World Bank Urges Reforms
Stresses Honoring IPP Agreements to Maintain Trust
The “World Bank Urges Reforms” for Pakistan to achieve better economic development and prosperity for its population. It also advocated for global mechanisms to compensate climate-affected countries through carbon pricing to deter emissions.
In an exclusive discussion, World Bank Vice President for South Asia Martin Raiser blamed limited and lacklustre long-standing reforms in the energy, water, and revenue sectors for many of Pakistan’s current challenges and called for protecting the sanctity of contracts in dealing with investments, particularly in the energy sector.
Mr. Raiser stated that Pakistan had made some initial decisions in the right direction, but it needs to make many more good decisions, and it is crucial to implement them.
He mentioned that the World Bank did not have a Country Partnership Framework (CPF) with Pakistan after 2015, a period that saw the Covid-19 pandemic and floods. Therefore, the bank has now decided on a longer 10-year engagement because some challenges were enormous and could not be addressed in three to four years.
Advocates Global Mechanisms
Raiser emphasized that “to deal with climate change, we need pricing instruments that disincentivize carbon emissions” to generate resources for resilience. Politics complicate climate justice and compensation from historic emitters to affected countries, although the moral case is strong.
He said that the World Bank was hosting a loss and damage fund as a result of COP28 and that they required more funding. He emphasized that countries not contributing to the climate crisis but frequently affected should receive at least 50% of those investments in climate adaptation to help them prepare for the consequences.
Efficient and Outcome-Oriented Approaches
The World Bank decided to be selective and outcome-oriented, ensuring stronger processes through a combination of World Bank Group instruments and financing models. Both sides need to remain focused on tangible targets.
Energy Sector and Investor Trust
Responding to questions about energy issues, Mr Raiser said Pakistan had been paying very high prices for energy and facing shortages that impacted the economy. Urgent reforms are needed to make the power system efficient. Pakistan had relatively expensive contracts due to its unstable macroeconomic situation, and the system still carries that legacy.
However, delays in implementing reforms that would improve the governance of the distribution system and tariffs that did not reflect costs until recently led to underinvestment. Pakistan needs to bring the system’s cost down through additional reforms, investments in transmission infrastructure, and grid stability.
Mr Raiser emphasized the importance of protecting investor trust by honouring contracts. To safeguard investor trust, we should handle any renegotiation with independent power producers (IPPs) carefully. We can consider voluntary debt reprofiling based on changed circumstances, but we must protect the sanctity of contracts.
Economic and Social Reforms
Mr. Raiser also touched on the need for broader economic reforms. He mentioned Pakistan’s past successes in tax administration and general sales tax simplification, contributing about 0.5% of GDP increase in revenue. However, the overall tax system hasn’t reached a stage where taxpayers expect better services in return.
He emphasized the need for improving social protection programs, reducing subsidies, and tax exemptions to spare more resources for human development and healthcare. Federal and provincial social protection programs should be synchronized through digitalization for better complementarities.
Conclusion
In conclusion, Mr. Raiser urged for water sector reforms. Pakistan requires both regulatory and policy interventions to improve the air quality index. The World Bank will initially support the Punjab government in this direction.
