ISLAMABAD: The World Bank on Tuesday cautioned Pakistan against short-term measures like domestic debt restructuring and attracting one-time investment through a new civil-military initiative, without addressing the country’s ‘big picture issues’ through reforms aimed at improving larger business climate, taxation and human capital.

The “creation of a new institution is no quick fix” to bring investment without improving the taxation system, competitive market conditions and state-owned entities, Martin Raiser, the World Bank’s regional vice president for South Asia, said at a news conference.

He said the government’s objective in creating the Special Investment Facilitation Council (SIFC) might be good and such steps could help once or twice, but it was no solution to Pakistan’s challenges, which could only be addressed by improving the business climate, providing a level playing field and removing distortions and tax exemptions.

Earlier, the International Monetary Fund (IMF) had also advised the government against creating a group of preferred investors and suggested transparency and accountability should be above board, even in SIFC-led investments.

Responding to a question, Mr Raiser also said international experience suggested that domestic debt reprofiling did not always work unless associated with sharp and sustained structural reforms supported by the IMF to reduce the debt burden.

He said when such restructuring was done, the banks could become insolvent, which ultimately affected growth.

This has to be part of the macroeconomic improvement so as to reduce interest rates and therefore such a move should be “carefully considered”.

Najy Benhassine, World Bank’s country director for Paki­stan, said in reply to a question that he hoped his institution could disburse up to $2 billion to the country during the current fiscal year, provided elections were held on time and the present and new governments remain committed to reforms and deliver on promised efforts.

This “needs a lot of joint effort” by Pakistani authorities and the World Bank, but this would become clear by the end of the second quarter. He hoped the World Bank’s board of directors would approve the $350 million RISE programme loan by the end of December.

Mr Raiser said that unlike past failures, the World Bank had this time engaged with all the major political parties, including PTI, PML-N, PPP and MQM-P, before rolling out the reform notes for the next elected government, and individually all of them had a similar understanding of the challenges the country faced and their solutions.

He said unless they address the longstanding challenges through upfront reforms in a sustained manner, this could have implications on programme loans. He said the low taxation on agriculture and real estate had been responsible for low agriculture productivity because this hampered investment in irrigation, quality seed and other inputs.

Mr Raiser also launched a series of policy notes that outline critical policy shifts required for a productive, sustainable, resilient, and healthy Pakistan.

These pieces of advice focus on child stunting, fiscal sustainability, private sector growth, energy, rising poverty, agriculture, and climate change through bold reforms for a brighter future at a critical turning point for Pakistan to build political and social support ahead of the upcoming elections.

“Pakistan’s economy is stuck in a low-growth trap with poor human development outcomes and increasing poverty. Econ­omic conditions leave Pakistan highly vulnerable to climate shocks, with insufficient public resources to finance development and climate adaptation,” Mr Raiser said.

“It is now time for Pakistan to decide whether to maintain the patterns of the past or take difficult but crucial steps towards a brighter future,” he said.

The policy notes suggest Pakistan address its acute human capital crisis, including the high prevalence of stunting and learning poverty, by adopting a coordinated and coherent cross-sectoral approach to basic services involving both provincial and federal governments.

Mr Raiser advocated for major policy shifts in five areas, starting with measures to address the “acute human capital crisis” that affected a large proportion of the population and undermined the potential of Pakistan tomorrow.

For example, 40pc of children under five suffer from stunted growth. “This is a shocking statistic” because this meant a large part of Pakistan’s population was not reaching their physical and cognitive potential due to lack of access to clean water and sanitation, lack of birth spacing, poor nutrition, and insufficient access to health services, he said.

He said the reforms in spending and revenue expansion suggested by the World Bank could produce 7pc to 9pc of GDP worth of additional resources that could be sufficient to address some of the major challenges identified to improve human capital and ensure sustained 5pc to 6pc economic growth over a decade with structural reforms and fiscal adjustments.

Published in Dawn, November 29th, 2023