought, with less rain by up to some 30 percent in western Pakistan,2 and greater groundwater stress; (iv) 75 percent higher peak river flows for the Indus River delta, due to glacier melt and greater monsoon variability as well as cloud bursts leading to flash floods, exposing more people to inundation; and (v) More intense cyclones, fueled by warmer and higher seas. The Urgency of Action and Potential Opportunities to Manage Climate Change Risks 2. The above risks threaten the water, food and energy security of Pakistan in coming decades. There is an urgent need for significant investment and innovations to reduce vulnerability, improve readiness and achieve low-carbon, resilient development. Integration of climate change and other policy objectives is particularly important as today’s investments will ‘lock in’ infrastructure and technologies for use in decades to come. Particular opportunities include renewables and greater attention to energy efficiency, development of low-cost public and private generation - especially hydropower and long-term transport planning. For adaptation, opportunities include flood defense, assistance for development of a policy framework that emphasizes demand management and conservation, modernize current / traditional irrigation networks / early warning and preparedness systems, fiscal resilience and insurance instruments. Government of Pakistan’s Commitment to Climate Action 3. Pakistan adopted a National Climate Change Policy in 2012, with the overall goal to promote climate resilient development, as well as to mainstream climate change issues within various sectors of the economy through implementing adaptation and mitigation measures. The policy envisages a number of shifts to better manage climate risks: (i) Climate-resilience. Priorities include better data of water systems, and disaster risk management; (ii) Clean, low-carbon and low-water growth. Financial and governance reforms as well as public investments in the energy sector particularly in clean technology are a priority; (iii) Finance. Mobilize domestic and international sources of finance to realize the above plans; (iv) Capacity building and institutional strengthening; (v) Awareness building; and (vi) Regional cooperation. The strategy further highlights a number of important sectors/ areas where climate change adaptation measures need to be mainstreamed and vulnerabilities addressed through relevant mitigation measures. These include: (i) Water Resources; (ii) Disaster Preparedness; (iii) Energy; (iv) Transport; (v) Urban/ Town Planning; (vi) Industries; (vii) Agriculture; and (viii) Forestry. What the World Bank Group Can Do to Help Support the Shift 4. The national priorities envisaged by the Government of Pakistan demonstrate important areas of convergence with global best practices in the area of climate change adaptation. Owing to relevant international experience, the World Bank Group can help support the Government in implementing the envisaged shifts in a number of areas:                                                              1

‘Turn Down the Heat: Climate Extremes, Regional Impacts, and the Case for Resilience’ (World Bank 2013, p.113, Figure 5.4). 2 World Bank 2013, p.115, Figure 5.6. Precipitation in western Pakistan by 2071-99 would be around 10-35 percent less annually, relative to 2051-80 multi-modal mean.

   

Annex XVI Page 2 of 2 

  a) Water Conservation and Management. Given Pakistan’s widening gap between water supply and water demand and the potential impact of climate change to exacerbate water deficiencies, the Bank can support GOP to develop a policy framework that emphasizes demand management and conservation and pricing schemes for water use. As part of such national policy formulation, Pakistan may consider implementing regulations that monitor and enforce water use schemes. In parallel, the Bank can support investment in water conservation, modernize current / traditional irrigation networks and install high efficiency irrigation systems in water-scarce areas. b) Low Carbon Development. The national policy has highlighted climate-resilient development as a primary goal for the country. The World Bank Group may assist the government in its respective efforts through facilitating access to available financing sources, providing technical assistance, and supporting the integration of adaptation/ mitigation strategies in sectors such as agriculture, energy, transport, urban planning, and industries. The CPS envisages investment in large scale hydro projects to change the energy mix, as well as exploring small scale renewable energy potential. Furthermore, the role of the IFC will be important to engage with the private sector towards piloting and implementing mitigation and adaptation measures. 

Support access to climate finance for low-carbon/low-water development. Pakistan formally requested access to the Clean Technology Fund (CTF) in April 2013. CTF will consider the question of new membership in June 2014 when the outlook for operationalization of the Green Climate Fund will be clearer.



Explore possibility of a low-carbon growth study. This will facilitate readiness to access climate finance by Pakistan. The study would identify and prioritize low-carbon interventions for the next 5-10 years consistent with longer-term vision for green growth. A low carbon study should identify options based on consensus within different sectors on reference scenario emissions, specific mitigation measures and financing needs.

c) Improved Preparedness towards Climate related Emergencies. A number of recent events have demonstrated the country’s vulnerability to disasters linked to climate change such as flooding and meteorological events. Given the socio-economic impact of such events in the past as well as increased risk in the future from rising sea levels, higher river flows, and likelihood of drought, Pakistan needs to improve the availability and use of hydro-meteorological data as well as to make sizable investments in preparedness for and ex-ante mitigation of climate related shocks. The World Bank Group may support a number of important activities, including: 

Improve Early Warning Systems and access to risk information. To meet the challenges arising from the increased risk of hydro-meteorological disasters resulting from a change in the climatic conditions, Pakistan needs to have access to better risk information for better targeting of mitigation investments. It also needs to have a mechanism for communicating risk information through the creation of multi-hazard early warning systems going down to the community levels to better warn the vulnerable communities for improved preparedness.



