Pakistan MCPS, 2012-2015G (1433-1436H)

Islamic Development Bank Group
MEMBER COUNTRY PARTNERSHIP STRATEGY FOR PAKISTAN, 2012-2015
Partnering for Sustainable Socio-Economic Development
Dhul-Qa‟dah 1432H (October 2011)
iii
Acknowledgements
Appreciation for special contribution
Dr. Nadeem-ul-Haq, Deputy Chairman, Planning Commission of Pakistan, H.E. Mr. Abdul Wajid Rana, Secretary,
Economic Affairs Division (EAD) and Executive Director of IDB Board; Mr. Hassan Nawaz Tarar, Additional
Secretary, EAD; Mr. Ahmad Farooq, Senior Joint Secretary, EAD; Mr. Sajjad Ahmed Shaikh, Joint Secretary,
Ministry of Finance; Dr. Vaqar Ahmed, National Institutional Advisor, Planning Commission of Pakistan; Mr.
Qaiser Bengali, Adviser to the Chief Minister of Sindh; Mr. Yaseen Anwar, Deputy Governor, SBP; Prof. Atta-urRahman, Coordinator General, COMSTEC; Mr. Irfan Nadeem, Secretary, Ministry of Science and Technology;
Mr. Mir Nasir Abbas, Pakistan Federation of Chamber of Commerce and Industry; Mr. Ali Tahir, Secretary,
Planning and Development, Government of Punjab; Dr. Amjad Bashir, Director General, Lahore Chamber of
Commerce and Industry; Ms. Fozia Naseem Awan, Section Officer, EAD; Mr. Khurshid Anwar, Section Officer,
EAD; Mr. Abdul Vakil, Assistant Protocol Officer, EAD; and Mr. Khalid Mehmood, Assistant Protocol Officer,
EAD.
IDB Group Teams
Country Department (Overall Coordinator)
Mr. Mohammad Jamal Al-Saati, Director; Mr. Ahmed S. Hariri, Division Manager; Mr. Ahsanul Kibria,
Economist; Mr. Saeed Ibrahim, Economist; and Dr. Muhammad Ahmed Zubair, Principal Economist (Peer
Reviewer).
Dr. Zafar Iqbal, Lead Economist, Country Department
Mr. Cafer Bicer, Country Manager for Pakistan, Country Department
Team-I
Team-II
Team-III
Core Engagement Areas
Private Sector Development,
Resource Mobilization and
Investment and Trade Finance,
Partnerships
(Mr. Gurbuz Gonul, Team
Insurance
and
Risk
(Mr.
Wasim
Abdulwahab,
Leader)
(Mr. Asif Mahmud, Team Leader)
Team Leader)
Infrastructure Department
Mr. Gurbuz Gonul
Dr. Farid Ahmed Khan
Mr. Misbah Uddin Khan
Mr. Intikhab Alam
Mr. Mohammad Asheque
Moyeed
Human Development
Department
Dr. Albasher Altayeb
Dr. Muhammed Suhail
Agriculture and Rural
Development Department
Mr. Ali Mohammad Khan
Islamic Corporation for the
Development of the Private Sector
(ICD)
Mr. Asif Mahmud
Islamic Corporation for the
Insurance of Investment and
Export Credit (ICIEC)
Mr. Zishan Iqbal
International Islamic Trade
Finance Corporation (ITFC)
Mr. Ahmet Shuayb Gundogdu
Islamic Financial Services
Department
Mr. Wasim Abdulwahab
Mr. Mohammed Umair Hussain
Cooperation Department
Mr. Syed Habib Ahmed
Islamic Solidarity Fund for
Development Department
Mr. Umur Gokce
Islamic Financial Services
Department
Mr. Wasim Abdulwahab
Mr. Mohammed Umair
Hussain
Treasury Department
Mr. Mohammad Saeedullah
Operations Policy and
Services Department
Mr. Mohammad F. Siddik
Islamic Solidarity Fund for
Development Department
Mr. Umur Gokce
Islamic Research and
Training Institute (IRTI)
Dr. Salman Syed Ali
Economic Research and Policy
IDB Field Office in Islamabad
Department
Mr. Shahid Ahmad
Mr. Ismaeel Ibrahim Naiya
External Consultants: Dr. Ghulam Muhammad Arif and Dr. Shujaat Farooq, Background Study for the MCPS
Document for Pakistan on “Poverty, Inequality and Unemployment in Pakistan.”
v
Currency US$1 = PRs 86.82 (on 26 October 2011)
(US dollar is represented by $ and Pakistani Rupiah by PRs throughout this Report)
Fiscal Year (Pakistan)
1st July – 30th June
AJK
AsDB
EIU
EU
FAO
FATA
FDI
GCC
GDP
GoP
HEC
ICD
ICIEC
IDB
IDB Group
IDB-MDP
IFAD
IMF
IPPs
IRTI
ITFC
JICA
KPK
MC
MCPS
MDBs
MDGs
NEP
PPP
PRSP
PSDTF
R&D
RBF
SBP
SMEs
TA
TCF
TEVTA
UNESCO
USAID
WB
WHO
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Abbreviations and Acronyms
Azad Jammu and Kashmir
Asian Development Bank
Economic Intelligence Unit
European Union
Food and Agricultural Organization
Federally Administered Tribal Areas
Foreign Direct Investment
Gulf Cooperation Council
Gross Domestic Product
Government of Pakistan
Higher Education Commission
Islamic Corporation for the Development of the Private Sector
Islamic Corporation for Insurance of Investment and Export Credit
Islamic Development Bank
IDB, ICIEC, IRTI, ICD, ITFC
IDB Microfinance Development Programme
International Fund for Agricultural Development
International Monetary Fund
Independent Power Producers
Islamic Research and Training Institute
International Islamic Trade Finance Corporation
Japan International Cooperation Agency
Khyber Pakthunkhawa
Member Country
Member Country Partnership Strategy
Multilateral Development Banks
Millennium Development Goals
National Education Policy
Public Private Partnership
Poverty Reduction Strategy Paper
Private Sector Development Task Force
Research and Development
Results Based Framework
State Bank of Pakistan
Small and Medium Size Enterprises
Technical Assistance
The Citizens Foundation
Technical Education and Vocational Training Authority
United Nations Educational, Scientific and Cultural Organization
United States Agency for International Development
World Bank
World Health Organization
vii
Table of Contents
Executive Summary…………………………………………………………………
xiii
Strategy Part-I
I.
II.
Country Context, Socio-Economic Development, and Challenges………
1
i.
ii.
iii.
iv.
v.
vi.
Introduction…………………………………………………………
Country Context………………………………………………….....
Recent Economic Development, Outlook and Key Challenges…..
Social Development………………………………………………….
Binding Constraints to Economic Growth………………………...
Country Risk Rating and Outlook………………………………....
1
1
2
5
Pakistan’s Development Strategy…………………………………………..
9
i.
9
ii.
III.
IV.
Medium-Term Development Strategy……………………………..
10
IDB Group Interventions in Pakistan: Lessons Learned…………………
15
i.
ii.
iii.
Overview of IDB Group Operations in Pakistan………………….
Key Lessons Learned from IDB Group Operations………………
Other Donors’ Support to Pakistan……………………………......
15
18
20
Designing IDB Group Partnership Strategy: Alignment, Selectivity, and
Focus ………………………………………………………………………...
23
i.
V.
Pakistan Vision 2030………………………………………………..
7
8
Consultation with Key Stakeholders for Designing Partnership
Strategy for Pakistan………………………………………………..
23
IDB Group MCPS-Focused Programs…………………………………….
29
i.
Identifications of Key Pillars and Cross-Cutting Areas…………..
29
Pillar 1. Improving Infrastructure Development………………...
29
Pillar 2. Supporting Sustainable Agriculture and Rural
Development……………………………………………………........
.……
Pillar 3. Enhancing Human Development…………………….......
32
ix
36
VI.
Cross-Cutting Area 1. Private Sector Development through
Improving Investment and Trade……………………………….....
38
Cross-Cutting Area 2. Supporting Islamic Finance, Resource
Mobilization, Capacity Building and Reverse Linkages……….....
40
MCPS Program Implementation and the Way Forward………………...
43
i.
Indicative/ Notional Financing Envelop for the Implementation
of MCPS-Focused Program………………………………...............
43
ii.
iii.
Key Success Factors: IDB Group Level…………………………...
Key Success Factors: Country Level………………………………
43
45
Result Matrices I-V………………………………………………………...
47
Knowledge Part of Strategy-II
A.
Diagnostic Analysis of Critical Constraints to Poverty,
Inequality, and Unemployment in Pakistan…………………….....
65
B.
Diagnostic Analysis of Binding Constraints to Pakistan’s
Economic Growth…………………………………………………...
79
C.
Diagnostic Analysis of Critical Constraints to key Sectors
Selected for MCPS-Focused Programs…………………………….
85
i.
Infrastructure (Power and Transport)…….........................
ii.
85
Agriculture………………………...………………………...
90
iii.
Human Development (Education and Health)………….....
102
iv.
Private Sector Development………………..........................
109
v.
Islamic Finance……………………………………………...
112
Statistical Tables (Annex Tables 1.1 – 1.3 and 2.1)……………….
119
D.
x
STRATEGY PART-I
EXECUTIVE SUMMARY
Islamic Republic of Pakistan is a founding
member of the IDB. It is also a member of all
the IDB Group entities (ICD, ICIEC, ITFC,
and IRTI), all of which have played an active
role in country‟s socio-economic development.
Pakistan is the second largest beneficiary of the
IDB Group financing. Since inception, the
Group portfolio in Pakistan has been dominated
by trade financing followed by ordinary capital
resources for project financing, and technical
assistance, which mainly favored the public
sector.
be of paramount importance to ensuring a
stable and prosperous Pakistan.
With this background, the partnership
strategy lays out the IDB Group’s multiyear focused programs in assisting the
country achieving sustainable socioeconomic development by aligning it with
the government’s medium-term development
priorities and the Strategic Thrusts of IDB
Vision 1440H (2020). In particular, the
MCPS aims to help the country in relaxing
some of the binding constraints to economic
growth and assisting the Government of
Pakistan in post-flood reconstruction efforts.
Through the MCPS process, the IDB Group
will also capitalize on Pakistan‟s experience
and willingness to provide support to other
member countries in its areas of expertise
through „Reverse Linkages‟ - a unique
feature of IDB Group MCPS exercise.
In recent years, Pakistan has been passing
through critical time in terms of
economic, social and political fronts.
Emerging challenges are affecting socioeconomic development of the country. In
particular, persistent energy shortage has
worsened in recent years, which has been
affecting all sectors of the economy. In
addition, the July-September 2010 floods
caused huge destruction to the existing
physical and social infrastructure. National
savings rate is about one half of the
investment requirements of the country,
which is insufficient to achieve 6 to 7
percent sustainable growth in the medium- to
long-term. The public sector revenueexpenditure gap is being filled by internal
and external borrowings, which are adding
to debt burden, raising inflationary pressure,
and contributing to long-term vulnerability
of the balance of payments of the country.
On the social front, rising level of poverty
and unemployment, particularly among
youth, is a major source of concern. Due to
lower levels of public expenditures on health
and education, Pakistan is unlikely to meet
most of the UN MDGs targets by 2015.
Further, internal security is another key
challenge, which is of great concern in
achieving
sustainable
socio-economic
development in the country. In this regard,
good governance and strong institutions will
The IDB Group MCPS is developed based
on an extensive consultation process with
all the key stakeholders including federal
and provincial governments, development
partners,
private
sector,
business
community, and civil society. Based on the
development challenges facing Pakistan and
the corresponding development priorities,
and bearing in mind the lessons learned from
the previous operations and activities of the
IDB Group, the MCPS is designed to be
centered on the following three Key Pillars
and two Cross-Cutting Areas for Group
interventions during 2012-2015.
Pillar 1: Improving Infrastructure Development
(i.e. energy and transport)
Pillar 2: Supporting Sustainable Agriculture
and Rural Development (i.e. food security,
agricultural development, water resources,
and value-chain in horticulture)
Pillar 3: Enhancing Human Development
(i.e. education and health)
xiii
Cross-Cutting Area 1: Private sector
development through improving trade and
investment
and enhancing role of the private sector in
provision of health services.
The focused programs under first crosscutting area on private sector development
include improving value addition and product
diversification; strengthening human capital
development; improving infrastructure; and
increasing access to finance to the private
sector. Similarly, the focused programs under
the second cross-cutting area include
strengthening Takaful sector; establishment of
a Takaful-based EXIM Bank; strengthening
Islamic microfinance sector; and resource
mobilization through local currency Sukuk.
Reverse linkages in the areas of Islamic
finance, science and technology, and transfer
of technology for industrial machinery in the
fields of sugar, cement, and textile sectors
will be the main focused programs.
Cross-Cutting Area 2: Supporting Islamic
Finance, Resource Mobilization, Capacity
Building and Reverse Linkages
For improving infrastructure development,
the focused areas to deal with acute power
shortage include security of energy supply
through more sustainable and least-cost
power generation alternatives; energy
efficiency enhancements; regional and crossborder gas and electricity interconnections;
clean coal opportunities; and PPP-based
renewable energy. For the transport sector,
the focused areas to improve connectivity
and trade involve road network enhancement;
integrated development of road and rail
networks; PPP-based toll roads; and port
capacity and container/cargo terminals
enhancement.
The IDB Group has indicated financing
envelop between $2.5 - 3.0 billion for the
implementation of the MCPS focused
programs during 2012-2015. With regard to
distribution of indicative financing envelop
among the three Pillars, the infrastructure
sector is envisaged to receive the majority
share of 50 percent (energy 30 percent and
transport 20 percent) followed by agriculture
and rural development 20 percent; and
human development 15 percent (education 8
percent and health 7 percent). Among the
two Cross-Cutting Areas, 10 percent has
been earmarked for the private sector
development and 5 percent for the Islamic
finance and capacity building. Going
forward, the financing will be further firmed
up during the IDB Group Programming
Missions to Pakistan. The size of the
financing envelop will be eventually
determined by the borrowing appetite of the
Government of Pakistan, identification of
bankable projects, resource mobilization by
the IDB Group and partnership with other
donors.
With regard to supporting sustainable
agriculture and rural development, the
focused programs aim at strengthening
growth in the agriculture sector through rural
infrastructure development in flood affected
areas; efficient water management; food
security enhancement with focus on access
and production; and value-chain development
for horticulture crops for increased exports,
income enhancement and non-farm rural
employment generation.
For enhancing human development, the
targeted programs aim to improve education
related MDGs include tertiary education;
modernization
and
development
of
Madrassa; and PPP-based primary education.
Similarly, the main objective in the health
sector is to improve health-related MDGs by
improving means of access to health services
and alternative health financing; disease
control with emphasis on enhancement of the
Health Management Information System and
epidemics control; quasi-public health facilities;
xiv
I
i.
COUNTRY CONTEXT, SOCIO-ECONOMIC DEVELOPMENT
AND CHALLENGES
Introduction
partners active in Pakistan. Fifth, through the
MCPS process, the IDB Group intends to
capitalize on Pakistan‟s extensive experience
and willingness to provide support to other
member countries in its areas of expertise
through „Reverse Linkages‟.
1. The Member Country Partnership
Strategy (MCPS) is a New Business Model
of the Islamic Development Bank (IDB)
Group through which the Strategic Thrusts of
the IDB Vision 1440H (2020) are aligned
with the development priorities of the
Government of Pakistan (GoP). The fouryear (2012-2015) Group strategy is
developed based on extensive consultations
with key stakeholders including federal and
provincial
governments,
development
partners, private sector, business community,
and civil society.
3. The MCPS is a strategy as well as
knowledge document. It provides in-depth
diagnostic analysis of the overall economy as
well as its key sectors based on the latest
information and data.
4. The MCPS document is structured as
follows. Following Section I, Pakistan
development
strategy
and
its
key
development priorities are described in
Section II. Section III provides a brief review
of and lessons learned from past
interventions of the IDB Group in Pakistan.
The design of IDB Group partnership
strategy, and its alignment, selectivity and
focus are described in Section IV. The IDB
Group
MCPS-focused
programs
are
described in Section V. Final Section VI
provides MCPS program implementation and
the way forward.
2. The MCPS intends to achieve multiple
objectives. First, it lays out the IDB Group‟s
multi-year strategy in assisting the country
for achieving sustainable socio-economic
development by aligning it with the
government‟s
medium-term
priorities
underlined in the Poverty Reduction Strategy
Paper-II (PRSP-II) and the New Growth
Framework of the Government of Pakistan.
Second, it aims to help the country in
relaxing some of the binding constraints to
economic growth. Third, it assists the
Government of Pakistan in post-flood
reconstruction efforts as the country
experienced extraordinary rainfall during
July-September 2010, which resulted in
unprecedented floods (the worst flood in the
country‟s history since 1929) affecting the
entire country. Fourth, the MCPS aims to
further strengthen IDB Group‟s collaboration
and cooperation with other development
ii.
Country Context
5.
The Islamic Republic of Pakistan
emerged as an independent sovereign state
on 14 August 1947. Pakistan covers 796,095
which
is
divided
into
four
km2
provinces: Sindh, Punjab, Khyber Pakhtunkhwa
(formerly known as the North-West Frontier
Province or NWFP), and Baluchistan. The
current population of Pakistan is 173.5
1
million (the sixth most populous country in
the world), of which around 20 percent is in
the age group of 15 to 24 years. The current
population growth rate is 2.1 percent. The
life expectancy at birth is 66.5 years (2008),
which ranks Pakistan 166th in the world.
Country‟s principal natural resources are
arable land, water, hydro electricity, and
natural gas. Agriculture is the backbone of
the economy. About 28 percent of Pakistan's
total land area is under cultivation. The most
important crops are cotton, wheat, rice,
millet, sugarcane, fruits, and vegetables.
Despite intensive farming practices, Pakistan
remains a net food importer. The country has
extensive energy resources, including sizable
natural gas reserves, some proven oil
reserves, coal, and large hydropower
potential. However, exploitation of energy
resources has been slow due to shortage of
capital as well as domestic and international
political constraints. Cotton, textiles, sugar,
cement, and chemicals industries play an
important role in the economy.
especially in the key urban areas as major
urban centers have witnessed civilian
causalities due to terrorist attacks in the last
few years. The fiscal and human cost of
counter-militancy operations carried out by
the Pakistan Army has been high. In addition,
Pakistan also experienced 2.5 million
conflict-affected internally displaced persons
in 2009.
7.
Over the last two years, Pakistan
has been undergoing considerable political
and constitutional changes. Currently, civil
society and the judiciary have been playing a
more active role. Tough political competition
among political parties continues; the role of
provincial governments in delivery of social
and economic services has been enhanced
through the 18th Constitutional Amendment
and the decision of 7th National Finance
Commission (NFC) Award.1 In particular,
recently the Federal Government has
transferred five ministries (Education; Social
Welfare and Special Education; Tourism;
Livestock and Dairy; Rural Development and
Culture) to the provinces under the
devolution plan.
6.
After independence in 1947, a
parliamentary and participatory political
system took root slowly, with the first
nationwide general election held in 1970.
In the 38 years between 1970 and 2008,
Pakistan was under effective military rule for
a period of 20 years. Six civilian
governments were elected to office for the
remainder of the period; none completed its
term before being dismissed. Unrest in
northern areas has kept the government under
pressure. Security situation in Pakistan
started to deteriorate progressively from 2001
with the political and military spillover of the
war in Afghanistan. The deployment of
suicide attacks and the high rate of increase
in fatalities have significantly raised the
perception of insecurity in Pakistan,
iii.
Recent Economic Development,
Outlook and Key Challenges
8.
Pakistan’s economy experienced
high volatility in terms of economic
growth during 2000s due to several
internal and external shocks. In particular,
high growth rates during early 2000s were
interrupted in 2007/08 and 2008/09 because
of the sharp rise in international oil and food
prices, and global financial and economic
crisis, combined with policy inaction and
1
The NFC is an agreement by all the federating units
over the distribution of financial resources among the
provinces by the Federal Government on annual basis.
2
internal political turmoil, and rapidly
expanded macroeconomic imbalances in
Pakistan. Real GDP growth decelerated from
the peak level of 9 percent in 2004/05 to 3.7
percent in 2007/08 and 1.2 percent in
2008/09, however, it recovered to 4.1 percent
in 2009/10 (Figure 1.1 and Annex Table 1.1).
11.
The fiscal deficit has increased
recently but is projected to decline in the
medium-term. The budget deficit reached
6.0 percent of GDP in 2009/10, owing to a
substantial overrun on electricity subsidies
and flood reconstruction spending as well as
shortfalls in tax revenues. The fiscal deficit is
projected to decline from 5.0 percent of GDP
in 2010/11 to 2.1 percent of GDP in 2015/16
(Figure 1.2). It is worth noting that the
government has recently borrowed heavily
from the State Bank of Pakistan (SBP) to
finance its higher budget deficit.
Figure 1.1: Pakistan: Real GDP Growth
(% p.a.)
12.
Although, Pakistan’s external
position has improved overtime, recently
the current account balance has come
under pressure mainly due to higher
energy
prices
and
post-flood
reconstruction activities. The current
account deficit improved significantly from
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
gradually from 12.0 percent in 2011/12 to 7.5
percent in 2015/2016.2
Source: Pakistan Economic Survey 2009/10 and Ministry of
Finance Projections (March 2011).
9.
With regard to medium-term
outlook, real output growth is projected to
decelerate to 2.5 percent in 2010/11 due to
the effects of floods, power shortages, and
security concerns. However, economic
growth is projected to accelerate from 4.3
percent in 2011/12 to 5.4 percent in 2015/16.
Figure 1.2: Pakistan: Fiscal Deficit and
Current Account Deficit (% of GDP)
6.0
4.0
2.0
0.0
-2.0
10.
Consumer price inflation has
started slowing down. The average inflation
rate in 2008/09 was 20.8 percent, the highest
rate during 2000s, mainly due to rise in fuel
and food prices. Recently, inflation slowed to
15.0 percent in 2009/10. Besides the adverse
effects of recent floods, expansionary fiscal
policy and monetization of government debt
have also added to the inflationary pressures.
The inflation rate is projected to decline
-4.0
-6.0
-8.0
-10.0
Overal Fiscal Deficit
Source: Pakistan Economic Survey 2009/10 and Ministry of
Finance (projection, March 2011).
the highest level of 8.7 percent of GDP in
2007/08 to 2.3 percent in 2009/10 but is
expected to surge gradually to 4.4 percent of
2
Ministry of Finance, Government of Pakistan
(projection, March 2011).
3
like textile and food manufacturing may face
slowdown in terms of growth due to losses in
inputs and energy shortage.
GDP in 2016 (IMF WEO April 2011), owing
to strong import demand for basic
commodities and construction materials
(Figure 1.2). Exports of goods as percentage
of GDP declined from the highest level of
13.2 percent in 2004/05 to 11.0 percent in
2009/10 while imports of goods rose from
17.1 percent in 2004/05 to its maximum level
of 24.4 percent in 2007/08 and later declined
to 19.8 percent in 2009/10, leaving the trade
deficit at 6.5 percent of GDP in 2009/10.
Workers‟ remittances have been one of the
main components of current account balance,
which increased continuously from $2.4
billion in 2001/02 to $8.9 billion in 2009/10.
Further, gross foreign reserves of Pakistan
were $18.9 billion (5.1 months of imports) in
2006/07, which declined to $13.6 billion (3.3
months of imports) in 2008/09 but again
increased to $16.7 billion (4.5 months of
imports) in 2009/10, mainly due to IMF‟s
disbursements
under
the
Stand-By
Arrangement.
14.
Agricultural growth in Pakistan
has been below its potential over the past
several years. Despite a structural shift
towards industrialization, agriculture is still
the largest sector of the economy and has a
great
impact
on
socio-economic
development. The majority of the population,
directly or indirectly, is dependent on this
sector. It accounts for 21.5 percent of GDP
and about 45 percent of the total employed
labor force. In 2009/10, the agriculture sector
grew by 2 percent compared to previous
year‟s growth rate of 4 percent, while the
sector achieved a maximum growth of 6.5
percent in 2004/05. Its growth in 2010/11 is
projected to be slow as the largest impact of
the recent floods was on agriculture with $5
billion loss (over 14 percent of the sectoral
income).
15.
A large amount of funding
(between $7-9 billion) is required for
reconstruction and rehabilitation of flood
damages. According to the World Bank and
AsDB estimates, total flood damage cost for
the whole country is around $10 billion, of
which Sindh Province accounts for $4.4
billion; Punjab $2.6 billion; Khyber
Pakhtunkhwa $1.2 billion; Baluchistan $0.6
billion; and Federal/ cross cutting sectors
$1.1 billion. Among various sectors,
agriculture was the most damaged sector
with $5 billion; followed by physical
infrastructure
($2
billion);
social
infrastructure ($1.9 billion); financial ($0.7
billion); and private sector and industries
($0.3 billion each). Total estimated
reconstruction cost in all the provinces
13.
In recent years, industry has
surpassed the agriculture sector to become
the second largest contributor to GDP.
Industry‟s share in GDP has increased from
23.3 percent in 1999/02 to 25.2 percent in
Growth
in
large
scale
2009/10.3
manufacturing, which was contracted by 3.7
percent in 2008/09 due to the global financial
and economic crisis and energy shortage,
posted a 5.2 percent rate of growth in
2009/10. The cotton, textile products and
apparel manufacturing are Pakistan's largest
industries, accounting for 51.4 percent of
total exports. Other major industries include
food processing, beverages, construction
materials, clothing, and paper products.
Although, the industrial sector was not much
affected by the recent floods, some industries
3
Pakistan Economic Survey 2009-10.
4
country has been facing serious challenges
towards meeting most of the MDGs targets
largely due to adverse impact of sharp rise in
oil and food prices, and the global financial
and economic crisis. Additionally, political,
economic, and security problems, as well as
ranges between $6.8–8.9 billion.4 The
government plans to generate $3.8 billion
from internal resources and remaining part
from multilateral institutions and bilateral
donors for post-floods reconstruction in the
coming few years (Table 1.1).
Pakistan
Sindh
Table 1.1: Pakistan: Flood Damages and Reconstruction Costs
($ billion)
Damage Costs
Reconstruction Costs
10.1
6.8 - 8.9
Punjab
4.4
2.7 - 3.2
1.2
1.2 - 2.1
2.6
Khyber Pakhtunkhwa
Baluchistan
0.6
Federal/ Cross Cutting Sectors
1.1
AJK/FATA/Gilgit Baltistan
0.2
Sector-Wise
1.1 - 1.4
0.3 - 0.7
1.1 - 1.1
0.6 - 0.9
Economic Sectors
6.0
1.5 - 2.3
Social Infrastructure
1.9
2.0 - 2.8
Physical Infrastructure
2.0
Cross Cutting Sectors
0.1
3.0 - 3.5
0.3 - 0.3
Source: AsDB and World Bank (November 2010), Pakistan Floods 2010, Preliminary Damage and Needs
Assessment
the recent floods have adverse effects on
overall socio-economic development. This
situation has also severely affected the
achievement of most of the MDGs targets. A
recent MDGs Report launched by the
Planning Commission of Pakistan in
September 2010 indicated that the country is
ahead or on track for a few targets (9 out of
33 targets) while lagging behind in the
remaining targets (Annex Table 1.2).
Therefore, unless there is urgency and
renewed and concerted efforts to mobilize
resources and to refocus the priorities in
favour of these goals, there is a high risk of
considerable shortfalls in achieving most of
the MDGs targets by 2015.
16.
The deteriorating internal security
situation remains a pressing issue. The
global “war on terror” has been imposing a
heavy cost on the economy. Besides human
causalities, the fallout of the war on Pakistan
has been immense in terms of the economic
impact. It is officially estimated that
Pakistan‟s economy has been impacted to the
extent of over $43 billion between 2001 and
2010.5
iv.
Social Development
17.
Pakistan is unlikely to meet most
of the MDGs targets. Since 2006, the
18.
Pakistan saw a remarkable decline
in poverty up to 2005, but the poverty
situation has worsened since 2006, making
4
AsDB-World Bank Report on Pakistan Floods 2010,
Preliminary Damage and Needs Assessment
(November 2010).
5
Pakistan Economic Survey 2009-10.
5
the achievement of the MDG target of
halving the poverty by 2015 unlikely. The
share of the population living in poverty
(defined as number of people living on less
than $1.25 a day) was down from 34.5
percent in 2000/01 to 22.3 percent in
2005/06. However, the economic and
financial imbalances since 2006 are believed
to have negative effect on poverty indicators.
The analysis of the poverty impact of recent
economic shocks shows that the recent gains
in poverty reduction may have been partly
reversed in the wake of recent economic
crises. The government sources indicate that
poverty is likely to have increased from 22.3
percent in 2005/06 to between 30-35 percent
in 2008/09.6 In 2008, the Planning
Commission‟s Panel of Economists has
reported in its Interim Report that poverty
may have increased by 6 percentage points
from 23.9 percent in 2004/05 to 29.9 percent
in 2008/09.7 Further, the large volatility in
poverty suggests that a substantial portion of
Pakistan‟s population is vulnerable, living
close to the poverty line, and could fall into
poverty as a result of any further shocks.
(Knowledge Part-II, A. on Diagnostic Analysis
of Poverty).
and poor widened. It indicates that the
benefits of growth during the high growth
period (2000-06) were relatively higher for
the rich than for the poor (Knowledge PartII, A. on Diagnostic Analysis of Income
Inequality).
20.
Although, unemployment rate has
declined overtime but recent floods and
fiscal crisis along with higher level of
public debt indicate that the employment
situation is likely to be worsened. The
overall unemployment rate increased from
6.0 percent in 2000/01 to 8.3 percent in
2003/04. However, it declined during the
next four years to 5.2 percent. During this
period,
the
economy
witnessed
comparatively high growth and poverty
reduced sharply. However, the estimates
based on the Economist Intelligence Unit
(2010) show the rising trends in
unemployment rates during last three years,
with 7.4 percent in 2008, 14 percent in 2009
and 15 percent in 2010, suggesting a
doubling of the unemployment rate in just
three years period (Knowledge Part-II, A. on
Diagnostic Analysis of Unemployment).
21.
Access to universal education
remains a significant challenge. Education
is a vital investment for human and economic
development in any country. Unfortunately,
Pakistan‟s standing on this front has
historically been poor. It is evident from the
fact that current literacy rate in Pakistan is 57
percent (69 percent for male and 45 percent
for female) compared to China 93.7 percent,
Malaysia 92.1 percent and Vietnam 92.5
percent. With public spending on education
as a percentage of GDP (2 percent in
2009/10, which declined from 2.4 percent in
2006/07) amongst the lowest in large Asian
countries (i.e. Malaysia 4.7 percent, Thailand
4.5 percent, Indonesia 3.5 percent, and India
19.
Income distribution in Pakistan
has worsened overtime. The Ginicoefficient values show an overall increase
in inequality between 1992-93 (0.27) and
2005/06 (0.30). Income distribution is likely
to deteriorate further with rising poverty in
the coming years. It appears from the
inequality information that during the period
when poverty declined overall as well as in
rural and urban areas, the gap between rich
6
Economic Survey 2008-09, Economic Advisors‟
Wing, Government of Pakistan.
7
Economic Stabilization with a Human Face, October
2008.
6
3.3 percent), the outcome with regards to
literacy level is not surprising (Annex Table
1.3). While the literacy rate has improved
gradually over the period, still Pakistan‟s
indicators on this front continue to rank at the
bottom end of global rankings. Although, net
enrolment rates in primary education (for
male 73 percent and female 57 percent) have
increased over the past decade, its access
remains far from universal (i.e. average for
South Asia 88 percent), and there are
significant regional, rural-urban, and gender
disparities. In addition, the quality of
education is poor at all levels of education,
drop-out rates are high, and learning
achievements are low and varied. In
particular, the MDG target of achieving 100
percent net enrolment rate by 2015 requires
an increase of 43 percentage points in the
next five years compared to the 16
percentage points increase achieved in the
last 10 years, which is unlikely to achieve.
persist. Overall, life expectancy in Pakistan
remains lower (for male 65 years and for
female 66 years) than many in its peer Asian
group. Spending on health remains
abysmally low (0.5 percent of GDP in
2009/10, which is amongst the lowest of all
other countries at a similar income level)
(Annex Table 1.3).
v.
Binding Constraints to Economic
Growth
23.
It is extremely important to find
out critical development constraints in
developing IDB Group Member Country
Partnership Strategy for Pakistan. Once
the binding constraints are identified, then
the MCPS process can help the country in
relaxing some of the binding constraints to
economic growth. With this objective, using
the growth diagnostic approach developed by
Hausmann, Rodrik, and Velasco (2005),8 the
detailed diagnostic of binding constraints is
undertaken for the overall economy as well
as some selected sectors.
22.
While there has been noticeable
improvement in some health indicators
over the years, on the whole, Pakistan
ranks poorly on this count. Some of the
MDG-related health indicators such as
under 1 year children immunized against
measles; children under five years who
suffered from diarrhea; lady health workers‟
coverage of target population; HIV
prevalence; and TB cases have improved in
the past few years and Pakistan is ahead or
on track on these MDG targets while
progress in improving child, infant and
maternal mortality as well as the provision
of reproductive health services has been
lagging or slow. Under-five mortality and
fertility rates remain the highest among
South Asian countries. Chronic child
malnutrition is about 40 percent. Significant
gender and rural/urban disparities also
24.
Based on the detailed analysis
undertaken in Knowledge Part-II, B. on
Critical
Constraints
to
Pakistan’s
Economic Growth, the following binding
constraints are identified:
 The country has poor quality and
quantity of infrastructure, particularly
energy9 and transport infrastructure.
 Weak software of growth (i.e. innovation,
business sophistication, quality of
education, and spending on R&D).
8
Hausmann, R. D. Rodrik, and A. Velasco (2005),
Growth Diagnostics, Cambridge, MA, John F.
Kennedy School of Government, Harvard University.
9
According to an estimate, to meet its current and
future energy demands, Pakistan needs to invest at least
$5 billion by 2020. Hassan Abbas (May 2011),
"Pakistan 2020: A Vision for Building a Better Future”.
7
against vulnerability stemming from ongoing
structural fiscal weaknesses, and significant
political and security risks.
 Human development indicators, particularly
related to education and health are weak.
 International competitiveness remains a
key issue for the economy.
Moody’s Rating: The stable outlook reflects
the adequacy of Pakistan‟s foreign currency
reserves and its manageable domestic
borrowing program, although with a
continued reliance on deficit monetization.
The key risks to the stable outlook on the B3
sovereign rating comprise a significant loss
of macroeconomic stability and a weakening
of the external position, or a persistent
slowdown in growth, and a loss of external
support.
 Declining levels of investment and
savings of the economy is worrisome.
 Business climate in the country is
unfavorable for both local and foreign
investors.
 Pakistan‟s main problem in achieving
macroeconomic stability, sustaining
economic growth and delivering public
services is due to weak governance.
 Weak linkages among growth, employment,
poverty, and inequality (i.e. growth would
be only effective to reduce poverty if it
improves the quality of jobs and the
access to modest earning opportunities
for the poor).
vi.
Country Risk Rating and Outlook
25.
The country risk and outlook for
Pakistan has been rated by main rating
agencies namely Standard & Poor‟s and
Moody‟s while it is not rated by the Fitch
(Table 1.2).
Table 1.2: Pakistan: Sovereign Risk Ratings
LongTerm
ShortTerm
Outlook
Standard
& Poor‟s
B-
C
Stable
Moody‟s
B3
-
Stable
Fitch
Not Rated
Source: Rating Agencies, April 2011
Standard & Poor’s Rating: The stable
outlook balances improved external liquidity
8
II
PAKISTAN’S DEVELOPMENT STRATEGY
26.
Pakistan‟s current development
strategy is based on its Vision 2030; PRSP-II
(2008-2012), and New Growth Framework
(2010). These are briefly described in the
following sub-sections.
i.
percent annually until 2030. It asserts that the
high growth rate would be sustained through
developing Pakistan‟s human resources, and
necessary physical and technological
infrastructure in the country. An efficient,
competitive, and sustainable agriculture
sector is also needed to ensure food security,
rural livelihoods and eliminate extreme
poverty in all its manifestations before 2030.
Pakistan Vision 203010
27.
The Vision 2030 envisioned a
developed, industrialized, just and
prosperous Pakistan through rapid and
sustainable development by deploying
knowledge inputs. The basic goal of the
Vision is achievement of a “just and
sustainable society”. A number of critical
benchmarks for progressing towards a
modern state are identified such as
establishing an independent judiciary;
improving the efficiency of the government
and the quality of bureaucracy; addressing
the democracy deficit; minimizing the
influence of non-state actors; integrating
Pakistan with global economy; changing the
nature of work and workplace; and adapting
to competition from competitor Asian
countries.
29.
However,
the
Vision
2030
anticipated a number of challenges in
achieving the targets. These include
increasing the levels of savings and
investments;
achieving
broad-based
economic growth; sustaining high growth
rates over the time horizon; and assuring
trickle down effects of growth for bringing
substantial benefits to the poor. Moreover,
some specific challenges are deemed
pressing for achieving Vision targets. For
example, by the end of 2030, Pakistan is
projected to become the fifth largest country
in the world with a population ranging
between 230 and 260 million, which may
have
huge
consequences
for
the
government‟s poverty reduction and service
delivery ambitions. This challenge will also
have a bearing on the government‟s ability to
meet another related crucial challenge,
namely providing sufficient employment to
its people, which will be critical to meeting
the objectives related to sustainable
economic growth and maintaining social
stability. Similarly, natural resources
depletion especially water, land and forests,
food security and meeting energy needs are
28.
The Vision expects Pakistan to join
the rank of middle-income countries with
GDP per capita of around $4,000 by 2030,
which would require an average economic
growth rate of around 7 - 8 percent per
annum. In particular, the share of the
manufacturing sector to increase from 18.3
percent of GDP to nearly 30 percent, which
requires the sector to grow at an average 10
10
Approach Paper, Strategic Directions to Achieve
Vision 2030 (February 2006).
9
reforms and improving governance. The
ultimate objective is to bring back growth
momentum of 5-7 percent a year. The
strategy also aims to create adequate
employment opportunities for the growing
number of youths, and reduce inequality and
enhance competitiveness through economic
liberalization, deregulation and transparent
privatization.
also identified as key challenges to achieving
the Vision.
30.
The Vision also calls for Pakistan
to take advantage of globalization through
enhancing its competitiveness in the global
economy with respect to commerce,
manufacturing and services along with
increased diversity and quality. Improving
competitive advantages in Pakistan will play
a crucial role in attracting future investments.
The primary means of doing this is to reduce
the cost of doing business through the fixing
of constraints in the logistics chain, including
roads, railways, ports, airports and trade
facilitation. Other identified areas included
improving the environment for trade;
improving sector cluster strengths and
dynamics; ensuring availability of fresh
talent and skills in Pakistan; and reforming
the financial sector.
ii.
Medium-Term
Strategy
32.
The PRSP-II is built upon the
following nine pillars:
(a) Macroeconomic Stability and Real
Sector Growth: The PRSP-II outlines
interventions to achieve sustained
economic growth, which serves as a base
for all government policies and identifies
macroeconomic stability as the key factor
for achieving sustainable economic
growth for longer periods.
(b) Protecting the Poor and the Vulnerable:
Enhancing social safety nets by providing
minimal safeguard for the poor and the
vulnerable is the focus of this pillar.
Pakistan has both direct (such as
Employees‟ Old Age Benefit Institution,
Workers‟ Welfare Fund, Zakat and
Pakistan Bait-ul-Mal) and indirect (such
as the minimum wage, lifeline tariff on
electricity, subsidy on the price of flour
and food subsidies etc.), and social
protection mechanism. However, there is
a further need for enhancing such
mechanisms as the number of people
who are living on just above the poverty
line, has been increased over the years.
Development
(i) Poverty Reduction Strategy
Paper (PRSP-II)11
31.
Based on the outcomes and lessons
learned from the PRSP-I, the Government
of Pakistan developed PRSP-II for the
period (2008-2012) in order to drive the
economy back to a path of sustainable
growth. PRSP-II is a pro-poor growth
strategy, which focuses on poverty
alleviation combined with a road map for
regaining macroeconomic stability and
structural reforms required to support the
recovery of strong and sustainable growth,
macroeconomic stabilization, reduction in
debt burden, bringing fundamental structural
(c) Increasing Productivity and Value
Addition in Agriculture: Agriculture is
given top priority in the PRSP-II as the
poverty is mainly concentrated in rural
areas. The focus areas include
development of new technologies; more
11
Government of Pakistan, Poverty Reduction Strategy
Paper-II (PRSP –II, 2008-2012).
10
productive use of water through precision
land leveling and high efficiency
irrigation systems; promoting production
and export of high value crops;
accelerating high value activities, such as
livestock rearing, dairy production,
fisheries, and horticulture; creating
necessary infrastructure; and ensuring
availability of agricultural credit.
life of citizens. The focus areas for
human resource development are
education; health; water and sanitation;
population planning; and gender equality.
(g) Removing Infrastructure Bottlenecks
through Public Private Partnerships
(PPP): The bottlenecks in the
infrastructure development are hindering
the government‟s vision for economic
growth and poverty reduction. In order to
achieve the desirable growth, sizable
investment (both in quality and affordable
cost) in infrastructure (roads and
highways, dams, energy, and transport) is
required. The private sector can play a
significant role by getting involved in the
PPP projects to leverage on their
experience and success stories. The major
focus areas include ports and shipping;
trade facilitation; highways; railways
restructuring and modernization; energy
(d) Integrated
Energy
Development
Program: This pillar identifies energy
security and energy efficiency as one of
the top priorities of the government. As
more and more population is moving to
the urban areas in Pakistan, it has
brought tremendous challenges. The
focus areas of the energy sector are
promoting energy efficiency; fuel
diversity; and interventions that take
climate change into consideration; and
transcend the boundaries of promoting
energy conservation and demand
management measures.
modernization. Moreover, the housing
sector is another area for PPP
interventions.
(e) Making
Industry
Internationally
Competitive: Competitiveness remains a
key area of improvement. Focus areas for
this pillar include raising investment
levels;
attracting
foreign
direct
investment; and encouraging private
sector involvement in all spheres of the
economy coupled with improvement in
education and health sectors to create
skilled and healthy labour force. Once
the improvement in the business
environment takes place, it is expected to
increase
competition,
firm
level
productivity,
and
expansion
and
diversification of exports.
(h) Capital and Finance for Development:
This pillar identifies key financial sector
strategies with focus on development
finance to serve the underserved markets;
introduction of new products while
increasing the geographical spread of
existing ones; further strengthening of
the supervisory regime and risk
management; managing volatility and
encouraging greater depth and breadth in
equity markets; and expansion of the
financial sector through SME financing,
Islamic banking, and microfinance.
(f) Human Development for the 21st
Century: This pillar identifies human
development as the prerequisite for
improving all aspects of the quality of
(i) Governance for a Just and Fair System:
It has been observed that the poor are the
one who suffer most from lack of security,
empowerment, and opportunities. Thus,
11
this is regarded as one of the major
constraints for poverty reduction. Both
the Federal and Provincial Governments
are required to ensure quality and fair
governance to achieve ambitious targets
of PRSP-II.
sector (education and health sectors) are
much lower in Pakistan compared with
other South Asian countries. This may
cause serious setback in the efforts for
achieving the MDGs.
34.
Key risks and challenges to PRSPII targets/ pillars are the following: PRSPII is a strategy formulated and driven by the
Federal Government. As the government is
moving forward to implement the 18th
Amendment, which aims to decentralize the
social sectors and shifting five Federal
Ministries from the Federal Government to
the Provincial Governments, the PRSP-II
requires further realignment and modification
to systematically coordinate with the
provincial strategies and plans. Moreover,
improvement of the security situation and
speedy implementation of the proposed
reforms continue to be the pre-requisite for
the success of this strategy.
(j) In addition to nine pillars, empowering of
women and reducing gender disparities is
defined as a cross-cutting theme as an
integral part of the PRSP-II.
33.
To track the status of the PRSP-II,
two progress reports have been prepared
by the Government of Pakistan (first for
2009/10 and the second for the period
2008/09 – 2010/11). Some of the highlights
of the progress reports are presented below.

