Document of

The World Bank Group

FOR OFFICIAL USE ONLY

Report No. 84645-PK


INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

AND

INTERNATIONAL DEVELOPMENT ASSOCIATION

AND

INTERNATIONAL FINANCE CORPORATION

AND

MULTILATERAL INVESTMENT GUARANTEE AGENCY

COUNTRY PARTNERSHIP STRATEGY

FOR THE

ISLAMIC REPUBLIC OF PAKISTAN


FOR THE PERIOD FY2015 19


April 4, 2014




Pakistan Country Management Unit
South Asia Region

International Finance Corporation
Middle East and North Africa (MENA) Region

Multilateral Investment Guarantee Agency





CURRENCY EQUIVALENTS:
This document has restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.


CURRENCY EQUIVALENTS
(Exchange Rate Effective as of April 4, 2014)
Currency Unit: Pakistani Rupees
US$1.00 =PKR 98.2


(July 1 June 30)

ABBREVIATIONS AND ACRONYMS

AAA Analytical and Advisory Activities
ADB Asian Development Bank
AIDS Acquired Immunodeficiency Syndrome
AML/CFT Anti-Money Laundering/Combating Financing
of Terrorism
BISP Benazir Income Support Program
CASA1000 South AsiaCentral Asia Electricity
Transmission and Trade Project
CEM Country Economic Memorandum
CPS Country Partnership Strategy
CPSPR Country Partnership Strategy Progress Report
DFID Department for International Development (UK)
DPC Development Policy Credit
DPL Development Policy Loan
Disco Distribution Company
DLI Disbursement Linked Indicator
DPs Development Partners
DSA Debt Sustainability Analysis
EAD Economic Affairs Division
EFF Extended Fund Facility (of IMF)
FATA Federally Administered Tribal Areas
FBR Federal Board of Revenue
FDI Foreign Direct Investment
FMIS Financial Management Information System
FTA Free Trade Agreement
GDP Gross Domestic Product
GEF Global Environment Facility
GFDRR Global Facility for Disaster Reduction
and Recovery
GPE Global Partnership for Education
GST General Sales Tax
GTFP Global Trade Finance Program
HIV Human Immunodeficiency Virus
IBRD Int Bank for Reconstruction and Development
ICR Implementation Completion and Results Report
IDA International Development Association
IDF Institutional Development Fund

IEG Independent evaluation Group
IFC International Finance Corporation
IMF International Monetary Fund
JICA J apan International Corporation Agency
KOEL Karachi Organic Energy Limited
KPK Khyber Pakhtunkhwa
LNG Liquefied Natural Gas
MDGs MillenniumDevelopment Goals
MIGA Multilateral Investment Guarantee Agency
MSME Micro, Small, and MediumEnterprise
MTDF Medium-TermDevelopment Framework
NEPRA National Electric and Power Regulatory Authority
NFC National Finance Commission
NLTA Non-Lending Technical Assistance
NWFP North West Frontier Province
OSS One-Stop Shop
PEFA Public Expenditure and Financial Accountability
PER Public Expenditure Review
PHRD J apan Policy and Human Resource Development
PIFRA Project to Improve Financial Reporting and
Auditing
PPAF Pakistan Poverty Alleviation Fund
PPF Project Preparation Facility
PPP Public Private Partnership
PRSP Poverty Reduction Strategy Paper
SME Small and MediumEnterprise
SEZ Special Economic Zone
SOE State-Owned Enterprise
SRO Special Regulatory Orders
TA Technical Assistance
TARP Tax Administration Reforms Program
TTF Trade and Transport Facilitation
WBG World Bank Group
WDR World Development Report
WEF The World Economic Forum
WSP Water and Sanitation Program


Vice President:
Country Director:

Task Team Leader:
IBRD and IDA
Philippe Le Hourou
Rachid Benmessaoud

Uzma Basim, J ose R. Lopez Calix

Vice President:
Regional Director/
Country Manager:
Task Team Leader:
IFC
Dimitris Tsitsiragos
Mouayed Makhlouf
Nadeem Siddiqui
Shabana Khawar
The World Bank Group greatly appreciates the close collaboration of
Country Partnership Strategy and the feedback from stakeholders. The preparation of the document involved
extensive discussions with government representatives at federal, province, and regional levels, as well as other
stakeholders, for example, the private sector, parliamentarians, the academia, youth groups and civil society. The
strategy is a result of a team effort and the document received many useful contributions from the Pakistan Country
Team and individuals across the WBG. Although it is impossible to name them all, we gratefully acknowledge and
thank them for sharing their guidance, knowledge, and experience.