Support establishment of a Glacier Monitoring and Research Center. The Hindu KushHimalaya (KHK) region’s 18,495 glaciers are an important source of water to the Indus River Basin, which covers 65 percent of Pakistan. Data on most glaciers is lacking. Policy makers need better data to prepare for hydrological changes.

   

Annex XVII Page 1 of 2

 

Annex XVII: Pakistan’s Growth Potential as the Regional Economic Hub 1. Pakistan is strategically placed to become a regional hub for trade and investment by connecting the markets of South Asia, Central Asia and the Middle East. Given South Asia’s rapidly changing geo-political scene, democratic transitions and emergence of a dynamic private sector, Pakistan is strategically located to gain from regional economic cooperation. Although national development issues remain central to poverty alleviation, recent trends and events, such as widening political support for regional economic cooperation have opened policy space for leveraging the economic opportunities within the region which could become a dynamic global marketplace. 2. South Asia is one of the least economically integrated regions of the world with intra-regional trade accounting for just 5 percent of total trade. In addition to enhancing economic growth, stability and prosperity, regional cooperation could pave the way for South Asian countries to collaborate on shared climate change-related challenges which threaten sustainable growth. The desire of South Asian leaders to be full players in the emerging “Asian Century”, the draw-down of ISAF troops from Afghanistan, and the large numbers of young people entering the work force, make this is an open enough moment for strengthening the resolve and policy focus on regional economic cooperation. 3. Building momentum for economic cooperation. India and Pakistan have revitalized ministeriallevel negotiations on expanded trade including granting Non-Discriminatory Access to India. India has modernized its Attari border post with Pakistan and offered to export 500 MW of power. India and Bangladesh have enhanced their bilateral ties while Afghanistan and Pakistan have started implementing a 2011 transit and trade treaty. These developments and the slowdown of western economies are among the factors further strengthening the case for regional economic cooperation. 4. While gains from greater cooperation through power trade, commerce and river basin management will be substantial, they will be asymmetric across countries, within countries and in time. The greatest gains are in the power sector, with connectivity enhancing system reliability, lowering costs and carbon emissions, and relieving debilitating shortages by enabling sustainable development of the hydro/gas-based power generation potential of the region. Transmission infrastructure, clean energy generation, and fair pricing agreements across borders hold the key to realizing this potential. There are abundant unexploited opportunities for regional economic cooperation in South Asia, in areas such as commerce, transport, energy, agriculture, wild life conservation, governance, migration, tourism, climate change adaptation, health/epidemiology and education. 5. Cross-border trade is especially important for smaller and/or landlocked provinces/countries, including Afghanistan, Bangladesh, Bhutan, Nepal, Northeast India, and parts of Central Asia. Expanded intra-regional trade, increased investment and supply-chain integration, will need policy reforms, and improvements in regulations, border management, and infrastructure, with due regard to the security concerns dominating each country’s view of borders. SMEs are likely to play a large role in expanded commerce, creating a wider canvas of opportunities for cooperation and poverty reduction. 6. Recognizing the strategic importance of regional economic cooperation, the WBG created a new Regional Integration Program in FY11 to promote and support economic cooperation. The program, working closely with relevant WBG teams, has made progress in building political support for regional cooperation, deepening knowledge in key areas, and developing a selective portfolio of transformative cross-border operations. Three projects ($280 million IDA) are under implementation and the pipeline is expected to grow in the coming years. 7. The overall aim of the WBG Regional Cooperation Strategy for the next 3-5 years is to step up support for three main objectives which are listed below:    

Annex XVII Page 2 of 2

  i.

Help put in place the building blocks for an integrated regional electricity market in South Asia (with links to Central Asia) to relieve energy shortages that constrain sustainable and equitable growth. The activities include low capital intensity transmission projects that better utilize existing endowments like CASA-1000 to bridge the gap between Central Asia’s surpluses with Pakistan’s summer peak demand. High capital investments in new power plants in Nepal, Afghanistan, Central Asia and Pakistan will be supported. The proposed India-Pakistan power transmission line will be a critical link for power sharing in the region.

ii. Double the volume of trade and investment in goods and services to enhance competitiveness. The strategy focuses on helping the government develop evidence based policies to enhance regional trade. The WBG is supporting the regulatory framework, business processes and infrastructure at border posts to facilitate higher volumes of trade, and in Pakistan, the up-gradation of the Wagah border post on international standards. iii. Improve the in-country and cross-border authorizing environment for regional economic cooperation by systematically building awareness and “championship” around the need for, and benefits from, increased regional cooperation. Building on analytical work on the costs of the status quo and high impact opportunities, and by leveraging lessons from South Asia region and global experience, the strategy will facilitate sustained action in priority areas where there is already sufficient demand across countries and build support for new high priority areas. 8. Although the goal is to move towards an integrated market across South Asia for overall trade, the strategy foresees an intermediate stage involving promoting sub-regional cooperation/integration based on practical realities rooted in the sub-continent’s politics and the current willingness to engage on the regional agenda by the countries. One sub-region comprises Bangladesh, Bhutan, India and Nepal (with links to South East Asia) in the Northern and Eastern part of the South Asian subcontinent and a second, Pakistan and Afghanistan (with links to India, Central Asia and the Middle-East). This approach also helps manage program risks deriving from the possible renewal of political tensions in any one part of the subcontinent.