A significant increase in the overall
expenditures on the pro-poor sectors is
leading to a steady progress in the
monitoring indicators. The country also
experienced positive signs of economic
recovery during the PRSP-II period.

With regard to supporting the vulnerable
with the social safety nets program, three
new programmes were introduced: first,
Pakistan Sweet Homes (PSH) for
orphanages; second, Pakistan Homes
(PH) for senior citizens; and third,
Langer Program (LP) for providing free
food to poor and vulnerable. Moreover,
the disbursement under Benazir Income
Support Program was almost doubled
and beneficiaries increased by 30
percent.

Education sector also shows an overall
increase in gross and net enrolment rates
at both pre-secondary and secondary
levels. However, adequate budgetary
allocations are needed to continue this
trend as the annual allocations for social
35.
According to the World Bank/
IMF joint assessment (June 2010), PRSPII provides a strong analysis of the
characteristics of poverty in Pakistan as
well as the macroeconomic trends since
early
2000.
It
also
emphasizes
macroeconomic stability, infrastructure,
human resources and strong institutions as
the key building blocks; and productivity at
the firm level as being the means through
which to promote Pakistan‟s economic
competitiveness. However, weaknesses were
identified in the existing monitoring and
evaluation system to which PRSP-II
proposed a reform plan to address these
weaknesses.
(ii) New Growth Strategy
36.
Although, the PRSP-II will be
continued till the new strategy paper
(PRSP-III) is prepared, the Planning
12
Commission of Pakistan has added a
number of components in its ongoing
medium-term strategy called – “The New
Growth Strategy”. It is focusing on the
potentials in utilizing existing capacity,
enhancing macro-economic stability and
removing major constraints. The new growth
framework suggests the following pillars:
 Develop software of economic growth by
increasing competitiveness
 Redefine government‟s role in markets
 Promote investments on the basis of
innovation and entrepreneurship
 Exploit the huge potential of a large
domestic market
 Make cities and regional clusters the
locomotives of growth
 Improve governance
 Improve public service delivery
 Enhance connectivity
 Identify and remove binding constraints
to sustainable economic growth by
suggesting a set of reforms both at the
macro and micro levels.
13
III
IDB GROUP INTERVENTIONS IN PAKISTAN:
LESSONS LEARNED
i.
(i)
Overview of IDB Group
Operations in Pakistan
38.
The first IDB operation in Pakistan
was approved on 5 June 1977, when the
Bank financed the National Refinery LTD by
way of equity with an amount of $4.0
million. The most recent approval is for an
agricultural project with an amount of $95
million. Total IDB-OCR approvals have
reached to $1.7 billion for 60 operations as of
5 March 2011; of which, 19 operations are
still under implementation (Figure 3.1).
37.
Pakistan joined the IDB on 12
August 1974 as a founding member.
Pakistan is a member of all the IDB Group
entities (ICD, ICIEC, ITFC, and IRTI).
These entities have played an active role in
country‟s socio-economic development.
Since inception, the IDB Group portfolio in
Pakistan has been dominated by trade
financing followed by ordinary capital
resources (OCR) for project financing, and
favored mainly the public sector. The IDB
Group operations in Pakistan are classified
under three main categories: IDB-OCR
operations, trade financing, and private sector
operations. As of 5 March 2011, IDB Group
net approvals for Pakistan totaled $7.6
billion; of which the share of project
financing was 30 percent and trade financing
70 percent (Table 3.1).
Figure 3.1: IDB OCR Approvals for Pakistan
(% shares in cumulative, as of 5 March 2011)
2008
Project
Financing
(incl.
Technical
and Special
Assistance)
255.2
388.7
543.6
2,369.6
Trade
Financing
110
0
0
5,191.0
Total Net
Approvals
365.2
388.7
543.6
7,560.6
2009
2010
Agriculture
Water,
sanitation
13%
Transport
ation
29%
Industry
and
Mining
3%
Informati
on and
Communi
cations
0.01%
Table 3.1: IDB Group Net Approvals for
Pakistan ($ million)
Mode of
Financing
OCR Operations by the IDB
19762010
7%
Education
3%
Energy
41%
Health
4%
Finance
0%
39.
Considering the current energy
deficit, and aging and inefficient
transportation network in the country,
IDB’s leading role is likely to be continued
in these sectors during the MCPS period.
The structure of the IDB portfolio in Pakistan
has been changing significantly in recent
years. Total approvals have surged
considerably in the last 5 years ($1.3 billion)
and the average size of a single project has
15
increased. During this period, infrastructure
has emerged as the main sector in attracting
most of the IDB funds. The sector-wise
distribution of the IDB operations indicates
that a substantial share of financing has been
allocated to energy (41 percent of total
financing), followed by transportation (29
percent) and water and sanitation (13
percent). The IDB total exposure for energy
sector projects has reached to $696.3 million,
which is mainly for energy generation. The
Bank has, so far, approved 7 electricity
generation projects, of which 5 projects are
still under implementation. Further, total
approvals in transportation have reached to
$488.5 million for 9 projects, of which 5
projects have been completed. The IDB
intervention
in
this
sector
mainly
concentrated on railway development and
road
construction. With regard to
geographical distribution, ongoing operations
which constitute around 85 percent of total
OCR approvals are mainly concentrated in
North and East of the country because of the
huge potential of the northern areas in energy
generation from hydro power resources.
40.
Since inception, the IDB total
intervention for education and health in
Pakistan have been realized as $114.6
million for 11 projects, of which 9 projects
have been completed and two are under
implementation. The first project was
approved in 1983 while the most recent
operation was approved for the benefit of the
National University of Science and
Technology (NUST) for the construction of a
research hospital in Islamabad. Since
inception, secondary and tertiary education
has had the biggest share under education
allocations.
41.
Total IDB approvals for the
agriculture sector have been realized as
$127.2 million for 7 projects, of which, 4
projects have been completed so far. The
IDB first approval in agriculture was in 1985
for an amount of $11.5 million, while the
most recent one has been approved in 2011
Box 3.1. IDB and the Friends of Democratic Pakistan
The Friends of Democratic Pakistan (FODP) is an initiative intended to extend support to the
Government of Pakistan in its efforts to consolidate democracy and support social and economic
development in the country. Since the launching on 26 September 2008, the FODP provides an
important forum for the international community to help Pakistan to enhance its capacity to overcome
security and socio-economic development challenges.
The first Donors Conference of the FODP was held on 17 April 2009 in Tokyo, and the Government of
Pakistan presented its development plan under five clusters: (i) security; (ii) energy; (iii) transport; (iv)
poverty reduction; and (v) institutional capacity building and reform. During the pledging session,
donors pledged over $5 billion over the next two years. The IDB announced a total of $1.25 billion for
project and trade financing during 2009-2011. Since its pledge, the IDB approvals to Pakistan have
reached to $916 million for project financing. In addition, the IDB participated into the Steering
Committee meeting of the Energy Sector Task Force under the auspices of the FODP and contributed
to this initiative by providing a short-term expert.
The third Ministerial Meeting of the FODP was held in Brussels on 15 October 2010. The primary
focus was to assess the damage of the 2010 Floods and to raise awareness of the international
community on the severity of the disaster. The participants reiterated their continued support to relief
and reconstruction efforts of the government.
16
for the construction of grain silos in various
parts of the country for a total amount of $95
million.
global financial crisis unfolded in the
backdrop
 Issues related to the competitiveness of
pricing
42.
IDB has also been assisting the
country aftermath of the natural disasters.
After the October 2005 earthquake in
Northern Pakistan, the IDB approved several
projects amounting to $300 million in order
to help reconstruction and rehabilitation
efforts in the affected regions. Recently, the
IDB has approved $11.2 million loan for
emergency rehabilitation and early recovery
from the 2010 flood disaster. IDB is also an
active partner of the Friends of Democratic
Pakistan (Box 3.1).
(iii) Operations by ICD
44.
Since beginning of its operations in
Pakistan, Islamic Corporation for the
Development of the Private Sector (ICD) net
approvals have reached to $79.2 million
mainly in industry and financial sectors.
Currently, ICD has three active financing and
investment transactions in Pakistan focusing
on cement, steel (financing) and Islamic
commercial
banking
sector
(equity
investment). The key constraints to ICD past
operations in Pakistan are the following:
(ii) Trade Financing by ITFC
43.
Since the beginning of the IDB
Group operations, Pakistan has been the
second biggest borrowers for trade
financing, which reached $5.2 billion
mainly
for
importing
petroleum
products. International Islamic Trade
Finance Corporation (ITFC) has made
substantial interventions in Pakistan by way
of its trade finance products. Traditionally,
the trade finance facilities were used for
imports of agricultural inputs and oil. The
IDB Group support to trade promotion also
remains significant and relevant in terms of
its
impact
and
improving
trade
competitiveness of the country. Given its
importance to economic growth and also
consistent with Group‟s strategic objective of
promoting intra-trade between member
countries, the IDB supported trade promotion
activities which were aligned to the priorities
of the government. However, since 2008 the
IDB Group trade finance interventions have
not been implemented due to the following:
 Competitive pricing
 Identification of quality sponsors
 Project implementation issues
 Difficulties in syndicating for projects in
Pakistan in the international markets
 Difficulty in resource mobilization
(iv) Operations by ICIEC
45.
Similarly, another IDB Group entity
Islamic Corporation for Insurance of
Investment and Export Credit (ICIEC)
provides credit insurance and re-insurance
for exports and investment for foreign
investment flows to facilitating customer's
trade finance activities by offering
comprehensive commercial and political
risks cover. With its developmental mandate,
ICIEC operations in Pakistan have focused
on facilitating exports (i.e. insuring exports
receivables), strategic imports (insuring
confirmed import L/C's) and foreign direct
investment (insuring foreign investments).
By the end of 2010, ICIEC operations in
 Difficulty in resource mobilization from
the international financial markets as the
17
Lectures, and Symposiums on Islamic
Economics and Islamic Financial Industry.
Regarding the training activities, IRTI has
organized 17 courses in various areas in
Pakistan. More than 400 participants from
public and private sectors have benefited
from these activities.
Pakistan has reached to $314 million, of
which $214.6 million has been used for
export credit insurance, $72.8 million for
short-term trade insurance and $26.5 million
for foreign investment insurance. ICIEC has
insured considerable amount of exports
receivables by issuing policies directly to
exporters for exports emanating from
Pakistan. The ICIEC operations in Pakistan
are relatively small in comparison to the huge
potential because of the following factors and
inherent challenges:
ii.
Key Lessons Learned from IDB
Group Operations in Pakistan
47.
In
order
to
assess
overall
performance of the IDB assistance in
Pakistan, IDB Evaluation Department carried
out a Country Assistance Evaluation (CAE)
in 2008. This CAE exercise covered the
period 1977-2007 and analyzed Bank
interventions across various sectors; the
consistency of the Bank support with the
country‟s development strategy; and the
economic and social outcomes of the IDB
support. The main findings of CAE report are
summarized below.
 Lack
of
Institutionalized
Credit
Insurance, restricting exporters to expand
the existing portfolio and penetrating into
new markets
 In-active Export Guarantee Schemes in
the country
 No clear precedents or existing policy
level frameworks
supporting and
explaining the "Export-Led Growth
Strategy"
 Capital intensive nature of projects
(i)
 Absence of specialized long-term
financing institutions and risk mitigating
institutions that are resulting in low
appetite in the local banking industry for
export and trade finance
Portfolio Assessment
48.
The IDB interventions during the
period 1977-2007 were assessed as
relevant, timely, broadly aligned its
Strategic Thrusts, and consistent with the
government’s development strategies. The
funded
projects
achieved
reasonable
outcomes, complementing the government‟s
ability to meet infrastructure and rural
development
needs.
The
overriding
objectives of the IDB operations during this
period were poverty reduction; social sector
development; and sustainable economic
development. In connection with these
objectives, four major sectors namely social
sector, energy, rural and urban development,
and trade were assessed. The main sectoral
findings are as follows:
 Lack of trade finance interest in the
export-oriented infrastructure sector in
Pakistan from private players in the
international financial markets
 Limited marketing strength of ICIEC
(v) Knowledge Delivery by IRTI
46.
Islamic Research and Training
Institute (IRTI) has undertook 7 operations
so far in various areas including conferences
on Islamic Capital Market, Islamic Banking
and Finance, Distance Learning Program,
18


priorities, the IDB support to energy
focused on large projects. However, a
considerable positive impact would have
been achieved if the focus was also on
rural electrification, which directly
impacts poverty reduction in rural areas.
The IDB interventions in the social
sector were relatively large and
considered relevant and timely. The
Bank-supported
education
projects
helped in the construction of classrooms,
laboratories, training blocks, dormitories,
hostels, cafeterias, and residential
quarters. The projects improved the
institutional capacity for teaching and
training and the potential for research
and innovation particularly in science
and technology. The education projects
have made economic and social impact
in the areas where they were located.

(ii) Projects/Program Implementation
Issues
The rural and urban development
projects have improved the livelihood of
the communities; enhancing the farming
techniques; increasing incomes; and
contributing to poverty reduction. In
particular,
after
the
devastating
earthquake of October 2005, the IDB
agreed to fund the construction of houses
in District Bagh and committed more
than $300 million in project financing for
the earthquake-affected areas. The
housing reconstruction project reached
thousands of local women, providing
them with proper housing facilities and
income generation activities. These
activities, which included training and
capacity building, led to social capital
building and local institutional and
enterprise development.

The outcome of the IDB support to
agriculture and rural development is
considered a success in terms of
relevance, effectiveness and focus on
poverty reduction and institution
building.

Despite the overall coherence of Bank
interventions with the government
The IDB support to trade promotion
remains significant and relevant in terms
of
outcome
and
improving
competitiveness of the economy. Support
to trade promotion is also consistent with
the country‟s development plan, and with
IDB‟s strategic objectives.
49.
While the assistance was found
relevant and consistent with the priorities
of the government and needs of the people
of Pakistan, a number of following issues
have been raised by the stakeholders.
19

The implementation of IDB-supported
projects was generally slow, resulting in
multiple extensions, cost escalation and
inefficiency. The CAE findings indicated
that most of the implementation problems
revolved around country capacity,
consultant
selection,
procurement,
supervision and disbursement issues.

The long periods needed to close
projects, requests for extension, and the
large number of cancellation indicated
either lack of institutional capacity or
lack of coordination among various
concerned
departments/
ministries.
Delays had not resulted only in increased
project cost due to price escalation, but
also affected the project efficiency and
its anticipated results as per the original
project design.


The slowness in implementation is
attributed to many factors, including lack
of coordination, inadequate counterpart
funding, unfamiliarity with the IDB
procedures, and bureaucratic behavior of
the government officials, and delays in
ratification of agreements on the side of
the government. Nonetheless, executing
agencies, project implementation units
(PIUs), contractors, and consultants
attributed the delays to IDB lengthy
tendering and disbursement procedures.
They complained of absence of frequent
supervisory missions from the Bank.
the Bank‟s procurement and disbursement
procedures
51.
Taking into consideration the
above mentioned issues especially for
project implementation, weak field
presence in the country had also affected
the IDB portfolio performance. While
having relatively quite a big portfolio, the
IDB Group has been represented by only one
field representative in Pakistan. Considering
the expanding size of portfolio and need for
closer cooperation with other development
partners in the country, the need to
strengthen field presence of the IDB Group
has been emphasized by various stakeholders
i.e.
various
government
agencies,
development partners, and executing
agencies. Strengthening field presence is
likely to solve project implementation issues
and increase the level and effectiveness of
cooperation with other development partners.
Lengthy procedures of hiring consultants
had also caused delays in construction of
civil works and delays in procurements
of equipment. Disbursement procedures
led to low utilization of approved funds
and thus, reduced efficiency of
implementation.
50.
Following possible actions for
addressing the causes of delay in project
implementation and project cancellations
were suggested in the CAE.
iii.
Other Donors’ Support to
Pakistan
(i)
World Bank
52.
The Country Partnership Strategy
(CPS, 2010-2013) of the World Bank is
centered on four pillars namely improving
economic governance; accelerating delivery
of human development and social protection
services; improving infrastructure to
support growth; and improving security and
reducing the risk of conflict. The CPS has
indicative financing of $6 billion for 4 years
with $3.7 billion allocation during 20102012. After the 2010 floods, the World
Bank has also extended $300 million in
import financing to assist the government.
The overall program for the first year will
be over $1 billion through International
Development Association (IDA).
 Designing less complicated projects
 Ensuring complete understanding and
acceptance of projects at all levels of
governments
 Placing more emphasis on technical
assistance (TA) and scale back projects,
as needed, to meet the counterpart‟s
capabilities
 Building capacity of line Ministries, and
giving support to executing agencies and
PIUs
 Extending the duration of the start-up
workshops to familiarize local staff with
20
billion in grant aid, and a further $400
million in technical assistance to Pakistan.
(ii) Asian Development Bank
53.
The Country Partnership Strategy
(CPS, 2009-2013) envisions Pakistan’s
strategic objectives of prosperity and
poverty reduction. The Asian Development
Bank (AsDB) has assisted the Government of
Pakistan in undertaking economic and
governance reforms in the last decade.
Pakistan has received more than $20 billion
in loans since joining the AsDB in 1966. The
bulk of supporting development initiatives
are in energy, social sectors, governance, and
transport. The CPS has planned assistance of
$4.4 billion during 2009–2011 and an annual
average lending of almost $1.5 billion. The
CPS prioritizes the four key focal areas: (i)
reforms and investments in key infrastructure
sectors; (ii) support new generation of
reforms to catalyze structural transformation
of the economy; (iii) provide assistance for
development of urban services; and (iv)
assist in effective implementation of projects
and programs, and capacity building.
(iv) International Fund for
Agricultural Development
55.
Since 1978, International Fund for
Agricultural Development (IFAD) has
supported 23 programmes and projects in
Pakistan with investments totaling $440.9
million. IFAD-funded programmes and
projects aim to improve the livelihoods and
productivity of poor rural people. IFAD‟s
strategy in Pakistan aims to combat rural
poverty through an emphasis on rural
development. The strategy focuses on: (i)
alleviating poverty in vulnerable and remote
areas; (ii) achieving community participation;
(iii) identifying opportunities for innovation;
and
(iv)
structuring
institutional
arrangements that capitalize on partnerships
between public and private sectors.
(v) United States Agency for
International Development
(iii) Japan International
Cooperation Agency
56.
Since 2002, United States Agency
for International Development (USAID)
has provided over $3.9 billion to support
economic growth; improve education;
revitalize health; promote good governance;
facilitate earthquake reconstruction; and
provide humanitarian assistance. USAID
Country Assistance Strategy for Pakistan
(2010-2014) aims to strengthen the
Government of Pakistan's capacity to provide
services effectively to its citizens. Assistance
also focuses on immediate post-crisis and
other humanitarian assistance needs and
prioritizes energy, agriculture, education, and
health sectors.
54.
The priority areas identified by
Japan International Cooperation Agency
(JICA) in assisting Pakistan include: (i)
ensuring human security and human
development; (ii) development of sound
market economy; and (iii) achievement of
balanced
regional
socio-economic
development. In consistent with the above
direction, JICA is actively implementing
various sector specific programs including
health/sanitation, education, irrigation/water
resource development, agriculture, industrial
development, governance, and environment.
For more than 30 years partnership with
Japan, JICA has extended about $7 billion as
official development assistance loans, $2.1
21
IV
DESIGNING IDB GROUP PARTNERSHIP STRATEGY:
ALIGNMENT, SELECTIVITY, AND FOCUS
i.
Institute of Development Economics; and
National University of Science and
Technology. They also held meetings with
key donors namely the Asian Development
Bank; World Bank; IMF; USAID; World
Health Organization; World Food Program;
French Development Agency; and Turkish
International Cooperation and Development
Agency.
Consultations with Key
Stakeholders for Designing
Partnership Strategy for Pakistan
57.
In order to formulate Partnership
Strategy, the IDB Group Technical
Mission visited Pakistan during 13-22
March 2011. The mission held wide-range
consultations with key stakeholders in order
to formulate a comprehensive IDB Group
Strategy for the country for the period 20122015. In this regard, the Mission held
bilateral meetings with various line
ministries, government agencies at the
federal and provincial levels. Consultations
had also been conducted with representatives
from the private sector, academia,
multilateral and bilateral development
partners, specialized UN agencies and civil
society.
59.
Bilateral Meetings in Karachi
(Sindh Province): The Mission conducted
meetings with provincial Education and
Agriculture Departments; Karachi Electric
Supply Company; Tameer Micro Finance
Bank; Meezan Bank Limited; Trade
Development Authority; State Bank of
Pakistan; Karachi Port Trust; Karachi
Chamber of Commerce and Industry; The
Citizens
Foundation;
World
Health
Organization; and Pakistan Petroleum
Limited.
58.
Bilateral Meetings in Islamabad:
The IDB Group Mission held extensive
meetings with key Federal Ministries/
Agencies namely Economic Affairs Division;
Planning Commission of Pakistan; Ministry of
Finance; Statistics Division; Ministry of
Science and Technology; Ministry of
Education; Ministry of Health; Ministry of
Commerce; Ministry of Water and Power;
Ministry of Petroleum and Natural Resources;
Pakistan Poverty Alleviation Fund; Public
Procurement Regulatory Authority; Ministry
of Food and Agriculture; Securities and
Exchange Commission of Pakistan; Higher
Education Commission; Rural Support
Programme Network; COMSAT; Pakistan
60.
Bilateral Meetings in Lahore
(Punjab Province): A series of meetings
were held with Water and Power
Development Authority; Pakistan Electric
Power Company; National Transmission and
Despatch Company Limited; Technical
Education and Vocational Training Authority;
Kashf Micro Finance Bank; Akhuwat
Foundation; Farz Foundation; and University
of Lahore.
61.
The Mission also organized three
consultation workshops in Islamabad,
Karachi and Lahore in close coordination
with the Federal
and Provincial
Governments. These workshops were
23
attended by senior officials of the Federal and
Provincial Governments, donor community,
private sector, business community, academia,
and civil society. The purposes of these
workshops were manifold: (a) to acquaint the
stakeholders about the strategic thrusts of IDB
Vision 1440H, IDB Group past interventions
in Pakistan and lessons learned; (b) to be
acquainted with in-depth knowledge on the
main development issues, key priorities and
strategies of the Government of Pakistan; (c)
taking stock of the main development
partners on ground; and (d) discuss the
proposed strategic thrusts and key pillars to
ensure full concurrence and ownership.
Major outcomes of the consultation
workshops are summarized below.
(i)
(summarized in Section II). The Ministry of
Finance also made presentation on the
Government of Pakistan‟s medium-term
development strategy built around nine key
pillars of PRSP-II (described in Section II).
The government assured that the current
pillars will remain valid while developing the
PRSP-III. The IDB Group mission also made
presentations on the overall MCPS process,
rational for MCPS exercise for Pakistan, and
proposed areas of Group interventions during
2012-2015. The participants of the workshop
suggested the following key points for
designing the IDB Group strategy.
First Consultation Workshop in
Islamabad
62.
The first consultation workshop was
held on 15 March 2011 in Islamabad. The
Planning Commission elaborated key
elements of the New Growth Strategy

A credible and viable MCPS strategy for
Pakistan is needed.

Energy conservation should be a pillar in
the MCPS.

Public Private Partnership (PPP) is key
for Pakistan‟s development for which
enabling environment is needed.

Pakistan railways are unable to work to
its full potential. The rehabilitation and
First Consultation Workshop held on 15 March 2011 in Islamabad.
24
upgradation of the railways network
should
be
a
priority
in
the
IDB/government ventures.

In developing transport infrastructure for
regional integration, there is a huge
potential in freight transportation
between Pakistan, Iran and Turkey.