CONTENTS
I. EXECUTIVE SUMMARY .......................................................................................................................... i
I I. COUNTRY CONTEXT: DI AGNOSIS AND DEVELOPMENT AGENDA ..................................................... 1
A. Political and Social Context ............................................................................................................... 1
B. Poverty and Shared Prosperity Trends .............................................................................................. 1
C. Recent Economic Developments ....................................................................................................... 2
D. Economic Prospects ........................................................................................................................... 3
E. Development Challenges and Opportunities ..................................................................................... 5
F. Government Priorities and Medium-TermStrategy ........................................................................ 10
I II . WORLD BANK GROUP PAKI STAN COUNTRY PARTNERSHI P STRATEGY 2015 19 ......................... 11
A. Lessons Learned fromPrevious CPS 2010-14 and Stakeholder Feedback ..................................... 11
B. Proposed WBG Country Partnership Strategy ................................................................................ 13
C. Implementing the FY15 19 Pakistan Country Partnership Strategy ............................................... 28
I V. MANAGI NG RI SKS ............................................................................................................................... 35


Figures
Figure 1: Poverty and Growth ....................................................................................................................... 2
Figure 2: The Electricity Deficit .................................................................................................................... 6
Figure 3: Private Sector Credit and Private Investment (as percent of GDP) ............................................... 7
Figure 4: Agriculture and Water Productivity ............................................................................................... 7
Figure 5: Pakistan on Human Development Index........................................................................................ 8
Figure 6: Financial Access ........................................................................................................................... 20
Figure 7: Public Expenditures ..................................................................................................................... 23
Figure 8: Pakistan CPS Results Chain: Results Areas and Outcomes ......................................................... 26


Boxes
Box 1: The Program with the IMF, 2013/14 2017/18................................................................................4
Tables
Table 1: Key Economic Indicators ................................................................................................................ 5
Table 2: First Two Years Indicative Lending and Analytical Program ....................................................... 31



ANNEXES
Annex I(a) Summary Matrix Pakistan CPS Selectivity and Impact on WBG Goals.
Annex I(b): Pakistan CPS FY2015-19 Results Matrix
Annex II: Pakistan CPS FY2010-14 Completion Report
Annex III: CPS Stakeholder Consultations
Annex IV: Poverty and Shared Prosperity in Pakistan
Annex V: Status of MillenniumDevelopment Goals (MDGs)
Annex VI: Government of Pakistan Vision 2025
Annex VII: Filters for Selectivity for the Pakistan CPS (FY15 19)
Annex VIII: World Bank Group Pakistan Energy Initiative
Annex IX: Promoting More and Better J obs for Pakistan
Annex X: A New Tax ReformStrategy for Pakistan
Annex XI:
Annex XII: Governance Action Plan
Annex XIII: Investing in Women
Annex XIV: Youth Inclusion in Pakistan
Annex XV Restoring Trust between Citizens and Governments in KPK,
FATA and Balochistan
Annex XVI: Climate Change in Pakistan
Annex XVII: Economic Hub
Annex XVIII: Portfolio Management
Annex XIX: Partnerships and Trust Funds Overview
Annex XX: Provincial Graphs


CPS Standard Annexes fromSAP Business Data Warehouse
i. Selected Indicators of IBRD/IDA Portfolio Performance and Management
ii. IFC Investment Operations Program
iii. Operations Portfolio (IBRD/IDA and Grants)
iv.
v. MIGA statement

i

I. EXECUTIVE SUMMARY

"The Government Development Agenda is to address
the 4Es: Energy, Economy, Extremism and
Mohammad Ishaq Dar, Federal Minister for Finance, Pakistan

i. Pakistan now has a window of opportunity . A democratically elected government
came to power a year ago with a strong mandate for change. It has taken on this agenda with
strong commitment and leadership, including new plans for energy and revenue mobilization,
and an International Monetary Fund (IMF) program. At the same time, however, many of the
underlying challenges that have held Pakistan back in making progress in the past remain
strongly embedded corruption, violence, vested interests and bureaucratic inertia. It is the right
time to support change, but with due consideration of sequencing and risks.

ii. The Country Partnership Strategy (CPS) for Pakistan is therefore structured to help
the country tackle the most difficult but potentially transformational areas to reach the
twin goals of poverty reduction and shared prosperity. The four strategic pillars results
areas of the CPS are : Energy, Economy,
Extremism and Education; and the priorities of the proposed Vision 2025:

Transforming the energy sector. The World Bank Group (WBG includes the International
Bank for Reconstruction and Development, IBRD; the International Development
Association, IDA; the International Finance Corporation, IFC; and the Multilateral
Investment Guarantee Agency, MIGA) is committed to support reforms and large
investments in the power sector to reduce load shedding, expand low-cost generation supply,
improve governance and cut losses. Key outcomes will be to reduce average daily blackouts
from 8 hours to 5 hours; reduce average generation costs from 12/kWh to 10/kWh, target
subsidies on the poorest reducing them from 1.8 percent to 0.4 percent of gross domestic
product (GDP); and improve collection of billed electricity from 86 percent to 94 percent.
Supporting private sector development. The WBG will aim to expand policy-based support
for strengthening the business environment, including in the provinces, to improve
competitiveness and expand investment, improve productivity of farms and businesses, and
make cities more growth friendly to create productive and better jobs (especially for youth
and women). Key outcomes will be to strengthen the business environment as evidenced by
the Doing Business report indicators; restructure/privatize at least five state-owned
enterprises (SOEs) including three in energy; increase yields of major crops by 20 percent;
increase the number of trainees in skills programs by 20 percent; and improve trade
logistics.
Reaching out to the underserved, neglected, and poor. This requires a stronger focus on
micro, small and medium enterprises (MSMEs), women and youth, fragile provinces/regions
and poorer districts, social protection, and resilience and adaptation to the impact of climate
change. Key outcomes will be to increase access to finance for MSMEs by 25 percent with a
focus on women borrowers; reduce vulnerability to income shocks by expanding the
coverage of the Benazir Income Support Program (BISP) by 20 percent with females as
major beneficiaries; percent) than
overall; and improve resilience to natural disasters.
ii

Accelerating improvements in services. The pace of improvement is far too slow. At the
federal and provincial levels this means increasing revenues to fund services and setting
more ambitious stretch targets for areas that are not producing change fast enough (especially
education and health). Key outcomes will be to increase tax revenue from 9.6 percent of GDP
to 11.5 percent and no special tax exemptions issued; increase provincial non-wage
expenditures on education and health by 20 percent; improve public financial management;
expand use of modern contraceptive methods from 26 percent to 30 percent; increase child
immunization by 20 percent; increase gross primary enrollment rates by at least 10 percent;
improve adoption of education quality assessments and learning outcomes; and increase the
number of public departments/services with a citizen feedback system by 30 percent.

iii. Leveraging regional markets. Interwoven with the four results areas, this cross-cutting
program focuses on energy and trade, including critical building blocks of an integrated regional
electricity market in South Asia with power transmission links to Central Asia and India; sub-
regional Punjab Punjab (Pakistan India) collaboration; and other opportunities to capture the
potential of cross-border trade between Pakistan and its neighboring countries. Sustained
regional cooperation has the potential to add 2 percent to Pakistan per year, help create
viable transit corridors, and contribute to overall stability in the region.

iv. Getting transformational change also requires a shift in instruments and engagement:

Increase Development Policy Financing. For the past five years, no development policy
financing was possible, as the difficult but necessary reforms were not taken. In FY14, the
Bank would propose extending two operations Power Sector Reform and Fiscally
Sustainable and Inclusive Growth DPCs. Both the DPCs have been designed as parts of a
series and will form the backbone of the program. The reforms have been frontloaded in light
of past failure to follow-through. The Bank will also explore
province-specific policy operations. The policy operations are expected to amount to 20 30
percent of the financing envelope.
Leverage large, private sector funding to complement public sector reforms. The WBG will
mobilize significant private funding, particularly for low-cost energy production. Addressing
the business environment constraints will also help bring new players beyond existing vested
commercial interests. This involves IFC using a mix of instruments to support private
investors; MIGA providing risk mitigating instruments; and use of IDA/IBRD guarantees.
The goal is to catalyze more funds from the private sector than WBG puts in directly (aided
by stronger collaboration between the World Bank, IFC, and MIGA).
Increase focus on results. The WBG has had good success with results-based operations in
Pakistan in education. This approach was recently extended to urban, health and governance
projects. More of the investment portfolio is to be results-based, with stretch targets to
strengthen accountability. More emphasis will also be placed on reviewing results at strategy
and portfolio levels, and expanding the use of third-party monitoring and impact evaluations.
Build knowledge partnerships, facilitate evidence based dialogue and develop deeper
understanding of political economy to strengthen public and private institutions, ensure
wider ownership of the development narrative and generate greater confidence in reforms. A
particular emphasis will be placed on introducing more transparency into systems to help
create the demand for good governance.
iii

Reduce fragmentation in subnational engagements. This means establishing province-
specific programmatic engagement and bringing different sectors together at the province
level to focus the dialogue on key barriers to poverty reduction and results. It also means
developing a better understanding of intergovernmental relations and local governments; and
strengthening coordination with the development partners to reduce overlap.
Focus on governance as an integral part of the WBG program. This means systematically
identifying ways to enhance accountability and transparency in all public and private
institutions and systems we are working with. It also means helping the Government to
implement its stated zero-tolerance policy for corruption in all transactions.