   

Annex XVIII Page 1 of 2

 

Annex XVIII: WBG’s Portfolio Management Portfolio status 1. The World Bank has 35 active projects in Pakistan for total commitment of $4.5 billion. Most of the commitment is IDA ($3.5 billion), while IBRD amounts to $0.95 billion. The WB also administers a small Multi-Donor Trust Fund (MDTF) of $130 million in commitments for the conflict-affected areas bordering Afghanistan. 2. About 57 percent of the portfolio provides support at the federal level; and 43 percent directly to the provinces. The human development sector is the largest share with 38 percent, followed by energy with 27 percent, and agriculture with 15 percent. Disbursements have been good - $554 million in FY13, for a disbursement ratio of about 20 percent. The ratio throughout the last CPS period was above 20 percent. Balancing the portfolio with a mix of fast-disbursing and regular investment operations has helped maintain the good disbursement ratio. There are currently 5 projects (total commitment of $734 million) at risk. The riskiness of the portfolio has steadily decreased from a high of 28 percent in FY11to the current (FY14) 16 percent. 3. IFC has committed around $4.5 billion in cumulative investments. Its portfolio as of February 2014 amounted to US$809 million in 38 companies. Exposure in the infrastructure cluster represents about 56 percent of the committed balance, financial markets 19 percent, while the remaining 25 percent includes general manufacturing and services. IFC committed $555 million in FY12 and $514 million in FY13. The portfolio performance is strong with only one non-performing loan out of a total of 38 projects. 4. MIGA’s current gross commitment is $310 million ($217 net) in 3 projects. These are in the financial services, power and manufacturing sectors. These were signed in FY11, 12 and 13 respectively. Implementation issues 5. World Bank: The South Asia Region Portfolio Performance Assessment conducted in FY2014 highlighted several key issues affecting the quality at entry and during implementation, including high staff turnover, weak capacity for fiduciary aspects, lack of implementation readiness, project complexity and inadequate risk analysis and mitigation. Other cross-cutting issues like fragmentation and limitations in accessing project sites in conflict-affected areas have added to implementation problems. 6. IFC: Despite weak macro-economic environment and a persistent energy crisis which has negatively affected the private sector (including IFC clients) in the last five years, IFC has managed to maintain its portfolio quality through proactive engagement, including assisting clients to address operational issues and policy related issues in a timely manner. Having a strong portfolio team on the ground to actively engage in portfolio management has helped maintain portfolio quality during the difficult external environment. 7. Key challenges for IFC’s engagement with the private sector include: (i) volatile security, law and order dampening portfolio clients’ business activity; (ii) incoherent government policies and delays in regulatory and policy action adversely impacting growth of private investment in infrastructure sector development; (iii) shortage of energy making local industry uncompetitive in international market; (iv) lack of local currency funding product to support manufacturing agribusiness and services sectors; (v) lack of innovative products and services catering for SMEs and an under developed capital markets and non-banking financial sector; and (vi) weak corporate governance, limiting growth and investment potential of SMEs, and IFC’s ability to engage with Tier- 2 companies.

   

Annex XVIII Page 2 of 2

  Moving forward 8. Building on lessons from implementation and recommendation of the recent review, the World Bank will work with the Government of Pakistan to remove the bottlenecks and improve the pace of implementation and project outcomes. Specific attention will be on meeting the readiness for implementation requirements before Board presentation. 9. In addition to portfolio reviews, we plan to raise the bar by (i) having high-level federal reviews of flagship projects at the Economic Coordination Committee level – the federal cabinet -- that can track and influence the pace of implementation; (ii) working with the Chief Ministers’ offices and a core group of provincial cabinet ministers, as well as the Delivery Units that some provinces like Punjab and KPK are already setting up to strengthen implementation; (iii) at federal, provincial and local government levels, strengthening our PFM programs focusing on the weakest areas of accounting, internal and external audits, procurement systems, budget transparency, and social accountability; and (iv) building in flexibility in project design for emergency response and by increasing attention to preparedness and shared approaches for managing disaster risk. 10. Consultation and dialogue with the private sector, elected representatives, civil society, youth, communities and other stakeholders, including the media, will continue to be a key requirement in project design and implementation. In addition to ensuring the presence of communication specialists on the ground, staff and government counterparts will be encouraged to undergo communication and media training. 11. The use of third party monitoring will be stepped up, especially in the conflict-affected areas, as will the use of technology, such as Caliper to plan, process and track procurement, Pointer to remotely monitor works’ progress, and Video conferencing for more regular interaction with governments and implementing agencies. 12. More focus will be given to the development of programs consistent with the CPS themes, making optimal use of the Global Practices and the convening abilities of the Program Leaders across the practices. This will assist address fragmentation. Simplicity and readiness for implementation, a better blend of local and global knowledge and experience including in program leadership, will help address the design and implementation support issues that have contributed to slow implementation. 13. For MDTF, use of country systems will continue, with cognizance of trade-off between capacity building and implementation efficiency. Governments will continue to lead implementation, but will be encouraged to make more use of private sector and NGOs. To address fragmentation, design of the second round will take a programmatic approach consistent with the thematic pillars, but simplicity of operations will also be ensured. Co-financing will be encouraged, to help mainstream the MDTF. 14. Project risk assessment and mitigation will be enhanced in accordance with the recommendations of the governance and corruption -- PGAC-II strategy 15. IFC will provide counter-cyclical support to help existing and new clients continue and expand their business operations. It will consider providing flexible and timely assistance, including through short-term financing instruments, selective debt and equity investments, advisory service work, and active portfolio management. IFC will work closely with WB to improve the overall investment and business climate, remove specific constraints on the energy sector and take forward the privatization agenda. With its strong local and regional presence, IFC will expand its advisory work to enhance private sector’s capacity (especially Tier-2 companies), including introducing better corporate governance, skills development, improved financial and operational management. It will also work with client banks to improve their lending practices and expand outreach.    