Strengthening software of growth should
be a part of the IDB Group MCPS.
Sindh and the IDB Group proposed areas of
interventions was also emphasized. Since the
focus of this Workshop was on private sector
development, the Secretary of Federation of
Chamber of Commerce and Industry
reiterated the role of the private sector in
economic development of Pakistan. Major
bottlenecks in the growth of private sector
include lack of efficient contract enforcement
structure; inefficiency and rigidity in land
and labour markets; and lack of human
resources development. Private arms of the
IDB Group (ICD and ICIEC) made
presentations on the main functions of these
entities and highlighted some proposed areas
of IDB Group medium-term strategy for
Pakistan. The participants of the workshop
proposed the following areas for the IDB
Group interventions.
(ii) Second Consultation Workshop
in Karachi
63.
The second workshop was held on 17
March 2011 in Karachi. Focus of this
workshop
was
on
private
sector
development, capacity building, and reverse
linkages. The representative of the Sindh
Government
highlighted
provincial
development priorities and stressed that the
provincial government needs huge funding
from the donors including the IDB Group,
particularly for strengthening infrastructure
development. A high level of correlation
between the strategy of the Government of
 Major hurdle in growth and development
is the shortage of energy. The IDB Group
needs to assist in alternate power
generation methods, i.e. renewable energy
(wind, solar, etc.).
 For improving trade competitiveness,
Second Consultation Workshop held on 17 March 2011 in Karachi.
25
Pakistan‟s trade with countries like
Russia, Iran and Central Asian countries
needs to be boosted, opposed to the
conventional markets of Europe and the
USA.
tons of wheat are wasted each year due to
lack of storage facilities and processing
units. The IDB Group help is needed in
increasing storage capacity.
 The IDB Group support is also needed for
the private sector to improve health and
education facilities by increasing their
availability and achieving high standard.
 The IDB Group should also include water
and transport infrastructure in its strategy.
 Public Private Partnership (PPP) is
instrumental to sustainable economic
growth and alleviating poverty in
Pakistan. Therefore, PPP should be a key
pillar for the IDB Group MCPS.
(iii) Third Consultation Workshop
in Lahore
64.
The final workshop was held on 21
March 2011 in Lahore. Similar to Workshop
in Karachi, discussions in this workshop have
also more concentrated on private sector
development, capacity building and reverse
linkages. The Government of Punjab
appreciated the extensive consultation
process that the IDB Group has been engaged
in with various stakeholders and envisaged
the final partnership document will be a true
representation of private/ public needs.
 The IDB Group assistance needs to
address self-employment of youth and
healthcare.
 Development of small businesses is
crucial for success in achieving
sustainable economic growth.
 Proper grain storage facilities are required
at the seaport and airport as 3 to 4 million
The Final Consultation Workshop held on 21 March 2011 in Lahore.
26
Representing the private sector, Lahore
Chamber of Commerce commended the IDB
Group for its consideration of the private
sector as one of the key pillars. It was
stressed that the private sector should be
involved in policy making and dealing with
issues such as inadequate infrastructure and
energy crisis. The participants suggested the
following areas for the IDB Group
interventions in the country:





(v) IDB Group Visibility through
Media Coverage
66.
After signing the Minutes of
Meetings, a joint press conference was held
by the Economic Affairs Division and the
IDB Group Mission in Islamabad. The press
conference was well attended by the leading
journalists and major TV Channels in
Pakistan. In the press conference, Mr.
Muhammad Jamal Al-Saati, Director,
Country Department, explained the IDB
Group MCPS exercise and highlighted the
focus areas of IDB Group interventions,
which were fully endorsed by the
representatives of the Government of
Pakistan.
The social sector should be given top
priority in the IDB Group strategy.
The Bank needs to assist encouraging
new entrepreneurship through training,
workshops, and seminars.
Skill development is needed according to
market requirements. The IDB Group
strategy needs to help improving
curriculum and labs facilities.
The programs implemented by the IDB
Group should get some legislative
support.
Microfinance has huge potential in
Pakistan for generating employment
opportunities and reducing poverty.
(iv) Minutes of Meetings
65.
Following the agreement reached by
the Government of Pakistan and the IDB
Group Mission on the focused areas for the
Group interventions during the MCPS period
2012-2015, Minutes of Meetings were signed
by the IDB Group and the Government of
Pakistan on 22 March 2011. It was agreed
that all future IDB Group interventions (with
indicative/ notional financing envelop of
$2.5-3.0 billion) will be explored and
designed through future Programming
Missions. They will be anchored and guided
by the framework of this MCPS until 2015.
27
V
IDB GROUP MCPS-FOCUSED PROGRAMS
i.
Pillar 1: Improving Infrastructure
Development
Identification of Key Pillars and
Cross-Cutting Areas
(i) Energy
67.
Based on the development challenges
facing Pakistan (described in Section I);
government
development
priorities
(highlighted in Section II); and the lessons
learned from the previous operations and
activities of the IDB Group (mentioned in
Section III), as well as extensive
consultations with the key stakeholders in the
country (explained in Section IV), the MCPS
is designed to be centered on the following
Key Pillars and Cross-Cutting Areas for the
IDB Group interventions during the MCPS
Period (2012-2015), which are fully aligned
with the key strategic thrusts of the IDB
Vision 1440H (2020) and the development
priorities and needs of the Government of
Pakistan (Figure 5.1).
69.
The energy sector is crucial for the
current and future socio-economic
prosperity of Pakistan through the supply
of dependable electricity at rates that
maintain the competitiveness of its economy
and generate revenue for the financial health
of the sector.
70.
Pakistan is experiencing acute
power shortage of more than 5000 MW.
Peak demand has risen from 10,459 MW in
2001 to 18,521 MW in 2010 while the
corresponding supply increased from 10,894
MW to 13,163 MW. Transmission and
distribution network capacity has also not
risen commensurate to demand growth. As a
result, the system is presently experiencing
widespread planned blackouts, of more than
12 hours/day in both urban and rural
communities. The acute power shortage is
adversely affecting the country in achieving
sustainable economic growth, discouraging
both local and foreign private investments
and forcing local industry to close shop or
generate their own captive power at
uncompetitive
rates.
Further,
power
generation costs are also escalating owing to
high dependence on expensive imported
furnace oil for power generation and
continued reliance on de-rated and low
efficiency
generation
infrastructure
(Knowledge Part –II, C. on Energy Sector
Diagnostic Analysis).
Pillar 1: Improving Infrastructure Development
Pillar 2: Supporting Sustainable Agriculture
and Rural Development
Pillar 3: Enhancing Human Development
Cross-Cutting
Development
Area
1:
Private
Sector
Cross-Cutting Area 2: Supporting Islamic
Finance, Resource Mobilization, Capacity
Building and Reverse Linkages
68.
The MCPS focused areas/ programs
under each key pillar and cross-cutting areas
are described in the following.
29
71.
The IDB Group plans to facilitate
the Government of Pakistan’s efforts to
adequately address the major power
shortfalls, the security of energy supply
and its move towards more sustainable
and
least-cost
power
generation
alternatives. The IDB Group will continue
supporting development of indigenous on-
grid and off-grid renewable energy resources
towards bridging the existing power deficit
and diversifying the energy mix. Renewable
energy resources are abundantly available in
Pakistan in various forms such as
hydropower, solar energy, wind power,
geothermal energy and biomass. Further,
supporting construction of multi-purpose
30
Reliable and continuous supply of gas at
affordable prices is critical for efficient
utilization of the gas-based thermal
generation capacity. Moreover, Pakistan is
ideally located to serve as an energy corridor
between the energy rich Central Asia/ Middle
East and its South Asian neighbors with
growing energy needs. Therefore, the Bank
will actively seek partnerships to support the
government's efforts to realize regional
energy interconnection projects.
dams will also have cross-sectoral
development impact with respect to energy
security, water security, irrigation and flood
control. In particular, access of poor to
energy in rural areas will be addressed
through sustainable renewable energy
programs based on solar, wind, and biomass.
These projects will be small-scale but with
potential for replication and reverse linkages,
particularly from Indonesia.12
72.
Initiatives to enhance energy
efficiency will be prioritized. The Bank will
actively target to reverse the vicious cycle
sustained by the operation of inefficient
power plants leading to continuously
increasing power generation cost, affecting
the overall financial viability of the sector.
Strategic partnerships will be established to
replace/ upgrade old and inefficient power
plants with new high efficiency power plants.
Achieving efficiency savings will help to
lower the overall cost of electricity
production,
which
coupled
with
implementation of cost recovery tariff
policies, will initiate a virtuous circle of
financial viability. The Bank will seek
opportunities in the public and private sectors
to expeditiously install gas-based combined
cycle power plants located nearby gas
producing
areas.
Opportunities
for
strengthening
the
transmission
and
distribution infrastructure will also be
actively explored.
74.
"Clean" coal opportunities will
also be explored. Although, the country has
abundant coal reserves, which can be brought
into the generation mix at competitive prices.
This sector has not been sufficiently
developed so far. Given the significant
financing needs for developing the coal
generation sector as well as the associated
environmental concerns, the Bank will
consider financing "clean" coal technologies,
which have widespread support within the
government as well as multilateral donor
community. Moreover, to expedite the
achievement of energy security, the Bank
will examine the possibility of financing high
efficiency coal-based power plants based on
imported high quality coal (Result Matrix-I
for Pillar 1 on Improving Infrastructure
Development).
(ii) Transport
75.
High cost of transport logistics
hinders trade competitiveness of Pakistan
and its stronger involvement in global
markets. The poor performance of the
transport sector is estimated to cost the
economy 4-6 percent of the GDP each year
(PRSP-II). In particular, high freight costs
and transport bottlenecks cause long shipping
times to reach major markets. Pakistan is a
key country with respect to regional
73.
Regional and cross-border gas and
electricity interconnections will help
Pakistan improve energy security. Due to
the rising gas demand and the declining
indigenous gas production, Pakistan is
tending towards a gas-deficient economy.
12
IDB Group Member Country Partnership Strategy,
Republic of Indonesia: Harnessing the Regional
Potential, 2011-2014. (October 2010).
31
connectivity, however the transportation
infrastructure is aging and inefficient due to
high costs and low reliability. National
passenger and freight transport is excessively
depended on the road network congested by
overloaded, unsafe and polluting vehicles
and trucks. Investments into sustainable
development of transport infrastructure need
to be well targeted to ensure maximum
impact on facilitation of regional/ national
trade (Knowledge Part-II, C. on Transport
Sector Diagnostic Analysis).
sustainable alternatives with a view to
mainstreaming its support to railway network
development and rehabilitation/ modernization.
78.
The IDB will keep on encouraging
greater private sector involvement in
energy and transport through Public
Private Partnership (PPP). The PPP
interventions in the energy sector will
continue to focus on the power sector
development, in particular, renewable
energy, regional power generation/ trade and
energy distribution. The Group will actively
pursue PPP opportunities in the transport
sector, especially with respect to the
development of toll roads to improve
regional/ national road connectivity and trade
as well as improvement of port capacity and
container/cargo terminals. (Result Matrix-1
for Pillar 1 on Improving Infrastructure
Development)
76.
Enhancement of the road network
will constitute the primary axis of the IDB
Group support, given the boosting effect of
improved connectivity and regional trade
on economic growth. The Bank will support
development of the North-South transport
corridor that is currently exposed to 80
percent of the passenger and freight traffic.
Given the fact that Karachi and Qasim ports
hold 95 percent of international trade in
Pakistan, improvement of port infrastructure
and allied road-network will constitute an
essential component. The IDB will also focus
on the establishment of major missing links
along
the
East-West
corridor
for
improvement of national road connectivity
and trade.
79.
Technical assistance will focus on
urban transport planning and institutional
capacity building. The IDB contemplates
support for development of urban travel
demand management to help reducing road
traffic congestion and greenhouse gas
emissions as well as for proper land use
planning. Additionally, the IDB support for
capacity building will aim at more efficient
project implementations in the sector which
will diminish the risk of time extension, cost
escalation and other inefficiencies. The focus
will be on development of training academy
as well as capacity development activities in
the rail transport sector.
77.
Integrated development of road
and rail networks will revamp regional
connectivity and trade. Rail network
development is essential, particularly, for
long-haul freight transport in Pakistan. In this
context, the IDB Group recognizes the
government‟s ongoing efforts to improve
institutional and financial viability of railway
operations (including the reform and
privatization process). In the light of the
sectoral developments and in collaboration
with other development partners, the Group
will further examine cost-effective and
Pillar 2: Supporting Sustainable
Agriculture and Rural
Development
80.
The Agriculture sector plays a
central role in Pakistan’s economy. It
32
distributed in rural areas, which limit the
impact of agricultural growth on poverty,
calling for a move from traditional growth
sources to new growth poles including
horticulture crops, which have the potential
to stimulate non-farm economy.
accounts for over 21 percent of GDP,
contributes 60 percent to exports, and
remains by far the largest employer,
absorbing 45 percent of the country‟s total
labour force. While its contribution to the
GDP growth rate continues to decline (from
25 percent in 2005 to 11 percent in 2009), it
still provides livelihood for the majority of
the population and is the single most
important sector in terms of its poverty
alleviating impact.
83.
Based on the above challenges, and
principles of selectivity, focus, and
alignment, the IDB core strategy for
agriculture and rural development will
focus on the following four broad thematic
areas: (a) Infrastructure Development in
Flood Affected Areas; (b) Water Resource
Management; (c) Enhancing Food Security
(with focus on access and production); and
(d)
Value-Chain
Development
for
Horticulture Crops. The future engagement
of the IDB Group would involve a mix of
methodology, with greater emphasis on
provincial consultations, and using local
systems for implementation. Lack of
81.
Pakistan has comparative advantage
in various agricultural sub-sectors, which
remain unexploited. While the country has
made strides in enhancing production of
major crops, and is now the third largest
grower of wheat in Asia and fourth-largest
producer of cotton in the world, the
horticulture and livestock sectors remain
unexploited. It remains a net importer of
horticulture products, in which it has the
potential to capture $1 billion share of
world‟s horticulture export market, and the
productivity in livestock sector remains low.
consultations and engagement with
provinces was identified as one of the
main reasons for low agricultural sector
interventions in the past. Further, this
82.
The future growth of the
agriculture
sector
needs
to
be
strengthened by addressing four key
interlinked challenges. They are high food
insecurity, resource scarcity, rural inequality
and poverty, and flood impact. Nearly half
of the population is food insecure in
Pakistan, with issues of both production as
well as access (household food security).
This insecurity needs to be addressed with
scarce land and water resources, which are
under stress due to inefficient resource
management and rising population. Nearly
31 percent of arable land is uncultivable or
under „high stress‟, and per capita water
availability of 1,066M3 puts the country
under high water stress category. Further,
these limited resources are unevenly
would be even more important in the wake of
devolution under the 18th Amendment where
several Ministries are planned to be
transferred from Federal to Provincial
Governments. This, however, does not
disregard
undertaking
national
level
programs or obtaining Federal Government
concurrence, which would be necessary for
the success of the IDB Group strategy.
(Result Matrix-II for Pillar 2 on Supporting
Agriculture and Rural Development).
(i)
Infrastructure Development
Flood Affected Areas
in
84.
Agriculture, including irrigation
infrastructure, was the worst hit sector by
the 2010 Floods and needs special
33
attention. Given the impact of the damage
and the high poverty rates in flood affected
areas, the IDB focus for flood rehabilitation
will be on the „Poverty Triangle‟, which
includes Southern Punjab, Northern Sindh,
and North-Eastern Baluchistan. To the extent
possible, rehabilitation activities in these
areas will be linked and consolidated with
other interventions to be undertaken under
other pillars of the strategy. In Southern
Punjab and Northern Sindh, another focus
area will be the rehabilitation of secondary
watercourses. This will be done in
conjunction with village rehabilitation
programs undertaken on Community Driven
Development methodology. Integrated rural
development projects will be undertaken to
help the reconstruction of shelter, water
supply and sewerage, primary health centers,
and schools in these areas.
Tribal Areas (FATA). In Barani areas, the
IDB will support integrated rural development
programs, focusing on watershed development
to promote community driven management of
water resources. Poor communities will be
selected
on
watershed basins,
and
„Community Driven Development‟ approach
would be used to implement the programs,
which would include in their scope such as
water harvesting, soil conservation through
the promotion of modern irrigation
techniques, livestock and inland fisheries
development, rural access roads, community
managed funds, lining/ renovation of
watercourses, establishment of irrigation
schemes, and local market development.
These interventions will be linked with
programs
of
horticulture
value-chain
development (including dates, apples, grapes,
and olives in Baluchistan).
86.
The efficiency of the Irrigation
System in Pakistan is low and requires
immediate rehabilitation. The IDB support
in this area will be by making investment
concentrated on reducing conveyance losses
along the watercourses. In this context, the
IDB will support the government in lining of
watercourses in both the east and west banks
of Sindh (with priority on the West Bank).
The lining of watercourses will be done in a
consolidated manner with flood rehabilitation
support, where damaged watercourses will be
rehabilitated and lined at the same time.
Further, a nation-wide program for the
promotion
of
resource
conservation
technologies will be initiated to enhance onfarm water use efficiency and productivity.
This aspect of resource conservation would
also be embedded in IDB Group financed
programs, including those related to
livelihoods enhancement and value-chain
development.
(ii) Water Resource Management
85.
Water resource management has
become one of the most serious
developmental policy concerns for the
government. The key area for IDB Group
support under the MCPS strategy relates to
efficient management of water resources. As
a knowledge generation and technical
support activity, the IDB will collaborate
with the government in the formulation of
National Water Policy. In terms of project
financing, water availability matters will be
addressed through the construction of small
and medium dams/ reservoirs. In particular,
construction of mini (traditional) and small
dams will be supported in Baluchistan and
Khyber Pakthunkhawa (KPK). The IDB will
also collaborate with the government for the
construction and rehabilitation of multipurpose dams to support agricultural
development in Federally Administered
34
capacity under the recently approved Grain
Silos project is aligned to the envisioned
MCPS strategy. The project will help reduce
vulnerability, improve nutrition quality, and
enhance the country‟s capacity to manage its
strategic reserves.
(iii) Enhancing Food Security
87.
The IDB Group support for
enhancing food security will focus on two
interrelated areas of production and
access. In this context, the IDB will support
the government‟s bio-saline agricultural
development program through initiating pilot
projects in saline and waterlogged areas,
especially in Sindh and Punjab for cultivation
of high-value food and fuel crops.
Interventions will be in the form of providing
support for research and setting up of modern
farms (including fisheries farms) by
involving local community. This would be
linked with the IDB interventions for
promoting livelihood development in poor
districts across the country, which have the
potential for the development of local
agricultural value chains (with special
emphasis on crop/livestock farming systems).
The programs will seek to build on existing
organizational structures developed under
other projects (including FAO-EU Food
Facility Project) and would involve local
governments to institutionalize Farmer
Groups. A sustainable livelihood approach
will be employed for designing such
programs. To ensure that the process remains
viable and has the potential for sustainability,
small/ medium farmers will form into
collective organizations for common
procurement of inputs and output marketing,
and management of common funds. These
programs may be implemented in
conjunction with the community based
harvesting programs in barani areas. The
target locations for these programs include:
FATA (with focus on the development of
apple value-chain and livestock-cropping
farming systems), Southern and Western
Baluchistan, and Punjab. Lastly, the IDB
support for enhancing national storage
88.
A broad microfinance development
program under the private sector
development pillar of the strategy will also
help alleviate the rural credit availability
constraint. In areas where institutional credit
is not available for poor farmers, local
indigenous tested models, including locally
managed revolving funds will be supported,
which will be embedded in programs for
livelihood development. To use crop produce
as collateral for obtaining financing and
minimizing role of „middle-man‟, focus of
interventions would be on providing on-farm
storage facilities in high production areas to
be managed by farmer groups/ private
agencies.
(iv) Value-chain Development
Horticulture Crops
for
89.
Pakistan has huge potential in
developing horticulture value-chains with
multiple benefits relating to increased
exports, income enhancement and nonfarm rural employment generation,
especially for women. The IDB support for
value-chain development would focus on
relatively developed value chains with
potential for growth. At the initial stage,
value-chains will be identified for potential
crops (basically horticulture crops), and
clusters of area/ value-chain will be targeted
for integrated development using holistic
farming system approach. Supply chains for
major horticulture and vegetable crops (for
example potatoes, mangoes, chilies, dates
35
disparities. Therefore, school dropout rates
are high especially at the secondary school
level. Better access, including, infrastructure,
teaching and research are needed at the
tertiary level to equip graduates with highlevel skills needed to build a knowledgebased economy (Knowledge Part-II, C. on
Education Sector Diagnostic Analysis).
etc) will be targeted. Integrated market
development approach to strengthen the
market linkages from production to
processing will be employed to support this
area. The IDB private sector arm will support
these agri-businesses by creating an enabling
environment for private sector financing. The
support will focus on model farms/ orchards,
training in modern cultivation techniques,
local community managed mini processing
units, mini grading plants, provision of cold
storage, transportation facilities, processing
and market linkages.
91.
The administration of primary and
secondary education is in the process of
devolvement from the federal level to the
provincial levels in line with the structural
reform undertaken under the 18th
Constitutional Amendment. Greater need
appears to come from less-developed
provinces of the country, particularly,
Baluchistan and Khyber Pakhtunkhwa. The
Higher Education Commission (HEC) will
remain to be the federal body to oversee
tertiary education in the whole country with
clear developmental goals and ambitious
plans.
Pillar 3: Enhancing Human
Development
(i) Education
90.
Despite recent achievements in the
education sector, Pakistan still faces
numerous challenges to achieve its 2015
MDG targets related to education. The
quality of education is weak at all levels and
learning achievements are low and varied.
Poor performance in the sector reflects partly
the shortage of qualified and motivated
teachers but also weak governance and
management and the concomitant lack of
accountability and effectiveness in service
delivery. While further investment in
education
is
required,
expenditure
effectiveness is a key issue that needs to be
addressed vigorously. Pakistan is lagging
behind in female enrolment at the primary
school level. Access to education remains a
significant challenge, which is even more
problematic at higher levels of education.
Although, literacy and net primary
enrollment rates increased in recent years,
Pakistan‟s participation rates remain the
lowest in South Asia and there are wide
male-female, inter-regional and rural-urban
92.
Tertiary education as well as
modernization and development of
Madrassa shall be the two main axes of the
IDB support. Focus will be given to higher
education related to science and technology
and vocational training for skills development
through supporting the Technical Education
and Vocational Training Authority (TEVTA)
(Result Matrix-III for Pillar 3 on Strengthening
Human Development).
93.
In the education sector, the IDB
Group is also initiating Public Private
Partnership for helping the government in
achieving MDG-related education, which is
also aligned with the key strategic thrusts of
IDB Vision 1440H of universalization of
education in member countries like Pakistan
(Box 5.1).
36
Box 5.1: IDB PPP Initiative for Universal Primary Education in Pakistan
The Citizens Foundation (TCF) is a professionally managed, non-profit organization set up in 1995 by
a group of citizens concerned with the state of basic education and out-of-school in Pakistan. It is now
one of Pakistan's leading organizations in the field of formal education. TCF targets 100 percent poor
families believing that access to basic education is the right of each individual and not a privilege.
Apart from the curriculum, TCF focuses on the character building of students to equip them with high
moral values and confidence.
As of 2011, TCF has established 730 school units with purpose-built campuses nationwide with
enrollment of 102,000 students. It encourages female enrollment and boasts of a 50 percent female
ratio in almost every campus. TCF has a full Female Faculty of 5,400 members, trained and supported
on a continuous basis. More than 8,000 jobs have been created in communities in which TCF operates.
IDB/ISFD in supporting universal primary education intends to work together with provincial
governments to leverage TCF's evidence-based success and work with TCF in districts with low
literacy and primary enrollment rates. This will be done through a community driven process targeting
children between 5 and 16 years age, particularly from poor and disadvantaged households. The
collaborative effort, as a large-scale public-private (not-for-profit) partnership intervention addresses
the Education-for-All target. The project will: (i) demonstrate participatory educational planning; (ii)
provide a baseline for quality early childhood education and primary education; and (iii) build capacity
to develop public private partnerships for uniform and standard delivery of quality public education in
the provinces.
health care demand. Shortage of health
professionals is one of the critical challenges
for the Pakistan‟s health sector. The urban
favored distribution of both healthcare
facilities and providers needs strong and
committed political intervention to ensure
equity and universal access to basic
healthcare services (Knowledge Part-II, C. on
Health Sector Diagnostic Analysis).
(ii) Health
94.
Health indicators of Pakistan are
well below the MDG targets and their
improvement is the priority of the
government. Contributing factors include
inadequate public budget allocations, high
poverty, low literacy, lack of proper water
and sanitation, prevalent malnutrition, and
weaknesses in the healthcare delivery system
including insufficient focus on preventive
interventions. Further, population is under
the heavy burden of communicable diseases,
which are the major causes of morbidity and
mortality. Life-style related and noncommunicable diseases also play significant
role in the disease dynamics of the country.
Nutritional disorders are common, which
particularly affect women and children. The
expansion and diversity of health care
facilities in Pakistan fall short of the fast
population growth and the ever mounting
95.
The IDB Group focus will be on
supporting the government efforts to meet
the health related MDGs through the
following interventions (Result Matrix-III
on Human Development):

37
Priority will be given to helping the
government to bridge the gap in access
to health services. This will involve
establishment/ rehabilitation of health
care facilities (mainly primary health
care facilities in areas affected by the
floods as well as secondary and tertiary
facilities), and training and motivation to
retain essential health manpower in the
needy areas and provision of basic health
commodities (including drugs, vaccines
and other supplies).

percent of the total banking assets is with
privately controlled banks. In addition to its
share in the economy, the private sector is
also the leading generator of employment.
With regard to key economic sectors, 100
percent of the textile and telecommunications
sectors, and a significant part of the cement,
sugar, automobile and fertilizer sectors are
also in the private sector.13
Support to alternative health financing
(i.e. community-based health insurance)
is a major area of intervention, which, if
properly managed, will enhance access to
quality health services for the needy
population. In this regard, the
government accepted, in principal, to
take the current WHO Recovery Plan.

Disease control with emphasis on
enhancement
of
the
Health
Management Information System and
epidemics control (e.g. polio) will
constitute another axis of the IDB
intervention. Another green area for
support is quasi-public health facilities,
including medical universities and
specialized medical/ research centers.

Potential role of the private sector in
provision of health services in
Pakistan, including, in the form of
public-private partnership, will be further
explored
for
the
IDB
Group
interventions.
97.
Private sector, being the engine of
economic growth, has been central to
development policies of the government.
The government demonstrates its strong
confidence in the role of the private sector,
particularly in the industrial development.
The reaffirmation of private sector‟s central
role in the industrial development of Pakistan
happened through the drive to privatize stateowned assets which began in the early 1980s.
Pakistan Vision 2030, Medium-Term
Development Framework (2005-12) of the
GoP, and the Strategic Trade Policy
Framework (2009-12) by the Ministry of
Commerce, laid great emphasis on the
leading role of the private sector for the
development of wide-ranging economic
activities. It clearly acknowledges the need
for emphasis on deregulation and
liberalization leading to greater private
investment as the key pillar of sustainable
economic growth. In this regard, the PSDTF
takes a lead in enhancing private sector role
in investment and trade. (Knowledge Part, C.
on Private Sector Diagnostic Analysis).
Cross-Cutting Area 1: Private Sector
Development
through
Improving
Investment and Trade
96.
Private sector in Pakistan is the
backbone of the economy. As indicated in
the Final Report of the Private Sector
Development
Task
Force
(PSDTF)
established under the auspices of the
Planning Commission in 2010, the share of
private sector in the GDP is estimated to be
in the range of 90 percent. Further, 80
98.
The MCPS process, particularly
by the entities of the IDB Group (ICD,
ICIEC, and ITFC) for private sector
development intends to enhance trade and
investment activities through the following
initiatives:
13
Asian Development Bank (2008), Private Sector
Assessment.
38
 Improving value addition and product
diversification: ICD will help through
direct
financing
and
investment
initiatives
targeting
the
existing
exporting
sectors;
developing
downstream projects for greater value
addition; addressing barriers to market
access; developing BMR (Balancing,
Modernization
and
Replacement)
projects to address capacity/ scale
constraints and improving production
efficiencies. ITFC will provide Technical
Assistance to conduct a study to identify
potential sectors offering the growth
potential for exports keeping in view the
comparative advantage of Pakistan
leading to direct financing and
investment initiatives in promising
ventures. It will also provide Technical
Assistance for developing a Global
Marketing and Branding strategy of high
potential domestic products with the
Trade Development Authority of
Pakistan and creating awareness for
International Compliance Certificates
among the exporters.
sectors and thus contributing towards
human capital development. For the
development of human resource in the
field of export marketing and quality
control, ITFC will provide Technical
Assistance and training to key trade
facilitation agencies for better execution
of trade related negotiations.
 Improving infrastructure in the
private sector: ICD will provide direct
investments/ financing interventions in
the energy sector in view of the
longstanding supply deficit with a
particular focus on Renewable Energy
through Independent Power Projects and
Captive Power Projects. ICD will also
provide Technical Assistance for a need
assessment study in respect of the farm/
industry to market infrastructure to
support the exporting industries (e.g.
warehousing, cold storages, silos, fleets
etc) and direct investments/ financing
interventions to develop the market
access infrastructure.
 Improving access to finance to the
private sector: ICIEC will provide
Advisory/ Consultancy services to assist
the government in establishing Pakistan‟s
own Export Credit Agency or EXIM
Bank; increasing awareness of Export
Credit Insurance and its relevance among
the incumbents in the local industry;
advising banks to use credit insurance for
capacity building and exporters while
discovering new markets globally; and
encouraging banks to accept "Insured
Receivables Collateralized Financing"
for exporters on a reduced rate. In this
area, ICD will undertake direct
interventions through establishment of
new institutions, equity investments and
Lines of Finance focusing on SME
 Improving human capital development
in the private sector (targeting health
and education): ICD will provide
Technical Assistance for the need
assessment studies of the strategic sectors
in particular exporting sectors, to develop
a strategy for the creation of marketoriented human resource capabilities
which would result into tangible
educational ventures. Further, it will
provide direct investments/ financing
initiatives involving establishment of
specialty
and
general
hospitals;
establishment of tertiary and technical/
vocational training institutes to increase
skills of the labor force in different
39
sector. It will also provide Technical
Assistance to develop the technical, legal
and policy framework of Shariahcompliant financing to SMEs. ICD will
assist in the development of local
currency financing products for project
and working capital financing needs of
the targeted sectors. ITFC will provide
direct trade financing initiatives to
provide pre- and post-shipment financing
to selected private sector exporters
(Result Matrix-IV for Cross-Cutting
Area 1 on Private Sector Development).
Institutions,
Meezan
Bank,
various
governmental
and
non-governmental
organizations in the country dealing with
microfinance, and Security Exchange
Commission of Pakistan. The IDB
Microfinance Development Program (IDBMDP) is proposed to be expanded to include
Pakistan among other member countries. As
such, an Islamic microfinance institution will
either be established or an existing institution
will be strengthened through equity
investment and technical assistance. A
proposal is also being prepared by Pakistan
Microfinance Network in coordination with
Farz Foundation for IDB-MDP.
Cross-Cutting Area 2: Supporting
Islamic Finance, Resource Mobilization,
Capacity Building and Reverse Linkages
101.
The IDB Group intends to
strengthen the Takaful sector through
equity participation in Takaful companies
and technical assistance. Discussions were
held with various institutions regarding this
issue and a proposal is under preparation.
Assisting in providing continuing education
in Islamic finance to branch level staff and
senior management in commercial banks
would be another area for the IDB Group
support.
The
Group
is
exploring
opportunities to provide domestic and cross
border trade receivable insurance products
for exporters and domestic manufacturers
through supporting the establishment of an
EXIM Bank. The IDB Group will consider
providing equity through IDB/ICD and
consultancy, advisory, training and reinsurance services through ICIEC.
99.
For the promotion of Islamic
banking in Pakistan, the State Bank of
Pakistan (SBP) three pronged strategy
includes establishment of full-fledged
Islamic Bank(s) in the private sector;
setting up subsidiaries for Islamic banking
by existing commercial banks; and
allowing stand-alone branches for Islamic
banking in the existing commercial banks.
As a result, currently all Islamic banks,
subsidiaries, and stand-alone branches offer
Shariah-compliant products and services. The
IDB Group strategy will focus on four
interrelated areas: (i) Islamic Finance; (ii)
Resource Mobilization; (iii) Capacity
Building; and (iv) Reverse Linkages.
(i)
Islamic Finance
(ii) Resource Mobilization
100.
The IDB Group strategy for
Islamic finance proposes to strengthen and
support the strategy adopted by the State
Bank of Pakistan for the development of
Islamic banking in the country. This
strategy is based on discussions with relevant
stakeholders including Islamic Financial
102.
According to SBP estimate,
Pakistan’s Islamic banking assets increased
at an average rate of 30 percent annually in
the past four years to PRs. 411 billion
($4.8 billion) as of June 2010, which is 6
percent of the financial industry‟s total
40
assets. Pakistan aims to double that share to
12 percent by 2012 and plans to issue two
more Islamic banking licenses that will take
the total number of Islamic banks in the
country to seven. With the strong growth in
the Islamic banking sector, the Sukuk
issuances are also growing. In the past,
WAPDA had been the major issuer of Sukuk.
However, now the SBP is the largest issuer
of Sukuk in the country. It targets to auction
three-year Sukuk in the domestic market
during the six months period ending 30 June
2011 is PRs.100 billion ($1.2 billion). The
sale will take the total for the fiscal year 2011
to PRs 189 billion ($2.2 billion), compared
with PRs. 14.4 billion in the previous year.
Therefore, the demand for the SBP Sukuk is
enormous mainly due to ample liquidity,
secured nature of investment, and attractive
rate of return.
tradability of the Sukuk will provide them
with the needed liquidity. The IDB will,
however, need to structure the Sukuk with
features that make them attractive for the
investors.
(iii) Capacity Building
104.
The IDB Group may consider
capacity building of the public institutions
in the area of statistics and research and
development
(R&D).
Furthermore,
establishment of technical training institutes
may also be considered for improving
technical skills of the labour force in various
sectors.
(iv) Reverse Linkages
105.
The IDB is a South-South
multilateral development bank with 56
member countries in all the four continents.
It facilitates continuously transfer of
resources and the sharing of knowledge
among its member countries. Under the new
business model of the IDB Group, “Reverse
Linkage” is a unique feature of the MCPS
exercise through which one member country
can provide support, and share knowledge
and best experiences with other member
countries through its unique experience and
expertise in various socio-economic areas.
Through this win-win process, the IDB
Group, the MCPS country and the
beneficiary country can benefit from
interventions proposed within the Reverse
Linkage framework.
103.
The IDB will consider raising a
portion of the funds needed by its selected
projects in local currency. The local
currency funds could be raised by issuing
Sukuk mainly using the assets of the selected
projects. The market response to such Sukuk
is expected to be encouraging for the
Pakistani banks, in particular Islamic banks
have ample liquidity and they find it harder
to directly finance large projects especially in
the infrastructure sector on their own. There
are two main challenges for them; (i) they
have limited capacity to handle large
infrastructure projects; (ii) the tenor of
financing for such projects is relatively long
causing a mismatch in their assets and
liabilities. The IDB, taking a lead position in
the financing of such projects, will provide
comfort to the local financiers of the project,
whereas choosing the Sukuk route for
financing the projects would help the local
banks address the mismatch issue and the
106.
Under the Reverse Linkages
initiative, the IDB Group will facilitate and
support initiatives aiming at transferring
knowledge and experience of Pakistan in
the areas of Islamic finance and science
and technology to other member
countries. Further, Pakistan has also
41
developed
technology
for
industrial
machinery in the field of sugar and cement
production as well as the textile sector.
Furthermore, reverse linkages with training
institutions to conduct regional training
programs will also be explored. Proposals
have been requested from the State Bank of
Pakistan and Federal Bureau of Statistics in
this regard (Result Matrix-V for CrossCutting Area 2 on Islamic Finance, Resource
Mobilization, Capacity Building and Reverse
Linkages).
42
VI
MCPS PROGRAM IMPLEMENTATION AND
THE WAY FORWARD
i.
Indicative/ Notional Financing
Envelop for the Implementation
of MCPS-Focused Programs
Islamic finance and capacity building (Table
6.1).
ii.
107.
For the implementation of the
MCPS focused programs, the IDB Group
has indicated (notional) financing envelop
between $2.5 - 3.0 billion during the
MCPS period of 2012-2015. The indicative
financing envelop estimate is based on
consultations with the key stakeholders
including the line Ministries of the Federal
and Provincial Governments, representatives
of the private sector, and donors community.
The financing will be further firmed up
during the IDB Group Programming
Missions to Pakistan. However, the size of
the financing envelop will be eventually
determined by the borrowing appetite of the
Government of Pakistan, identification of
bankable projects, the IDB Group operational
risk ceilings and resource mobilization by the
Group.
Key Success
Group Level
Factors:
IDB
109.
It is essential that all the IDB
Group operations during 2012-2015 to be
placed under the umbrella of the MCPS.
The MCPS approach as a New Business
Model was initiated as one of the main
aspirations of the recent reforms process by
the IDB Group. The objective of the new
business model was to move IDB Group
operations from project-led lending to
program-based financing in member
countries. Therefore, one of the main
benchmarks for the success of the MCPS
exercise will depend upon the extent on
which future operations of all the IDB Group
entities in Pakistan come under the umbrella
of the MCPS during 2012-2015.
110.
The MCPS Programming Missions
need to be undertaken at the IDB Group
level. The MCPS exercise is undertaken at
the IDB Group level, including activities and
programs for various Group entities.
Therefore, it is critical that the programming
phase of the MCPS process is also
undertaken at the Group level so that each
entity may derive its work program based on
identified focused areas.
108.
With regard to distribution of
indicative financing envelop, among the
three Pillars, the infrastructure sector is
envisaged to receive the major share of 50
percent (energy 30 percent and transport 20
percent) followed by agriculture and rural
development by 20 percent; human
development by 15 percent (education 8
percent and health 7 percent). Similarly,
among the two Cross-Cutting Areas, 10 per
cent has been earmarked for the private
sector development and 5 percent for the
111.
It is also essential that the progress
reports of the MCPS to the IDB
Management and Board of Executive
Directors are prepared at the IDB Group
43
Table 6.1: IDB Group MCPS Focused Programs for Pakistan, 2012-2015
Key Pillars
Improving
Infrastructure
Development
Focused Areas of Interventions
Energy
 On-grid and off-grid renewable energy projects
 Supporting Energy efficiency enhancement
 Strengthening energy transmission and distribution
 Improving energy security through regional and cross-border gas and electricity
interconnections
 Exploring clean coal technology
 Encouraging PPP
Transport
 Assisting in development of north-south transport corridor including ports
infrastructure and allied road-network
Indicative
Financing
Envelop
($2.5 – 3
billion)
30%
20%
 Establishment of major missing links along the east-west corridor for
improvement of national road connectivity and trade
 Rail network development and rehabilitation / modernization
 Institutional capacity building
 Assisting PPP involvement in development of toll roads
Supporting
Sustainable
Agriculture and Rural
Development
Enhancing Human
Development




Education
Improving tertiary education, in particular higher education and vocational training
Development of Madrassa education institutions
PPP initiative for universal primary education
Health
 Implementation of health system recovery plan targeting areas affected by the
earthquake and the floods
 Enhancement of the urban Primary Healthcare
 Expansion of Immunization (EPI) with emphasis on polio eradication
 Establishment/ functioning of health training institutions to train physicians/ CMWs/
LHs
 Creation of demand for utilization of the available basic MNCH services
Cross-cutting Areas
Private Sector
Development
ICD
ICIEC
ITFC
Supporting Islamic
Finance, Resource
Mobilization, Capacity
Building, and Reverse
Linkages
Enhancing food security (with focus on access and production)
Value-chain development for horticulture crops
Water resource management
Infrastructure development in flood affected areas









