ISLAMABAD: The World Bank (WB) has identified nine risks for $20 billion loan facility for Pakistan under the 10 years Country Partnership Framework (CPF) and termed six risks on higher side, including political, governance and macroeconomic vulnerability.
In its findings, the WB also mentioned its experience from precious CPF from 2015 to 2024 for Pakistan, and acknowledged that the resources should be deployed strategically and selectively with long-term objectives in sight. Time-bound, short-lived engagements with no consistent programming are to be avoided. Frequent reversal of reforms has shown the importance of fit-for-purpose use of instruments that combine policy reforms with longer-term, largely irreversible investments to sustain reform.
A whole-of-country approach that encompasses the different federating tiers and sectors, with more alignment with government and other partners’ programmes, is key to achieve national development outcomes. Lagging regions require more attention. The programme should build on the experience of the expanded engagement in KP working with local governments to improve service delivery to underserved populations.
For next CPF which was recently approved by the WB’s Board of Directors, the report states that political and governance risk are high as polarisation of the polity has led to frequent government changes and short political cycles that often led to stalled implementation of programmes and lack of persistence in policy direction.
The risk of this track record continuing is high, and new episodes of heightened political tensions could lead to fiscally unsustainable policy decisions, especially in terms of energy subsidies and tax exemptions. Difficult coordination and often incoherent policy stances between the federal government and provinces exacerbate these risks.
The design of the CPF—highly selective and focused on fewer outcomes endorsed across the political spectrum—should mitigate this risk and partly shield the World Bank Group (WBG)’s engagement from a resurgence of short political cycles and frequent government changes.
A series of two-year rolling business plans would allow for adjustments to changing circumstances and to decide whether the CPF should be extended to cover the whole 10-year period. Fragility may increase over the CPF period if the security situation deteriorates in the border provinces. Increased engagement to improve service delivery and institutions in KP and Balochistan provinces may help respond to this risk.
Macroeconomic risk: Pakistan has a high debt burden, heavy financial sector exposure to government debt, large external financing needs, and weak investor confidence. While the government is currently engaging on an ambitious structural reform agenda—including in the fiscal, energy, and privatisation areas—risks of a slowdown in implementation in the face of resistance remain. The World Bank will continue to work closely with the IMF and IFIs to support steady implementation of reforms. Other macroeconomic risks include potential worsening of external conditions and international price shocks, and natural and climate disasters.
Sector Strategies and Policies risk: Political will and governance constraints may result in shifting priorities, while capacity constraints and inadequate financing (including by counterparts) may impact implementation on sector strategies and policies. Macroeconomic and investment climate conditions may limit private sector appetite to invest in critical sectors, including in much needed PPPs [public-private partnerships] in infrastructure as well as export-oriented industries—both areas in which IFC aims to scale up investments and the WBG Guarantee Platform aims to provide guarantees. The WBG will also continue to provide technical assistance and advisory support for the development and implementation of key sector strategies and policies. Programming under the CPF will focus on improved client capacity, including for monitoring systems. Policy dialogue at federal and provincial levels will aim to retain support for sector initiatives to ensure that reform momentum is maintained and is credible.
Technical Design risk: Achieving gains in multisectoral areas (such as stunting) is complex and will require consensus, technical knowledge, and policy inputs for support. Global knowledge, including from experience from implementation in other similar contexts, will help mitigate this risk. In addition, funding and co-financing for key elements of the CPF may not fully materialise (e.g., the Data and M&E Lab) and will be mitigated by continued dialogue with development partners.
Institutional Capacity for Implementation and Sustainability risk: Insufficient federal provincial and inter-ministerial coordination represent risks to effective implementation as well as to the momentum of reforms. Continued dialogue underpinned by analytical/ advisory engagements with broad groups of stakeholders should mitigate this risk.
Fiduciary risk: While there have been recent improvements in overall Pak Fiscal Management (PFM), key constraints such as weak institutional effectiveness, widespread perceptions of corruption, low levels of openness and citizen participation, and inefficiencies in the public procurement system and service delivery remain.
There is insufficient integration of capital and recurrent budget, resulting in poor planning and poor debt management. Public procurement laws and rules have not been updated to reflect recent good practices, while new challenges such as sustainable procurement and climate change have also been ignored. Budget releases to service delivery units are often insufficient and delayed. Mitigating fiduciary risks will require further revisions of the New Accounting Model, enhancing the comprehensiveness of the unified Chart of Accounts, digitising payment and procurement systems for the entire public sector, expansion of the Integrated Financial Management Information System at all levels, modernisation of the public procurement legal framework, full use of e-procurement systems, as well as capacity strengthening of project staff and agencies.
Environment and Social risk: Infrastructure sectors have complex environmental and social issues (e.g., on resettlement), requiring continued stakeholder engagement and strong grievance redress mechanisms. The increased focus on local development, especially in rural areas and in districts exposed to conflict, raises additional risks.
Stakeholders risk: Pakistan is a federal country with a complex power structure. Major political parties govern federal and provincial governments, while other interest groups concurrently continue to influence development outcomes. Political economy analysis will be key to identify champions and upstream risks and their mitigation. The WBG will continue to expand outreach and engage across interest groups to identify issues, communicate better, and mitigate risks throughout the CPF period.
Other risks: Fragility, Conflict, and Violence: These risks have heightened in KP and Balochistan, areas that also suffer from poor human development outcomes. These warrant increased focus, even if project implementation and supervision will be more challenging in these areas. A Risk and Resilience Assessment will be conducted during the first CPF year to identify specific challenges and to recommend mitigation measures.
At a time when the Shehbaz led government envisaged to jack up the projected GDP growth rate beyond 6 percent of the GDP in five years period under Uraan Pakistan, the WB has projected the GDP growth rate hovering around from 2.8 percent in FY2025 to 3.8 percent till FY 2029.