Annex XIX Page 1 of 4 

 

Annex XIX: Overview of WBG’s Partnerships and Trust Funds Partnerships 1. In the spirit of the Paris Declaration and aid effectiveness commitments, the WBG supports the Government in leading coordination of the donor support in Pakistan. The Economic Affairs Division has established a Donor Coordination Cell and has been working to improve its functional capacity. In the provinces, the Provincial Planning and Development Departments are responsible for coordinating with development partners. Donor coordination and cooperation in Pakistan have deepened in recent years through regular meetings of the Heads of Agency, the MDTF Core Group and Steering Group Committee. A series of bilateral meetings are also being organized to strengthen partnership and strategic dialogue. 2. The Table 1 highlights the engagement of development partners in Pakistan with reference to the priority themes identified in the proposed Vision 2025. The World Bank regularly coordinates with these development partners to ensure effectiveness and synergies. Key examples of such partnerships have been outlined below.

IFAD

Germany

Netherlands

CIDA

USAID

One UN Programme II

Switzerland

AusAID

Japan

Islamic Development Bank

European Commission

UK-DFID

IMF

ADB

World Bank Group

Table 1: Coverage of Country Priorities Areas by Development Partners

Energy Security Macroeconomic stability and investment climate Human development , Municipal management, gender Water and transport Trade and skill development Social Protection Disaster Management and Environment Agriculture Capital and finance Revenue mobilization, public financial management, PPPs

Coordination on Policy Reforms 3. WBG took the lead and actively worked with the IMF, ADB, DFID and USAID in the pre and postelection transition dialogue on key reforms, including brainstorming on the reforms supported under the IMF program. The partnership has helped support a shared understanding and common narrative on key reform areas. This was important for providing inputs to not only the planned IMF program, but also for informing the overall dialogue on short and medium-term priorities with the new governments elected in 2013. 4. The IMF’s Extended Finance Facility (EFF) focuses on the short-term stabilization program and on selected structural reforms in tax administration, SOEs, and the power sector. To compliment, the government’s multiyear program with the WBG brings focus on medium to long-term structural adjustment    

Annex XIX Page 2 of 4 

  efforts in these reform areas as well as trade competitiveness, the business climate and private participation, access to finance, and social safety nets. The WBG is also engaging in parallel technical assistance work supporting institutional capacity.   5. The WBG is collaborating closely with the IMF on the (a) two DPCs – Fiscally Sustainable and Inclusive Growth DPC and the Power Sector Reform DPC; (b) financial sector reform, including joint efforts to prepare a Financial Sector Assessment Program; and (c) debt management through joint missions and preparation of a Medium-Term Debt Strategy. 6. Other development partners are also contributing to the dialogue on policy reforms and supporting the WBG’s DPC series. DFID is planning to provide parallel financing, and its representatives have participated in the discussions primarily focusing on tax policy and administration, the BISP safety net, and the One Stop Shop (OSS) for businesses. ADB and USAID are also supporting the power sector reform and have shown interest in providing parallel technical assistance, and support for SOEs reform. Collaboration in Social Sectors 7. The WBG has been actively engaged with the Government and other development partners in helping strengthen social safety nets in Pakistan. Our reform initiative with the Benazir Income Support Program (BISP) is serving as a viable platform to channel funds to support the Government. USAID and the ADB have provided direct budget support to BISP for cash transfers to eligible beneficiaries identified under the program and DFID has financed a WBG administered Trust Fund used to support TA work on safety nets. The education sector is another area with encouraging progress on partnerships. The WBG is working with DFID, EU and CIDA, to coordinate support around the medium term education sector reform programs of Punjab and Sindh. Recently, the Global Partnership for Education has joined hands with the WBG to provide a total of $100 mln for education programs in Sindh and Balochistan. 8. Similarly, in the health sector the WBG continued its innovative partnership with the Bill & Melinda Gates Foundation (BMGF), Centers for Disease Control and Prevention (CDCP) and Rotary International (RI) through the UN Foundation (UNF). These have supported three Partnerships for Polio Eradication Projects through IDA buy-down mechanism, which converts the IDA credit to a grant for the government. Similarly, the Punjab Health Sector Reform Project is also working closely with DFID to fund sector outcomes for enhanced impact. Joint Crises and Emergency Response 9. Militancy Crisis: Responding to the militancy crisis in KPK and FATA, the Bank worked closely with the Federal, provincial and regional governments and development partners to carry out the Post-Conflict Needs Assessment (PCNA). The PCNA was prepared in collaboration with the UN, EU, and ADB as key partners. Based on the PCNA, the WBG took the lead in establishing and managing the Multi-Donor Trust Fund (MDTF) for KPK, FATA, and Balochistan. The MDTF involves extensive collaboration, as it is supported by 11 donors - Australia, Denmark, European Union, Finland, Germany, Italy, Sweden, Turkey, United Kingdom and United States – collectively contributing US$ 159 Million. To support priority interventions in Balochistan, a comprehensive Balochistan Development Needs Assessment (BDNA) was also carried out. As the MDTF enters into its round two, it will continue to operate as an instrument to strengthen donor coordination and provide greater policy and investment coherence, within the country, province and region led frameworks. 10. Flood Emergency Response: After both the 2010 and 2011 floods, the Government requested the WBG and the ADB to play a lead role for preparing a joint Damages and Needs Assessments (DNAs) in coordination with the One UN, the EU and other donors. The Government and Donors further looked    