Improving value addition and product diversification (ICD, ITFC)
Strengthening human capital development in the private sector targeting health
and education (ICD, ITFC);
Improving infrastructure in the private sector (ICD)
Increasing access to finance to the private sector (ICIEC, ICD, ITFC)
Strengthening Takaful sector
Establishment of a Takaful based EXIM Bank
Sstrengthening Islamic microfinance sector
Resource mobilization through local currency Sukuk
Reverse linkages in the areas of Islamic finance, science and technology, transfer
of technology for industrial machinery in the fields of sugar, cement, and textile
sectors
level. Strategies for each sector and pillar are
44
20%
8%
7%
10%
5%
developed by different members of the IDB
Group, and the subsequent pipeline of
projects under the MCPS is programmed by
the Group. Therefore, when the mid-term
review of the MCPS is undertaken or a
progress report of the MCPS is submitted to
the Management and Board, it is prepared;
each entity will be in the best position to
review and report on progress in each of its
programmed areas.
Assessment Evaluation undertaken in
Pakistan, it was mentioned that the mark-ups
levied by the IDB are high compared to rates
charged by other donors. Resultantly, this has
reduced the demand for IDB financing,
which was also highlighted by the line
Ministries‟
officials
during
various
discussions. In particular, pricing for trade
financing by the ITFC has posed a significant
barrier to its entry in Pakistan.
112.
Mid-term review will be undertaken
after two years to evaluate the progress of
the MCPS exercise. The progress report will
be prepared by taking into account all the
operations/ activities at the IDB Group level,
which will be reported to the Management as
well as to the IDB Board of Executive
Directors.
115.
The implementation of the MCPS
program needs to be managed in such a
way so as not to exceed the IDB Group
country exposure limit for Pakistan. Since
this limit includes ongoing operations for the
IDB Group as a whole, the implementation
of a program of operations amounting to
$2.5-3 billion requires timely project
implementation.
113.
There is a compelling demand by
the Government of Pakistan for the IDB to
enhance its presence in Pakistan by
establishing a local Country Office. This
would allow for stronger follow up on the
IDB Group portfolio in the country and
consequently a better implementation and
performance of the MCPS program. The
current portfolio of ongoing projects ($1.4
billion) is being followed by a single IDB
Field Representative in Pakistan. With the
MCPS exercise expected to result an increase
in IDB Group operations, the chances of
successful implementation of the MCPS
Program will be greatly enhanced with the
establishment of a Country Office. Similarly,
collaboration and coordination with other
MDBs and bilateral development partners
will be strengthened by establishing a local
IDB Office, which will ultimately boost IDB
visibility in the country.
iii.
Key Success Factors: Country
Level
116.
The improved political and
security situation of the country will
inevitably a key success factor for the
MCPS exercise. The political and security
concerns in Pakistan are well documented.
Moreover, the recent CAE report also
identified that the instability in the country as
a whole but especially the conditions in KPK
and Baluchistan Provinces had contributed
considerably to the country‟s assistance
performance evaluation as „unsatisfactory‟.
With the MCPS expected to bring a
significant scaling up of the IDB assistance
in the country, the performance of any future
IDB Group project will undoubtedly be
affected by any further deterioration in
political and security situation.
117.
The
implementation
of
the
devolution of some ministries from Federal
to Provincial Governments will have a
114.
The issue of the competitiveness of
IDB Group pricing may affect the success
of the MCPS. In the recent Country
45
bearing impact on the MCPS program.
With the devolution of various Federal
Ministries to the provinces through the 18th
Constitutional Amendment, the extent to
which the devolution of the Ministries
concerned is carried out efficiently and in a
timely manner will be a critical success
factor for the MCPS program, especially for
human development and agriculture sectors.
However, with so many institutions and
employees that will be directly affected by
this change, there are likely to be a number of
adjustment difficulties in the short-term.
MCPS process will crucially depend on strong
government „buy in‟ and support especially to
its implementation modalities. Furthermore,
the government should also consider
intensifying its partnership with the Islamic
Solidarity Fund for Development (ISFD),
particularly government needs to expedite its
pledged contribution to the capital resources
of the ISFD.
118.
Weak institutional capacity results in
delaying procurement and implementation of
the projects. In the past, implementation of
the IDB-supported projects was generally
slow, resulting in multiple extensions, cost
escalation and inefficiency. The CAE
findings indicated that most of the
implementation problems revolved around
country capacity, consultant selection,
procurement, supervision and disbursement
issues. Therefore, through the MCPS
process, the implementation capacity of
executing agencies/ institutions needs to be
properly evaluated and improved, when
necessary, in order to complete the projects
in a timely manner.
119.
Process of land acquisition needs
to be streamlined to minimize costly
implementation delays as well as expensive
changes in project design. As mitigation, the
Bank will mainly consider those projects,
which have already completed the land
acquisition process.
120.
Strong government support to IDB
Group Entities and Funds are considered
to be the key success factor for the MCPS
process. The Government of Pakistan is full
member of all IDB Group Entities and Funds.
Therefore, the successful implementation of
46
Insufficient institutional
capacity for prioritization
and timely
implementation of
projects
Fuel supply shortages due
to:
 high dependence on
expensive imported oil
 declining natural gas
reserves
 minimally developed
local coal resources
Weak financial viability
due to:
 absence of time
differential tariffs
 high level of circular
debt
 inadequate maintenance
of public sector
facilities leading to
declining efficiencies
and higher cost of
operations
 overloaded power
transmission and
distribution system
leading to significant
system losses
Accelerate economic
growth by
eliminating the
currently existing
power supply deficit
through:
 Development of
new reliable and
affordable green
electrical energy
 Promotion of
energy efficiency
and energy
conservation to
make the
economic growth
less energy
intensive
 Optimization of
fuel mix to lower
dependency on
imported oil for
power production
 Enhancing
regional energy
trade
Binding Constraints
Current Challenges/
Development Goals
/ Targets
 foreign exchange
savings through
(i)
Improved security,
reliability and
affordability of
energy supply in an
environmentally
sustainable manner
by:
 diminishing the
currently prevailing
5,000 MW
electricity supply
deficit
 reduced
transmission and
distribution losses
 increased
electrification
coverage
 decreased cost of
electricity
generation through
greater share of
hydropower in the
generation mix
 creation of an
Energy Sector
Development Fund
Positive externalities
such as:
Development
Outcomes
47
 Reduction in planned
outages by 20 percent
 Installing at least 2,000
MW new generation
capacity
In partnership with other
donors:
Energy Sector
Expected Intermediate
Results / Milestones
 facilitation of power/gas
interconnection initiatives
between energy rich
Central and West Asia,
and Pakistan
Cross-cutting initiatives (to
be implemented with
Agriculture and Rural
Development Pillar) by:
 supporting construction
of multi-purpose dams to
enhance water security as
well as energy security
Exploring "Clean" coal
technologies
Ensuring sustainability by
encouraging use of PPP
On-grid
and
off-grid
renewable energy projects
(hydropower, wind, solar,
geothermal and bio-fuels)
Prioritizing support for
energy efficiency
enhancement initiatives
Strengthening energy
transmission and
distribution infrastructure
Improving energy security
through regional and crossborder gas and electricity
interconnections through
Proposed Areas of
Interventions
Results Matrix-I for Pillar 1: Improving Infrastructure Development
 Kurram-Tangi
 Retrofitting with high
efficiency modern equipment
Cross-cutting includes:
 Co-generation
 large-scale pilot heating/
cooling systems utilizing solar/
geothermal
Replacement/ upgradation of old
and inefficient power plants
Well-head based combined
cycle power generation
development
Power transmission and
distribution loss reduction
measures
Efficiency improvement of gas
transmission and distribution
network
Installation of smart grid
Industrial efficiency
enhancement through
 solar/wind/geothermal/biofuel based power generation
 Small, medium, and large runof-the river hydropower plants
Development of indigenous
renewable energy potential
including:
Expected Outputs
Reducing transport
cost and enhance
affordability
Establishing
efficient and well
integrated transport
system to achieve
competitive
economy
Aging and inefficient
transportation
infrastructure due to high
costs and low reliability
Excessive dependence on
the road network
congested by overloaded,
unsafe and polluting
vehicles and trucks
Difficulty in land
Slow responsiveness to
investor needs and
timeframes because of
 multiple Regulatory
Authorities creating
jurisdiction overlaps
and bottlenecks
 absence of one window
streamlined operations
Shortage of availability of
long-term financing for
new power infrastructure
projects:
 $23 billion needed over
the next five years
 security perceptions
 minimal support from
the insurance
companies
Lengthy land acquisition
process
Inadequate site
accessibility hindering
expeditious construction
of hydropower projects
 Reduced cost of
trade and transport
logistics
 Shortened shipping
time to major
markets
 Improved trade
competitiveness of
the economy
 creation of new
"Green"
employment
opportunities by
encouraging local
manufacturing of
needed spares as
well as transfer of
technology
 avoidance of green
house gas (GHG)
emissions through
promotion of
renewable energy
reduced reliance on
imported fuel oil
for power
generation
48
In partnership with other
donors, construction of,
at least, 500 km of roads
in the east-west and
north-south corridors
Technical Assistance for
urban travel demand
management
cost of transport to be
reduced by 5
ii. Transport Sector
 Establishment of major
missing links along the
east-west corridor for
improvement of national
road connectivity
 Development of the northsouth transport corridor
including improvement of
related port infrastructure
and allied road-network
modality for undertaking
operation and maintenance
of public sector financed
projects, wherever possible
Improving missing links (eastwest and north-south axes)
Rehabilitation of transport
infrastructure with priority to
flood affected areas
Karachi port infrastructure
rehabilitation
Technical Assistance for
development of Training
Academy and training for the
 Diamer-Basha
 promotion of bio-fuel crop
production
Turkmenistan-AfghanistanPakistan-India Gas Pipeline
Clean coal power generation
development
Creating a hub of
regional
connectivity
between high
growth East Asia
and resource rich
Middle East
Increasing road
density
acquisition
Poorly targeted
investments for the
development of transport
infrastructure
Inadequacy of welltrained labor
49
 PPP involvement in the
development of toll roads
for improving
regional/national road
connectivity and
improvement of port
capacity and
container/cargo terminals
 Institutional capacity
building in the transport
sector
 Development of urban
travel planning
 Rail network development
and rehabilitation/
modernization
railways
Railways rehabilitation and
modernization
Toll roads and connectivity
infrastructure at Karachi Port
(railway line, road, and bridge)
under PPP scheme
Production and Productivity:
Unsustainable agricultural growth over
the last 3 decades
Low input (water/land) efficiency due to
limited use of modern technology,
including machinery.
 Low production and productivity in
barani areas due to lack of water
availability, inefficient management,
erratic rainfall, and droughts
Low productivity among small
farmers/tenants/sharecroppers due to:
Ensuring
National Food
Security for the
growing
population
through boosting
production,
productivity, and
access
 large collateral requirements
 weak tenancy
Lack of access to credit resulting from:
 large land holdings
 weak extension services
Low investment in land due to:
 lack of water availability, especially in
barani and downstream areas
 high prices and lack of availability of
inputs, especially fertilizer
 inability to benefit from higher prices
due to lack of storage, role of middle
man, and weak information systems
 weak land tenure security
 lack of access to credit
 lack of access and un-viability to use
productive inputs
Current Challenges/
Binding Constraints
Development
Goals / Targets
Expected Intermediate
Results / Milestones
50
Empower farmers and
FOs/VOs (especially
comprising of small
farmers) with common
access and
management of
resources
Develop small scale
irrigation schemes
Develop potential of
local value-chains of
dates, apples, grapes,
and olives through
CDD projects
Enhance small-scale
livestock and inland
fisheries productivity
in target areas (i.e. poor
barani areas of KPK,
FATA, Baluchistan,
Punjab)
Create water harvesting
and management
structures in target
barani areas
Train/create awareness
among farmers about
the benefits and use of
modern machinery
Create model farms
(including fisheries
ponds) in saline
Enhancing Food Security
Achieved
sustainable
growth of major
food crops
Increased water
and land
productivity
Enhanced water
management for
harvesting,
particularly
assisting in
bringing 8 million
hectares of land in
barani areas under
cultivation
Increased access
to modern/
productive
cultivation
techniques and
inputs
Enhanced access
to agricultural
credit, storage
facilities, and
markets
Developed local
value-chains
Reduced rural
poverty
Increased
i.
Development
Outcomes
Enhancing food
security with
focus on access
and production
Proposed Areas
of Interventions
Barani Areas:
Community Development and
Management of Water Resources
using integrated rural development
approaches
Second Phase of Chaghai Water
Management Program II
Horticulture Value-chain
Development Programs
Support for National Bio-Saline
Program:
Build on the first phase, with focus
on Sindh and Punjab to promote
cultivation of food and fuel crops in
saline affected lands
Establish linkages and provide expert
support from ICBA
National Level and On-farm Storage:
 Construction of Grain Silos
 On-farm multipurpose storage in
high production areas to be managed
by farmers/ farmer groups
Input Supply Support:
 Rolling credit line to import urea/
phosphate mixed fertilizer
Promotion of Crop/ Livestock Local
Supply Chains for Livelihood
Development:
Development of local agricultural
value chains, through community
Expected Outputs
Results Matrix-II for Pillar 2: Supporting Sustainable Agriculture and Rural Development
 weak local supply chains
 60 percent of rural poor are landless,
of which 45 percent are landless
agricultural households
 non-farm households account for 57
percent of the rural poor
 inequitable land distribution as 86
percent of small farmers own 44
percent of land
 50 percent of the overall population is
food insecure: FATA: 67.7 percent;
Baluchistan: 61.2 percent; KPK: 56.2
percent
Limited impact of agricultural growth on
poverty reduction because of:
 unavailable/ unreliable land records
Lack of storage facility at national level
(deficiency of 3 million MT) to store
buffer stock for distribution from surplus
areas to deficit areas
Access:
 weak management, efficiency, and low
outreach of microfinance
ii.
affected areas of Sindh
and Punjab
 Strengthen research
capacity in bio-saline
and bio-technology
 Increase storage
capacity at national
level by 1.1 million
MT
 Increase access to
FO/VO managed
multipurpose storage
 Enhance access to
mixed phosphate/ urea
fertilizer
 Strengthen farm
service centers in KPK
 Increase livelihood
opportunities in target
areas (FATA,
Baluchistan, and
Punjab)
 Strengthen local valuechains of apple in KPK
 Create rolling credit
funds and increase
small farmers access to
credit
 Identify local valuechains and implement
integrate rural
development programs
 Train farmers on
modern cultivation
practices
51
Value-Chain Development
productivity of
livestock and
inland fisheries
Enhanced
farmer‟s income
in saline affected
areas
Reclaimed 9.4
million hectares of
culturable waste
Enhanced
nutritious quality
of basic staples,
and increased
control and
management of
basic staple crops
Increased farmers‟
access to markets
with reduced role
of intermediary
Strengthened
private markets
for farm
technology/
machinery
Reduced poverty
mobilization and empowerment,
small enterprise development,
community-based infrastructure
development, vocational training,
market development etc
Support for EU Program on Food
Security Phase-II
Support for Apple value-chain,
livestock-cropping farming systems
in FATA, and horticulture valuechains in Baluchistan
Shrinking water resources: current per
capita water availability of 1066m3
places Pakistan in high water stress
category
Weak management of water resources
Low conveyance efficiency (i.e. 52.5
percent):
Sustainable use of
land and water
resources
 lack of water availability downstream
 damages due to floods
 9 percent of average annual flows vs.
40 percent world average
 watercourse conveyance and field
application efficiency is 75 percent
 Low water storage capacity:
Lack of capacity and weak infrastructure
to comply with international standards
for trade
Inefficient production and processing
technology
Increase in
agricultural
value-added in
exports
Conduct study to
identify potential
value-chains and
location clusters
Develop value-chain
infrastructure
 Provide technical
assistance to enhance
SPS management
systems
52
Develop water sector
policy
Construct small and
medium dams
 Construct water
harvesting structures in
Barani areas
Dig community
managed tubewell/
water points
Donor‟s conference on
Kurram Tangi dam is
constituted and works
are initiated.
Works on the
Water Resource Management
Undertake
integrated water
resource
management
Increased storage
capacity
Enhanced water
availability in
Barani areas and
at tail ends
Improved on-farm
water use
efficiency
Reduced system
loses
iii.
Developed valuechain of
horticulture crops
Increased exports
of horticulture
crops
 Water resource
management
 Value-chain
development
for horticulture
crops
Water Sector Policy:
Support in the development of
National Water Sector Policy in
collaboration with other partners
Enhancing Storage:
Construction of multipurpose, as well
as small and medium dams and
reservoirs
Small dams in Baluchistan and KPK
Construction of Kurram Tangi Dam
in FATA
Rehabilitation of Mirani Dam in
Pishin
Water Conveyance Efficiency:
Horticulture Value Chain
Development for Exports:
Focus on relatively developed valuechain with potential for exports
Identification of appropriate valuechains, and target clusters (locations)
for value-chain development using
integrated farming systems approach
 Interventions in areas of model
farms, modern techniques, mini
processing units, mini grading
plants, cold storage, transportation
facilities, market linkages
 TA for enhancing quality control
and SPS management systems for
targeted crops
 IDB Group private sector arms
would support agri-businesses for
these crops by creating enabling
environment
Rehabilitate
infrastructure
damaged due to
floods
Already weak agriculture infrastructure
including irrigation damages ($5.3
billion) accounted for 50 percent of total
loses
Sindh suffered most with 46 percent of
total damage, followed by Punjab (36
percent), Khyber Pakhtunkhwa and
Baluchistan (8 percent each).
Problems of land preparation and input
availability
 11 percent of arable land uncultivable
due to water logging and salinity,
while another 20 percent under stress
Over-extraction of ground water
resources
 outdated infrastructure
 Diminishing arable land resources:
 unreliability of the system
 weak drainage systems
 Outdated irrigation systems:
rehabilitation of Mirani
Dams are initiated.
 Adopt resource
conservation
technologies
 Promote modern
irrigation practices
 Rehabilitate and line
watercourses
53
Initiate works on
rehabilitating irrigation
infrastructure
Clear and level
damaged land
Rehabilitate village
infrastructure in
Southern Punjab and
Northern Sindh
Agriculture Infrastructure Development
Reconstruction of
damaged
infrastructure and
building-backsafer measures
against flash
floods
Strengthened
flood control
structures
iv.
Restructuring
IBIS
infrastructure and
its governance
Infrastructure
development in
flood affected
areas
Flood Rehabilitation Support:
Support for rehabilitation in
Southern Punjab, Northern Sindh,
and North Eastern Baluchistan
Financing land clearing machinery
and land development implements
Southern Punjab and Northern
Sindh: Rehabilitation of secondary
watercourses under village
rehabilitation programs to be
undertaken using CDD approach
Rehabilitation and lining of
watercourses in Sindh
Promotion of Resource Conserving
Technologies:
Promotion of efficient irrigation
technologies bundled with CDD
integrated rural development
programs
Promotion of resource conservation
technologies in high water use areas
Attaining Health-related
MDGs
MDG Goals
Improving educational
outcomes for primary,
secondary as well as
tertiary students
Improving post-primary
access and quality
Promoting gender
equality for education to
achieve universal primary
education
Improving equitable
access to quality
education at all levels
through
Development Goals /
Targets
Poor access and utilization of
the health services
Prevalent poverty and illiteracy
Large rural-urban disparity in
provision of health
facilities/services
Large gaps in access to
education, with high regional
and gender disparities
Considerable regional variations
in both enrollment and literacy
indicators
Low student learning levels;
poor quality and effectiveness
of teaching
Low quality and retention rates
(especially for girls)
Low efficiency of public
expenditure in education
Learning outcomes in the state
sector well short of that in the
private sector
Inadequate public education
budget allocation and
expenditure (only 2 percent of
GDP)
Lack of appropriate motivation
and retention policy for teachers
and other education manpower
Current Challenges/
Binding Constraints
 LHWs trained and
 30,000 CMWs trained
and redeployed
(6,000/year)
By 2015:
Health Sector
54
 Strengthened
Health System to
be able to provide
equitable access
and delivery of
quality health
services to all with
ii.
Improve equitable access
to quality education
services at tertiary level
Increase Tertiary GER
from 4 percent to 8
percent
Develop general
education and TVET
training programs target
to address market
demands for specific
skills and expertise
In partnership with other
donors (such as, World
Bank, ADB, USAID,
DFID, EU and bilateral):
Expected Intermediate
Results / Milestones
Education Sector
Increased access to
schools
Improved higher
education and
vocational training
Enhanced
education quality
i.
Development
Outcomes
Implementation of
health system
recovery plan
targeting areas
affected by the
earthquake and the
 vocational training
Development of
Madrassa education
institutions
 higher education
Improvement of
tertiary education, in
particular:
Proposed Areas of
Interventions
Results Matrix-III for Pillar 3: Strengthening Human Development
 training of CMWs
 training of LHWs
Support to medical/
paramedical training
institutions:
Establishment and
modernization of Madrassas
 Technical Assistance for
development of quality
standards and systems
 Establishment /
improvement of vocational
training institutes through
supporting the Technical
Education and Vocational
Training Authority
(TEVTA)
 tertiary education support
programme, including
private universities
 Punjab education sector
support
Establishment /
improvement of higher
education facilities related
to science and technology:
Expected Outputs
Expanding access to
quality health service
through alternative health
financing to the poor and
underprivileged
Enhancing the Child
Survival Initiative
Expanding and enhancing
capacity of the Health
System through providing
universal access to
quality health care
services (by providing
adequate budget for
health workforce
training/ deploying,
establishment/
rehabilitation of facilities,
basic supplies etc)
National Health Plan
Inadequate public budget
allocation and expenditure
(current only 0.5 percent of
GDP)
Lack of appropriate motivation
and retention policy for health
manpower
Limited uptake/graduation
capacity of the medical
teaching/training institutions
Cultural barrier (e.g. nonacceptance of women to be
cared for by male health,
preference of home delivery,
nutritional taboo etc)
Poor quality of health care
services provided by public
health facilities
Low health status of women in
the society
Prevalent malnutrition
55
 Access to quality
health services is
increased to 70
percent in the rural
and remote areas
By 2014 & thereafter,
 NNMR reduced by
50 percent of the
current level
By 2015 & thereafter,
 An appropriate
number of
physicians/
supporting staff
generated and
deployed to needy
areas
 Covered
remote/needy areas
with skilled birth
attendants
By 2014 &
thereafter:
emphasis on
underprivileged
strata/regions
Additional CMWs/year
trained
Health facilities
reconstructed established
in target areas/districts
Health facilities equipped
and maintained in the
priority regions.
By 2015 & thereafter,
Universal coverage with
the basic child survival
interventions attained
By 2015 & thereafter,
Utilization rate increased
by 50 percent
Births attended by skilled
attendants increased by
50 percent
By 2015 & thereafter:
 Health facilities equipped
and maintained in the
priority regions
 Health facilities
reconstructed/established
in target areas/districts
supported
Creation of demand
for utilization of the
available basic
MNCH services
Establishment/
functioning of health
training institutions
to train physicians/
CMWs/LHs
floods
Enhancement of the
urban Primary
Health Care to
address the gaps in
quality health
services
Expansion of
immunization (EPI)
with emphasis on
polio eradication
Support to the
national/provincial and
district plans
Promote partnership with
key stakeholders (including
communities participation,
co-financing with donors
and specialized agencies
such as WHO, Benazir
Income Support Program,
CBOs, NGOs etc)
 training of physicians
 National/provincial plans
for health system
strengthening (including
reconstruction /
rehabilitation of PHC,
secondary and
referral/teaching facilities,
health facilities, disease
prevention/control and
training) in areas affected
by the floods
Increasing the share of
China and other
potentially fast growing
markets to rebalance the
mix of exports markets
Identification and
development of new
high potential products
for exports
Bringing further
improvement in the
export marketing
function
Developing the
downstream sub-sectors
of the existing exporting
industries
Improving international
competitiveness of
products from Pakistan
by:
Development Goals /
Targets
Lack of support and
commitment of the relevant
quarters including the
government, trade bodies and
associations etc.
Lack of basic R&D and
market prospecting
infrastructure and input
Lack of project financing
interest in the local market,
especially for Greenfield
projects
Lack of market knowledge
and other information
asymmetry issues
Enforcement of contracts
issues faced by financial
institutions supporting
projects
High fuel and energy costs
High input costs due to the
overall boom in commodity
prices at the global level
i.
Binding Constraints
Expected
Intermediate
Results /
Milestones
Proposed Areas of
Interventions
ii.
Development
of at least
three projects
in the
downstream
sub-sectors of
identified
exporting
industries
Identification
of at least 2
new nontextile product
segments with
high potential
for exports
 BMR (Balancing,
Modernization and
Replacement) projects-ICD
TA to identify potential sectors
offering the greatest growth
potential for exports-ITFC
TA for marketing and branding
strategy of high potential
domestic products-ITFC
TA to create awareness for
international compliance among
the exporters-ITFC
TA to develop a study to
increase the share of high
growth emerging markets in the
export markets for exportsITFC
 backward integration-ICD
 market access infrastructureICD
 value addition in downstream
sub-sectors-ICD
Direct financing and investment
in projects targeting:
56
Addressing Supply Side Constraints
Reduction in primary
and low tech portion in
the total exports in the
form of a shift to
medium- tech and
high- tech products
Overall improvement
in the export margins
Reduction in the
Concentration Ratio in
respect of the product
segments (shift from
textiles to non-textiles)
and target exports
markets
Improvement in
perception of Pakistani
exports
Value Addition, Product Diversification, and Market Access Issues
Development Outcomes
Projects aiming to
develop/enhance:
 downstream exporting
industries focusing on
value addition
 product diversification
away from the traditional
portfolio of exports
Study identifying new nontextile products for greater
product diversification
Development of “Brands”
with regional if not global
reach
Quality Certifications and
Compliance with
international market and
product related regulations
Study on recommendations
to improve the geographical
mix of exports
Expected Output
Result Matrix-IV for Cross-Cutting Area 1: Private Sector Development Through Improving Investment and Trade
Increasing access to
capital
Improving infrastructure
Strengthening human
capital
Improving International
Competitiveness of
Exports by addressing
key supply side
constraints by:
 high interest rates
 potential environment and
social impact
Access to Finance:
 lack of interest from
international
financial
institutions
making
it
difficult to arrange funding
 lack of long-term project
finance related expertise
and interest in the local
market
 recent history of the
problem of circular debt
effecting
investors‟
confidence in the viability
of IPP model in Pakistan‟s
context
 capital intensive nature of
the projects
 long completion and
gestation periods involved
in the projects in both
health and education
sectors
Improvement in
Infrastructure:
 non-availability of the
required number and
quality of teachers and
doctors/ paramedical staff
Human Capital Development:
 lack of tailored investment
incentives for education
and health provided under
the government policy
framework
57
Human Capital  Human Capital Development:
Development:
 direct investments/
 improvement in the
 need
financing initiatives involving:
health and literacy
assessment
- establishment of tertiary and
indicators
review of the
technical /vocational training
health
and
institutions-ICD
 development of
education
- establishment of special or
tertiary institutes in
sectors to
general hospitals-ICD
the fields of business,
ensure
S&T, engineering
focused
and medicine
 development of human
interventions
Infrastructure:
resource in the field of export
 establishment
marketing and quality control reduction in the
of a at least 2
ICD
power demand and
projects in

TA
and training to key trade
supply gap
the education
facilitation agencies for better
 improvement in
and health
execution of trade related
market access
sectors
negotiations-ITFC
avenues
Infrastructure:
Access to Capital:
Infrastructure Development:
 financing/
 improved access to
investment of
 financing/ investment in IPPs
finance
2 IPPs
with a particular focus on
 influencing the
including at
Renewable Energy-ICD
development of the
least 1
 TA for the need assessment of
Islamic Microfinance
project based
the market access
subsector
on
infrastructure-ICD
Renewable
 greater advocacy for

financing/
investment of
Energy
regulation and
market
access
infrastructure
 development
supervision
e.g. warehousing, cold
of farm/
 human resource
storage, silos etc-ICD
industry to
development and
market
Access to Capital:
 building capacity of
infrastructure
 advisory for the establishment
providers by
e.g.
of an EXIM Bank-ICIEC
improving
warehousing,

direct
investment/financing
governance, IT
cold storages,
initiatives for the
systems,
grain silos
establishment of new
management and
etc.
institutions equity in existing
outreach
Access to
institutions and lines of
 Human Capital
Development:
Development of healthcare
projects including specialty
and general hospitals,
diagnostic centers, wellness
centers etc.
Study identifying the market
needs to provide a better
focus for the development
tertiary and technical
training institutions
Projects for the creation and
expansion of existing
tertiary and
vocational/technical
institutions
Development of market
access infrastructure e.g.
warehouses, cold storages,
grain silos etc.
Development of IPPs based
on conventional fuel with
projects based on
environment efficiency e.g.
Renewable, Biomass, and
RDF.
Provision of pre/post
shipment export finance and
export credit insurance to
private sector players
Institutionalization of
corporate health insurance
with a major insurance
player
Lines of finance to existing
financial institutions
catering to the requirements
of SME sector
Development of local
 lack of credit enhancement
products for the exporters
 lack of documentation in
creating governance and
information transparency
issues
environment of the country
58
 study to
develop a
local
currency
financing
product
 study to
explore to
develop a
comprehensi
ve
mechanism
and
institutional
framework
for export
credit
insurance
 direct
disseminatio
n of export
credit
insurance
products
Capital:
 development of local currency
financing products for project
and working capital financing
needs of the targeted sectorsICD
 increasing awareness of
export credit insuranceICIEC
 TA to develop Shariah
compliant products for the
SMEs-ICD
 direct trade financing of
selected private sector
exporters-ITFC
finance focusing on the
SMEs-ICD
currency Islamic financing
products for project
financing and working
capital requirements.
Achieving balanced and
inclusive economic
Lack of
coordination
among stakeholders
such as regulators,
Ministries, Takaful
participants etc
Improving the
competitiveness of the
Takaful sector, according
to international best
practices, to enable it to
fully contribute to
economic development
Non-availability of
long-term financing
Non-availability of
requisite budgets
Non-availability of
financial and
human resources
from the
government and
private sector
Current Challenges/
Binding Constraints
Development Goals /
Targets
Influencing the
Feasibility study
by ICIEC/TDAP
Implementation
plan by mid-2013
and
commencement of
implementation
by the
stakeholders
Interim Road Map
(covering
regulatory,
supervisory and
institutional
requirements)
expected by mid2012 and Final
Road Map by end
2012
59
Interim Road Map
(covering
and
all
Establishment of a Takafulbased EXIM Bank in Pakistan
 fully leverage Takaful for
assisting the development of
the country
 articulate
roles
responsibilities
of
stakeholders
Develop and document a RoadMap which would articulate any
institutional, legislative,
regulatory and supervisory
reforms needed for Pakistan to
implement a fully integrated
Takaful industry based on
international best practices to:
Diagnostic study to analyse the
current state of the Takaful in
the country and to identify gaps
Undertaking diagnostic study to
analyse the current state of the
Strengthening the Islamic Microfinance Sector
Improved access to finance
ii.
Proposed Areas of
Interventions
Strengthening the Takaful Sector
Enhanced availability of
Credit Insurance Cover for
Pakistani exporters by
creating level playing field,
and enhancing the depth
and width of Pakistani
exports
Synergy between Takaful
and IFSI subsectors
including Banking, Capital
Markets, Microfinance,
Zakat and Awqaf leading
to economic development
Availability of a broader
range of products and
solutions, including microTakaful, for the
consumption of people of
Pakistan
Robust and competitive
Takaful industry with
improved regulation and
supervision
i.
Development Outcomes
Expected
Intermediate
Results /
Milestones
Sstrengthen the Islamic
microfinance sector through
direct equity/microfinance
 local partners include
TDAP and Ministry of
Trade and Commerce
 ICIEC to provide
consultancy and training,
advice
Provide domestic and cross
border trade receivable
insurance products for
exporters and domestic
manufacturers
 potential new entrants
(local/foreign)
Strengthening the Takaful
sector through a) Equity
participation in Takaful
companies b) Technical
Assistance
 partners may include SECP
and existing Takaful
players
Expected Outputs
Results Matrix-V for Cross-Cutting Area 2: Islamic Finance, Resource Mobilization and Reverse Linkages
Resource mobilization for
increasing productivity
and Islamic capital/money
market development
Development of the
Islamic micro-finance
subsector
Supporting access to
Islamic finance for the
poor
development and
ppoverty reduction
through:
Macroeconomic
and resource
constraints
Non-availability of
high quality
feasible projects
Lack of support of
all stakeholders
such as regulators,
Ministries,
multilaterals etc
Lack of ensuring
sustainable
economic returns to
maintain investors‟
interest
Weak building
scale to realize
tangible impact
Lack of technical
and institutional
capacity of IMFI/
IMFB
Non-alignment of
development vision
with investors
commercial
interests
due to investors‟
constraints
Implementation
plan by mid-2013
and
commencement of
implementation
by the
stakeholders
Final Road Map
by-end 2012
regulatory,
supervisory and
institutional
requirements)
expected by mid2012
 fully leverage Islamic
Microfinance for assisting the
development of the country
 articulate roles and
responsibilities of all
stakeholders
Develop and document a RoadMap which would articulate any
institutional, legislative,
regulatory and supervisory
reforms needed for Pakistan to
implement a fully integrated
Islamic Microfinance industry
based on international best
practices
Islamic Microfinance in the
country and to identify gaps
Developed key beneficiary
and relevant economic
sectors
Strengthened role of the
private sector via job
creation and enhanced FDI
60
Assigning
mandate to IDB
for arranging
financing on a
project by project
basis during the 4year MCPS period
Identification of
project pipeline
with the
Government of
Pakistan and the
private sector by
end-2011
MOU with relevant
stakeholders agreeing to
have, on a project basis, a
resource mobilization
mechanism (LCY and/or
FCY denominated Sukuk) in
co-financed projects
Project based, off-balance
sheet resource mobilization
with suitable Sukuk
structures which tap the local
and international markets
Resource Mobilization for Infrastructure & Other Large Projects
Developed Islamic capital
and money markets
iii.
Human resource
development and building
capacity of providers by
improving governance, IT
systems, management and
outreach
development and reform of
the Islamic Microfinance
subsector
Partners may include
SBP, DFID, World
Bank, CGAP, PPAF,
AsDB, IFC, Citigroup,
Deutsche Bank, local
financial institutions
 Partners may include SECP,
Islamic Financial Institutions,
Conventional Financial
Institutions with Islamic
windows, Multilaterals like
IFC, ADB, JBIC etc
 Syndications
 Sukuk (LCY and FCY)
Resource mobilization through
Islamic Money and Capital
Market instruments and cofinancing arrangements with
strategic partners:

