Pakistan Needs to Expand Tax Base and Improve Business Environment: ADB

The COVID-19 pandemic continues to pose significant health care and economic challenges to Pakistan, and continued efforts toward fiscal consolidation and policy reforms would be key to sustaining improvements in macroeconomic stability, especially in broadening the tax base, and improving the business environment, says Asian Development Bank (ADB).

The Bank, in its latest update on Pakistan titled “ADB Factsheet,” stated that Pakistan’s growth prospects have been influenced by COVID-19 challenges.

Reforms are required to promote high value-added exports, expand social spending, reinforce the energy sector’s financial and technical sustainability, and implement structural changes that would strengthen institutions and create jobs.

ADB, in another report, titled “Asian Development Bank Annual Report 2020,” released on Tuesday, stated that the devastating effects of COVID-19 slowed efforts to address Pakistan’s economic challenges.

The updated fact sheet noted that ADB would support Pakistan’s development priorities as outlined in the bank’s new country partnership strategy, 2021–2025. The strategy focuses on improving economic management, building resilience, and boosting competitiveness and private sector development.

ADB’s assistance will comprise support for structural reforms and project assistance in key sectors, including energy, transport, irrigation, agriculture, urban infrastructure and services, small and medium-sized enterprises, and social development.

The bank will also mobilize private financing, expand its financing and technical assistance for public-private partnerships, and explore guarantee products to help the government leverage more financing and support capital market development.

ADB’s lending will include policy support for the energy sector and capital market as well as trade and competitiveness to return the economy to a sustainable growth trajectory.

The report further noted that in 2020, ADB’s loan and grant disbursements to Pakistan amounted to $1.78 billion, comprising $1.1 billion in program lending and $680.7 million from project lending. ADB provided significant and rapid support to Pakistan’s coronavirus disease (COVID-19) pandemic response.

This included a $500 million loan under the bank’s COVID-19 Active Response and Expenditure Support Program to help the government deliver social protection programs. The funds were channeled through the government’s flagship poverty alleviation program, Ehsaas, to expand health sector capabilities and deliver fiscal stimulus to boost economic growth and create jobs.

ADB also approved $2 million from its Asia Pacific Disaster Response Fund and $3 million through regional technical assistance to help Pakistan purchase personal protective equipment and other emergency medical supplies.

The bank and the Swiss Agency for Development Cooperation co-financed $1 million to train 4,500 doctors and paramedical staff in COVID-19 critical care. ADB committed $300 million in emergency assistance and $5 million from Norway to strengthen Pakistan’s public health system and help meet the basic needs of the poor and vulnerable.

The bank also reallocated $30 million from the National Disaster Risk Management Project to support the country’s pandemic response, while the National Disaster Risk Management Fund allocated an additional $20 million from interest earned.

In other measures, ADB provided a $300 million policy-based loan to strengthen Pakistan’s finance sector, develop competitive capital markets, and encourage private sector investment. The bank also committed a $300 million policy-based loan to help promote macroeconomic stability by improving trade competitiveness and diversifying exports.

ADB raised 1.83 billion Pakistan rupees ($11.4 million) in local currency bonds. The rupees-linked offshore bond will enable ADB to extend local currency loans to boost private sector development in Pakistan.

Total commitments in loans and equity investments from ADB’s funds in 2020 amounted to $1.4 billion for 38 transactions in economic and social infrastructure, finance sector, and agribusiness.

ADB also actively mobilizes co-financing from commercial and concessional sources. In 2020, ADB mobilized $1.9 billion of long-term project co-financing and $3.3 billion of co-financing through its Trade and Supply Chain Finance Program and Microfinance Program.

Total outstanding balances and commitments of non-sovereign transactions funded by ADB’s resources stood at $14.3 billion as of 31 December 2020. Total outstanding balances and commitments of ADB’s non-sovereign transactions in the country as of 31 December 2020 was $497.1 million, representing 3 percent of ADB’s total non-sovereign portfolio.

In 2020, Pakistan received a total of $1.45 billion loan co-financing from the Agence Française de Développement, the Asian Infrastructure Investment Bank, the Green Climate Fund, the OPEC Fund for International Development, and the World Bank for three investment projects. Pakistan also received a $17.08 million grant co-financing from the Government of Norway and the Green Climate Fund for two investment projects.

ADB’s cumulative loan and grant disbursements to Pakistan amount to $26.96 billion. These were financed by regular and concessional ordinary capital resources, the Asian Development Fund, and other special funds, it added.

The annual report stated that in Pakistan, ADB knowledge support and technical assistance will help address the locust infestation crisis and mitigate other hazards by using data collection technologies to monitor crop production and market prices.

These data can then be disseminated to the government and rural communities to help assess the performance of Pakistan’s food security institutions and help build a long-term and sustainable food security system.

In Pakistan, ADB provided two policy-based loans to strengthen the country’s finance sector and improve trade competitiveness and exports. A $300 million policy-based loan will help develop competitive capital markets and encourage private sector investment through reforms that enhance the institutional and regulatory capacity of government bodies.

A second $300 million subprogram will improve trade and international competitiveness by introducing important tariff and tax-related policy reforms to support Pakistan’s export industry. It will also strengthen key institutions, including accreditation bodies, the Export-Import Bank of Pakistan, and the Pakistan Single Window initiative.

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