Annex XIX Page 3 of 4 

  to the WBG to assist them in building a robust Citizens Damage Compensation Program (CDCP). WBGfunding and the project framework also leveraged the support of US, DFID, and Italy to finance the second phase of the CDCP. Going forward, such partnerships will be further strengthened as the team prepares for additional financing of the project. Analytical Work, Trust Funds and other Alignment Initiatives 11. The WBG has been encouraging joint analytical work to inform policy dialogue and program development around key issues. Many of IFC’s analytic and advisory work also leverages partnerships with donors as well as corporate and development organizations to expand outreach and enhance development impact. During the previous CPS period, the Bank also worked with DFID, EU, USAID and ADB to deliver Public Expenditure and Financial Accountability (PEFA) updates for Punjab and Sindh. Similarly, the WBG chaired the Inter-Agency Group on Gender and Development (INGAD) from January - June 2013 and developed a note for the new government which highlights three critical areas—education, health and labor—where clear strategies, financing and implementation mechanisms are needed to tackle gender challenges, both at the Federal and Provincial levels. 12. The WBG has been able to develop and enhance these partnerships through improved utilization of trust funds and ensuring that they are integrated into World Bank budgeting and strategy processes. More details and analysis of the Trust Funds Portfolio are given in the following section. 13. The WBG will continue to build on the strong foundation of partnerships based on mutual trust and accountability. In the same spirit, the WBG Country Partnership Strategy 2015-2019 benefitted from consultation and valuable feedback of development partners. This would be used as a basis for a sustained dialogue in the coming years to ensure complementarity and effectiveness of donor support to Pakistan. Trust Funds Overview 14. The Pakistan Trust Fund Portfolio currently has 64 active grants with a total commitment of US$ 117 million. Disbursements over the last CPS period were US$ 165 million (equivalent to 6 percent of IBRD/IDA disbursements over the period). Of the 64 grants, 13 (20 percent) are Recipient Executed Trust Funds (RETF) and 51 (80 percent) are Bank Executed Trust Funds (BETF). In terms of management, 45 (70 percent) grants are managed by the South Asia Region and the remaining 19 (30 percent) are Network managed or managed outside the region. FY10-14 TF Snapshot (amounts in US$ millions) Trust Funds Summary *

FY10

FY11

FY12

FY13

FY14

Number of Grants Net Commitment Total Disbursement

59 117.6 39.9

60 132.2 120.1

53 210.5 199.2

62 195.5 109.7

64 117.4 19.6

*Data as of end December 2013 excluding MDTF and IFC

15. Overall, the CPS period of FY10-14 experienced an increase in the use of TFs which has largely remained unchanged in terms of number of grants but TF financing fluctuated with spikes owing to key co-financing activities such as (i) Tax Administration Reform Project by DFID ($20.1m), (ii) Pakistan Third Partnership for Polio Eradication Project by Bill and Melinda Gates Foundation and UN Foundation ($55.6m and $9.2m respectively) and, (iii) Flood Emergency Cash Transfer Project by DFID ($91.3m). Trust Funds often complement IBRD/IDA project funding and are normally executed by recipient agencies as around 85 percent of total commitment during FY10-14 consisted of RETFs. In addition, TF sources are increasingly being used to fund Technical Assistance and Advisory Services. The table below gives more information on donor-wise distribution of Trust Funds. The major sectors    

Annex XIX Page 4 of 4 

  supported through trust funds are the Human Development (US$ 78.9m), and Social Protection (US$ 11m). The Water and Sanitation Program has also mobilized significant trust fund resources for financing activities in Pakistan. Donor Wise Summary (amounts in US$ millions) Number of Donor Grants AusAID Gates Foundation IBRD Japan UN Foundation UK - DFID USAID Netherlands Multiple Donors Total