v. The CPS envisages an indicative financing envelope of about $11 billion over the CPS
period. This includes an IDA lending of about $1.1 billion per year (subject to SDR/$ exchange
rate). Pakistan could also benefit from additional regional IDA allocations, particularly in trade
and energy. IBRD lending would require strengthened macroeconomic balances, evidenced
among other things by foreign exchange reserves equal to at least 2 months of imports of goods
and services and a stable or declining public debt to GDP ratio. If IBRD lending resumes, it
would be limited to investment lending of $500 million a year and a maximum of $2 billion in
total over the CPS period. IFC will also expand its efforts to bring in more private capital,
investing $500 million 700 million a year from its own sources and mobilizing another
$50 million 100 million per year from other investors. Altogether with MIGA and MDTF, the
financing envelope would represent a 20 percent increase over the last CPS period.

vi. Leveraging financing from other sources. Several donors are committed to cofinancing
the Power Sector Reform DPC (Asian Development Bank, J apan International Corporation
Agency), or use the Fiscally Sustainable and Inclusive Growth DPC as a foundation to provide
their own support. This also means that the Bank would use the Multi-Donor Trust Fund
(MDTF) for Khyber-Pakhtunkhwa, the Federally Administered Tribal Areas (FATA) and
Balochistan to strengthen coordination of interventions beyond those provided by MDTF itself.

vii. The analytical support will help implement key activities. The CPS has
benefited from a Country Economic Memorandum: Finding the Path to Job-Enhancing
Growth and 16 sector policy notes under Pakistan: The Transformative Path . During the first
half of the CPS, analytical work will focus on implementing the strategy, particularly on private
sector development and intergovernmental finance. In the second half, further work will focus on
other critical challenges e.g. population, climate changeand water to help inform the next CPS.

viii. The risks are high. These include the risk of a declining commitment to reform in the
CPS outer years, as well as corruption, deeply embedded public and private vested interests and
a volatile national and international security situation. This is why this CPS is structured to
provide the maximum change from the start. If a negative scenario unfolds, the areas of focus
would likely remain but the instruments would be expected to shift. Without a stable macro-
economic framework or IMF program, the Bank could not extend new Development Policy
Financing operations. Instead one could expect an even stronger push toward using knowledge
instruments and on investments in social protection, inclusion, and working with the provinces
on critical social sector outcomes. Similarly, IFC will focus on portfolio management, selective
counter-cyclical investments, and high impact advisory support. Any such shifts would be
reflected in a revised strategy in the mid-term CPS Progress Report (CPSPR).
1

I I . COUNTRY CONTEXT: DI AGNOSI S AND DEVELOPMENT AGENDA
A. Political and Social Context
1. In May 2013, Pakistan orderly democratic political transition brought in a new
government with a strong reform mandate. Led by the Pakistan Muslim League Nawaz it had a
clear majority at the federal level. At the province level, PML-N retained its mandate to govern
Punjab, the biggest province. It also got favorable numbers in Balochistan and chose to become a
partner in the coalition there. Of the two main opposition parties, Pakistan Tehreek-e-Insaf won a
mandate in Khyber Pakhtunkhwa (KPK)
stronghold in Sindh.

2. A second key political change is the devolution of power to the provinces. The 18th
Constitutional Amendment passed by the National Assembly on April 8, 2010, enhanced
provincial autonomy and reshaped federal provincial relations. A total of 43 departments in 18
ministries were abolished in 2011/12 and transferred to the provinces. In parallel, a new resource
redistribution formula under the 7th National Finance Commission (NFC) Award of 2010 shifted
greater funding to the provinces. The provinces was expanded, including a sales
tax on services; internal and external borrowing by provinces was also permitted.

3. law and order situation remain volatile. Security
challenges are deepening: militancy, sectarian, and ethnic violence alongside rising crime
undermine the , including members of the armed forces,
civilian law enforcement agencies, and paramilitary organizations have been killed in the last
seven years. Pakistan also faces uncertainty over the post-2014 transition in Afghanistan and
possible spillovers. The new national and provincial governments are beefing up efforts to
address militancy and law and order. Also, recent developments in rebuilding ties with
Afghanistan and India, though tentative, could help develop trust and peace in the region.
B. Poverty and Shared Prosperity Trends
4. Pakistan has made considerable progress in reducing absolute poverty and improving
shared prosperity over the last two decades. Between 1991 and 2011, the proportion of people
with an income of less than $1.25 a day was more than halved, led by rural areas (Figure 1). The
percentage of the population below the national poverty rate has fallen from 34.7 percent in
FY02 to an estimated 13.6 percent in FY11. Though a
live in rural areas, growing urban slums are very much a part of the poverty picture. The real per
capita consumption of the bottom 40 percent of the population a measure of shared
prosperity grew faster than among the top 60 percent. Progress, however, slowed in FY09 11
due to two massive floods hitting the country, conflict, and the global economic slowdown.
Estimated poverty among females is slightly higher than among males 13.7 percent versus 12.8
percent but without reliable data on the allocation of resources within households it is hard to
be accurate. Similarly, we cannot draw a clear picture on shared prosperity by gender because it
is not well defined by population group (see Annex IV on Poverty & Shared Prosperity).
2
Figure 1: Poverty and Growth
Source: World Bank staff calculations using Pakistan HIES/PSLMS data.