fund and Technical
Assistance:
Development of Islamic
financial services industry
and enhancement of
intra-member country
technology transfer
Improving statistical
capacity
Developing a uniform,
modern, transparent and
cost effective public
procurement system
Non-availability of
sufficient budget
Lack of availability
of the requisite
knowledge
Lack of sufficient
budget
Lack of eprocurement system
Lack of sufficient
resources
Increase in remittances
Technology transfer
iv.
Good quality data and
better economic panning
Transparent eprocurement system
iii.
Identification of
opportunities for
utilizing expertise
of Pakistan
61
Technical assistance for
statistical capacity building
Created standards, coherent and
transparent set of rules,
regulations and procedures
MOUs with relevant
organizations, in the respective
fields to enable provision of
experts from Pakistan to be
utilized in other IDB member
countries
Reverse Linkages
Arrange statistical
training courses
Enhance the
capacity of public
officers through
training
Capacity Building
 statistical capacity building
of IDB member countries
 manufacturing of heavy
machinery for sugar and
cement industries and
textiles sector
 Islamic banking
Utilization of Pakistan‟s
expertise in the field of:
Strengthening statistically
capacity building of the
relevant statistical institutions
Development of a
comprehensive eprocurement system through
Public Procurement
Regulatory Agency (PPRA)
KNOWLEDGE PART OF STRATEGY - II
A. Diagnostic Analysis of Critical Constraints to Poverty, Inequality,
and Unemployment in Pakistan
B. Diagnostic Analysis of Binding Constraints to Pakistan‟s
Economic Growth
C. Diagnostic Analysis of Critical Constraints to Key Sectors
(Selected for MCPS-Focused Programs) in Pakistan
i.
Infrastructure (Energy and Transport)
ii.
iii.
iv.
v.
Agriculture
Human Development (Education and Health)
Private Sector Development
Islamic Finance
D. Statistical Tables (Annex Tables 1.1 – 1.3 and 2.1)
A.
Diagnostic Analysis of Critical Constraints to Poverty,
Inequality and Unemployment in Pakistan
(Abridged version of the background paper prepared by the Consultants)*
1.
Since
1980,
Pakistan
has
experienced
three
distinct
phases
regarding the relationship between
economic growth, poverty and inequality.
The high economic growth during the 1980s
contributed to a sharp decline in poverty, but
accompanied by a mild increase in
inequality. The deceleration in economic
growth during the 1990s resulted in a rise in
poverty while inequality decreased modestly.
The high economic growth during the first
half of 2000s was different from the earlier
episode; inequality increased sharply with
rapid decline in poverty. Unemployment rate,
despite high growth, did not drop sharply.1
The following sub sections provide an
overview of poverty, inequality and
unemployment along with their critical
constraints.
i.
Table A.1:Pakistan Trends in Poverty
(Head Count Ratios)
Period
Urban
Rural
Overall
1992-93
24.6
28.3
26.8
1996-97
22.6
33.1
29.8
1998-99
20.9
34.7
30.6
2000-01
22.7
39.3
34.5
2004-05
14.9
28.1
23.9
2005-06
13.1
27.0
22.3
2007-08
29.9a
2008-09
33.8b
2008-09
36.1b
2008-09
-
-
30-35c
Source: Economic Survey, Government of Pakistan, 200809.
a: Interim Report (October 2008), “Economic
Stabilization with a Human Face”, Panel of Economists
constituted by the Planning Commission, Government of
Pakistan.
b: Task Force on Food Security (World Bank) cited in
Economic Survey 2008-09 (p.197).
c: Independent Estimates cited in Economic Survey 200809 (p.197).
poverty levels are likely to have reversed
(Table A.1).
An Overview of Poverty
2.
Historically Pakistan has not
witnessed a secular decline in poverty.
Rather, the poverty levels have fluctuated
considerably. This has also been the case for
the last decade when first the country
witnessed a decline in poverty between 2000
and 2006 period. Later, because of both the
high inflation and slow economic growth,
3.
The 1990s witnessed a gradual
increase in poverty level, from 26.8
percent in 1992-93 to 30.6 percent in 199899.2 This rise in poverty was because of a six
percentage points increase in rural poverty
while urban poverty declined during this
period. The rising trends in overall poverty
continued up to 2000/01 period (34.5
percent), but this time the increase was both
in rural as well as urban areas. In addition to
*Arif, G. M. and S. Farooq (July 2011), “The
Background Study for the MCPS Document for
Pakistan on Poverty, Inequality and Unemployment”.
1
Osmani S. R. (2008), The Demand of Inclusive
Growth: Lessons from South Asia, The Pakistan
Development Review 47, 4(1).
Official poverty line is based on the threshold level of
2,350 calories per adult per day plus a minimum
expenditure required for non-food needs.
2
65
GDP in 2001/02 to 4.8 percent in 2004/05.
Further, the inflow of foreign remittances
mounted over $19 billion during 2001/02 and
2005/06 period, being an average of 4.1
percent of GDP.
fall in economic growth, several factors are
responsible for the rise in poverty during
1990s including political uncertainty,
economic instability, and persistence high
fiscal and current account deficits. The
inflows of foreign remittances, which are
believed to be one of the major factors for
reducing poverty during the 1980s, also
declined markedly during the 1990s. Bad
weather conditions and severe droughts
lowered the agriculture growth, and led to an
increase in rural poverty. Urban population
was to some extent successful in protecting
its well-being level during the 1990s.
5.
The war on terror has resulted to
divert the public expenditure from
development to security. The economy of
Pakistan has been facing severe challenges
since 2007/08 with a declining rate of
economic growth; double-digit inflation
particularly the food inflation; power
shortage; soaring oil prices; and poor law and
order situation. The present socio-economic
situation is likely to have adversely affected
the government efforts for poverty reduction.
The government sources consider that
poverty is likely to have increased from 22.3
percent of the population in 2005/06 to 30-35
percent in 2008/09.4 In 2008, the Planning
Commission‟s Panel of Economists reported
in its Interim Report that poverty might have
increased by 6 percentage points from 23.9
percent in 2004/05 to 29.9 percent in
2008/09.5 It is most likely that the poverty
head-count ratio in 2010 could be as high as
in 2001.
4.
A sharp decline in poverty was
observed during the first half of the 2000s,
from 34.5 percent in 2000/01 to 22.3
percent in 2005/06 - a decline of more than
12 percentage points in only five
years3.The percentage of population living
below the poverty line in rural areas declined
from 39.3 percent in 2000/01 to 27 percent in
2005/06 while the corresponding decline in
urban areas was from 22.7 percent to 13.1
percent, suggesting that sharp decline in rural
areas could not narrow the rural-urban gap;
rural poverty in 2005/06 was more than
double the urban poverty. One of the main
reasons of poverty reduction during 2000-06
was the high economic growth recorded by
most sectors. In addition to high growth, other
factors which are likely to have contributed to
poverty reduction include the increased public
spending especially on education, health and
infrastructure (rural electrification, roads, and
irrigation improvements). Overall, pro-poor
expenditures increased from 3.8 percent of
3
6.
The province level poverty
estimates show that poverty declined in all
four provinces between 2000/01 and
2004/05. However, there is a great deal of
variation across the provinces in terms of
percentage decline. Rural Sindh has shown a
huge reduction in poverty, from 48.3 percent
in 2000/01 to 28.9 percent in 2004/05 - a
decline of about 20 percentage points, mainly
attributes to exceptionally high agriculture
It is important to note that the official poverty
estimates for 2000/01 period have been revised
upward from 32.1percent to 34.5 percent, because of
some flaws in earlier estimates (Pakistan Economic
Survey 2006).
4
Pakistan Economic Survey 2008-09, Economic
Advisors‟ Wing, Government of Pakistan.
5
Economic Stabilization with a Human Face, October
2008.
66
declined mainly in urban areas, the rural
poverty remained at the high level (Table
A.2).
growth in 2004/05. The rural poverty in
Punjab marginally declined from 33.8
percent in 2000-01 to 33.4 percent in 200405. In other two provinces, in KPK poverty
declined from 44.4 percent to 41.9 percent
and Baluchistan from 39.3 percent to 35.8
percent during the same period.6
Table A.2: Headcount Poverty Rates)
in Selected Asian Countries
Country
Period
Initial
China (rural)
1990-2005
74.1
China (Urban)
1990-2005
23.4
India (rural)
1990-2005
55.6
India (urban)
1990-2005
47.5
Indonesia (rural)
1990-2005
70.5
Indonesia (urban)
1990-2005
62.0
Malaysia*
1990-2007
17.1
Malaysia (urban)*
1990-2007
7.5
Malaysia (rural)*
1990-2007
21.8
Pakistan (urban)**
1993-2006
24.6
Pakistan (rural)**
1993-2006
28.3
Thailand
1990-2005
17.2
7.
One common characteristic among
the selected countries and Pakistan is that
the poverty is largely a rural phenomenon.
According to the Economic and Social
Survey of Asia and Pacific (ESCAP 2010),
the decline in poverty rate was sharpest in
China (rural poverty declined from 74.1
percent to 26.1 percent and urban poverty
from 23.4 percent to 1.7 percent during 19902005. In case of Indonesia, rural poverty
declined from 70.5 percent to 24.0 percent
and urban poverty from 62.0 percent to 18.7
percent during 1990-2005. In Malaysia, rural
poverty declined from 21.8 percent to 7.1
percent and urban poverty 7.5 percent to 2.0
percent during 1990-2007. Poverty rate in
Thailand declined from 17.2 percent in 1990
to 0.4 percent in 2005. Compared to other
countries, India succeeded to reduce its
headcount poverty rates in both urban and
rural areas but with less speed. Urban
poverty is almost non-existence in China and
Malaysia. For India, Indonesia and Pakistan,
higher rural poverty persists but relatively
with less gap than the former two‟s.
However, no uni-directional movement of
headcount ratio has been observed in
Pakistan while comparing it with the other
selected countries. The other selected
countries noticed a decline in poverty in both
urban and rural areas; whereas in Pakistan, it
Final
26.1
1.7
43.8
36.2
24
18.7
3.6
2.0
7.1
13.1
27.0
0.4
Source: Economic and Social Survey of Asia and Pacific
(ESCAP), 2010, UN.
*Source: Economic Planning Unit, Malaysia
**Pakistan Economic Survey, 2006-2007
ii.
Trends in Inequality
8.
The Gini-coefficient values show
an overall increase in inequality between
1992-93 (0.27) and 2005/06 (0.30) in
Pakistan. Two measures are commonly used
to examine levels and trends in inequality:
Gini-coefficient and income or consumption
share by quintiles (e.g. the bottom 20
percent). The same pattern has been
witnessed in urban as well as rural areas
(Table A.3). It appears from the inequality
information that during the period when
poverty declined overall as well as in rural
and urban areas, the gap between rich and
poor widened. It indicates that the benefits of
growth during the high growth period (200006) were relatively higher for the rich than
for the poor.
World Bank (2007), Pakistan Promoting Rural Growth
and Poverty Reduction, Sustainable Department Unit,
South Asia Region.
6
67
countries. Gini-coefficients show that both
India (from 0.33 in 1999 to 0.37 in 2007) and
Indonesia (from 0.34 in 2002 to 0.39 in
2007) witnessed a rising and higher
inequality, while it declined in other
countries (China, Malaysia, Thailand, and
Pakistan). There is more reduction in the
value of Gini-coefficient in Malaysia (from
0.49 in 1997 to 0.38 in 2007) as compared to
other countries. Across the region, there is
higher inequality in rural areas of China,
while India and Indonesia have more
inequality in urban areas. As mentioned
earlier, Pakistan also has more inequality in
its urban areas.
Table A.3: Pakistan: Gini-Coefficient Values
Year
FBS
Overall
1992-93
0.268
1993-94
0.271
1998-99
0.302
2001-02*
0.275
2005-06*
0.302
Rural Areas
1992-93
0.239
1993-94
0.235
1998-99
0.252
2001-02*
0.237
2005-06*
0.246
Urban Areas
1992-93
0.317
1993-94
0.307
1998-99
0.360
2001-02*
0.323
2005-06*
0.349
10.
A cross-comparison shows that
during the selected period (initial and
final), the share of bottom 10 percent
population in total income or consumption
has improved in Pakistan, China,
Malaysia, and Thailand; whereas it
declined in India and Indonesia. However,
the ratio of the bottom 10 percent to top 10
percent indicates the presence of inequality in
all the selected countries.
Sources: Federal Bureau of Statistics (FBS) (2001)
*Pakistan Economic Survey (various issues)
9.
All selected Asian countries have
enjoyed respectable growth during the last
quarter century; however, inequality
remains an issue. Table A.4 shows the Ginicoefficient and the ratio of the consumption
or income share of the top 10 percent to the
bottom 10 percent of the population among
the selected six East and South Asian
Table A.4: Gini-Coefficient and Inequality in Income or Expenditure in Selected Asian Countries
Indicators
Initial Period
Poorest 10percent
Richest 10percent
Ratio of Richest
Gini Index (overall)
Final Period
Poorest 10percent
Richest 10percent
Ratio of Richest
Gini Index (overall)
China
2001-07
India
1999-07
Indonesia
Malaysia
Pakistan
Thailand
1.8
3.9
3.6
1.7
3.7
2.5
2002-07
33.1
27.4
28.5
0.447
0.325
2.4
3.6
18.4 a
7b
31.4
31.1
0.415
0.368
13.2 b
1998-07
38.4
28.3
0.343
3
7.8 b
8.6 b
1997-07
22.1a
33.8
0.492
7.6 b
0.330
13.4 b
2.6
3.9
2.6
32.3
28.5
26.5
0.394
0.379
0.312
10.8 b
2000-07
11 a
6.7 b
0.432
33.7
13.1 b
0.425
a. income shares by percentiles of population, ranked by per capita income.
b .expenditure shares by percentiles of population, ranked by per capita expenditure.
Note: The value of Human Development Index (HDI) have been calculated from life expectancy at birth, mean years of
schooling, expected years of schooling, gross national income (GNI) per capita
Source: Human Development Reports, various editions, UNDP.
68
Status of Achieving Poverty-Related MDG
Targets
Microfinance Bank, Khushhali Bank, First
Women Bank, Pakistan Poverty Alleviation
Fund, and National Rural Support Program.
11.
It is unlikely that Pakistan will
achieve the poverty-related MDG targets
by 2015. The country was on the track to
achieve MDG poverty related targets up to
2006 when a sharp reduction in poverty was
witnessed during the 2000-2006 period in
both rural and urban areas. However, at
present, the ground realities and official
estimates reveal that it is difficult to achieve
the poverty target by 2015. With regard to
other poverty-related targets (i.e. the
prevalence of underweight children and the
population below the minimum dietary
energy consumption levels), Pakistan is also
lagging in these indicators, therefore, it is
most likely that the poverty-related targets
will not be met by 2015 (Table A.5).
Binding Constraints to Reducing Poverty
and Inequality
13.
The economic growth, poverty and
inequality nexus in the past could not
work in right direction to achieve high
growth with a reduction in both poverty
and inequality. The rise in inequality has
weakened the relationship between growth
and poverty in Pakistan. The poor and
vulnerable population has generally been at
disadvantage to reap the benefit of high
economic growth. In addition to the current
economic crunches of inflation and
unsustainable current account and fiscal
deficits, the following are the major barriers
Table A.5: Pakistan: Poverty-Related MDGs
Poverty-Related Indicators
Proportion of population below
the caloric based food plus nonfood poverty line
Prevalence of underweight
children under 5 years of age
Proportion of Population below
minimum level of dietary energy
consumption
1990/91
2005/06
MDG Target 2015
Current Status
(2008-09)
26.1
23.3
13
Worsened since
2006
40
38
<20
Worsened since
2006
25
n/a
13
Worsened since
2006
Source: Pakistan Millennium Development Goal Report, 2010, Planning Commission of Pakistan
for achieving sustained growth, and poverty
and inequality reduction.
12.
Targeting the poor and vulnerable,
which has been integral component of
both PRSP-I, PRSP-II, and New Growth
Framework, includes some narrowly
targeted interventions of the government
to transfer benefits directly to the poor.
Some of them include Benazir Income
Support Programme launched in 2008;
Punjab Food Support Scheme initiated in
2008; Pakistan Bait-ul-Mal; Regular Zakat
Programme; and Microfinance provided by

69
The rising militancy during the last
few years has adversely affected every
Pakistani by creating an overall
uncertainly which led to capital flight,
lower investment, and decline in FDI.
It has also limited the government
capacity to spend on pro-poor
expenditures due to a massive spending
on anti-terrorism campaign during the
last four years. The institutional
dimensions of governance uncover a
negative and significant association
between rule of law and poverty.7


The incidences of poverty are highly
linked with the literacy and
educational attainment of household
heads. In the Pakistan Poverty
Assessment (PPA), education was found
to be the most significant factor
distinguishing the poor from the nonpoor. These educational differences also
explain the poverty gaps between the
rural and urban areas, consistent with the
idea that literacy is likely to have higher
returns in urban areas.8 Education and
skill levels are directly related to
employment. The poor usually have low
levels of skill and can only find
employment in low-paid jobs.

The ownership of land is highly
unequal in Pakistan, which is one of
the major barriers to poverty and
inequality reduction in rural areas.
About half of all rural households do not
own any agricultural land, while the top
2.5 percent of households account for
over 40 percent of all land owned. This
depletion of productive assets has an
adverse impact on the poor in terms of
their future stream of income, and
reduces their probability of escaping
poverty.9

The highest and persistent levels of
poverty occur in those rural areas of
Pakistan, which are traditionally
considered feudal, such as rural Sindh,
southern Punjab, and the tribal areas
of KPK and Baluchistan. The
dependency of the poor on local power
structures takes a variety of forms.
Distortions in the input and output
markets functioning against the poor tend
to generate poverty in rural areas. At the
same time, the lack of access to formal
credit markets often forces poor tenants
to borrow from their landlord. This
generates a form of bonded labor and
tenants are sometime obliged to work on
their landlord‟s farm at less than market
wage rates or even without wages.10
Landlords may also exert control over
watercourses, which influences their
relationship with their tenants because it
Health has commonly been related to
the incidences of poverty and change
in poverty status. The Government of
Pakistan has not been successful in
allocating sufficient resources for the
health sector, as it is stagnant on only
0.5 percent of GDP. Most of the poor
households suffer from ill health and are
forced to bear the high cost of medical
treatment. Illness is often a catalyst in
pushing households deeper into poverty
and, thus, ill health and poverty are
linked in a vicious cycle.
7
9
Jafri, S. M. Younis (1999). Assessing Poverty in
Pakistan. In A Profile of Poverty in Pakistan.
Islamabad: MHCHD/UNDP.
Arif, G. M. (2004). Bonded Labour in Agriculture: A
Rapid Assessment in Punjab and North West Frontier
Province, Pakistan. Geneva: Special Action Programme
to Combat Forced Labour, ILO.
Hussain, Akmal (2003). Pakistan National Human
Development 2003: Poverty, Growth and Governance.
Karachi, UNDP/Oxford University Press.
Haq, Rashia et. Al. (2010), Variation in Quality of
Life within Punjab: Evidence from MICS, 2007-08,
Paper presented at 26th AGM & Conference of PSDE,
Islamabad.
10
8
70
own feet and become economically selfsufficient. However, the transfer
programmes are not sufficient to meet
the demand of the poor.
provides the former with absolute control
over cultivation.11

Public provision of social services
plays important role in the capabilities
development and leads to decline in
income poverty. Similarly, social
overhead capital is a necessary input in
the structure of production and poverty
reduction. There is higher inequality
across the provinces in terms of physical
and social infrastructure. The Punjab
province has better ranking, while the
two provinces, KPK and Baluchistan,
which have registered the higher poverty
level during the last two decades, are
poor by all infrastructure indicators.
Even within Punjab and Sindh, the rural
Sindh and southern Punjab have poor
level of access to physical and social
infrastructure as compared to the
northern and central Punjab (Table A.6).
Province
Distance
to Metal
road<1
iii.
14.
The latest official statistics based
on the Labour Force Survey of Pakistan
(2008/09) shows that the total labour force
volume is 53.7 million with an annual
growth rate of 3.7 percent. Rural areas have
almost more than double share in the total
employment, which is primarily due to the
absorption of employment in the agriculture
sector. The labour force participation rates
have witnessed an increase of 2.1 percentage
points during the last decade. Female
participation in the labour market has
gradually increased. However, it is still very
low, around 22 percent. Overall, the youth
have a lower participation rate than the adult
Table A.6: Pakistan: Infrastructure by Provinces
Physical Infrastructure
Soft Infrastructure
Electricity
Soling
street
Punjab
80.0
47.0
66.0
Sindh
67.0
10.0
30.0
KPK
38.0
34.0
29.0
Baluchistan
20.0
12.0
8.0
Source: MOUZA Statistics for Pakistan, 2008

Employment Situation
Drain
Piped
water
Education
Ins.
Health Ins.
58.0
23.0
19.0
7.0
9.0
7.0
20.0
9.0
34.0
37.5
33.3
22.3
30.5
27.3
24.5
11.3
population, but their participation especially
of the young women has gradually increased.
The Government of Pakistan has been
allocating a fair amount for social
safety net programmes. All these
programmes directly intervene to transfer
resources to the marginalized segment of
the society so that they can stand on their
15.
According to the official data, the
overall unemployment rate increased from
6 percent in 2000/01 to 8.3 percent in
2003/04. However, it declined during the
next four years to 5.2 percent. During this
period,
the
economy
witnessed
comparatively high growth and poverty
reduced sharply. However, the estimates
Hooper, Emma, and A. I. Hamid (2003). Scoping
Study on Social Exclusion in Pakistan. Islamabad:
DFID.
11
71
Table A.7: Labour Force Participation Rates and Unemployment Rates (percent)
2000/01
2001/02
2003/04
2008/09
Change b/w
2000 & final
(percentage
points)
52.5
82.4
21.8
-
+2.1
-0.08
+5.5
44.2
69.2
18.4
-
-
+3.7
-0.1
+8.2
7.6
5.2
9.6
5.3
8
6.2
4.2
8.6
4.7
6.6
5.2
4.3
8.5
4.7
8.3
5.2
4.7
7.1
-0.8
-1.1
-7.3
-2.2
-2.8
8.6
8.4
9.6
11.8
7.2
7.5
7.1
8.9
10.5
6.1
2005/06
2006/07
53
84
21.1
52.5
83.1
21.3
45.9
72.2
18.6
Labour Participation Rate (overall)
Overall
50.4
50.5
50.7
Male
83.2
82.7
82.7
Female
16.3
16.2
18
Labour Participation Rate for Youth (15-24)
Overall
40.5
43.4
43.6
Male
69.3
70.2
70.5
Female
10.2
14.8
16.1
Unemployment rates for overall (percent)
Overall
6
7.8
8.3
Male
5.5
6.2
6.2
Female
15.8
16.4
12.9
Rural
6.9
7.5
6.7
Urban
9.9
9.8
9.7
Unemployment Rate for Youth (15-24)
Overall
13.3
13.4
11.7
Male
11.1
12
11
Female
29.3
20.5
14.9
Urban
16.8
16.1
15
Rural
11.7
12.1
10.1
2007/08
Sources: Pakistan Economic Survey 2009/10; and Pakistan Employment Trends (2008, 2009)
based on Economist Intelligence Unit (2010)
show the rising trends in unemployment rates
during the last three years, with 7.4 percent
in 2008, 14 percent in 2009 and 15 percent in
2010, suggesting a doubling of the
unemployment rate in just three years period.
The
unemployment
rates
dropped
considerably among females and in urban
Table A.8: Pakistan: Share of Employed Labour Force in Major Sectors (15+)
2000/01
2001/02
2003/04
-5.9
-4.0
-20.4
-6.3
-5.6
2005/06
2006/07
2007/08
2008/09
Share of Agriculture in Total Employment
Overall
47.8
41.1
41.8
41.6
42
44.6
45.1
Male
43.4
37.2
37
35.6
35
36.9
37.3
Female
73.7
64.5
66.6
67.7
71.4
75
74
Share of Industry in Total Employment
Overall
18.2
21
20.6
21.2
21.4
19.3
19.6
Male
19.8
22
21.7
22.7
23.5
21.1
21.6
Female
8.4
14.8
14.9
15.1
12.6
12.2
12.3
Share of Services in Total Employment
Overall
34
37.9
37.6
37.2
36.6
36.1
35.3
Male
36.8
40.8
41.3
41.7
41.5
42.0
41.1
female
17.9
20.7
18.5
17.2
16.0
12.8
13.7
Sources: Pakistan Economic Survey 2009/10; and Pakistan Employment Trends (2008, 2009)
72
Change
2000 to
2008
(percentage
point)
-2.7
-6.1
0.3
1.4
1.8
3.9
1.3
4.3
-4.2
areas compared to the male and rural areas,
respectively. Youth unemployment levels are
higher than the overall unemployment rate.
Among the youth, female and rural
inhabitants have faced the unemployment
level higher than their counterparts. The youth
unemployment rate has dropped sharply from
13.3 percent in 2000/01 to 7.5 percent in
2006/07. This drop in unemployment level is
especially high for females, 20.4 percentage
points (Table A.7).
has the second largest share in employment
(35.3 percent), followed by the industrial
sector with 19.6 percent share in 2008/09.
These both sectors have witnessed a modest
increase in their share in total employment. It
is worth noting that a large proportion of
female employed labour force work as
unpaid helpers (Table A.8).
17.
Table A.9 shows that employment
to population ratio for adult was 49.9
percent in 2007/08. The employment to
population ratio for adult females is very
low, only 19.9 percent, as compared to male
ratio, 79.1 percent. The male ratio in Pakistan
is higher to the ratio for South Asia (78.2
percent). However, the female ratio is much
lower than the South Asian average (34
percent). It is encouraging that employment
to population ratio among women has
improved by more than six percentage points
and the gap between male and female ratios
has reduced. For youth, the employment-to-
16.
With regard to sector-wise,
agriculture is the largest sectors in terms
of employment provision with 45.1 percent
in 2008/09. However, its share in total
employment declined by 2.7 percentage
points during the last decade, with more
decline among the males (6.1 percentage
points), probably due to changes in the
agrarian structure including a decline in
sharecropping and increased mechanization
in the agriculture sector. The services sector
Table A.9: Pakistan and South Asia: Employment–to-Population Ratio among Adults and Youth
Change
between 2000
and 2008
2000/01
2001/02
2003/04
2005/06
2006/07
2007/08
(percentage
points)
Employment-to-population ratio in Pakistan for Adult
49.9
Overall
46.8
46.5
47.0
49.7
49.8
+ 3.1
79.1
Male
78.6
77.6
77.6
79.6
79.6
+ 0.5
19.9
Female
13.7
13.6
15.6
19.0
19.4
+ 6.2
Employment-to-population ratio in South Asia for Adult
Overall
58
57.3
56.7
56.7
Male
80
78.8
78.4
78.2
Female
34
34.4
33.8
34.0
Youth Employment-to-population ratio
Overall
35.1
37.6
38.5
42.0
40.9
+ 5.8
Male
61.6
61.8
62.7
66.1
64.2
+ 2.6
Female
7.2
11.8
13.7
16.8
16.8
+ 9.6
Youth Employment-to-population ratio in South Asia
Overall
43.3
43.1
42.5
42.6
Male
59.3
58.5
57.8
57.6
Female
26.1
26.4
26
26.3
Pakistan Employment Trends (2008) and ILO, Guide to the New Millennium Development Goals Employment Indicators
73
population ratio increased by almost 5.8
percentage points during the last decade, and
has almost converged with the average ratio
of South Asia. This convergence is primarily
driven by the change in participation of youth
women in the labour market as the female
youth employment-population ratio increased
from the very low level of 7.2 percent in
2000/01 to 16.8 percent in 2006/07.
slow and it is likely that it would not be
achieved by 2015.12
20.
Regarding the new four targets set
by the UN in 2007, these revised MDG
indicators show positive developments in
Pakistan, but also highlight some
challenges. The first target that is related to
employment-population ratio has steadily
increased over the 2000-08 period, especially
for females. It reflects the generation of more
employment opportunities in the country,
although gender gap exists. The second
revised MDG indicator is about the
vulnerable employment. The share of
vulnerable employment decreased by 2.5 and
1.9 percentage points in adults and in youth
during 1999-2006 period. At the same time,
vulnerable employment of adult females and
youth females increased by 7.9 and 12.0
percentage
points,
suggesting
more
vulnerability among the female labour force.
The third revised MDG indicator is about the
working poor. According to ILO, Pakistan
has a lower percentage of working poor
compared to overall South Asia in 1996 and
in 2006. Overall, working poverty declined
in Pakistan. The fourth revised indicator is
Status of Achieving Employment Related
MDGs
18.
The new employment related
MDG target is “Achieve full and
productive employment and decent work
for all, including women and young
people”. This target contains the following
four indicators directly relating to
employment issues;
 Growth rate of labour productivity (GDP
per person employed);
 Employment-to-population ratio;
 Proportion of employed people living
below the poverty line; and
 Proportion
of
own-account
and
contributing family workers in total
employment (vulnerable employment
rate).
Table A.10. Pakistan: Employment-Related MDG
19.
The Pakistan MDG Country
Report 2010 enfolds the old MDG target
which is to promote gender equality and
women empowerment by ensuring
employment in the non-agriculture sector.
Table A.10 shows that women‟s share in
non-agriculture employment has increased
from 8.1 percent in 1990 to 10.6 percent in
2008. However, this share in 2008 is much
below the MDG target by 2015 (14 percent).
The progress to achieve this target is very
Indicator
Share of
women in
wage
employment
in the nonagriculture
sector
1990
2001
2005
2008
MDG
Target
2015
8.1
9.7
10.9
10.6
14.0
Pakistan Millennium Development Goal Report 2010,
Planning Commission of Pakistan.
Government of Pakistan, Pakistan Millennium
Development Goal Report, 2010, Planning Commission
of Pakistan.
12
74
mounted the labour force participation rates
but also created employment opportunities,
especially for women. The growth in
labour force participation and employment
rates rose at 2.6 percent per annum on
average during 2001-05 period. The
unemployment increased during the first
half of the decade and then it started to
decline. However, unemployment on
average remained high in the range of 6.0 –
7.6 percent (Table A.11).
about the labour productivity. Overall,
Pakistan has improved its per hour labour
productivity during the 1999-2006 period.
With regard to key sectors, a positive trend of
labour productivity is observed in
agriculture, manufacturing and social
services sectors, while a declining
productivity trend has been observed in the
mining, electricity, gas and water,
construction, wholesales and retails, transport
and communications and financial sectors.
Table A.11: Pakistan: Growth, Employment, and Poverty Trends (percent)
Indicator
1963–69
1971–76
1976–87
1987–92
1992–98
1998–01
2001–05*
GDP growth
rate
7.2
4.8
6.7
4.8
4.2
3.2
6.0
Labor force
growth rate
1.7
3.5
2.5
1.9
3.6
2.5
Employment
growth rate
1.5
3.4
2.5
1.5
3.4
1.6
1.0–2.0
2.1–2.6
2.6–3.1
3.1–4.7
4.7–5.9
5.9–8.3
6.0–7.6
40.2–
46.5
46.5–30.7
30.7–17.3
17.3–22.4
25.7–32.6
30.6–32.1
34.1–22.3
Unemployment
rate
Poverty
Incidence
2.6
2.6
Source: Extended the study of Kemal A. R. (2004), „An Employment-based Poverty Reduction Strategy for Pakistan,
Working Paper No. 1, Islamabad, CRPRID/UNDP.
*The numbers from the last column has been taken from Pakistan Economic Survey 2009/10, Pakistan Employment
Trends 2008, Ministry of Labour, Manpower, and overseas Pakistanis, Government of Pakistan.
22.
The literature in Pakistan14 shows
that GDP growth alone is not sufficient
until the quality of jobs is improved and
the access to modest earning opportunities
for the poor are enhanced. Economic
growth that results in increased employment
opportunities in „less productive‟ jobs sector
may not be enough to alleviate poverty. To
Growth–Employment-Poverty-Inequality
Nexus
21.
There is a broad consensus in the
literature that economic growth would
be only effective to reduce poverty if it
improves the quality of jobs and the
access to modest earning opportunities
for the poor.13 During 2001-07 period, the
high economic growth in Pakistan not only
14
Haq, Rashida (2005), “Transition of Poverty in
Pakistan: Evidence from the Longitudinal Data” PSDE
Proceedings 2006. Kemal A. R. (2004), An Employmentbased Poverty Reduction Strategy for Pakistan, Working
Paper No. 1, Islamabad, CRPRID/UNDP.
Hull Katy (2009), Understanding the Relationship
between Economic Growth, Employment and Poverty
Reduction, OECD.
13
75
achieve the desired targets, there is a need of
policy and programmes which enhance the
agricultural productivity and increase
mobility of the poor across sectors by
removing the barriers to movement of „more
productive‟ jobs. The recent rising trends in
poverty can only be arrested if enough
productive and remunerative jobs are created,
and this is possible only if investment levels
are increased.
Government
Policies/Initiatives
Increasing Employment
Pakistan that would provide capital and
financial support to the poor by expanding
their choices and mitigating potential risks of
poverty and social exclusion. Microfinance
provides micro credit, micro savings, and
micro insurance. The SME Bank was
established to provide financial assistance for
SMEs. Up to December 2009, it had financed
8,299 SMEs with an amount of PRs. 9.5
billion to 40,891 beneficiaries. The Khushali
Bank is also providing loans up to PRs.
30,000 to unemployed people to set up their
business. Up to December 2009, it has
disbursed loans amounting to PRs. 22.5
billion to over 2 million beneficiaries. Under
the President‟s Rozgar scheme, the National
Bank is also providing loan up to PRs.
100,000 for five years maturity. Currently,
Technical and Vocational Education and
Training (TVET) is the central pillar of
human resource development policies to
overcome the low education and skill levels.
For this purpose, the National Vocational and
Technical
Education
Commission
(NAVTEC) was established in 2006 to
strengthen the vocational and technical
education. NAVTEC is giving PRs. 2,000 per
month to each trainee during the training
period. At present, about 1,522 technical
institutes with an enrollment of 314,188 are
working in the country. It has the plan to
produce one million skilled labour per year.
for
23.
Pakistan has so far launched six
labour polices in 1955, 1959, 1969, 1972,
2002 and 2010. All these policies laid-down
the parameters for the growth of trade
unionism, the protection of workers‟ rights,
the settlement of industrial disputes and
redressal of workers‟ grievances. The basic
aim of all plans and policies was to accelerate
pro-poor economic growth by creating new
job opportunities and skill development of
the poorest of the poor. The poor and
vulnerable have also been directly targeted
by safety net programmes. In particular,
during 2002-2010 period, around 70-80
percent of the PRSP budget has been spent
on three sectors: human development, rural
development and safety nets. As poverty is a
rural phenomenon, the PRSP strategy revolves
around the promotion of rural development by
community development, raising agricultural
productivity as well as the rural non-farm
economy. All these policies and programs
were designed for poverty reduction but
through employment creation. The microfinance is one of the major targeted
interventions to address poverty and
unemployment by enabling the poor to
become self-employed. Perhaps, at present
there is no other large-scale development in
Diagnostic Analysis of Binding Constraints
to Reducing Unemployment
24.
As compared to selected Asian
economies, Pakistan is behind in various
labour market efficiency indicators except
the hiring and firing practices. It suggests
that Pakistan still requires many policies and
programmes to ensure efficiency, promote
equal opportunities for men and women and
76
to obtain decent and productive work in
conditions of freedom, equity, security, and
human dignity. An efficient and flexible
labour market is prerequisite to extract the
maximum gains from the economy.
the recent years have created an
overall uncertainty, which has badly
affected the confidence of local and
foreign investors that are considered
the major drivers of creating job
opportunities. Further, high corruption,
controversial property issues, and other
business related matters have made it
costly to do business in the country.
25.
As poverty and employment are
highly correlated, a number of binding
constraints are also linked with the labour
market concerns. A number of the
following critical constraints have been
identified.


Growth in the real sector is not stable
in Pakistan, which hinders to reduce
unemployment. The high economic
growth spells have mainly been
influenced by the foreign shocks, and
when these shocks disappeared, the
growth started to decline. It happened in
1960s, 1980s and during the first decade
of this millennium. The high growth
during 2000-07 period was largely
capital-intensive growth; it expanded
employment opportunities but with fewer
new opportunities. Without strengthening
the real sector growth, it would be
impossible to reduce unemployment and
poverty (Table A.12).

Majority of the labour force are
mainly connected with the agriculture
sector and having low levels of
education and skills. This majority is
unable to get adjustment in the formal
sector. Without developing the non-farm
rural economy, it would be difficult to
overcome unemployment issues.