5 4 3 5 2 5 9 1 30 64

Net Grant Amount

Total Disbursement to Date

FY14 Disbursement to Date

1.58 68.58 1.33 6.31 9.20 11.03 2.14 1.86 15.43 117.46

1.22 0.29 0.56 3.02 2.40 5.03 1.56 0.64 4.90 19.62

0.18 0.18 0.25 0.02 0.59 2.27 0.38 0.13 1.42 5.42

16. The current TF portfolio mostly includes programmatic TFs -- main ones are the Carbon Fund (2, US$ 8m), Polio Buy Down (6, US$77m), Japanese Social Development Fund – JSDF (2, US$2.8m), Institutional Development Fund (IDF) (3, US$1.33m), Policy and Human Resource Development – PHRD (2, US$3m) and Water and Sanitation Program- WSP (11, US$1.78m). Going forward, Global Partnership for Education (GPE) will be funding two major education projects of up to US$100m in Balochistan and Sindh. Trust Fund Portfolio Performance 17. Alignment: Overall, during the CPS period FY10 – 14 the TF portfolio has been broadly aligned with the CPS goals. Use of co-financing arrangements allows for the trust fund activities to be formally linked to ongoing IDA / IBRD projects; however technical assistance and standalone trust funds are also generally aligned with the overall lending portfolio. The Pakistan Country TF Guidelines, which were implemented in FY11, allow for easy checks to ensure alignment as well as ownership and demand from the clients and government. All recipient executed TF grants are required to have requests from the recipient, duly endorsed by the Economic Affairs Division (EAD.) The practice of including RETFs in portfolio reviews has been initiated and regular reports on these RETFs are shared with the EAD. 18. Risks and Performance: The risks for TF grants are generally the same as for regular lending projects and AAAs including: lack of capacity, inadequate needs assessment, very little sustainability, lack of commitment from the government, and slow approval processes. There is often a lack of management attention given the relatively smaller size of the grants. However, the overall implementation performance and achievement of results of the Trust Funds portfolio has been satisfactory during FY1014. TFs linked to ongoing projects are supervised along with the IDA/IBRD projects and many standalone grants have supervision budgets built in to allow teams to carry out implementation support. At the corporate level, there have been several reforms that have ensured that there is more management focus and integration in country programs as well as improvement in transparency and access to TF data. 19. Lessons and Recommendations: To ensure successful implementation of the TF program, early consultations with the government and the WBG country management are necessary. This would also expedite Government approval at various stages of design and implementation and regular reviews will allow for timely advice and guidance. This formalization of the review process is critical for effective delivery. In addition, strengthened focus and attention on needs assessment and monitoring is required.    

Annex XX Page 1 of 2 

 

Annex XX: Provincial Graphs Punjab 

Source: World Bank 2013. Punjab Public Expenditure Review Report.; World Bank staff calculations based on HIES/PSLMS; Labor force survey 2010/11; P is provisional.

 

  Sindh

Source: World Bank 2013; World Bank staff calculations based on HIES/PSLMS; Labor force survey 2010/11: P is provisional.

 

   

Annex XX Page 2 of 2

  Khyber Pakhtunkhwa 

 

Source: World Bank 2013. Punjab Public Expenditure Review Report.; World Bank staff calculations based on HIES/PSLMS; Labor force survey 2010/11; P is provisional.

  Balochistan 

 

Source: World Bank staff calculations, based on HIES/PSLMS. Note: Balochistan poverty estimates for 2006 and 2008 are omitted due to concerns about data quality. P is provisional.

   

CPS Annex B2 Page 1 of 2 

 

CAS Annex B2 Selected Indicators* of Bank Portfolio Performance and Management As Of Date 1/30/2014

Indicator Portfolio Assessment Number of Projects Under Implementation a Average Implementation Period (years) b Percent of Problem Projects by Number a, c Percent of Problem Projects by Amount a, c Percent of Projects at Risk by Number a, d Percent of Projects at Risk by Amount a, d Disbursement Ratio ( percent) e Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project)

2011

2012

2013

2014

24 3.0 12.5 10.5 29.2 20.5 62.1

23 3.4 13.0 12.5 21.7 18.6 33.4

25 3.7 12.0 11.8 20.0 16.9 18.7

24 4.0 16.7 14.9 16.7 14.9 7.1

Memorandum Item Proj Eval by OED by Number Proj Eval by OED by Amt (US$ millions) Percent of OED Projects Rated U or HU by Number Percent of OED Projects Rated U or HU by Amt

Since FY 80 176 16,316.8

a. b. c. d. e.

Last Five FYs 15 2,653.3

24.0

28.6

32.0

6.6

As shown in the Annual Report on Portfolio Performance (except for current FY). Average age of projects in the Bank's country portfolio. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). As defined under the Portfolio Improvement Program. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the

beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.

   

CAS Annex B2 Page 2 of 2

 

IFC Investment Operations Program FY10

FY11

FY12

FY13

FY14*

Commitments (US$m) IFC Own Account (OA) IFC Own Account + Mobilization

516.1 616.1

696.1 696.1

555.1 555.1

345.4 513.9

276.1 276.1

IFC OA Commitments by Sector (%) Utilities Construction and Real Estate Transportation and Warehousing Food and Beverages Chemicals Finance and Insurance Electric Power Total

1% 0% 6% 0% 10% 77% 7% 100%

0% 0% 1% 0% 4% 80% 14% 100%

0% 0% 21% 1% 0% 61% 18% 100%

0% 3% 0% 0% 0% 96% 1% 100%

0% 0% 0% 0% 0% 100% 0% 100%

IFC OA Commitments by Instrument (%) Guarantee Loan-LN Quasi-Equity (inc. Loan Type) Straight Equity (inc. Fund) Total