5. Despite gains in poverty a -
are
many households are clustered near the poverty line.
Poverty remains widespread in all provinces, and varies little across them
(except Balochistan).

6. .
Despite some improvements, Paksitan remains one of the worst performers against MDG goals
in the South Asia Region. Although data is poor, progress against many of the MDGs (education,
gender, health) is off-track. Such slow progress is inadequate to address the large burden caused
by a growing population and needs to be accelerated (see Annex V).

7. Poverty reduction in Pakistan is highly correlated with growth. Growth incidence
analysis confirms the pro-
importance of growth. According to the /simulations
1
, in a baseline moderate
growth scenario (average GDP growth rate of 4.3 percent), Pakistan would be on track to meet
the WBG goal of reducing extreme poverty to 3 percent by 2030. But higher growth (7 percent)
would advance reaching this milestone by about a decade. The high case scenario also reduces
the population under the vulnerability threshold from 74.2 percent in 2011 to about 64.0 percent
in 2018, a decline of 2 percentage points a year (versus 1 percentage point a year under the
baseline).
C. Recent Economic Developments
8. Growth over the past five years has been weak. Recovery from the 2008 09 global
financial crises has been the weakest in South Asia, with GDP growth averaging 2.9 percent in
1
Projections using the MAMS model follow those assumptions used in Pakistan: Finding the Path to J ob-Enhancing
Growth A Country Economic Memorandum (CEM) 2013. Elasticity estimates for shorter periods are highly
volatile and very sensitive to the starting value in each period. This becomes a problem especially in periods with
high fluctuation in GDP growth as is the case for Pakistan.
3

FY09 13, about half the FY04 07 rate. Fiscal deficits of 6 percent or more prevailed for four
years in a row, and the deficit of 8.5 percent of GDP for FY12 was the second highest ever.
These deficits stem largely from high and untargeted power subsidies and from poor tax
collection. Financing the deficit hascrowded out private sector credit, dampening growth further.

9. External accounts and reserves have also been under pressure. While the current
account has improved, mainly on rising remittances, international reserves have been affected by
declining financial inflows and sizable debt repayments. Barely improving short-term
imbalances were hit further by the floods. Armed conflict too has hit investment: it fell from a
peak of 19.3 percent of GDP in FY06 to 14.2 percent in FY13, as foreign direct investment (FDI)
plunged from $5.3 billion in FY08 to $744 million in FY12. With output below potential,
supply-side factors have kept inflation high. Borderline stagflation, for now at least, prevails.

10. Under a three-year IMF Extended Fund Facility (EFF), the government has taken
steps to stabilize fundamentals and change the growth trajectory. The country aims to achieve
6 7 percent growth and cut inflation to 7 percent. The perception of an investment-friendly
country with solid macro fundamentals and much lower risk is a prerequisite for accelerating
growth. Key measures under the EFF (Box 1) include rebuilding reserves and ensuring fiscal
consolidation (2 percent of GDP). But s
international financial institutions, the government is committed to structural reforms,
particularly in energy, taxes and SOEs to secure a positive response from private investors and

D. Economic Prospects
11. Encouraging preliminary data from the first semester of FY14 suggest the economy
might be about to turn. Growth seems to be picking up, driven mainly by services and
the circular debt in the energy
sector, increased credit to private business, faster economic activity, continued strong
remittances, and dynamic exports have all helped. FDI also grew by 18 percent during July,
2013-February, 2014. Notably, reserves have recovered somewhat from their lows and are now
back over one month of imports. If recovery and reforms continue, reserves may pick up and are
projected to reach 1.8 months of imports by end FY14. Inflation was in double digits at end-2012
due to hikes in the General Sales Tax (GST) and in administered prices of electricity, gas, and
perishable food items, but appears containable at 10 percent as the economy strengthens. A
stronger global economy may also improve the outlook.

