The World Bank has approved $350 million in funding for Pakistan’s Second Resilient Institutions for Sustainable Economy (RISE-II) project on December 19.
The project culminates the initial phase of “tax, energy and business climate reforms” aimed at enhancing fiscal revenues, stimulating competition, and attracting investments, according to Najy Benhassine, the World Bank’s country director for Pakistan.
“Pakistan needs urgent fiscal and structural reforms to restore macroeconomic balance and lay the foundations for sustainable growth,” Benhassine said. “RISE-II completes a first phase of tax, energy and business climate reforms geared to raising additional revenues, improve the targeting of expenditures and stimulate competition and investment.”
Derek H. C. Chen, task team leader of the operation, stressed the significance of seizing the opportunity presented by RISE II and parallel support from other international financial institutions.
“Based on the foundations laid through RISE II and parallel support by other IFIs, Pakistan has the opportunity to tackle long-standing structural distortions in its economy after the upcoming general elections,” he said.
“Failing to use this opportunity would risk plunging the country back into stop-and-go economic cycles,” Chen warned.
Other objectives
The operation also has broader objectives, including:
- Reducing the cost of tax compliance
- Enhancing financial sector transparency
- Promotion of digital payments
- Boosting exports by cutting import tariffs.
These measures align with the World Bank’s vision of nurturing growth and competitiveness.
Declining remittance flow
In its recent report titled ‘Leveraging Diaspora Finances for Private Capital Mobilization,’ the World Bank anticipated a decline in remittance flows to Pakistan.
The projection indicated a decrease to $24 billion in 2023 and a further drop below $22 billion, with a 10% decline expected in 2024.
The report attributed this downturn to escalating economic challenges triggered by a balance of payment crisis and high levels of debt. Consequently, the report highlighted a growing loss of public confidence, manifesting in a shift of remittances from formal to informal channels.
During a conference in November, Martin Raiser, World Bank Regional Vice President for South Asia, cautioned against short-term fixes like domestic debt restructuring and one-time investments through civil-military initiatives. Raiser emphasized the need for comprehensive reforms addressing broader issues such as the business climate, taxation, and human capital.
The creation of a new institution alone is not a quick solution to attract investment. Raiser stressed that reforms targeting the taxation system, competitive market conditions, and state-owned entities are essential for sustainable economic development.
A previous report by the World Bank had underscored the critical importance of fiscal reforms and sustainable growth for Pakistan.“Careful economic management and deep structural reforms will be required to ensure macroeconomic stability and growth,” the report said.