74% 13% 10% 4% 100%

80% 16% 4% 0% 100%

61% 35% 0% 4% 100%

96% 3% 1% 0% 100%

100% 0% 0% 0% 100%

*FY14 as of end-February 2014

   

CPS Annex B8 Page 1 of 4   

   

CPS Annex B8 Page 2 of 4    CPS Annex B8 - Pakistan Multi-donor Trust Fund Portfolio (MDTF) As of Date 02/28/2014 MDTF

US$ Millions

Total Disbursed (Active)

47.1

Total Undisbursed (Active)

92.6

Active Projects 

Last PSR Original Amount in US$ Millions

Supervision Rating Project ID

Project Name

P128096 P127253 P126833 P125414 P124268 P126425 P126426 P128966

Promoting Girls Education in Balochistan Balochistan Disaster Management Project FATA Rural Livelihoods & Infrastructure FATA Urban Centers Project KPK/FATA Economic Revitalization KPK/FATA Governance Project Revitalizing Health Services in KPK FATA Emergency Rural Roads Project

P125584

KPK Emergency Roads Recovery

P130835 P143661

KPK Southern Area Development Project Competitive Industries Project for KPK

Development Objectives

Implementation Progress

MS MS S S S S U S

MS MS MS S MS S MU MS

GRANT

Undisbursed Amount in US$ Millions

10.0

5.6

5.0

4.0

12.0 7.0 20.0 8.8 16.0 16.0

5.1 5.0 13.4 4.4 13.0 8.7

S

HS

17.1

9.1

MS MS

MS MS

18.0 9.0

15.9 8.5

   

CPS Annex B8 Page 3 of 4 

IFC Pakistan Portfolio (as of February 28, 2014 – Amount in US$) Region(s):Middle East and North Africa Country(s) : Pakistan COMMITTED LN

ET

QL + QE

GT

OUTSTANDING

Commitment

Institution

RM

ALL

ALL

LN

ET

QL + QE

Fiscal Ye ar

Short Name ABL (PAK)