The regional differences over social
and physical infrastructure are also
responsible to increase inequality and
wage penalties. The high poverty
regions i.e. the rural areas of southern
Punjab and Sindh have comparatively
less social and infrastructural services,
access to industrial and services sector
and overseas employment. With poor
rural-urban linkages, they are facing a
number of barriers to move to urban
areas for better future.
The deteriorated law and order
situation and rising crime rates during
Table A.12: Ranking of Labour Market Efficiency in Selective Countries in 2010 (out of 139 countries)
Efficiency Indicators
Pakistan
China
India
Malaysi
a
16
Thailand
49
Indonesi
a
47
Cooperation in labor-employer relations
104
58
Flexibility of wage determination
104
56
61
98
44
90
Rigidity of employment
34
110
78
77
100
18
25
Hiring and firing practices
51
62
89
38
50
31
Pay and productivity
93
15
61
20
6
29
Brain drain
68
37
34
27
28
38
Female participation in labor force
137
23
128
109
111
57
Secondary education enrollment rate
125
92
108
95
99
96
Source: Global Competitiveness Report, 2010
77



Job Training to their employees.15 On the
other hand, the informal sector is
completely unregulated where even the
minimum wage is not always applied.
The share of employment in the
informal sector of the economy
accounts for more than two-third of
the total adult and more than threefourth of the youth. It suggests the
limited creation of decent jobs when the
labour force is growing rapidly and
might become problematic especially for
those people who lack the necessary
skills or social networks to find a proper
job. This group is increasingly becoming
the part of informal economy.

The rising unemployment rates
among the youth highlights the
widening gap between the demand
and supply with limited absorptive
capacity of the labour market. The
recent demographic transition with the
rising share of youth presents the
economy with a “demographic gift” in
the form of a surge in the relative size
of the working-age population. The
recent official statistics also highlight the
severe challenges and disadvantages to
youth in the labour market with rising
waiting periods, long working hours,
inadequate work and wage penalties. It
would be a great threat if appropriate
measures are not taken to absorb this
massive influx.

Another challenge is over-regulation of
labour market in terms of weak
governance and trade union policies. It
has led to high risk of firing the workers
and the rising trend to employ workers
on contractual basis. Pakistan ranks at
78th position on the „difficulty of hiring
index, which is lower than the OECD
and South Asia. Only 15 percent of the
Pakistani firms have sponsored on-the-
Meager picture is the declining
number of young women and men in
the labour force with formal
vocational training. Knowledge and
skills are the driving forces of economic
growth
and
social
development.
However, at present one-third of the
youth are illiterate. It seems that Pakistan
has been trapped in vicious circle where
education is not providing the right skills
as demanded by the labour market. As
briefed earlier, that the educational
system is facing a lot of heterogeneity
over curriculum, research, teaching and
infrastructure quality across the regions
and across the universities.
The return to education has also a
declining trend in Pakistan, which
implies that the country has failed to
produce high demand for education that
resulted in low rate of return to
education.16 Moreover, there is no
mechanism to provide the complete
assessment of the labour market in
terms of required skill.
World Bank (2006c). World Development Report 2007.
Development and the Next Generation. The International
Bank for Reconstruction and Development/The World
Bank, Washington, D.C.
16
Qayyum et. al. (2007). Growth Diagnostics in
Pakistan, PIDE Working Paper 2006-07.
15
78
B.
Diagnostic Analysis of Binding Constraints to Pakistan‟s
Economic Growth
26.
During the last decade (2000-2010),
Pakistan‟s real growth slowed and remained
unsustainable compared to selected high
performing Asian countries (India, China,
Indonesia and Malaysia and Thailand). These
economies also recovered much faster
compared to Pakistan from the global
2000
investment or high cost of financing? If it is
low because of low social returns, is that due
to poor geography (natural disasters) or poor
human capital or physical infrastructure? If
the problem is poor appropriately, is it due to
government failures, market failures or both?
If it is government failure, is that due to
Table B.1: Real GDP Growth in Selected Asian Countries (percent, p.a.)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Average
Pakistan
4.3
1.9
3.1
4.7
7.5
9.0
5.8
6.8
3.7
1.2
4.1
4.7
China
8.4
8.3
9.1
10.1
10.1
11.3
12.7
14.2
9.6
9.1
10.5
10.3
India
4.4
3.9
4.6
6.9
8.1
9.2
9.7
9.9
6.4
5.7
9.7
7.1
Malaysia
8.7
0.5
5.4
5.8
6.8
5.3
5.8
6.5
4.7
-1.7
6.7
5.0
Indonesia
5.4
3.6
4.5
4.8
5.0
5.7
5.5
6.3
6.0
4.5
6.0
5.2
Thailand
4.8
2.2
5.3
7.1
6.3
4.6
5.1
4.9
2.5
-2.2
7.5
4.4
Sources: For Pakistan, Pakistan Economic Survey (2009/10) and for other countries, IMF World Economic Outlook (October
2010)
financial and economic crisis in 2010 (Table
B.1). The following growth diagnostic of
binding constraints helps us to find out why
the economic performance of Pakistan
remained below compared to other
competitive Asian countries.
micro risks (i.e. high cost of doing business),
macro risks (i.e. financial, monetary and
fiscal instability) or restriction on foreign
ownership for the foreign investors? If the
impediment on private investment is due to
high cost of financing, is that due to bad
international finance or poor local finance. If
the problem is of bad local finance, is that
due to low private saving or poor
intermediation of the banking system.17
Using the growth diagnostic approach,
27.
Growth diagnostic framework
developed by Hausmann, Rodrik, and
Velasco (2005) is a powerful tool used here
to find out critical constraints to
Pakistan‟s economic growth. The problem
tree (Figure B.1) provides a framework for
diagnosing critical constraints to economic
growth in Pakistan. It starts by asking what
keeps the level of private investment low. Is
private investment low due to low return on
For further detail on the Growth Diagnostic Framework,
see Iqbal Z. and A. Suleman (July 2010), “Indonesia:
Critical Constraints to Infrastructure Development”, and
ADB-IDB-ILO (2010), Joint Country Diagnostic Study on
“Indonesia: Critical Development Constraint”.
17
79
Figure B.1: Growth Diagnostic Framework
Low levels of private investment and entrepreneurship
Low return to economic activity
Low social returns
poor
geography
High cost of finance
bad
international
finance
Low appropriability
bad
infrastructure
government
failures
market
failures
information
externalities:
“self-discovery”
low human
capital
micro risks:
property
rights,
corruption,
taxes
bad local finance
coordination
externalities
low
domestic
saving
macro risks:
financial,
monetary,
fiscal
instability
poor
intermediation
Source: Hausmann, Rodrik, and Velasco (2005)
the neighboring Asian countries, Pakistan‟s
performance in terms of quality of
infrastructure is poor. According to Global
Competitiveness Report 2010-2011, out of
binding constraints to Pakistan‟s economic
growth18 are identified, which are as follows:
28.
Pakistan has poor quality and
quantity of infrastructure. In comparison to
Table B.2: Quality of Infrastructure in Selected Asian Countries (out of 139 Countries)
Overall
Infrastructure
Roads
Railroads
Ports
Airports
Electricity
Fixed Tel. lines
(higher the rank, lower the competitiveness of a country)
Pakistan
China
India
Malaysia
Indonesia
72
91
27
90
100
53
90
21
84
72
27
23
20
56
55
67
83
19
96
73
79
71
29
69
81
52
110
40
97
128
57
110
80
82
115
Global Competitiveness Report 2010-2011, World Economic Forum
Thailand
46
36
57
43
28
42
93
139 countries, Pakistan ranks 100th position,
compared to Malaysia (27th), Thailand (46th),
China (72th), Indonesia (90th), and India (91th)
(Table B.2). Among various components of
18
For binding constraints also see A. Qayyum, I.
Khawaja, and A. Hyder (2008), “Growth Diagnostics in
Pakistan”, PIDE Working Paper.
80
infrastructure, power is the most pressing
need and availability of electricity is
currently considered to be the binding
constraint to economic activity. Currently,
energy demand is increasing at the rate of 7
percent per annum, which created a shortage
of between 4,000-5,000 MW of electricity
during the peak season. Similarly, the
transportation network is aging and
inefficient. Transport contributes about 10
percent of Pakistan‟s GDP. The sector is
dominated by road transport, which carries
91 percent of passenger traffic in passengerkilometers (km) and 96 percent of freight
traffic in ton-kilometers. Railways carry only
5 percent of the traffic. Inadequate and
poorly managed urban infrastructure also
represents a critical constraint to expansion
of key growth centers and livability in the
country‟s most rapidly growing population
centers.
also manifested in Pakistan‟s share of world
exports, which has declined over the past
decade (from 0.16 percent in 2002 to 0.13
percent in 2008).
29.
International
competitiveness
remains a key issue for the economy. The
scale of the challenge is manifested in
Pakistan‟s global ranking of 101 (out of 132
countries) in the Global Competitiveness
Index 2010/11, compared to Malaysia (24),
China (29), India (49), and Indonesia (54)
(Table B.3). This issue of competitiveness is
neighboring countries. According to Global
Competitiveness Report (2010-2011), out of
132 countries, Pakistan stands at the 79th
position in terms of Global Innovation Index;
75th in terms of business sophistication; 87th
in terms of quality of education and 67th in
terms of spending on research and
development (Table B.4).
30.
Weak software (i.e. innovation,
business sophistication, quality of education,
and spending on R&D) is also constraint to
growth. Pakistan is lacking in growth
software compared to its most of the
Table B.3: Global Competitiveness Index
Rankings for Selected Asian Countries
Pakistan
China
2009-2010
(out of 133
countries)
101
2010-2011
(out of 132
countries)
118
49
51
29
India
Malaysia
27
24
Indonesia
26
54
Bangladesh
44
106
103
Global Competitiveness Report 2010-2011, World
Economic Forum
Table B4: Software of Growth Rankings of Selected Asian Countries
(higher the rank, lower the competitiveness of a country)
Innovation
Business
Sophistication
Quality of
Education
Spending
on R&D
Pakistan
79
75
87
67
India
44
39
39
37
China
Malaysia
Indonesia
Thailand
41
25
37
48
26
53
24
36
52
23
16
40
26
66
Global Competitiveness Report 2010-2011, World Economic Forum
81
22
48
31.
Declining levels of investment and
savings is worrisome. The investment as
percentage of GDP ratio was maximum at
22.5 percent in 2006/07, which declined to
19 percent in 2008/09 and 16.6 percent in
2009/10, which is significantly low compared
to investment rate in China (45 percent) and
India (27 percent). Similarly, the level of
domestic savings was 15.6 percent of GDP in
2006/07, which declined to 9.9 percent in
2009/10 (Figure B.2).
governance and improved investments, better
economic performance, and improved human
welfare and development, while corruption
hinders development and therefore increases
poverty19. Further, a strong positive
correlation has been found between per
capita income and the quality of governance
across countries20. The World Bank‟s
worldwide governance indicators show that
Pakistan‟s performance in all the six
governance
indicators
(voice
and
accountability, political stability, government
effectiveness, regulatory quality, rule of law,
and control of corruption) have been decimal
since 1996. Compared to other Asian
countries, Pakistan ranks lower in all the six
indicators (Table B.5).
Figure B.2: Pakistan: National
Savings and Investment (% of
25.0
GDP)
20.0
15.0
10.0
33.
While
human
development
indicators have improved since 2001/02,
they still lag well behind even compared to
low income countries. Pakistan has been
struggling with low human development
indicators, ranking 125 out of 169 countries
in the Human Development Index 201021.
5.0
0.0
Total Investment
Source: Pakistan Economic Survey (2009/2010)
Table B.5: Governance Indicators in Selected Asian Countries, 2009
(Percentile Rank between 0 - 100, lower the values, worst the indicator)
Voice and Accountability
Political Stability
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption
Pakistan
China
India
Malaysia
Indonesia
Thailand
21
5
60
31
48
34
1
30
13
47
24
15
19
58
54
80
47
60
33
46
44
60
43
62
19
45
56
65
34
51
13
36
47
58
28
51
World Bank (2010): Governance Indicators
32.
Pakistan‟s
another
major
constraint in achieving macroeconomic
stability, sustaining economic growth and
delivering public services is weak
governance. Recent studies have established
positive
relationships
between
good
ODI (2006). Governance, development and Aid
Effectiveness: A Quick Guide to Complex Relationships.
Briefing Paper.
20
Ishrat Husain (2009). Economic Governance in
Pakistan.
21
UNDP, Human Development Report 2010.
19
82
Between 1980 and 2010, Pakistan's HDI rose
by 1.5 percent annually from 0.31 to 0.49,
but still placing the country below the South
Asia regional average (0.52). Low levels of
spending on the social services and high
population growth have contributed to poor
human development indicators. Therefore,
Pakistan‟s social indicators have consistently
failed to match its economic progress (Figure
B.3).
Figure B.3: Ranking of Human
Development Index (out of 169 countris
in 2010)
150
100
125
119
108
92
89
50
57
0
Source: UN Human Development Report 2010
34.
Business climate is relatively
unfavorable. According to World Bank
Doing Business Report 2011, out of 183
countries, Pakistan‟s ranking fell from 75 in
2010 to 83 in 2011. Private entrepreneurs
claim that deteriorating investment climate is
mainly due to corruption, government
instability, policy instability, rising inflation,
and inefficient government bureaucracy. The
rising corruption is also evident from
Transparency International Perception of
Corruption Index as Pakistan fell to 143
position (out of 178 countries) in 2010 from
139 ranking in 2009.22
22
Transparency International Report 2010.
83
C.
Diagnostic Analysis of Critical Constraints to Key Sectors
(Infrastructure, Agriculture, Human Development, Private Sector
Development, and Islamic Finance) in Pakistan
i.
percent of installed generation capacity, also
remain in government ownership (Table
C.1).
Infrastructure
(i)
Energy Sector
36.
Country is facing acute power
shortage of more than 5000 MW. Peak
demand has risen from 10,459 MW in 2001
to 18,521 MW in 2010-11 while the
corresponding supply increased from 10,894
35.
State remains the dominant
shareholder in the power sector. Currently,
all transmission and distribution (except
Karachi Electric Supply Company - KESC)
remain under full government ownership.
Table C.1: Pakistan: Breakdown of Installed Capacity (December, 2010)
Availability
Installed
Generated
Description
(MW)
Summer
Winter
(MW)
6,444
6,444
6,250
2,300
WAPDA (Hydro)
4,829
3,580
2,700
2,700
GENCOs
7,911
7,500
6,300
5,300
IPPs (including Nuclear)
62
62
62
62
Rental
Total
19,246
17,586
15,312
10,362
IPP = independent power producer; KESC = Karachi Electric Supply Corporation;
WAPDA = Water and Power Development Authority
Source: NTDC Presentation to IDB Delegation (19 March, 2011)
The Government retains a quarter of KESC
shares. Water and Power Development
Authority (WAPDA) and Pakistan Electric
Power Company's (PEPCO) Generation
Companies (GENCOs), which account for 57
Year
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
MW to only 13,163 MW (Table C.2).
Transmission and distribution network
capacity has also not risen commensurate to
demand growth. As a result, the system is
presently experiencing widespread planned
Table C.2: Pakistan: Historical Demand and Supply of Power (MW)
Peak Demand
10,459
11,044
11,598
12,595
13,847
15,838
17,398
17,852
18,583
18,521
Available Peak Supply
Source: NTDC Presentation to IDB Delegation (19 March, 2011)
85
10,894
10,958
11,834
12,792
12,600
13,292
12,442
13,637
13,413
13,163
Surplus/Shortfall
435
-86
236
197
-1247
-2546
-4,956
-4,215
-5,170
-5,358
39.
Insufficient institutional capacity for
prioritization and timely implementation of
projects. There is an urgent need for
allocating adequate resources to build
capacity of the concerned institutions to
properly equip them to be able to prioritize
least cost solutions to achieve energy
security. Moreover, increased focus needs to
be given to timely and within budget
implementation of projects as per contractual
obligations of all parties concerned.
blackouts, which are adversely affecting the
country's economic growth.
Government‟s Strategy for the Energy
Sector
37.
The main priority of the
government for the energy sector is to
accelerate economic growth by eliminating
the currently existing power supply deficit
through:
 Development of new
affordable green energy
reliable
and
40.
High dependence on expensive
imported furnace oil for power generation.
The country is currently producing about 70
percent of its electricity using oil and gasbased thermal power generation. While gasbased generation continues to use
domestically produced gas, oil-based
capacity mostly relies on imported expensive
furnace oil. Prospects for a decline in
indigenous gas reserves combined with the
increasingly volatile global oil prices make it
a great challenge to be able to fuel the
thermal generation at affordable prices in
order to support the desired expansion of the
power sector.
 Promotion of energy efficiency and
energy conservation to make the
economic growth less energy intensive
 Optimization of fuel mix to lower
dependency on imported oil for power
production
 Enhancing regional energy trade
Binding Constraints/Challenges Facing the
Power Sector
38.
The electricity sector remained
plagued with inter-corporate circular
debt, which restricted growth in the power
sector as a whole and impacted oil and gas
sectors. The circular debt represents
inefficiency in the electricity sector. A
number of organizations in the energy sector
had PRs. 258.5 billion stuck up in intercorporate circular debt until April 2011,
compared to PRs103.9 billion in April 2010,
indicating an increase of 147 percent. In
particular, the Independent Power Producers
(IPPs) are severely impacted by the huge
circular debt in the power sector as in the
absence of payments against their services
they are finding it extremely difficult to
continue with loan repayment schedules
finalized with banks.23
23
41.
Escalating production costs owing
to continued reliance on de-rated and low
efficiency power generation plants. Owing
to financial constraints, mainly due to
historically below cost recovery tariffs as
well as high commercial losses, the
maintenance of public sector power plants
continues to be neglected which results in
sustaining the vicious cycle of deteriorating
operational efficiency of the plant resulting in
continuously increasing the cost of electricity
generation.
42.
Shortage of availability of long-term
financing for new power infrastructure
projects. The Energy Sector Task Force
Pakistan Economic Survey, 2010-11.
86
Study (ESTF)24, commissioned by Friends of
Democratic Pakistan, estimated that the
country requires an investment of about $23
billion over the next five years for power
generation related projects, including
development of planned mega hydropower
projects like Diamer-Basha and Dasu, which
poses a major resource challenge for the
country. Table C.3 gives the future need for
construction of the generation capacity.
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
have already completed the land acquisition
process.
45.
Weak institutional capacity results in
delaying procurement and implementation of
the projects. Given the Bank's limited field
presence, all energy sector projects will be
developed in partnership with donors that
have local presence and who can help the
Executing Agency build the needed capacity
Table C.3: Pakistan: Future Planned Power Generation Capacity (MW)
Peak Demand
23,441
25,306
27,438
29,463
31,672
33,154
35,568
38,557
41,783
Needed Capacity
29,301
31,633
34,298
36,829
39,950
41,443
44,460
48,196
52,229
Source: NTDC Presentation to IDB Delegation (19 March 2011)
43.
Site accessibility a major hindrance
for realizing the hydropower potential of
the country. Most hydropower projects
(HPPs) are located in northern part of the
country where landslides are common, which
adversely affect the site accessibility making
the timely delivery of construction material
and equipment a major challenge. As part of
the project preparation, the Bank will give
due consideration to assuring adequate site
accessibility prior to undertaking the project
financing of new HPPs.
Planned Capacity
23,788
26,279
29,405
33,630
42,530
45,338
50,034
53,284
57,470
Surplus/Shortfall
-5,513
-5,354
-4,893
-3,199
2,580
3,895
5,574
5,088
5,241
to expedite implementation. Moreover, to
help retain institutional capacity and to
encourage timely project completions, the
work program will give priority to projects
sponsored by Executing Agencies with which
the Bank or its donor partners have prior
positive experience.
46.
Inadequate funds for maintenance
of public sector projects affect the longterm sustainability of the projects.
Therefore, due attention will need to be given
at the time of appraisal to assure timely
provisioning of maintenance funds for all
projects financed by the Bank. In this regard,
the government will be encouraged to
consider using PPP modality to undertake
operation and maintenance of all public
sector energy projects being financed under
the MCPS, wherever possible and applicable,
to help improve commercial performance
44.
Process of land acquisition needs
to be streamlined to minimize costly
implementation delays as well as expensive
changes in project design. As mitigation,
the Bank will only consider projects which
24
IDB co-financed the ESTF study and was a member
of the Steering Committee.
87
through better management and improved
efficiency.
percent and freight was 3.2 percent between
2001 and 2006. Karachi and Qasim ports
handle about 95 percent of the international
trade. The main airport is also in Karachi.
Pakistan has international connectivity with
the neighboring countries (East, Central and
South Asia, Middle East and Europe) through
road and railways that help in trade facilities.
(ii) Transport Sector
47.
The transport sector in Pakistan
consists of roads, railways, ports and
airports. Bordering with several Central
Asian land locked countries - roads, railways
and ports can play a significant role on
developing Pakistan as a regional hub at the
crossroad of various regional corridors.
51.
Recent competitiveness data shows
that the overall transport infrastructure,
e.g., road, rail, ports, and airport, is not up
to the standard in comparison with some
selected East and South East Asian
countries. Accessible and affordable
transport system helps in enrollment in
primary school and benefits of getting child
and maternal health facilities, but current
data reveal that rural road density is
significantly low in Pakistan, which affects in
achieving these MDGs.
48.
Strengthening
the
transport
infrastructure has a direct impact on
economic growth. Transport sector has
about 10 percent contribution in the overall
GDP of Pakistan. It provides over 6 percent of
employment in the country and has a direct
contribution to poverty reduction. The sector
accounts for about 35 percent of the total
energy consumption annually and receives
about 15 percent of the annual Federal Public
Sector Development Program (PSDP).
Government Strategy for the Transport
Sector
49.
The transport is mainly roadoriented. As a result, impact of over loading,
early deterioration and accidents are
unavoidable. Therefore, proper attention is
necessary in the future on road asset
management. The other sectors need
improvements to harmonize inter modal
transport system in Pakistan.
52.
Several strategies have been set for
development of the transport sector to
achieve the related targets set in the Vision
2030, PRSP-II (2008-2012), and the
National Trade Corridor (NTC, 20072014). The Vision 2030 is a long-term
strategy towards achieving a well developed
nation through sustainable development,
which sets out the following sectoral targets:
50.
Road transport carries about 91
percent of passenger traffic and 96 percent
of freight traffic, whereas, railways carries
only 5 percent of the traffic. About 80
percent of the freight and passengers are
being carried out by the north-south corridor
from Karachi seaport to Peshawar (border
city to Afghanistan) connecting major cities.
Traffic has been shifted to roads due to
motorization at a rate of 4.3 percent every
year. The growth of passenger traffic was 3.4



88
Improve competitiveness of trade and
increase exports by $200-250 billion by
2030;
Establish efficient and well integrated
transport system to achieve competitive
economy;
Reduce transport cost and enhance
affordability;


Improvement Program (NTCIP) targeted to
increase NTC capacity up to 204 billion tonkm by 2012. The program consists of key
policy reforms and an investment program to
be implemented during the Medium-Term
Development Framework (MTDF) period of
2005-2010. About $6 billion funds from the
MTDF has been earmarked in that respect.
The key NTCIP priorities are:
Increase road density from 0.32 to 0.64
km/km2; and
Create a hub of regional connectivity
between high growth East Asia and
resource rich Middle East.
53.
Transport development is the 7th
pillar of the PRSP-II, which emphasizes on
corridor development and connectivity for
trade, road maintenance, capacity building,
rail development and reform, project
management, and private sector participation.
Private investors are encouraged in transport
infrastructure investment and management of
operations to mitigate the burden of
government support and bottlenecks in
development.




54.
The National Trade Corridor
(2007-14) was developed based on the
PRSP-II for the purpose of reducing the
cost of trade and transport logistics and
bringing the services to international
standards, which will eventually reduce
the cost of doing business in Pakistan.
Therefore, the National Trade Corridor


Modern and streamlined trade and
transport logistics practices;
Efficient, safe and reliable national
highways system;
Modern truck industry and reduction of
the cost of externalities for the country;
Commercial
and
accountable
environment in railways and enhance
private participation in operation of rail
services;
Improve port efficiency by reducing the
costs for port users and enhancing port
management accountability;
Safe, secure, economical and efficient
civil aviation operations and air trade.
Table C.4: Major Initiatives under the National Trade Corridor Improvement Program (NTCIP)
Road
 Regional
connectivity
 Modern truck
fleet
 Fuel
efficiency
 Rural access
 N-S corridor
development
 Linkage
between
Gwadar port
& the NTC
 Upgrading of
Karakorum
highway
Rail






Reform
Commercialization
Connectivity
Private operators
Fast track access
Private freight
forwarders
Port








Port master plan
Upgrade infrastructure
Improve logistics
Outsourcing of
dredging
Right sizing of staff
Corporatization
Private dockyard &
bulk handling
Ensure all time
navigation
Source: National Trade Corridor Improvement Program, 2007-14
89
Air
 New
international
airport in
Islamabad,
Sialkot &
Gwadar and
upgrading of
Multan
airports
 Private sector
airlines
 Modernization
Trade
Facilitation
 Modernization
 Trade
logistics
 Strategy
of concern for further investments in the
sector. Better legal framework and
government‟s sincere commitment is highly
required to solve land acquisition problem in
Pakistan.
55.
The NTCIP has five sub-programs
for road, rail, water, airways and trade
facilitation (Table C.4). The NTCIP has
been successful in reducing port entry
charges by 15 percent; decreasing port dwell
times to four days and clearing customs in
less than one day for containers; reducing upcountry container travel times by 10-20
percent and free time in port from 7 to 5
days.
59.
Poorly targeted investments for the
development of transport infrastructure
based on the socio-political needs and
demands, rather than solid economic or
commercial viability, costs the government
billions of dollars each year. In this regard,
proper implementation of the NTCIP may
play a crucial rule to channel investments
into the right areas of needs.
56.
The government‟s initiative on the
National Highway Improvement Program
(NHIP) for 1990-2010 focused on
consolidation and upgrading of road assets,
linkage with Gwadar Port, regional
connectivity and high speed north-south
economic corridor. Pakistan has special road
maintenance account.
60.
Inadequacy and unavailability of
well-trained human resources in the
transport sector created low capacity in
the management and is causing suboptimal performance in the sector.
Moreover, project implementation delay due
to under par capacity of the executing and
implementing agency causes cost and time
over run, and ultimately poor service
delivery.
The
IDB
also
noticed
implementation impediment in the previous
operations resulting in time extensions, cost
escalation and other inefficiencies. Therefore,
it is obvious that capacity needs to be
enhanced in the transport sector.
Binding Constraints to Transport Sector
Development
57.
Aging and inefficient transport
infrastructure due to high costs and low
reliability is a major binding constraint in
this sector. Lack of maintenance budget
causing the roads to deteriorate quickly. It
was estimated by different studies that about
75 percent motorways and 55 percent
highways are in relatively good condition.
Moreover, efficiency and capacity of the
national road transportation system was
further deteriorated due to the usage of
semi/non-motorized vehicles as a means of
transport. It is suggested that road corridor
development for connectivity and trade
facilitation and road asset preservation
through rehabilitation programs to be
considered for relaxing this constraint.
ii.
Agriculture Sector
61.
Agriculture sector plays a central
role in Pakistan‟s economy. It accounts for
over 21.5 percent of GDP, contributes 60
percent to exports, and remains by far the
largest employer, absorbing 45 percent of
the country‟s total labour force. Nearly 62
percent of the country‟s population resides in
rural areas, and is directly or indirectly,
linked with agriculture for their livelihood.
While its contribution to growth rate
58.
Difficulty in land acquisition for
developing
various
sub-sectors
of
transport sector remains as a major issue
90
percent of it is cropped. The total land area
of Pakistan is 79.6 million ha. Almost 10
percent of the area falls under cultivable
waste, most of which is owned by landlords,
while another 6 percent is current fallow.
continues to decline (from 25 percent in 2005
to 11 percent in 2009), it still provides
livelihood for a majority of the population
and is the single most important sector in
terms of its poverty alleviating impact. On
one hand, the agriculture sector is a primary
supplier of raw materials to downstream
industry, contributing substantially to
Pakistan‟s exports, on the other; it is a large
market for industrial products.25 It also plays
a significant role in stimulating rural nonfarm economy, and thus produces a
multiplier effect in terms of poverty
reduction.
64.
Pakistan possesses one of the
world‟s largest contiguous irrigation
system commonly called as Indus Basin
Irrigation System. It commands an area of
about 14.3 million hectares (35 million acres)
and encompasses the Indus River and its
major tributaries. Pakistan is predominantly a
dry-land country where 80 percent of its land
area is arid or semi-arid, about 12 percent is
dry sub-humid and remaining 8 percent is
humid. Irrigated agriculture is the backbone
of the national economy and 86 percent of
the cultivated area is irrigated. There are two
principal crop seasons in Pakistan, namely
the "Kharif", the sowing season of which
begins in April-June and harvesting during
October-December; and the "Rabi", which
begins in October-December and ends in
April-May. The annual rainfall ranges from
125 mm in the extreme southern plains to
500 to 900 mm in the sub-mountainous and
northern plains. About 70 percent of the total
rainfall occurs as heavy downpours in
summer from July to September (Kharif),
originating from the summer monsoons, and
30 percent in winter (Rabi). Based on the
topographic, climatic, land use, precipitation,
and water availability factors, the country is
divided into ten agro-ecological zones. An
important sub-sector, with high potential for
growth,
value-addition,
and
poverty
reduction in Pakistan is horticulture.26
Vegetables and fruits are grown over a
62.
Pakistan agriculture can be
divided into three major sub-sectors:
livestock, major crops, and minor crops.
Livestock is the largest subsector
contributing 53.2 percent, followed by
major crops (32.8 percent) and minor crops
(11.1 percent). Fisheries and forestry
account for the remaining 2.9 percent. The
major crops are cotton, sugarcane, rice,
maize, and wheat. Major crops, such as,
wheat, rice, cotton, and sugarcane account
for 82.0 percent of the value added in the
major crops and cover 67 percent of arable
land area (wheat - 38 percent, cotton - 14
percent, rice - 11 percent, and sugarcane - 4
percent). The four major crops (wheat, rice,
cotton, and sugarcane), on average,
contribute 33.1 percent to the value added in
overall agriculture and 7.1 percent to GDP.
Pakistan is the third-largest grower of wheat
in Asia and fourth-largest producer of cotton
in the world.
63.
Due to the tough topography, only
around quarter of the land area in
Pakistan is cultivated (27 percent) and 30
25
26
According to an estimate, horticulture can raise
income of farmers by nine times compared to
production of grains.
Pakistan Economic Survey, 2009-10.
91
diverse cropping systems and produce, there
is a huge potential to build on the value/
supply chains of these crops to enhance the
value added of production and promote
exports of these items.
combined area of 1.3 thousand hectares (6%
of total cropped area). In 2009 season, the
total fruit production stood at around 7.1
thousand tons, while vegetable production
cumulated to 6.1 thousand tons.27 Apart from
providing greater returns to farmers, this
sector has the potential for the creation of
non-farm employment and enhancing water
use efficiency.
66.
Over the past six years, agriculture
has grown at an average rate of 3.7
percent per annum. Major crops and minor
crops have grown at an average rate of 3.7
percent and 1.5 percent over the last six
years. However, volatility in the sector is
high, with the range of growth varying
between 6.5 percent and 1.0 percent. The
fluctuation in overall agriculture has been
largely depended on the contribution of
major crops. The trend in cropping sub-sector
growth since 2003-04 is reported in Table
C.5.
65.
In Baluchistan, nearly 25 percent
of the total cultivated land is used for
horticulture production (mainly fruits). In
Punjab, which also dominates this subsector
in terms of both total area cultivated and total
production, horticulture accounts for around
4 percent of the total cultivated area. Potato
is the major vegetable crop, while citrus,
mango, and guava dominate the fruit crop
subsector.
Sindh‟s
relatively
small
horticulture sector is dominated by mango,
banana, and dates production. KPK province
Year
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10(P)
67.
During the outgoing year 2009-10,
the overall performance of the agriculture
sector has been weaker than target.
Table C.5. Pakistan: Agricultural Growth (percent p.a.)
Agriculture
Major Crops
Minor Crops
Livestock
Fishery
6.5
17.7
1.5
2.3
0.6
4.1
7.7
2.4
6.3
1.7
3.9
-3.9
15.8
20.8
4.2
9.2
-6.4
10.9
2.0
-0.2
-1.2
7.3
2.0
0.4
-1.0
1.0
4.0
2.9
2.8
-1.7
Source: Annual Reports, Federal Bureau of Statistic, Pakistan (various issues)
3.5
P= Provisional
4.1
15.4
2.3
1.4
Against a target of 3.8 percent, and previous
year‟s performance of 4.0 percent,
agriculture is estimated to have grown by 2.0
percent. Major crops, registered a negative
growth of 0.2 percent as against robust
growth of 7.3 percent last year. Minor crops
posted negative growth of 1.2 percent.
Production of minor crops has declined for
three years since 2004-05, a worrying trend
that is partially contributing to food price
has a rich mix of horticulture, with high
tomato and potato production. Apart from
these, the country also produces various
crops, which are classified as condiments.
These
include
onions
(Sindh
and
Baluchistan), chilies, coriander, ginger
(Sindh) and turmeric (Punjab). Given the
27
Ministry of Food and Agriculture. Agricultural Statistics of
Pakistan, 2008-2009.
92
inflation. Main reason for this poor
performance is lack of water availability,
especially for the Rabi crop.

Macroeconomic and fiscal stability
through foreign exchange earnings on
high value agricultural exports;
68.
Agriculture, including irrigation
was the main sector hit by the recent
floods, with total damages estimated at $5
billion (more than 50 percent of the total
cumulated damage). In the more hilly areas
affected by flash floods, mainly in AJK/GB,
KPK and Baluchistan, the rapid and
unexpected flow of water swept away
people, houses, crops, livestock and stores
of feed, food and seed. In the plain areas,
crops were destroyed but as the flood was
slow moving, most people were able to
relocate themselves, their valuables, and
livestock to higher areas. The total damage
in crops, livestock and fisheries sub-sectors
is estimated at about $5.0 billion. Among
the provinces, Sindh suffered most with 46
percent of total damage, followed by Punjab
(36 percent), KPK and Baluchistan (8
percent each), and the rest in AJK and GB.
In the irrigation sector, most extensive
damage occurred in Sindh province ($136.9
million) followed by KPK ($68 million).
Main damage occurred to the infrastructure
includes on-farm water channels and
tubewells.

Poverty reduction driven by agriculture
sector growth; and

Optimization of resource use, especially
water.
70.
To achieve these goals, the
government
policy
targets
are
enhancement of productivity, profitability,
and competitiveness of the sector,
achieving in a sustainable manner. Water
resource management has been at the
forefront of government‟s policy objectives.
It has been envisaged that future
interventions in the agriculture sector would
incorporate and address water availability
issues in their design. The government is also
putting more emphasis on „household food
security‟. It seeks to address this through the
promotion of high-value added cash crops
among small farmers. A Task Force on Food
Security, set up by the government is
formulating a „National Food Security
Strategy‟ to address various facets of food
insecurity in the country.
71.
The
government‟s
strategic
framework identifies twelve areas for
investment for the development of the
agriculture
sector.
These
include:
agriculture education, R&D, and extension;
land improvement, development, and water
management; mechanization; promoting high
quality input use-seed and fertilizer; quality
assurance, and bio-security; post-harvest
handling, processing, and marketing; rural
infrastructure; horticulture value chain; nonfarm rural sector; institutional strengthening;
livestock and dairy development; and
environmental sustainability.
Government Strategy for the Agriculture
Sector
69.
Main objectives of the government
strategy, which have driven the
agricultural policy over the years, are the
following.

