World Bank urges more economic reforms

ISLAMABAD: Pakistan's economy has made progress through tough reforms but still needs to boost tax revenues and increase power supplies to improve finances, the World Bank said on Friday.

During two days of meetings with officials, including Abdul Hafeez Sheikh, the new Finance Adviser to the prime minister, World Bank Vice President for South Asia Isabel Guerrero noted substantial economic progress since her last visit in 2008.

She noted Pakistan's reserves had rebounded, the World Bank said in a statement. But Guerrero said further action was needed.

“To become independent of foreign aid, Pakistan needs to strengthen its own revenue generation,” she said in a statement.

The government has pledged to keep the fiscal deficit at 4.9 per cent of gross domestic product (GDP) in the 2009/10 (July-June) fiscal year under its agreement with the International Monetary Fund, but it has said it could rise to 5.3 per cent.

GDP growth this fiscal year is forecast at 3.3 per cent but could go up to 3.4 percent, compared with 2 per cent last year, officials say.

But revenue collection is a chronic problem which successive governments have failed to come to grips with.

Pakistan's tax-to-GDP ratio of 9.2 per cent is one of the lowest in the world. The government aims to raise it to at least 15 per cent.

Shaikh, a former privatisation minister, will be put to the test as Pakistan's weak government attempts to energise a struggling economy battered by a Taliban militant insurgency and starved of foreign investment.

He must also try to strike a balance between policy demands by the IMF, which provides critical financial support for Pakistan, and the government's desire not to alienate voters who could be hurt by those policies.

“The World Bank will provide strong support to expand power supply in the coming years, and at the same time, work with the sector to continue to improve its financial health and quality of services,' said Guerrero.

Pakistan clinched an emergency loan package of $7.6 billion with the IMF in November 2008 to avert a balance of payments crisis and the Fund is likely to approve disbursement of the delayed fifth tranche next month.—Reuters