GT

RM

ALL

ALL

O ut - IFC

O ut - IFC

O ut - IFC

O ut - IFC

O ut - IFC

O ut - IFC

O ut - Part

0

0

0

9.79

0

9.79

0

0

0

0

9.79

0

9.79

0.00

2009/ 2010/ 2011/ 2012/ 2013/ 2014

BAHL

0

0

0

4.47

0

4.47

0

0

0

0

4.47

0

4.47

0.00

2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 2014

Bank Alfalah

0

0

0

7.69

0

7.69

0

0

0

0

7.69

0

7.69

0.00

2013/ 2014

BankIslami

0

0

0

0.40

0

0.40

0

0

0

0

0.40

0

0.40

0.00

2005

CSIBL

0

0

3.77

0

0

3.77

0

0

0

3.77

0

0

3.77

0.00

1994/ 1997/ 2002

Crescent Bahuman

0

0.51

0

0

0

0.51

0

0

0.51

0

0

0

0.51

0.00

2003/ 2004

Dewan Salman

17.50

0

4.00

0

0

21.50

0

17.50

0

4.00

0

0

21.50

0.00

2007

Dewan Petroleum

0

1.22

0

0

0

1.22

0

0

0.00

0

0

0

0.00

0.00

1998/ 2007/ 2008/ 2010

Engro Asahi

14.00

7.86

0

0

0

21.86

14.00

14.00

7.86

0

0

0

21.86

14.00

2008/ 2009

Engro Energy

39.24

2.79

0

0

0

42.03

0

39.24

2.79

0

0

0

42.03

0.00

2010/ 2011

Engro Fertilizer

0

0

80.00

0

0

80.00

0

0

0

80.00

0

0

80.00

0.00

2008/ 2012

FINCA MFB PAK

2013

G4 Office T ower

0

0.70

0

0

0

0.70

0

0

0.54

0

0

0

0.54

0.00

11.00

0

0

0

0

11.00

0

0

0

0

0

0

0

0.00

2006/ 2007/ 2008/ 2009/ 2010/ 2011/ 2012/ 2013/ HMBL

0

0

0

3.65

0

3.65

0

0

0

0

3.65

0

3.65

0.00

2006/ 2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 2014 Habib Bank Ltd

0

0

25.00

1.23

0

26.23

0

0

0

25.00

1.23

0

26.23

0.00

2008

INT SL

0

4.69

0

0

0

4.69

0

0

4.69

0

0

0

4.69

0.00

2007

JSPE Fund

0

19.99

0

0

0

19.99

0

0

9.34

0

0

0

9.34

0.00

2007/ 2013

KESC

41.25

28.44

23.28

0

0

92.97

0

41.25

28.44

23.28

0

0

92.97

0.00

2013

KOEL

0

0

2.50

0

0

2.50

0

0

0

0

0

0

0

0.00

2010

Laraib

33.48

0

0

0

0

33.48

0

33.48

0

0

0

0

33.48

0.00

2012

MAT CO Rice

0

4.86

0

0

0

4.86

0

0

4.86

0

0

0

4.86

0.00

1993/ 2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 2014 MCB Bank

0

0

0

3.79

0

3.79

0

0

0

0

3.79

0

3.79

0.00

2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 2014

Meezan Bank

0

0

0

14.87

0

14.87

0

0

0

0

14.80

0

14.80

0.00

2002/ 2011

Micro Bank

0

2.97

0

0

0

2.97

0

0

2.97

0

0

0

2.97

0.00

2012/ 2013/ 2014

NIB Bank

0

0

0

29.48

0

29.48

0

0

0

0

29.48

0

29.48

0.00

2011

NRSP MFB

0

1.81

0

0

0

1.81

0

0

1.69

0

0

0

1.69

0.00

2012

PIBT

26.50

19.00

0

0

0

45.50

0

0

0

0

0

0

0

0.00

0

44.18

0

0

0

44.18

0

0

44.18

0

0

0

44.18

0.00

37.30

0

0

0

0

37.30

0

37.30

0

0

0

0

37.30

0.00

0

13.97

0

2.31

0

16.28

0

0

13.83

0

2.31

0

16.14

0.00

0

0

0

11.18

0

11.18

0

0

0

0

11.18

0

11.18

0.00

60.00

0

0

0

0

60.00

0

24.89

0

0

0

0

24.89

0.00

1965/ 1987/ 1990/ 1992/ 1994/ 1995/ 2005/ 2006/ Packages 2010/ 2011

QICT

2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 2014

SilkBank Limited

2007/ 2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 2014 Soneri Bank 2012

Star Hydropower

2007

T PS (P)

0

12.77

0

0

0

12.77

0

0

12.77

0

0

0

12.77

0.00

2004/ 2007

T RG Pakistan

0

0.54

0

0

0

0.54

0

0

0.54

0

0

0

0.54

0.00

2006/ 2007/ 2008

T ameer Bank

0

0.44

0

0

0

0.44

0

0

0.44

0

0

0

0.44

0.00

2009/ 2010/ 2011/ 2012/ 2013/ 2014

UBL

0

0

0

1.22

0

1.22

0

0

0

0

1.22

0

1.22

0.00

1997/ 2004/ 2005

Uch Power

2011

Uch-II

2012

Zorlu Pakistan

Total Portfolio

(0.00)

0

0

0

0

(0.00)

0.00

0

0

0

0

0

0

0.00

101.15

0

0

0

0

101.15

0

90.87

0

0

0

0

90.87

0.00

32.33

0

0

0

0

32.33

32.33

0

0

0

0

32.33

0.00

413.75

166.73

138.54

90.09

0

809.11

0 14.00

330.87

135.44

136.04

90.02

0

692.37

14.00

   

CPS Annex B8 Page 4 of 4    Statement of MIGA'S Exposure in Pakistan as of December 31, 2013 1. MIGA'S EXPOSURE (CONTINGENT LIABILITY) Transfer Restriction US$ million Gross Exposure percent of total portfolio Net Exposure percent of total portfolio CUP Current Amount* * On a gross basis

Expropriation

161.8 2.5 -380.8 -11.1 0.0 124.7

161.8 2.1 -380.8 -9.0 0.0 124.7

War & Civil Disturbance

72.0 1.3 -428.0 -14.4 0.0 35.0

Breach of Contract

148.5 4.2 -401.5 -23.8 0.0 0.0

Non Honoring of Sovereign Financial Obligations 0.0 0.0 0.0 0.0 0.0 0.0

Maximum

310.3 2.7 217.7 3.2 0.0 124.7

2. NET EXPOSURE BY SECTOR Pakistan Agribusiness Construction Financial Financial Services General Banking Investment Fund Leasing Mortgage Infrastructure Electric, Gas and Sanitary Services Power Telecommunication Transportation Water Transportation Water Supply Other Manufacturing Mining Oil and Gas Retail Services Tourism Total

US$ million 0.0 0.0 47.2 0.0 47.2 0.0 0.0 0.0 98.5 0.0 98.5 0.0 0.0 0.0 0.0 0.0 72.0 0.0 0.0 0.0 0.0 0.0 217.7

percent 0.0 0.0 21.7 0.0 21.7 0.0 0.0 0.0 45.2 0.0 45.2 0.0 0.0 0.0 0.0 0.0 33.1 0.0 0.0 0.0 0.0 0.0 100.0

Asia US$ million 0.0 0.0 47.2 0.0 47.2 0.0 0.0 0.0 415.8 20.9 213.4 172.5 0.0 0.0 8.9 0.0 195.9 147.0 0.0 0.0 0.0 0.0 805.8

percent 0.0 0.0 5.9 0.0 5.9 0.0 0.0 0.0 51.6 2.6 26.5 21.4 0.0 0.0 1.1 0.0 24.3 18.2 0.0 0.0 0.0 0.0 100.0

MIGA Worldwide US$ million percent 176.7 2.6 5.8 0.1 2,229.2 33.0 365.1 5.4 1,565.2 23.2 0.0 0.0 178.6 2.6 120.3 1.8 2,924.3 43.3 34.0 1,064.9 399.7 876.0 263.1 206.5 80.0 623.2 153.6 386.0 113.7 135.0 11.9 6,759.2

0.5 15.8 5.9 13.0 3.9 3.1 1.2 9.2 2.3 5.7 1.7 2.0 0.2 100.0