12.
Real GDP growth for 2013/14 should remain above 3.6 percent. In the medium term, and under a
baseline scenario that mainly assumes compliance with the three-year EFF, growth is expected to
climb gradually (Table 1). The fiscal deficit (excluding grants) is projected to decline to 4.4
percent of GDP by 2017/18. The cornerstone is an expected improvement in tax revenue by
about three percentage points of GDP and reduction of current expenditures by about two
percentage points of GDP, mainly due to lower electricity subsidies. Total public debt (including
IMF obligations) is projected to fall to around 58 percent of GDP by 2017/18. Any delay in
undertaking tax reforms, or in non-materializing nontax revenues, or in reducing power subsidies
poses risks to this outlook. Similarly, a recalibration of monetary policy and relatively stable or
4

declining international commodity prices are expected to help reduce inflationary pressures and
gradually bring average inflation down to around 7 percent by 2017/18. Though, structural
bottlenecks in agricultural production, floods or any adverse international commodity price
shock pose the risk of a return to higher inflation. Strong remittances and recovery of private
sector credit are also projected to support consumption.

Box 1: The Program with the IMF, 2013/14 2017/18
Overall goals: The government envisages stabilizing the economy, bringing inflation down to the6 7 percent range;
and accelerating growth to 6 7 percent by 2017/18 or earlier. This implies thefollowing:
Stabilization (preventing a balance-of-payment crisis)
Moving to fiscal consolidation. The goal is to reduce the fiscal deficit from8.0 percent of GDP in 2012/13 to
3.5 4 percent in 2016/17. To do this requires: (i) tax policy measures to increaserevenues by over 1 percent of
GDP annually, up to a tax-to-GDP ratio of 14 15 percent; (ii) no increase in tax rates, but elimination of tax
expenditure exemptions and zero rates under SROs ; (iii) reduced corporate tax rates to ensureregional equity
and encourage foreign investment; (iv) rationalized sales tax by ensuring a standard rate for all items and
broadening the scope of GST; (v) increasedprovincial revenue; (vi) austerity in expenditure management based
d social outlays while
strengthening the safety net (BISP); (viii) reduced power subsidies and losses fromSOEs; and (ix) active public
debt management.
Rebuilding the external position and tightening monetary policy. The goal is to rebuild international reserves up
to a comfortable level (3 months of imports). The main measures involve: (i) scaling back monetary
accommodation of fiscal deficits by limiting government borrowing; (ii) setting up policy rates to keep real
interest rates positive; (iii) strengthening the (iv) rebuilding the external position
by repurchasing reserves to cushion against major shocks; and (v) takingsteps to eliminatemoney laundering.
Major growth-enhancing reforms
Reforming the power sector comprehensively. The goal is to reduce power subsidies; restructure boards of power
distribution and generation companies; make new investments; strengthen the power sector regulator; expand
alternative sources of energy; and lower cost. This includes: (i) transmission and distribution losses to be
brought down to 10 percent (from33 percent); (ii) collection of 100 percent of billed amount of electricity; (iii)
power subsidies only for users below 200 units; (iv) privatization of generation companies; (v) corporatization
and privatization of DISCOs; (vi) rationalization of energy tariffs in line with international prices; (vi) tariffs to
be determined and notified by the National Electric and Power Regulatory Authority; (vii) tariff rationalization
in the gas sector; (viii) improved wellhead pricing for oil and gas exploration and production companies; and
(ix) set up a wholesale market for electricity.
Reforming SOEs. This entails privatizing or restructuring the latter requiring professional chief executives and
board members with a corporate structure in line with corporate governance rules. A list of 31 companies has
been drawn up.
Increasing openness and normalizing trade relations with neighbors. The goal is to return to a simple and
transparent framework trade regime with four slabs and a maximum tariff of 25 percent with few exceptions.
Policies include: (i) gradually simplifying tariffs; (ii) phasing out trade-distortive SROs on 4,000 products; (iii)
trade not aid policy; (iv) strengthening regional cooperation forums like the South Asian
Association for Regional Cooperation (SAARC); (v) ensuring preferential tradeagreements (with e.g. Malaysia
and China); and (vi) obtaining GSP+preferential access (zero duty) on 75 lineitems for exports to theEuropean
Union.
Enhancing the business climate to raise investment. The goal is to increase the investment-to-GDP ratio to 20
percent (from 14.2 percent). On the business climate, this requires Pakistan to (i) enforce contracts through a
new draft bankruptcy law; (ii) establish a virtual and physical One-Stop Shop for registering limited liability
companies; (iii) strengthen the Board of Investment in facilitating implementation of investment-friendly
regulations. Promoting investment requires it to (i) approve a package of incentives to investors; (ii) draw up
PPPs in power, gas, and other areas; (iii) convert 50 percent of remittances into investments; (iv) push though
with large infrastructure projects including highways, dams, and housing; and (v) set up a Bureau of
Infrastructure Development to coordinate privatesector participation in infrastructure and to develop financing
schemes.
5

