ADB’s IED Rates Pakistan’s Trade and Competitiveness Program Successful

The Independent Evaluation Department (IED) of the Asian Development Bank (ADB) has rated “Pakistan: Trade and Competitiveness Program (Subprograms 1 and 2)” of worth $800 million successful, relevant and likely sustainable.

The IED in its validation report also stated that among the many issues that Pakistan faces are the country’s increasing fiscal deficit, large balance-of-payments gap, and low foreign exchange reserves as a result of low competitiveness and lack of export diversification.

The need for fiscal reform to reduce the fiscal deficit and to generate fiscal space for productivity-enhancing capital spending is critical to improve macroeconomic management in Pakistan and pave the way for the country’s economic recovery.

Pakistan’s export performance has lagged behind comparator countries in South Asia and Southeast Asia the past decade. While Pakistan has the potential for economic growth, it has been unable to leverage export trade as an engine of growth.

The report noted that the Bank support to the government of Pakistan through the Trade and Competitiveness Program (TCP) aimed to improve Pakistan’s export competitiveness and trade performance. This aligned with the government’s Strategic Trade Policy Framework (STPF), which envisioned a dynamic and efficient domestic market and a globally competitive, export-driven economy.

From 2021–2025, ADB prioritized support for three pillars, one of which is boosting competitiveness and private sector development to create jobs and expand economic opportunities. ADB’s assistance for industry and trade in Pakistan amounts to $4.2 billion in 2022.

The PCR rated the program successful having rated it as highly relevant, effective, efficient, and likely sustainable based on all the policy actions being implemented. This validation assesses the program relevant, effective, efficient, and likely sustainable and overall successful. The program was aligned with ADB’s CPS and the Government of Pakistan’s objectives under Vision 2025. All policy actions were implemented with subprograms 1 and 2 presented to the ADB Board ahead of schedule. It is likely sustainable as the reforms were implemented through decrees, amendments, and strengthened institutions with capacity building of implementing agencies incorporated in the program.

The report and recommendation of the President (RRP) for subprogram 1 identified three main risks. First, poor fiscal headroom that forced the government to continue the high tax burden on exporters. Second, unavailability of government funds for critical reforms that had caused delays in the implementation of key reforms. Third, slow recovery of the public energy distribution companies that continued to impose a financial burden on businesses and delays in tariff rationalization. These risks were to be mitigated by the continuing engagement of ADB and other donors with the Government of Pakistan to initiate a fiscal consolidation program.

Subprogram 2 identified similar risks, particularly government funds being unavailable for critical reforms causing delays in the implementation of the PSW and operationalization of the EXIMBP. These risks were to be mitigated by additional program monitoring under the post-program partnership framework (P3F) to facilitate policy dialogue.

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