Ensuring food security for the growing
population;
93
72.
Apart from these strategic areas,
the „socio-economic access‟ aspect of food
insecurity has been addressed under the
broad theme of poverty reduction as
delineated in PRSP-II. In Water Sector
Policy, the government has devised an
integrated water resource management policy
for the management and development of this
resource. The focus of the policy is on the
following aspects: augmentation of water
resources; conservation measures and use
efficiency; protection of infrastructure from
onslaught of floods; significantly enhanced
public sector investment; construction of
small & medium dams, lining of irrigation
channels, rehabilitation of irrigation system,
surface and sub-surface drainage, lining of
watercourses; and optimization of cropping
patterns.
exacerbated, especially in the relatively
poorer provinces over the last few years. In
terms of regions, FATA has the highest
percentage of food insecurity with 67.7
percent of the population unsure of their food
sources. Baluchistan follows with 61.2
percent and KPK is third with 56.2 percent
food insecurity. Ten of the 20 districts with
the worst food insecurity situation are in
Baluchistan, followed by five in FATA, three
in KPK and one each in Gilgit-Baltistan and
Sindh (Figure C.1).
20
15
10
5
0
Major Challenges Facing the Agriculture
Sector
73.
The following have been identified
as major challenges that must be addressed to
achieve the above stated objectives of the
government.
Figure C.1: Food Security in Pakistan
(number of districts)
18
17
13
12
10
2
6
1
4
Extremely Food Insecure
Borderline
8
6
45
8
3
1
4
1
34
1
Food Insecure
Secure
Source: World Food Program (2009)
75.
While wheat accounts for over 55
percent of total caloric consumption,
ensuring food security is much beyond
increased wheat production. Despite a six
percent increase in the wheat producing
districts between 2003 and 2009, the ratio of
surplus food producing districts declined
from 28.3 percent in 2003 to 17.5 percent in
2009. This implies that majority of Pakistan
districts rely on external domestic or
international sources to fulfill their food
requirements. This reliance creates price
differentials between food surplus and food
deficit districts, and often leads to hoarding
of food (and resultant price hikes), putting
food out of the access of people (even in food
surplus areas).
74.
High food insecurity is a major
issue. Currently 77 million people, almost
half of the population, is food insecure in
Pakistan (as measured by daily caloric intake
below the minimum recommended level).
According to a recent report, 80 of 131
districts in Pakistan have inadequate food
security28. However, the situation was much
better in 2003, when the number of such
districts were 54 out of 120. There are issues
of production as well as access, which have
28
“Food Insecurity in Pakistan, 2009”: A joint
publication of three NGOs- Sustainable Development
Policy Institute, Swiss Agency for Development and
Cooperation and World Food Programme.
94
76.
In terms of access, only 7.6 percent
districts (10 out of 131) fell in the category
of having reasonable conditions for access
to food (compared to 13.3 percent in 2003).
Conditions of access to food in Baluchistan
have particularly deteriorated. Compared to
none in 2003, Baluchistan had 16 districts
with worst conditions of access to food in
2009. Similarly, the number of districts with
worst conditions in Punjab jumped from one
in 2003 to five in 2009, with four of them in
southern Punjab. In FATA, 5 out of 7
Agencies fell in the „worst conditions to
access‟ category. The resultant effect of lack
of access is increased spending share on food
items, reduced nutrition, and cut down in
spending on education and health.
79.
With rising population, the land
available per capita has consistently fallen
over the years (Figure C.2). Reliance on
extensive production to meet the future food
requirements is not a potential option, given
that large amount of land is already
cultivated, and water resources are not
expanding (rather shrinking). Nearly 11
percent of Pakistan‟s total arable land is now
uncultivable because of water logging and
salinity, while another 20 percent is under
stress. Further, due to haphazard urban
sprawl, over extraction of ground water, and
resulting depletion of fresh water, the land
available for future produce would continue
to decline, if not properly managed. Given
this scenario, large investments would need
to be made in emerging technologies
including, biotechnology, to significantly
enhance productivity.
77.
To address this situation, Pakistan
needs to adopt a three pronged strategy:
enhancing production of major food items,
focus on household food security in
extremely food insecure regions, and
creating alternate livelihood opportunities
through focus on both cash crops
(horticulture) and non-farming sectors.
The per capita agricultural growth needs to
keep pace with the rising population rate to
avoid food insecurity situation arising from
declining production growth levels. At the
same time, increased importance needs to be
given to the access to food by small farmers
and poor rural households. This would entail
diversification of production, increased
access to inputs/ output markets, creation of
alternate livelihood opportunities, and
promotion of modern technological practices
in production.
0.5
0.4
0.3
0.2
0.1
0
Figure C.2: Dwindling Agricultural
Land in Pakistan (ha per capita)
0.42
0.29
0.24
0.18 0.16
0.13
1961 1971 1981 1991 2001 2009
Ha Per Capita
Source: Ministry of Agriculture, Government of
Pakistan 2010
80.
However, there are still options for
extensive expansion - Potential lies in using
saline land, especially in Sindh for the
production of alternate crops, especially biofuel and cash crops, with high resistant to
salinity. The greatest potential in terms of
extensive expansion, however, lies in
bringing culturable waste (10 percent) and
current fallow (6 percent) under cultivation.
78.
Resource scarcity is another issue
of concern. The above increase in production
would need to be done with lesser land and
water resources than are available for
agriculture today.
95
The constraint to their lack of cultivation
relate to lack of interest from large „absentee‟
landlords (who own majority of the
culturable waste), and lack of water and
inputs availability for small landholders.
result due to flooding and lack of storage and
control structures. Without additional
storage, the shortfall will increase by 12
percent over the next decade. The water
shortage scenario in Pakistan is aggravated
with high variability of rainfall, and lack of
water harvesting structures in Barani areas.
81.
According to the benchmark water
scarcity indicator, Pakistan‟s estimated
current per capita water availability of
around 1,066 M3, which places it in the
“high water stress” category. Agriculture is
the largest consumer of water, utilizing
around 95 percent of the total resources, but
the use efficiency remains very low.
Currently, the annual shortfall for agriculture
is estimated at between 5 percent and 18
percent of the requirement (Table C.6).
Water productivity in Pakistan is less than
0.1 kg/m3 as compared to 0.39 kg/m3 in
India.
83.
The situation of water availability
and efficiency has deteriorated over the
recent years. Extensive extraction of ground
water resources, salinity, weak drainage
systems, especially in Sindh, unreliability of
the system, outdated infrastructure, improper
management, and water scarcity downstream
have all called for a wide ranging reform and
restructure of the water sector. In this
context, the challenge for the government
will be the formulation and effective
implementation of a comprehensive policy
followed by a set of measures for the
development and management of water
resources. This would include overhaul of the
water sector governance, development of an
integrated water sector policy, change in
cropping patterns, and greater investments
for
enhancing
storage,
conservation
(especially
conveyance
and
on-farm
efficiency), surface and subsurface drainage,
and rehabilitation of irrigation infrastructure.
Table C. 6: Annual Projected Water
Requirement (MAF)
Particulars
Canal
Requirement
Mean Surface
Available
2010
2015
Head
135.7
155.0
Water
103.8
103.8
31.9
51.2
45.0
50.0
Shortage
Irrigation
(%)
Efficiency
84.
Limits of traditional agricultural
growth and poverty nexus - the majority of
Pakistan‟s rural poor are neither tenant
farmers nor farm owners. According to a
recent study (World Bank, 2007), non-farm
households (excluding agricultural laborer
households) accounted for 47 percent of the
rural poor in 2004-05. Farmers comprised
only 43 percent of households in the bottom
40 percent of rural per capita expenditure
distribution. The remainder 5 percent was
agricultural labourer households. Over 60
percent of Pakistan‟s rural poor are landless,
Source: Federal Water Management Cell, Ministry of
Agriculture; ADB Water Sector Study.
82.
The water problem is exacerbated
due to lack of storage capacity, which has
only increased at a slow rate over the
years. The country‟s current storage capacity
at 9 percent of average annual flows is low
compared with the world average of 40
percent. Further, on average, 35 MAF of
water flows into the sea annually during the
flood season. In addition, extensive damages
96
of which, 45 percent are non-agricultural
households, and 15 percent are landless
agricultural laborers. The poverty among
non-farm households and agricultural
laborers is strongly linked to opportunities
available in the non-farm sector and chances
for migration (Figure C.3).
promotion of labor-intensive crops, including
horticulture and vegetables, which have the
potential to spur non-rural economy and hire
greater labor force has remained limited29.
Closer integration with the urban economy
also reduces consumption linkages within the
rural economy, as rural households spend
most of their incomes outside rural areas or
on goods produced outside rural areas.
Figure C.3: Rural Poor in Pakistan by
Household Groups
Agricultur Non-farm
Self
al
Laborers Employed
17%
5%
Farmers
Baluchista
n
2%
Farmers
NWFP
Farmers
6%
Sindh
11%
86.
The most important factor for lack
of impact on rural poverty, however,
remains the inequitable land holding and
water access structures in rural areas.
Small farmers (0-5 hectares), which
constitute the majority of the rural population
(86 percent of farms) own little assets (44
percent of the farm area), and gain little from
new technological breakthroughs and large
untargeted government programs. Similarly,
barani areas, tail-end farms, and saline
ground water areas face water shortage and
volatility issues. The growth of these farmers
is hindered by lack of access (and viability of
use) to productive resources including inputs,
credit, land security, as well as outreach to
output markets. Even other rural farmers,
majority of which are tenants or
sharecroppers, face the same issues given
weak land record system/ land tenure in the
country, which limits their access to credit
and discourages investment in land.
Non-Farm
Others
35%
Farmers
Punjab
24%
Source: World Bank (2007), „Promoting Rural Growth
and Poverty Reduction‟.
85.
The impact of agricultural growth
on rural poverty is limited due to three
important factors: (a) segmentation of
Pakistan‟s agricultural labor market, (b)
agricultures‟ declining contribution to both
total GDP and rural household incomes; and
(c) uneven access to productive assets
especially land and water. Over 72 percent of
agricultural labor is family labor, 25 percent
is tenant farmers, and only 0.8 percent is
casual labor. As a result, most of the direct
gains in labor earnings from increased
agricultural output accrue to farm
households, not to hired agricultural workers.
As a result, incomes of landless agricultural
workers (10 percent of the rural poor) rise
only moderately in these scenarios. Secondly,
since the agriculture‟s share in both the rural
and national economies has shrunk,
multiplier effects originating from the
agricultural sector have a smaller impact on
the non-agricultural economy. Further,
87.
With a poorly developed non-farm
sector, the overwhelming burden on
providing livelihoods falls on the
agriculture sector. Historically, demand
linkages ensuing from increased agricultural
output and incomes have been the most
important mechanism for spurring growth in
the rural non-agricultural economy of
29
World Bank (2007), Promoting Rural Growth and
Poverty Reduction
97
Pakistan. The extent to which nonagricultural
households
gain
from
agricultural growth is determined by the
magnitude of growth linkage effects.
Simulations show that agricultural growth
has substantial benefits for low-income
farmers and tenants (approximately 37
percent of the rural poor), but another source
of demand (besides agricultural growth
linkages) is needed to rapidly raise the
earnings of the rural non-farm sector.
Binding Constraints to Agriculture Sector
Development
90.
After experiencing significant
productivity growth rate in the green
revolution era, the productivity growth of
Pakistan‟s agriculture has continued to
decline (Table C.7). This issue has two
aspects: low productivity across provinces
and, low productivity compared to other
Table C.7: Pakistan: Agricultural Growth
Performance
Year
Percent
1960's
5.1
1970's
2.4
1980's
5.4
1990's
4.4
2000's
3.2
88.
The agricultural growth alone,
without specific interventions targeted to
agricultural laborers and the rural nonfarm poor, can not alleviate poverty for
the poor in rural Pakistan, unless local
supply chains are developed for laborintensive higher value added crops, rural
home gardens are promoted, and small
farmers are specifically targeted under the
development programs.
Crop
Wheat
Rice
Maize
Cotton
Source: Federal Bureau of Statistics (various
publications)
countries (Tables C.8 and C.9). The reasons
for low productivity are both natural and
institutional – and vary across crops as well
as provinces.
Table C.8: Major Crops Productivity in Pakistan, 2008-09
(yield, kg/ha)
Punjab
Sindh
KPK
Baluchistan
2694
3432
1565
2123
1842
3459
2091
3386
4916
630
1880
1127
669
902
425
439
Source: Agricultural Statistics of Pakistan, 2008-09
89.
The
recent
floods,
which
devastated agriculture and irrigation
sector, would put significant pressure on
the government resources that could have
been diverted to the long-term strategic
development of the sector. The immediate
need is the restoration of canals, drains and
public
tubewells,
and
strengthening
vulnerable and damaged components of
barrages and river training works in the
short-term. The reconstruction needs in the
agriculture, livestock and fisheries sector
could require resources ranging from $257
million to $1 billion.
Pakistan
2657
2347
3415
713
91.
Sluggish, volatile, and slow growth
are the characteristics of agriculture
Table C.9 : Yield of Wheat in Top Producers,
2008
Region
yield: kg/ ha
World
3,086
China
4,762
India
2,802
Russia
2,446
Pakistan
2,451
Source: Agricultural Statistics of Pakistan, 2008-09
sector evolution in Pakistan. Econometric
analysis suggests since the early 1990s the
total factor productivity (TFP) in the crop
sector of main food basket province Punjab
98
has at best remained constant, and may even
have declined (by 0.11 percent), despite an
increase in yields of main crops.
land, farmers not only have few incentives to
invest but also devote fewer resources to
defending their rights. In addition, banks are
reluctant to lend money if land is used as
collateral because they do not trust the
current recording system. Evidence reveals
that landowners tend to show higher
productivity than tenants and sharecroppers.
Sharecropper productivity is about 20 percent
lower
than
landowner
productivity.
Improvements in land administration and
land titling could improve access to credit, as
well as facilitate more efficient use of land
and increase security of tenure.
92.
Imbalance
Land
Holding
Structure: Very large and very small land
holding characterize farm structure in
Pakistan (Table C.10). Various studies reveal
Table C. 10: Pakistan: Farm Size
Farm Size
Farms
Farm Area
(Hectares)
(%)
(%)
Under 2.0
58
16
5 - <10
9
19
2 – <5
10 – <20
20 - <40
40 – <60
Above 60
Total
28
4
1
*
*
100
28
94.
Difficulty in Access to Finance: In
Pakistan, agricultural finance is extended to
those
having
safe
collateral.
The
underdeveloped rural financial infrastructure
excludes the small landholders and tenants,
who are unable to invest in productivity
enhancement activities. High interest rates,
limited outreach, and large collateral
requirements are considered the primary
constraints. On the supply side, uneven
distribution of financial institutions, capacity
constraints (especially of microfinance
institutions), and lack of appropriate products
appear to be significant constraints. On the
demand side (especially in Sindh and
Baluchistan), institutional bottlenecks to
obtain passbooks issued by the revenue
authorities are the major issues. Nonavailability of passbooks or fake passbooks
and non-cooperation of revenue authorities
with the banks and borrowers remain the
major bottlenecks in these areas. High
interest rates and large/ safe collateral
requirements have been highlighted as a
major constraint to credit access by farmers.
Analysis of data reveals that availability of
financial services is also one of the
significant determinants of credit availability.
16
10
3
8
100
Source: Agricultural Statistics of Pakistan, 2008-09
that increasing land area leads to lower
productivity, if other factors are kept
constant. Further, smallholders have higher
net returns per hectare of land compared to
large farms. However, the very small farms
also produce less than their potential; the use
of productive inputs and technology is either
not viable or accessible to these farmers.
While large farm holders try to maximize
returns on capital and finance, small farmers
on the other hand try to maximize returns on
their land and labor.
93.
Weak Tenancy Agreements: The
productivity of farmers is also constrained by
their lower incentives to invest in the land if
they are tenants or sharecroppers and their
exclusion from the formal credit market
which could finance precisely the long-term
productive investments in land and
agricultural machinery that can raise them
out of poverty. Without secure rights to their
99
in modern agricultural methods by farmers
relates to low farm-gate prices. Role of the
middleman is a serious issue in the context of
Pakistan. Due to lack of on-farm storage,
processing infrastructure, and access to
credit, farmers have to sell their product at
low rate, which discourages investment in
land.
Households with lack of access to credit face
a yield shortfall of between 9-23 percent.
95.
Insufficient Water Availability:
Water
availability,
quality,
control/
frequency, and use efficiency remain major
determinants
of
productivity.
Major
inequities in canal-water distribution (tail end
farms), significant variability in groundwater
quality, access to irrigation and tubewells,
along with the use of modern technologies
influence these factors. Reliability of water
supply is the most important factor
influencing yields and agricultural revenues.
In Pakistan, barani areas, and farms at tail
end of distributaries and watercourses have
significantly lower productivity compared to
the average. In 2008-09, the wheat yield in
irrigated
areas
averaged
2,865kg/ha
compared to 1,324 kg/ha in un-irrigated
areas30. The main issues related to water
sector include aging and outdated
infrastructure,
water availability and
requirement gap, lack of water storage
capacity, over extraction of ground water,
and inefficient on-farm water management.
98.
Overlapping Farming Systems:
Another important and common aspect of
low productivity is overlapping between the
cultivation/ harvesting period of wheat and
cotton/ rice, which delays wheat cultivation,
and leads to lower productivity. The main
reasons for this include low prices for wheat
(which leads to its late cultivation in cycle)
and lack of access to modern technology for
cultivation (reduced tillage), which can
minimize the effect of late cultivation.
99.
Lower Input Use: Among the input
uses, pesticide is the lowest and much below
optimal use in Pakistan. The reason for this is
reported to be high cost of pesticides and
lack of information on what to use when,
which is interlinked to weak extension
services. Further, fertilizer application is
much below the recommended dosage,
especially in Baluchistan, AJK, and FATA.
Again, the low usage of inputs ultimately
relates to high price, especially in remote
areas, small land size (which discourages
investment), and lack of access to credit.
96.
Use
of
Limited
Modern
Technologies: In Pakistan, mechanization is
limited to the use of tractor. The next stage in
mechanization is to promote efficient, costeffective machinery in the context of
Pakistan. The main issues that have
constrained this relate to access to finance,
lack of awareness about the efficiency and
use of machinery, non-viable farm sizes,
maintenance issues, ownership of tractor as a
prerequisite, and ineffective extension
services.
100.
Weak Farmer Networks: Many of
the constraints resulting from small farm size
can be eliminated by the use of farmer
groupings and associations to achieve scale
efficiencies. However, such associations
remain unsuccessful in the context of
Pakistan due to local loyalties to landowner
and large famer skewing benefits; lack of
legal institutionalization; and weak tenancy
97.
Low Farm-Gate Prices: Another
major constraint that has limited investment
30
Pakistan Economic Survey, 2009-10.
100
agreements, which reduce incentives and
discourage participation.
economic conversion to methane or ethanol
for fuel. Further, certain horticulture and
vegetable crops can also be cultivated in
these regions.
101.
Socio-Cultural Aspects: Large part
of uncultivated land is held by absentee large
landlords, who own it as a mandate of their
political/ tribal power, with little interest in
its cultivation.
104.
Less Developed Livestock Sector:
Livestock is a major resource in the rural and
peri-urban areas of Punjab and Sindh. Since,
livestock is a more evenly distributed asset in
rural areas, its promotion can significantly
contribute to increased incomes of
households.
However,
majority
of
households (83 percent) own less than six
animals, they use low quality feeds, have
inadequate access to veterinary services, and
market their milk through traditional
(„gawalas‟) channels thus receiving low
prices. The main challenge in this sector is to
promote private cooperatives, which have the
advantage of using scales of efficiency in
animal rearing and marketing.
102.
Absence of On-Farm Storage:
Farmers are often under pressure to sell their
harvest at low price, usually right after the
harvesting season when the supply is
abundant. This is because of the absence of
good storage facilities, and the need of
immediate cash to cover the operational
expenses for the next planting season. Even
sometimes, the wheat market price at harvest
time is below their planting cost, which
discourages many farmers from planting their
lands at all. Another, negative aspect of this
is the high burden on government finances
who has to procure wheat from the farmers
both to provide support prices and
appropriate storage facilities.
105.
Lack of Access to High Paying
Non-Farm Jobs: Rural households derive 44
percent of their income from non-farm
activities – and majority from wage earnings.
Nearly 70 percent of the jobs in the non-farm
sector are unskilled jobs, which pay very
meager wage rates. The main reason for the
lack of access to non-farm jobs is under
developed rural SME sector and low
education levels. Low education levels also
hinder mobility of rural households and limit
access to better paying manufacturing jobs.
According to the World Bank,31 an additional
year of education could raise household
incomes by 45 percent, largely due to
increased productivity in non-farm sector.
103.
Rising Salinity: There are nearly 14
million acres of salt affected wasteland with
brackish underground water as well as large
areas of sandy desert in Pakistan. Inefficient
irrigation techniques, lack of drainage
infrastructure, and unsustainable ground
water extraction have been the main reason
for rise in salinity. Costs associated with loss
of soil fertility due to agricultural soil
degradation (soil salinity and erosion) are
estimated at PRs 70 billion per year (1.5
percent of total GDP and 6.8 percent of
agricultural GDP, based on 2004-05 GDP
estimates). However, these areas can be put
to use by growing drought-tolerant and
water-use efficient crop varieties through
biotechnology. Salt tolerant, fast growing
grasses, shrubs and trees can be grown with
brackish water, and used as a feedstock for
106.
Lack of Incentives for Cash Crop
Production: Despite significant opportunities
31
World Bank (2007), Promoting Rural Growth and
Poverty Reduction.
101
countries. Education is critical for Pakistan's
progress and achieving sustainable growth.
and potential for expanding cash crop
production, including horticulture, oilseeds,
and livestock, several factors continue to
constrain their growth in enhancing poor
households income and spur rural non-farm
economy to raise income of non-farm
households,. The major issues in the sector
relate to low productivity, lack of investment,
low cultivation area under horticulture, high
post-harvest losses (30-40 percent), and low
value-addition.32
iii.
108.
Pakistan has had an enrolment of
about 35 million students and over 1.3
million teachers in the education system.
Half of the population of rural areas lives in
villages where parents can choose from 7 or
8 schools. However, gender gaps remain in
the schools, largely in the rural areas where
22 percent of girls above age of 10 years
have completed primary level or higher
schooling as compared to 47 percent boys.
While the Pakistan Social and Living
Standards Measurement Survey (PSLSMS)
indicates an improvement in Net Enrolment
Rate (NER) from 42 percent in 2001/02 to 52
percent in 2008, it still indicates that almost
half of the primary school age cohort is
currently out of school. In addition, the NER
shows an insignificant gender gap in urban
areas; while NER for rural girls is at 42
percent trails behind rural boys‟ NER of 53
percent.
Human Development
(i)
Education Sector
107.
The education system in Pakistan
has faced significant problems, mainly due
to low public expenditure on education,
which is below the education spending
compared to selected Asian countries as well
as average for South Asia and low-income
countries (Table C.11). The education
Table C.11: Public Expenditure on Education
in Selected Countries, 2009-10
Country
109.
Pakistan‟s school enrolment rates
are lower compared with Bangladesh,
India and Sri Lanka. Primary school
completion rate of 61 percent is low
(compared to India, 84 percent and Sri
Lanka, 108 percent) and the ratio of girls to
boys in primary education is low by regional
average. Female school enrolment and
literacy rates continue to lag those for men,
and there are differences between rural and
urban areas, and between provinces. While
the female primary school completion rates
are already significantly lower than male
completion rates, the difference in the
likelihood of completion for a boy in the
richest quintile compared with a girl in the
poorest is particularly acute.
(percent of GDP)
Pakistan
2.0
Bangladesh
2.4
India
3.7
Sri Lanka
3.1
Nepal
2.9
Average for South Asia
3.1
Average for Low-income
3.3
Countries
Source: Human Development Report, UNDP (2010)
spending (2 percent of GDP) is considerably
lower than the minimum of 4 percent of GDP
recommended by UNESCO for developing
Pakistan processes only 7 percent of its agricultural
produce, and horticulture products fetch much lower
price compared to other countries. For details see:
Ahsan Bajwa (2008), “Prospects of Value-Addition in
Horticulture Crops”.
32
110.
Another important dimension of
low primary school enrolment is poor
102
access, especially for girls whose families
do not allow them to attend schools that are
located too far from home. In addition,
Pakistan‟s education quality is also low by
regional and international comparison, and
the public education system failed to achieve
the results desired by parents. This has led to
an unprecedented expansion in private
schools to meet the strong demand for quality
education.
Conference endorsed the review of the
National Education Policy (NEPR).
113.
The primary and secondary
education is in the process of devolvement
from the federal level to the provincial
level in line with the structural reform
undertaken under the 18th Constitutional
Amendment. Greater need appears to come
from less-developed provinces of the
country, particularly, Baluchistan and
Khyber Pakhtunkhwa. The Higher Education
Commission (HEC) will remain to be the
federal body to oversee tertiary education in
the whole country with clear developmental
goals and ambitious plans.
Government Strategy for the Education
Sector
111.
The Government of Pakistan
recognizes that education is the basic right
of every citizen and that access to
education for every individual is vital for
poverty alleviation and socio-economic
development of the country. To provide
universal access to quality education, various
policies, plans and programs have been
developed since 2001, adopting both
integrated and sector wide approaches. There
is a three-fold increase in the budget for
education from the benchmark value of
PRs.75 billion (2000-01) to PRs. 216 billion
in 2006-07 and PRs. 253.7 billion in 200708.
Binding Constraints to Education Sector
Development
114.
Despite recent achievements in the
education sector, Pakistan still faces
numerous challenges to achieve its 2015
MDG targets related to education. The
quality of education is weak at all levels and
learning achievements are low and varied.
Pakistan is lagging behind in female
enrolment at the primary school level.
115.
Low student learning levels and
poor quality and effectiveness of teaching
lead to poor performance in the education
sector. It reflects not only the shortage of
qualified and motivated teachers but also
weak governance and management and the
concomitant, lack of accountability, and
effectiveness in service delivery. While
further investment in education is required,
expenditure effectiveness is a key sector
issue that needs to be addressed vigorously.
112.
The review of the National
Education Policy (1998-2010) undertaken
by the Ministry of Education in 2009
which is a landmark and timely exercise.
The
Ministry
realized
that
rapid
developments on both domestic and
international fronts had overtaken the
objectives and projections of the existing
policy, and that a new articulation of the
educational priorities and future of Pakistan
was needed in light of the Devolution of
Power Plan, the Millennium Development
Goals (MDGs) and Education for All. The
Inter-Provincial
Education
Ministers
116.
Access to education remains a
significant challenge, which is even more
problematic at higher levels of education.
Although, literacy and net primary
enrollment rates increased in recent years,
103
Pakistan‟s participation rates remain the
lowest in South Asia and there are wide
male-female, inter-regional and rural-urban
disparities. Therefore, school dropout rates
are high especially at the secondary school
level. Better access, including, infrastructure,
teaching and research are needed at the
tertiary level to equip graduates with highlevel skills needed to build a knowledgebased economy. Moreover, considerable
regional variations in both enrollment and
literacy indicators are present.
(ii) Health Sector
120.
The expansion and diversity of
health care facilities in Pakistan over the
past few decades did not catch up with the
fast population growth and the mounting
health care demand. Currently, there are
about 933 hospitals with a total of 103,285
bed capacities, which give a hospital beds-topopulation ratio of about 1:1500 as compared
to 1:1000 of international accepted standard.
121.
Pakistan bears a high burden of
poverty-related communicable diseases,
exacerbated by malnutrition and maternal
risks with emerging non-communicable
diseases (NCDs). Efforts made over the
years to improve the health standards of the
population have been partially neutralized by
the rapid growth of the population. Pakistan‟s
population growth rate has declined from 3
percent per annum in the late 1980‟s to the
present rate of 2.1 percent per annum.
Despite the high maternal and child
mortalities, it remains high enough that
Pakistan, which is now the sixth most
populous country, with a population of over
173 million people is projected to surpass
180 million by the end of 2011 and will have
210 million by 2025.
117.
High dropout rates are another
area of concern. School dropout rates are
high especially at the secondary level.
Almost 30 percent of Pakistan‟s children
receive secondary education and only 19
percent attend upper secondary schools.
118.
Vocational and tertiary education
system is weak. To equip graduates with the
high-level skills needed to build a knowledge
economy, better access to infrastructure,
teaching and research is needed at the tertiary
level. Currently, tertiary enrollment rates are
approximately less than 5 percent of the
eligible age cohort (17-23 years), which is
around 8 percent of the work force, receives
formal training.
119.
The challenges of the sector call for
commitment from all parties towards
education policy reforms, capacity
building in the education institutions and
increased investment in the education
sector, which is currently at 2.0 percent of
GDP in 2009/10 - lowest among South Asian
countries. Revamping the education quality
requires a multi-directional approach to
improve the effectiveness of the learning
process through enhancement of teaching
techniques, assistance of better learning,
motivation of students to attend school, and
upgrading of education infrastructure.
122.
The average life expectancy at
birth, which was 34 years in 1951 and 59
years in 1990, has increased to 65 years in
2008. Public health services are deemed
inadequate by many Pakistanis, resulting in
continuous low utilization of services. Where
services do exist, there is also a need to
remove socio-economic and cultural barriers
to access through suitable interventions.
Access to health services is estimated to be
available only to 55 percent of the
population, which is further decreased to 30
percent overall for maternal and child health.
104
123.
The level of improvement in the
health status has been unsatisfactory and
many challenges remain, including the
divide in health outcomes between rich
and poor, different provinces and districts,
and rural and urban areas. Contributing
factors include high level of poverty, gender
inequality, low levels of literacy and lack of
appropriate social health determinants
including proper sanitation and water, food
safety regulations and environmental health
action.
constitutes more than half of the infant
mortality.
127.
Malnutrition remains widespread
and outcomes have not changed
significantly over the last two decades. All
of these are rendered worse by the increasing
population. Unless effectively stabilized, this
population growth is likely to further constrain
already scarce resources, infrastructure, and
social services, and the recent shortages of
water, energy and food will only worsen.34
128.
About 57 percent of children
complete routine immunization and only
40 percent of pregnant mothers are fully
vaccinated against tetanus. Health services
are likely to be further challenged due to the
demographic pattern of the population, with
43 percent younger than 15 and nearly 46
percent of females in the reproductive age
(15-49).35
124.
Moreover, there are important
weaknesses in the service delivery system
such as insufficient focus on prevention,
gender imbalance, weak human resources
management and planning and insufficient
funds.
125.
Nearly 11,000 women and girls die
annually while giving birth - among the
highest rates in the region. The current
maternal mortality ratio is 276 per 100,000
live births down by half over the past decade.
Skilled birth attendance (SBA) has improved
from 18 percent during the late 1990s‟ to 38
percent in 2006, as have institutional
deliveries to 34 percent.33 The rate of low
birth weight babies was 25 percent during
2000-2001, which fell to 21 percent in 2004
and 20 percent in 2006.
129.
Nonetheless, it is positive that the
National Health Policy (NHP) envisaged
recruiting, training and deploying 100,000
Lady Health Workers (LHWs) in the field
by the year 2005. In June 2005, health
authorities recruited, trained and deployed
80,000 LHWs in the field. It is also positive
that, the NHP intended to reduce low birth
weight babies from 25 percent to 12 percent
by 2010. In practice, the country did not
experience a reasonable improvement in the
number of low birth weight babies.
126.
Pakistan‟s under-five mortality is the
highest in South Asia, except Afghanistan.
Although, a decrease happened from 150/1000
during 1950s to current 94/1000 live births,
this decrease is, and however, not matched
by a decrease in neonatal mortality, which
130.
Pakistan
has
sustained
a
devastating effect of two major natural
disasters at the start of the current decade;
the earthquake and floods in 2005 and
34
National Health Policy 2010, Draft Report 2010,
Ministry of Health
35
Pakistan: the United Nations Development
Assistance Framework, 2004-2008
33
WHO, Early Recovery Plan-draft (Adapted from the
National Health Policy 2010, Ministry of Health,
Government of Pakistan)
105
2010, respectively. The recent floods have
disrupted the health delivery system in
various parts of the four provinces in
Pakistan, affecting directly or indirectly 18
million people. The damaging on the health
sector varies from district to district but
involves in all affected districts including
physical damage to the infrastructure,
commitments to achieve the health related
goals for reducing: (i) child mortality, by
two-thirds between 1990 and 2015; (ii)
maternal mortality ratio by 75 percent
between 1990; and for (iii) halting the spread
and reversing the impacts of Malaria, TB,
HIV/ADS and other communicable diseases
(Table C.12).
Table C.12. Pakistan: Status of Health-Related MDGs
Selected Health Related MDGs
1990
Status and Target
2007
2015
Infant Mortality Rate
102
78
40
Maternal Mortality Ratio
550
276
140
75
83
>90
18
39
>60
Under 5 mortality Rate
140
Proportion of Fully Immunized Children (% of
total)
Proportion of births attended by skilled birth
attendants (% of total)
94
52
Source: Pakistan: Millennium Development Goals Report, 2010 (UNDP) and WHO, 2009
interruption of health delivery systems due to
spoiled medical equipment and drug stocks
and displaced health staff. It also contributed
to increasing the burden of disease (including
epidemic prone diseases), disrupting
information systems and limiting access due
to logistic and security constraints.
133.
Concerning the reduction of
maternal mortality, Pakistan is unlikely to
achieve most of the set indicators for 2015.
The current maternal mortality rate (MMR) is
almost double of the 2015 target. The same is
true for proportion of deliveries attended by
skilled
attendant
and
contraceptive
prevalence rate.
131.
The urban favored distribution of
both healthcare facilities and providers
needs strong and committed political
intervention to ensure equity and
universal access to basic healthcare
services. Not only the physical accessibility,
but also utilization of services has to be given
attention. For example, deliveries attended by
skilled attendants have decreased from 48
percent in 2004-2005 to 41 percent in 20082009.
134.
The 2008 report of the MDG Gap
Taskforce revealed that while there has
been much progress during the last
decade, the delivery on commitments
particularly in MDG 4 & 5 has lagged
behind schedule. Pakistan has reduced the
under-five mortality rate by 25 during the
1990s but has achieved no further reductions
in the past decade. Similarity, it maintained
the same infant mortality rate of around 78 in
the past decade.
132.
As a signatory to UN MDGs,
Pakistan has adopted 16 targets and 37
indicators and has made concrete
135.
Water supply coverage increased
from 53 percent in 1990 to 65 percent in
106
2008-2009. However, it falls long way short
of the 93 percent target for 2015. Similarly,
the sanitation coverage has increased from
30 percent in 1990 to 63 percent in 20082009, yet this is still a long way to achieve
from the 90 percent target for 2015.
Promotion (WHO, 1986). The National
Reproductive Health Services Package
(1999), policies outlined in the Ten-Year
Perspective Development Plan (2001), and
the Interim Poverty Reduction Strategy Paper
(2001) were all testament to the
government‟s commitment to improve health
services for all citizens. Another version of
the National Health Policy (Ministry of
Health, Government of Pakistan, 2001) was
launched in 2001 with the main goal to create
mass awareness in public health matters with
a major focus on the use of multimedia to
disseminate information.
Government Strategy for the Health
Sector
136.
Attainment of the highest standard
of health is a fundamental right of every
human being. Pakistan is one of the initial
signatories
to
the
World
Health
Organization‟s
(WHO)
Alma-Ata
Declaration, which laid the foundation and
target for Health for All by the Year 2000
(WHO, 1978). One of the five principles to
emerge from Alma-Ata focuses on disease
prevention, health promotion, and curative
and rehabilitative services. Policies to
address this principle in Pakistan did not
appear until 1990 when the government
launched its first National Health Policy
(NHP) by the Ministry of Health,
Government of Pakistan in 1990. However,
this policy focused on school health services;
family planning; nutrition programs; malaria
control programs; control of communicable
diseases (e.g. tuberculosis and infective
hepatitis); sanitation and safe drinking water.
138.
National Action Plan for Prevention
and Control of Non-communicable Diseases
and Health Promotion in Pakistan (NAPNCD-2004) was launched. It was the first
policy dedicated solely to public health and
health promotion, which gained a prominent
place on the nation‟s health agenda
competing for resources with traditional
health policies that focus on treatment, cure
and evolving technology. The NAP-NCD2004 focused on the community setting
through
two
major
behavioral
communication change initiatives – one
through the media and the other by
integrating
non-communicable
disease
prevention into the work plan of the Lady
Health Workers.
137.
In 1997, the second National
Health Policy (Ministry of Health,
Government of Pakistan, 1997) was
launched and health promotion and health
education received a prominent place under
priority health programs and noncommunicable
diseases,
such
as,
cardiovascular disease, cancer and diabetes
were highlighted for prevention and control
measures. The focus for health promotion
was “health education” and the five
principles of the Ottawa Charter for Health
139.
The government launched the
National Maternal, Neonatal and Child
Health Programme in 2007 to promote
access to evidence-based cost-effective
interventions; strengthen district health
system capacities; empower communities;
expand the community midwives‟ cadre;
and promote utilization of essential
services. The shift from curative to
preventive healthcare, participation of the
country leadership in the preparation of the
107
national strategy with active involvement of
the private sector through technical
resources,
and
recommended
donor
coordination
in
country
goals
are
synchronous with the PRSP-II. The National
Health Policy 2010 defined ten priority
actions in the areas of health information,
leadership and governance, health workforce,
health financing and medical products,
vaccines and technology, and health services.
These priority actions follow the main
priority actions for Pakistan Health Reform
as designed by the Federal Ministry of
Health. They also included relevant
components
of
the
Disaster
Risk
Management.
healthcare facilities and providers need
strong and committed political intervention
to ensure equity and universal access to basic
healthcare services. Not only the physical
accessibility, but also utilization of services
has to be given attention.
143.
The public sector budgetary
expenditure on health sector is very low
(only 0.5 percent of GDP in 2009/10). The
share of development spending on health is
still very low. In general, the level of
investment in health, in spite of recent rapid
increase in resource allocation by the
government, is still very low and failed to
attract foreign assistance (6 percent only).
Seventy-five percent of health financing is
out-of-pocket expenditure from the patients.
The private health sector, catering for 80
percent of health care delivery, yet, is
unregulated. The total expenditure on health
in Pakistan is $18 per capita out of which the
total government health expenditure is
equivalent to $4 per capita, well below the
$34 required by WHO for a package of
essential health services. However, the level
of investment in health, in spite of recent
increase in resource allocation by the
government, is still very low.
140.
The health system‟s ability to
respond and provide adequate and
comprehensive quality services continues
to remain limited in terms of access to and
utilization of preventive and curative
health services. Availability of lady health
workers and lady health visitors has
increased substantially; however, the
availability of women medical officers and
community midwives (CMWs) remains low.
Binding Constraints to Health Sector
Development
144.
Shortage of health professionals is
one of the critical challenges for the
Pakistan‟s health sector. There were
127,859 registered doctors, 6,000 dentists
and 62,651 nurses in the country in 2007
which gives a doctor-to-population ratio of
1:1,225. Likewise, it gives ratios of 1:27,414
and 1:3,096 for dentist and nurse,
respectively. Interestingly, the doctors-tonurse ratio in Pakistan is 2.5:1 contrary to the
expected other way round ratio. The nurse to
bed ratio in Pakistan is 1:6 whereas as
compared to the standard 1:3 ratio set by the
WHO (Table C.13). The current output of
141.
Poor access and utilization of the
health services bundled with the expansion
and diversity of health care facilities in
Pakistan fall short of the fast population
growth and the ever-mounting health care
demand. Moreover, low status of women in
the society also works as a cultural barrier for
accessing to health facility for half of the
population in the country.
142.
Rural-urban disparity in provision
of health facilities/services is a key area of
concern. The urban favored distribution of
108
100
percent
of
the
textile
and
telecommunications sector, and a significant
part of the cement, sugar, automobile and
fertilizer industries are in the private sector.
Table C.13: Pakistan: Human Resource for
Health, (2007)
Number
registered
in the
MOH
Estimated
ratio per
10,000
population
Registered
doctors
127,859
8.0
Registered
dentists
6,000
1.0
62, 651
6.0
Selected
Health
Professional
Registered
nurses
and
midwives
146.
The history of a well-rooted and
pervading private sector in Pakistan goes
back all the way to the country‟s inception
in 1947. The realization of the private sector
being the engine of economic growth has
been central to each successive government‟s
development policies. The government
demonstrated its confidence in the role of the
private sector in the industrial development
very early when it created Pakistan Industrial
Development Corporation in 1952. This
organization was set up with the mandate to
establish industries and then sell them to
private investors. The reaffirmation of private
sector‟s central role in the industrial
development of Pakistan happened through
the drive to privatize state owned assets,
which began in the early eighties and has
since continued. An early step in this regard
was the promulgation of the Transfer of
Managed Establishments Order in 1978 to
provide legal protection to privatization of
state-owned assets.
Sources: WHO, 2009 and FBS, 2007
medical graduates both from public and
private medical colleges is around 5000 per
annum. As of December 2009, there are
117,973 doctors registered with the Pakistan
Medical & Dental Council (PMDC), that is, a
doctor per population ratio of 1:1400. To
reach the desired ratio of 1:1000 populations,
nearly 170,000 doctors are required by the
year 2011. Currently, the total enrolment and
graduating capacity of all the medical
teaching institutes stands at 19,760 and
17,785, respectively.
iv.
Private Sector Development
147.
In order to give a further impetus
to this drive, the Privatization Commission
of Pakistan was established in 1991. The
1990s also saw other major developments
including the liberalization of the financial
sector with the formation of privately held
banks and the privatization of large national
banks e.g. Allied Bank Limited and Muslim
Commercial Bank. The institutional fabric
was further strengthened to provide a
conducive environment for a thriving private
sector base. The government went about a
program under which new institutions were
established and some existing reformed. This
process created Oil and Gas Regulatory
145.
According to the Final Report of
the Private Sector Development Task
Force established under the auspices of the
Planning Commission in 2010, the share of
private sector in the GDP is estimated to
be about 90 percent. In addition to its share
in the economy, private sector is also the
leading generator of employment. Moreover,
out of the total banking assets, 80 percent are
with privately controlled banks. This
corroborates fairly well with the estimates
provided in the ADB Private Sector
Assessment, 2008, which estimates that over
77 percent of the commercial banking sector,
109
Authority (OGRA), National Electric Power
Regulatory Authority (NEPRA), Pakistan
Environmental Protection Agency (EPA),
and Pakistan Telecommunication Authority
(PTA).
Binding Constraints to Private Sector
Development
151.
The under-par competitiveness and
sophistication of Pakistan‟s exports is
explained by the following issues:
148.
Privatization continued to be the
centerpiece of government economic
development policies during the 2000s as
the Privatization Act 2000 was enacted and
the function of privatization was accorded a
full ministry status. Furthermore, in order to
encourage sustained investor interest, the
Board of Investment was established.