13. The external position is expected quickly to rebuild a reasonable buffer. The external
current account deficit is projected to remain modest, increasing to 1.6 percent by 2016/17.
Exports are expected to regain dynamism with the recovery in global trade and increased market
access in Europe, while imports should expand with rising consumption and investment. Strong
remittances are expected to cushion trade deficits. Unfolding privatization plans and other
economic measures introduced by the government are expected to attract FDI and financial
inflows. Foreign exchange reserves are projected to improve to close to three months of import
coverage in 2017/18. The risk to this positive outlook comes from any external shock that cuts
lowers external demand for exports or raises oil prices, or from any delay
in privatization.
Table 1: Key Economic Indicators


E. Development Challenges and Opportunities
14. The most important challenges are to sustain reforms and move Pakistan onto a higher
growth trajectory to create more productive jobs. Although poverty reduction in Pakistan is
aligned closely with growth in per capita income, growth (hence poverty reduction) comes only
in spurts. To sustain this conversion of growth into poverty reduction the country must address
its weak fundamentals and create more productive jobs by making the energy sector itself more
sustainable, addressing barriers to private sector development, improving human capital and
skills, and increasing trade.

15. The binding constraints to growth are both emerging and structural
2
. Emerging
constraints include massive cuts in electricity availability and macroeconomic instability leading
to high country risk and a sudden decline in external and domestic financing. Structural
constraints that have a long history, block transition from low- to high-productivity jobs and
include government and market failures (micro risks) that impede investment, entrepreneurial

2
Pakistan: Finding the Path to J ob-Enhancing Growth A Country Economic Memorandum (CEM) 2013.
6

activity, and competitiveness limiting job-enhancing growth by holding down total factor
productivity.

16. Energy emerged as the biggest constraint on growth. Pakistan has not invested in
generation capacity to keep up with growth and has the highest power losses compared to other
countries. Severe institutional shortcomings constrain electricity supply, resulting in widespread
power outages and load-shedding (Figure 2).
Figure 2: The Electricity Deficit

Source: Enterprise Survey 2007; Ministry of Water & Power presentation (J anuary 26,
2010); and State Bank of Pakistan 2010 12 annual reports.

17. At the same time, weak private sector participation is holding back growth and jobs.
The private sector should drive the a poor business climate and structural
weaknesses limit its role in the economy.
private sector. Contrary to other developing economies, about 70 percent of firms are classified
as small, and most of them do not aspire to expand in scale, given the costs associated with
formalization of businesses, which also explains the predominant informality and low
registration of firms as taxpayers. The private sector is faced with numerous challenges including
macro-instability, severe energy shortages, security, a weak business climate, low access to
finance and crowding out by large public sector borrowing (Figure3).

-
8
6
2
3
6
1
9
7
-
1
2
4
7
-
2
6
4
5-
5
4
5
4
-
7
0
1
8
-
6
4
0
8
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6
1
5
1
-
8
3
9
3
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
19,000
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
El ectri city shortf al l i s i ncreasi ng over ti me
Shortfall or Surplus
Peak demand
Peak supply
7
Figure 3: Private Sector Credit and Private Investment (as percent of GDP)


18. Productivity at all levels is low. Agriculture contributes about 80 percent of export
earnings directly and indirectly through its forward links to agriculture-based industries; but its
growth suffers from low water productivity (Figure 4) -- largely due to weak investment in
irrigation and slow adoption of new technologies; weak extension services; and lack of
financing. Further, the highly protectionist agricultural trade policy stifles competition and
innovation. Increased agricultural productivity (especially among smallholders) would help
diversify manufacturing, expand services, generate new jobs, and promote inclusion.

Figure 4: Agriculture and Water Productivity

Source: WDI; Yu and others (2012 draft), Climate Risks on Water and Agriculture in the Indus Basin
of Pakistan; Planning Commission (2005), Medium-Term Development Framework, 2005 10

19. Similarly, the country has the lowest labor productivity among its regional competitors.
double to over 350 million by 2050, with mostly
unskilled working age youth not ready for high quality productive jobs. Having one of the
highest fertility rates worldwide, the country
Development Index ). Gaps are particularly large among youth and women,
Low labor productivity is often related
to chronic demand for low-skilled jobs and growing labor supply of low quality human capital.
Pakistan should therefore invest in its people, as an educated, skilled and healthy workforce is a
8

central plank of any strategy aimed at creating more and productive jobs and sustaining higher
growth.
Figure 5: Pakistan on Human Development Index

Source: World Economic Forum 2013; UNDP Human Development Report 2013;
PSLMS Government of Pakistan; and Pakistan Economic Survey 2012-13.