Lack of value addition and low quality
perception of Pakistani goods

Lack of diversity in the Pakistan‟s
exports portfolio

Government Strategy for Private Sector
Development
Supply side constraints include scale and
structural bottlenecks in the private
sector, labor market inefficiencies, lack
of infrastructure, access to finance,
governance and institutional bottlenecks
152.
The lack of value addition and the
resultant low quality perception of
Pakistan‟s exports are among the main
reasons for the overall lagging export
volumes and the inability of exporters from
Pakistan to sufficiently tap lucrative markets
demanding high quality products and
therefore command higher margins for their
products.
149.
Vision 2030 of Pakistan lays great
emphasis on the leadership of private
sector for the development of wide ranging
economic sectors. Further, it clearly
acknowledges the need for emphasis on
deregulation and liberalization leading to
greater private investment as among the key
pillars of sustainable economic growth. The
Private Sector Development Task Force
(PSDTF) established by the Planning
Commission takes a close look in terms of
trade.
153.
As discussed in the STPF, so far
sufficient steps have not been taken to
increase the sophistication level of Pakistan‟s
exports (Figure C.4).
Figure C.4: Sophistication Share of Pakistani
Exports (2002-03 to 2008-09)
150.
Exports are being seen as the key
driver of growth for both the economy as
well as the private sector. The importance
of growth in exports is equally recognized by
the Government of Pakistan through the
Medium-Term Development Framework
2005-12 of the Planning Commission of
Pakistan, Vision 2030 document and the
Strategic Trade Policy Framework (STPF)
2009-12 by the Ministry of Commerce,
Government of Pakistan.
100%
80%
60%
40%
20%
0%
Primary
Semi-Manufactured
Manufactured
Source: Strategic Trade Policy Framework 2009-12,
Ministry of Commerce
110
154.
There is an immense need to bring
considerable improvements in product
diversification and movement towards
greater value addition. The overtime trends
clearly highlight the need for a greater focus
on the development of the downstream subsectors in the product value chain. The other
important insight is to further develop the
export marketing function both at the public
and private levels.
been relatively slow moving compared to the
emerging markets led by the BRIC countries.
The Chinese market is clearly a major
opportunity to be tapped by Pakistan as
China moves to increasing its internal
consumption as a percentage of GDP, which
is a shift from the earlier strategy of growing
through exports and investments. As a sign
of this shift, China is now the largest export
market for Japan, Korea and Taiwan. This
should serve as a good case for Pakistan to
also bring about the necessary structural as
well focal changes in the exports strategy to
benefit from the high growth part of the
global economy. It also highlights market
access
challenges
like
information
asymmetry in terms of the extent of market
knowledge, and lack of bilateral and
multilateral Free Trade Areas (FTAs).
155.
Lack of diversity in exports
portfolio is another impediment for the
growth of the private sector in Pakistan.
The shortcomings of Pakistan‟s exports base
acts as a vicious circle as it stifles the
development of the skill level of country‟s
labor markets, prevents the creation of the
much needed R&D infrastructure, puts
breaks on the formation of a technologically
advanced industrial base and keeps capital in
short supply to go back to the continuing lack
of international competitiveness of the
products from Pakistan.
158.
Labor market inefficiency is one of
the major supply side constraints. A
healthy and well-educated workforce is
critical for any country‟s drive towards
sustainable economic growth and prosperity.
A country of about 174 million people,
Pakistan ranked 125th in the UNDP‟s Human
Development Report 2010. Human resource
development or a lack thereof continues to be
one of the most pressing challenges for
Pakistan. Though managing to hold its place
in the Medium Human Development
category, Pakistan continues to rank below
the average indicators for the category as
well as for South Asia. The challenge to
bring an appreciable improvement in these
indicators is indeed testing, however, an
improving trend for the last 20 years is
observed as reflected by the higher growth in
Human Development Indicators (HDI) for
Pakistan.
156.
The high concentration of exports
to a few products in the primary or lowtech segments or lack of product
diversification has kept total exports
vulnerable to any form of adverse
developments in the product markets.
Slow moving textiles continue to command a
lion‟s share in total exports when the share of
textiles as a percentage of global exports is
on the decline. A gradual move to diversify
away from textiles for faster growing product
segment is important with greater movement
towards higher value added products in the
textiles.
157.
Market access can play a key role
on further development of the private
sector. Pakistan‟s top export destinations
have been the EU and NAFTA markets.
These traditional markets for Pakistan have
159.
The public sector alone cannot
address the huge, time-pressed and ever
111
increasing demands of the large
population. Both health and education end
up getting a marginal allocation from the
public exchequer. Therefore, the private
sector must play an important role in these
areas.
163.
Islamic finance (IF) is growing fast
in Pakistan. Demand for this sector is driven
by multiple factors such as its faith base
appeal from Muslim population, its potential
to augment financial engineering blended
with socially and ethically responsive
financing; service high net worth clients
(whether Muslim or non-Muslim); and
attract cross border oil revenue surpluses.
The enabling environment for the
commencement of Islamic finance in the
country began to take shape much before
licensing of the first Islamic bank took place.
The measures taken for Islamization of the
country and consequently Islamic finance
include:
160.
Constraints
related
to
the
structural inefficiencies of the labor
markets need to be relaxed. Lack of skilled
labor as demanded by the market is a major
constraint faced by the manufacturing and
services sectors alike. This implies that even
if greater investment is made in enhancing or
upgrading the capital base, the lack of quality
human resources to operate the same may
reduce the growth.
161.
Access to finance and investments
is also a major constraint facing the
private sector. Whether it is investment for
capital projects or finance catering to the
working capital requirements of the private
sector, lack of availability and high cost of
funding (interest rates following a rising
trend since 2003) are major impediments to
growth in private business.
v.
Islamic Finance
162.
The financial sector in Pakistan
comprises
of
Commercial
Banks,
Development Finance Institutions (DFIs),
Microfinance Banks (MFBs), Non-banking
Finance Companies (NBFCs), Modarabas,
Stock
Exchange
and
Insurance
Companies. Under the prevalent legislative
structure, the supervisory responsibilities in
case of Banks, DFIs, and MFBs falls within
legal ambit of the State Bank of Pakistan
(SBP) while the rest of the financial
institutions are monitored by other authorities
such as Securities and Exchange Commission
and Controller of Insurance.
112

As per Article 2 of the Constitution,
Islam is the State Religion of Pakistan.
The Objectives Resolution was adopted
by the first Constituent Assembly
in1949; it was the preamble of the 1956,
1962 and 1973 Constitutions, which
stated that no law should be enacted, that
is repugnant to the injunctions of Islam.
It was made substantive part of the
Constitution in 1985.

The Eighth Amendment of the 1973
Constitution, adopted by the National
Assembly in 1985, also made room for
creation of the Federal Shariah Court
(FSC).

Creation of the Council of Islamic
Ideology (CII) in 1962. The report of the
CII on Elimination of Interest (June
1980) is genuinely considered to be first
major comprehensive work in the world
undertaken on Islamic banking and
finance.

Practically, measures taken included the
introduction of Zakat (June 1980) and
Ushr (tithe) (March 1983) and
elimination of interest from the
operations of Specialized Financial
Institutions (July 1979 to July1985) and
the commercial banks (January 1981 to
July 1985).




practice was complex and difficult tasks
and it would not be wise to underestimate those difficulties and risks.
Therefore, it was decided to promote
Islamic banking on parallel basis with
conventional system.
Commercial banks transformed their
nomenclature during January 1981 to
June 1985 based on the 12 modes. From
July 1st, 1985, all commercial banking in
Pak Rupees was made interest-free.
However, foreign currency deposits in
Pakistan and on lending of foreign loans
continued as before. However, procedure
adopted by banks was declared unIslamic by the Federal Shariat Court
(FSC) in November 1991. The
government and some banks/DFIs
preferred appeals to the Shariat Appellate
Bench (SAB) of the Supreme Court of
Pakistan.
SAB delivered its judgment of 23
December 1999 rejecting the appeals and
directing that laws involving interest
would cease to have effect finally by 30
June 2001. However, SAB gave
exemption for dealing with foreign parties
on the basis of interest.
The government, in line with directives
of SAB, constituted a high level
Commission and a number of Tasks
Forces and Committees to study the
prospects of transformation of Pakistan‟s
financial system from interest based to
Shariah-compliant and to chalk out the
transformation plan. However, the
government
concluded
that
transformation of the financial system, as
a whole was not possible in the shortterm due to a variety of factors.

The SBP issued the criteria for the
establishment of Islamic banks in the
private sector and subsidiaries, and
stand-alone branches by existing
commercial banks to conduct Islamic
banking in the country.

A Musharaka-based Export Refinance
Scheme has been designed by the SBP in
order to provide export finance to
eligible exporters based on Islamic
modes of financing. Efforts are underway
to develop Islamic money market
instruments like Ijarah Sukuk to facilitate
the banks in respect of liquidity and
Statutory Liquidity Requirement (SLR)
management.

A Shariah Board comprising two Shariah
scholars and three experts in the areas of
banking accounting and legal framework
has been established in the SBP to advise
it on modes, procedures, laws and
regulations for Islamic banking ensuring
Shariah-compliance
and
smooth
operations of Islamic banks.
164.
The initiative to introduce Islamic
Banking (IB) in Pakistan was launched in
2001 when the government decided to
promote Islamic banking in a gradual manner
and as a parallel and compatible system that
is in line with best international practices.
Meezan Bank Limited (MBL), which was
granted a license on 31 January 2002,
commenced operations from 20 March 2002,
as the first Islamic bank of the country. Since
then the industry has been continuously
Developing a viable and complete model
of Islamic finance and putting it into
113
showing impressive growth, surpassing the
growth rates recorded by the conventional
banks during the past five years.
during the last few years, is still in its
infancy and needs careful nurturing and
development to make a significant impact
on the financial landscape of the country.
While charting its way forward, this industry
has to safeguard and maximize the interests
of major stakeholders so that there is growth
in market share of Islamic financial service
industry from the existing insignificant level.
Standards and codes, principles of corporate
governance, internal controls, disclosure and
transparency have to be separated and made
distinct from conventional banking to reflect
the peculiar characteristics of Islamic
financial sector. Although, some progress has
been made but still there are many issues to
be settled.
165.
The inclusive nature of Islamic
finance and its faith-based appeal will lead
to financial deepening in the country and
hence contribute towards one of the
overall national economic goals, i.e.
expansion of the financial sector. The
industry over the years has managed to offer
a wide array of products encompassing
almost the entire range of Islamic modes of
financing that are able to cater to the needs of
majority sectors of the economy.
166.
Pakistani-IBs have managed to
attract foreign stakes, which give industry
an edge and a diverse look with scope for
successful cross-fertilization and transfer
of experiences for the development of the
local industry. Rapid growth of the industry
has been accompanied by good financial
performance and specific industry niche. The
capital to risk-weighted ratio has invariably
remained significantly above the 8 percent
required level, and non-performing loans
(NPLs) ratios have been considerably low.
169.
State Bank‟s initiative to promote
Islamic banking in Pakistan commenced in
2003.36 With regards to statistics of Islamic
banking, as of June 2010, there were 19
banks involved in Islamic banking with a
network of 583 branches in the country. Of
these, six are full-fledged Islamic banks with
415 branches and 13 of the existing
scheduled banks have 168 branches working
as stand-alone „Islamic Banking Branches‟.
The activities of Islamic bank‟s branches
have shown improvement at end-June 2010
compared with end-December 2009, both in
terms of number of accounts and outstanding
amount for deposits and financing (Table
C.14).
167.
Through SBP‟s proactive policy
action, a number of developments have
taken place on the regulatory, supervisory
and
Shariah-compliance
framework.
Moreover, the SBP has through its linkages
with internal and external stakeholders (such
as Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI) and
Islamic Financial Services Board (IFSB)
attempted to resolve some critical issues
faced by the industry and also to capitalize on
the opportunities available in the local and
international context.
170.
The microfinance sector in
Pakistan is still at an early stage and the
Islamic microfinance sector is almost nonexistent except for a few regional pilot
projects such as Akhuwat and Farz
Foundation, mainly based in urban areas.
168.
The Islamic financial services
industry, despite its remarkable growth
State Bank of Pakistan, BPD Circular No. 1, January
2003
36
114
Table C.14: Deposits and Financing by Islamic Banks/Branches (Rs. billion)
Pakistani Banks
Foreign Banks
Jun-10
Dec-09
Jun-10
Dec-09
Jun-10
Dec-09
Deposits
291.0
244.2
23.9
20.1
314.9
264.3
Financing
149.3
142.6
18.9
14.8
168.2
157.4
Investment
(Book Value)
60.8
56.7
1.7
1.7
62.5
58.4
Source: State Bank of Pakistan, Annual Report, 2010.
171.
The Sukuk market in Pakistan is
regulated by the Securities and Exchange
Commission of Pakistan (SECP).39 Fifty six
Sukuk issues have been issued for a total
amount of PRs. 234.5 billion. The total
outstanding Sukuk at the end of 2010 were
55 with a total amount of PRs. 224.5 billion.
In Pakistan, domestic Sukuks in local
currency have been issued by the private
sector as well as by the government through
its company namely Pakistan Domestic
Sukuk Company Limited. In addition, the
government has also issued International
Sukuk for an amount of $600 million.
According to CGAP CLEAR Report of
200737, microfinance in Pakistan has been
regarded as a social rather than a financial
service; it called for a new approach and a
sustainable business model in order for
microfinance to thrive in the country. As per
IFC/KFW Report of 2008,38 many
recommendations of the CGAP report for
intervening in the sector have been addressed
and positive changes are currently enhancing
the sector on all levels (micro, meso, and
macro) as follows:



Total
Micro level: microfinance providers are
moving towards cost-recovery interest
rates.
SBP Strategy for the Islamic Finance
Meso level: efforts to spur the creation of
a commercial wholesale market have
been initiated.
172.
The SBP in 2008 had developed a
strategic plan for the Islamic Banking
Industry in Pakistan, which highlighted the
basic difference in SBP‟s current policies
regarding Islamic banking and the previous
approach adopted by it. The SBP has not
approached Islamic Banking solely as a
religious or a legal issue. It considers it to
Macro level: the SBP has increased the
flexibility of the regulatory framework
governing the sector, as evidenced by the
recent move to allow microfinance banks
(MFBs) to raise Tier-II capital, including
subordinate debt, in local currency.
37
Consultative Group to Assist the Poor (CGAP),
(April 2007), Country-Level Effectiveness and
Accountability Review (CLEAR) with a Policy
Diagnostic Report.
The specific rules for Sukuk are guided by S.R.O.
1338(I)/99 titled The Companies (Asset Backed
Securitization) Rules, 1999 which is implemented by
SECP - in exercise of the powers conferred by section
506 of the Companies Ordinance, 1984 (XLVII of
1984), read with clause (b) of section 43 of the
Securities and Exchange Commission of Pakistan Act,
1997 (XLVII of 1997).
39
International Finance Corporation (IFC) and
Kreditanstalt Fur Wiederaufbau (KFW) (April 2008),
Pakistan: Microfinance and Financial Sector Diagnostic
Study.
38
115
more of a change management issue. This
approach dictates that policies adopted are
based on a sound regulatory framework
while offering the market to grow in a
Shariah-compliant manner and at the same
time catering to the ever-changing needs of
the users. According to the strategy, there
will be need to focus on two key elements.
Firstly, a sound regulatory framework that is
flexible, market driven and in line with
international best practices. Secondly, a
sound Shariah-compliance mechanism which
is comprehensive, flexible, multi-layered and
acceptable locally and internationally. The
strategy which supports these objectives,
stands on the following five pillars:





of AAOIFI Shariah standards and building
and use of multiple forums of Shariah experts
to ensure innovation in the industry in terms
of systems and products that is strictly in line
with sound Shariah principles.
175.
The SBP is strengthening the
regulatory framework in line with
international best practices by using the
sound conventional banking framework as
the foundation and then building on it
international standards rolled out by
international
Islamic
infrastructure
institutions like IFSB and AAOIFI. A roll out
plan for these standards has been put in
place. Instructions and guidelines for
Shariah-compliance in Islamic banking
institutions, which cover a variety of areas
peculiar to Islamic banks, have already been
introduced. Building capacity within the SBP
and the Islamic banking industry and in this
regard focus on establishing a School of
Islamic Economics and Finance of
international standard having international
affiliation will be a priority.
Extension of outreach
Shariah-compliance mechanism
Strengthening of regulatory framework
Capacity building
Internal and external relations
173.
With the SBP‟s strategy based on
above five pillars, the plan is to take the
market share from a current level of 6
percent to 12 percent by 2012. This will be
achieved through increasing outreach in
current urban consumer and corporate
markets and extending the market to cover
new segments of Islamic micro finance,
agriculture finance, and SME finance. It is
expected that by 2012, micro financing,
agriculture financing, and SME financing
will account for about 0.3 percent, 3 percent
and 20 percent of the total Islamic banks‟
financing, respectively.
176.
The SBP will coordinate and move
towards integrating the regulation of
Islamic finance industry across sectors and
across regulatory agencies regulating
different areas of this industry. The SBP
will also play a role in the development of
Islamic finance industry globally and become
one of the main hubs for attracting
international Islamic investments.
177.
Regarding Islamic microfinance,
the SBP in 2007 issued „Guidelines for
Islamic
Microfinance
Business
by
Financial Institutions,‟ a series of
guidelines intended to increase the scope of
microfinance services and products that
comply with Shariah to bring providers of
such microfinance services under its
regulatory umbrella. The SBP guidelines
174.
The SBP will continue to
strengthen
its
Shariah-compliance
mechanism through expansion of its Shariah
Board, introduction of Shariah inspection for
Islamic banks and conventional banks‟
Islamic banking operations, gradual roll out
116
specify provisions whereby four types of
institutions can offer Islamic microfinance
services to clients:




181.
Existing vehicles in the microfinance
market have varying objectives and are
generally not commercially driven. Many
smaller institutions are currently facing lack
of scale and sustainability, but show a
positive trend and may qualify for donor
support at a later stage.
Islamic financial institutions
Islamic microfinance institutions
Conventional financial institutions
Conventional microfinance institutions
182.
The Sukuk market faces some
constraints, which have prevented it from
growing at a much faster rate. Some of
those constraints are lack of secondary
market for trading Sukuk that affect the
liquidity of the Sukuk holders; Shariah
issues; insufficient number of Sukuk issues;
and Sukuks with varying tenors to suit
Islamic banks‟ liquidity needs are not
available.
Binding Constraints to Islamic Finance
Development
178.
Islamic finance is facing several
challenges and constraints such as
difficulty in enforcing contracts, inefficient
system for early recovery, ineffective code of
conduct for professionals, development of
Shariah-compliant government securities,
research and development in the field of
Islamic finance and economies, human
resource development and training to the
banks staff on Islamic banking and finance
and education and public awareness about
Islamic financial system needs to be
enhanced.
179.
In
Islamic
microfinance,
competition in the market is somewhat
limited. There are a few microfinance
players in Pakistan that have achieved a
sufficient scale to benefit from economies of
scale. The existing funding supply for
microfinance providers and microfinance
wholesale investment vehicles (e.g., the
Pakistan Poverty Alleviation Fund) is
inadequate. It is estimated that loan demand
will exceed $650 million by 2010.
180.
There are also regulatory constraints
of the SBP, which prohibit microfinance
banks from pledging security or sourcing
foreign currency loans, are the biggest
obstacle to the supply of microfinance
funding.
117
D.
Statistical Tables
Annex Table 1.1: Socio-Economic Indicators of Pakistan, 2001/02 - 2009/10
GDP
Real GDP Growth Rate (percent)
Agriculture
Manufacturing
Services
Investment and Savings
Total Investment (percent of GDP)
Fixed Investment
Public Investment
Private Investment
National Savings
Foreign Savings
Domestic Savings
Inflation
Consumer Price Index (percent change p.a.)
Budget Deficit
Overall Fiscal Deficit (percent of GDP)
Foreign Trade
Exports (percent of GDP)
Imports (percent of GDP)
Trade Deficit (percent of GDP)
Current Account Surplus/ Deficit (percent of GDP)
Gross Official Foreign Reserves ($ billion)
(in months of imports)
Workers‟ remittances ($ billion)
Total Debt (percent of GDP)
of which Domestic debt
Foreign debt
Infrastructure
Crude Oil Extraction (million Barrels)
Gas Supply (Mcf)
Electricity (installed capacity) (000 MW)
Roads (000 km)
Telephones (Mil. Nos.)
Mobile Phones (Mil Nos.)
Social Development
Population (million)
Unemployment Rate (percent p.a.)
Education
Net Primary Enrolment Ratio (percent)
Literacy Rate (percent)
Male
Female
Expenditure on Education (percent of GDP)
Health
Infant Mortality Rate (per 1000 live births)
Maternal Mortality Rate (per 100,000 live births)
Expenditure on Education (percent of GDP)
2001/
2002
2002/
2003
2003/
2004
2004/
2005
2005/
2006
2006/
2007
3.1
0.1
4.5
4.8
4.7
4.1
6.9
5.2
7.5
2.4
14.0
5.9
9.0
6.5
15.5
8.5
5.8
6.3
8.7
6.5
6.8
4.1
8.3
7.0
16.8
15.5
4.2
11.3
18.6
-1.9
18.1
16.9
15.3
4.0
11.3
20.8
-3.8
17.6
16.6
15.0
4.0
10.9
17.9
-1.3
15.7
19.1
17.5
4.3
13.1
17.5
1.6
15.4
22.1
20.5
4.8
15.7
18.2
4.5
16.3
3.5
3.1
4.6
9.3
-4.3
-3.7
-2.4
12.6
13.0
-0.4
+1.9
7.0
13.1
13.6
-0.5
+3.8
11.5
2.4
83.4
39.9
43.5
2008/
2009
2009/
2010
3.7
1.0
4.8
6.0
1.2
4.0
-3.7
1.6
4.1
2.0
5.2
4.6
22.5
20.9
5.6
15.4
17.4
5.1
15.6
22.1
20.5
5.4
15.0
13.6
8.5
11.6
19.0
17.4
4.6
12.7
13.3
5.7
10.6
16.6
15.0
4.3
10.7
13.8
2.8
9.9
7.9
7.8
12.0
20.8
11.7
-3.3
-3.8
-4.1
-7.3
-5.1
-6.0
12.7
13.9
-1.2
+1.3
13.1
13.2
17.1
-4.0
-1.6
13.3
4.2
76.9
38.9
38.0
3.9
68.2
35.9
32.3
4.2
62.1
33.5
28.5
13.0
19.4
-6.5
-4.4
14.5
4.2
4.6
56.5
30.7
25.9
11.9
18.5
-6.6
-5.1
18.9
5.1
5.5
54.8
30.1
24.7
11.6
24.4
-9.0
-8.7
13.9
2.8
6.5
58.4
32.0
26.4
10.9
21.5
-7.7
-5.8
13.6
3.3
7.8
57.1
30.3
26.8
11.0
19.8
-6.5
-2.3
16.7
4.5
8.9
55.6
30.6
25.0
23.2
923.8
17.7
251.7
3.7
1.7
23.5
992.6
17.8
252.2
4
2.4
22.6
1202.
19.27
256
4.5
5
24.1
1344.
19.49
258.2
5.1
12.8
23.9
1400
19.4
259
5.1
34.5
24.6
1413.
19.46
259.2
4.8
63.2
25.6
1454.
19.42
258.3
4.5
88
24
1460.
19.87
260.2
3.5
94.3
17.9
1109.
19.74
259.6
3.4
97.6
143.2
7.8
146.8
7.8
149.7
8.3
152.5
7.7
155.4
7.6
158.2
6.2
161
5.2
163.8
5.2
173.5
5.5
42
50
1.9
51.6
1.7
53
2.1
52
53
65
40
2.1
53
54
65
42
2.2
56
55
67
42
2.4
55
56
69
44
2.4
57
57
69
45
2.1
2
77
350
0.7
0.7
0.6
77
400
0.6
76
380
0.5
75
276
0.6
-
-
Source: Pakistan Economic Survey 2009/2010
Pakistan Millennium Development Report, September 2010, Planning Commission, Government of Pakistan
Annual Report, State Bank of Pakistan 2010
119
2007/
2008
0.6
0.5
0.5
Indicators
Annex Table 1.2: Pakistan Millennium Development Indicators, 2008-2009
1. Eradicate Extreme Poverty and Hunger
Proportion of population below the calorie based food plus non-food poverty line (2005-2006).
Prevalence of underweight children under 5 years of age
Proportion of population below minimum level of dietary energy consumption
2. Achieve Universal Primary Education
Net primary enrolment ratio (percent)
2008-09
Lag ( worsened since
2006)
Lag ( worsened since
2006)
Lag ( worsened since
2006)
Lag
Lag
Completion/survival rate: 1 grade to 5 (percent)
Lag
Literacy rate (percent)
3. Promote Gender Equality & Women Empowerment
Gender parity index (GPI) for primary and secondary education
Slow
Youth Literacy GPI
Share of women in wage employment in the non-agricultural sector
Proportion of seats held by women in national parliament
4. Reduce Child Mortality
Slow
Slow
Ahead
Lag
Under-five mortality rate
Off Track
Proportion of fully immunized children 12-23 months
On Track
Proportion of children under five who suffered from diarrhea in the last 30 days and received ORT
On Track
Infant mortality rate
Lag
Proportion of under 1 year children immunized against measles
Lady Health Workers' coverage of target population
5. Improve Maternal health
Maternal mortality ratio
Ahead
Lag
Proportion of births attended by skilled birth attendants
Lag
Contraceptive prevalence rate
Lag
Total fertility rate
Proportion of women 15-49 years who had given birth during last 3 years and made at least one antenatal
care consultation
6. Combat HIV/AIDS, Malaria and other diseases
HIV prevalence among 15-24 year old pregnant women (percent)
HIV prevalence among vulnerable group (e.g., active sexual workers) (percent) Proportion of population in
malaria risk area using effective malaria prevention and treatment measures
Incidence of tuberculosis per 100,000 population
Proportion of TB cases detected and cured under DOTS(Direct Observed Treatment Short Course)
7. Ensure Environmental Sustainability
Forest cover including state owned and private forest and farmlands
Land area protected for the conservation of wildlife
GDP (at constant factor cost) per unit of energy use as a proxy for energy efficiency
No. of vehicles using CNG
Sulphur content in high speed diesel (as a proxy for ambient air quality)
Proportion of population (urban and rural ) with sustainable access to a safe improved water source
Proportion of population (urban and rural) with access to sanitation
Proportion of Katchi Abadis regularized
8. Develop a Global Partnership for Development
Source: Pakistan Millennium Development Report, September 2010, Planning Commission, Government of Pakistan
120
Lag
Lag
Ahead
Ahead
Lag
Lag
Ahead
Lag
On Track
Slow
Ahead
Lag
Lag
Lag
-
Annex Table 1.3: Key Social Indicators, 2008
Indicators
Pakistan
South Asia
Low Income Countries
Net primary school enrolment rate, male (percent of age
group)
73
88
76
Net primary school enrolment rate, female (percent of age
group)
57
83
69
Public spending on education (percent of GDP)
1.6
2.2
3.4
Immunization rate
80
72
78
Public spending on health (percent of GDP)
0.3
0.9
1.6
Infant mortality rate (per 1,000 births)
73
59
80
Births attended by skilled health staff (percent)
39
42
42
Life expectancy at birth, male (years)
65
63
57
Life expectancy at birth, female (years)
66
66
59
Total fertility rate (births per woman)
3.9
2.9
4.2
Population growth rate (percent annual average for period
2.3
1.6
2.2
Source: World Bank/IDA/IFC, Country Partnership Strategy for the Islamic Republic of Pakistan for the Period of 20102013 (July 30, 2010)
121
Annex Table 2.1: Government's Poverty Reduction Strategy (PRSP-II, 2008/09-2012/13):
Key Pillars and Focused Areas
PRSP-II Pillar
Sectors/Areas under Each Pillar
1
Macroeconomic Stability and Real Sector Growth

Regaining macroeconomic stability
2
Protecting the Poor and the Vulnerable

Social safety nets

Irrigation
3
Increasing Productivity and Value Addition in Agriculture



4
5
Integrated Energy Development Programme

Making Industry Internationally Competitive
Raising Investment levels





Removing Infrastructure Bottlenecks through Public
Private Partnerships



8
Capital and Finance for Development; and


9
Attracting FDI
Encouraging Private Sector
Education
Health
Water and Sanitation,
Population Programme
Gender equality
Transportation (roads, railways, ports
aviation)
Housing
Water for irrigation
Development Finance
SME financing
Islamic Finance

Microfinance

Judicial System

Governance for a Just and Fair System.
Energy security


7
Credit for Agriculture
Energy efficiency

Human Development for the 21st Century
Infrastructure for Agriculture


6
New Technologies, High value crops/activities



Corruption
Tax administration
PPPs
Public Financial management
Source, Poverty Reduction Strategy Paper-II (2008/09 – 2012/13), Government of Pakistan
122