20. Severe disparities persist, as devolution increases complexity of economic management
and service delivery. Uneven development progress and resulting inequalities constrain the
, as growth by itself does
not translate into equal opportunity . The different growth
paths for the provinces their underlying factors and growth constraints need to be tackled.
The 7th NFC Award sharply raised the share of the provinces in the divisible pool of federally
collected taxes, from 46.3 percent to 57.5 percent, increasing provincial dependence on fiscal
transfers and lowering provincial incentives to generate their own revenue. Provincial budget
allocations and expenditures on poorer districts do not match needs. Social outcomes are dismal,
and gender inequities continue to be huge. Pakistan ranked
3

(key education and health indicators, particularly for
girls, show little or no progress), and a staggering 135 on equal economic participation and
opportunity (see Annex XIII on Investing in Women). Provincial governments struggle with
limited management capacity, and coordination across provinces is unclear. These challenges
will increase with new local governments as elections are held in the coming months.

21. Corruption puts development efforts at risk, by undermining growth, private
investment, and service delivery. Four-fifths of Pakistanis view government corruption as
widespread.
4
The National Accountability Bureau claimed that corruption costs PRs 10 billion
12 billion a day. In 2012, Transparency International ranked Pakistan 139 out of 176 countries
(with 1 being the least corrupt).
5
This is worse than India, better than Afghanistan and the same
as Nepal.
6
shows Pakistan on a slight
negative trend since 2007. Incentives not to be corrupt (pay and promotion linked to
performance, and effective penalties) are rare. The country ranks among the weakest performing

3
World Economic Forum Report 2013.
4
Gallup poll http://www.gallup.com/se/ms/154259/Pakistan-Troubled-State.aspx.
5
Transparency International Corruption perception Index 2012 http://cpi.transparency.org/cpi2011/results/
6
TI Pakistan: National Corruption Perception Survey.
146
0 50 100 150 200
Pakistan
Bangladesh
India
Indonesia
Philippines
Egypt
Thailand
China
Sri Lanka
Malaysia
Country rankings (Total 186 countries, 1=high; 186 =low)
Pakistan ranks very low on Human Development Index, 2012
9

countries on governance indicators worldwide. Of six governance indicators Pakistan ranks
lowest in the region (where scores are already low) on political stability and below average on all
other indicators except regulatory quality.

22. Deteriorating security environment is and
negatively impacting the development efforts. Most recent Bank estimates show the annual costs
of conflict in Pakistan at no less than 2 percent of GDP. The perception that Pakistan is a high
risk country discourages private and foreign investment for growth and job creation. Violence is
correlated with poverty as well as inequitable growth: provinces with the highest conflict
intensity have higher poverty rates.

23. Pakistan is highly vulnerable to shifting climatic patterns with risks further
exacerbated by a growing population, water scarcity and uncontrolled urbanization. The
country has seen a considerable increase in frequency and intensity in extreme weather events
and natural disasters, causing huge losses. Thefloods in 2010 and 2011 caused damage of $10
billion and $3.7 billion, respectively; while the earthquake in 2005 resulted in 73,000 deaths and
$5 billion in losses. The country has also had its share of droughts and cyclones in recent years.
The risks are projected to increase. The melting of the Hindu Kush-Karakoram-Himalayan
glaciers could affect water flows into the Indus River system with implications for energy and
food security. The government has launched a National Climate Change Policy outlining
mitigation and adaptation measures. To preserve its poverty and shared prosperity gains,
Pakistan needs to make concerted efforts at adaptation to conserve water and build resilience.

24. The foregoing challenges notwithstanding, Pakistan has several opportunities. It needs
to exploit them better.

Democratic transition. Pakistan has the window of opportunity offered by the orderly
democratic political transition that brought a new government with a strong mandate for
reform. This bodes well for political stability and continuity that is important for sustained
development. The initial steps of the new government have been promising.

Rich natural resource base and strategic location. Balochistan alone has an estimated $3
trillion in mineral resources. Unexploited hydrocarbon reserves are estimated at 27 billion
barrels and 280 trillion cubic feet of natural gas. Unexploited hydroelectric potential is
estimated at more than 100,000 Megawatts, enough to make Pakistan a regional power
supplier. Pakistan is the only overland route between India and the energy-rich countries of
Sea and the Persian Gulf. G sed port also carries huge potential for supporting
the

Regional cooperation. This could support growth acceleration because South Asia is one of
the most dynamic but least economically integrated regions. (Intraregional trade accounts for
just 5 percent of its total trade, versus about 25 percent in ASEAN.) This reflects historical
mistrust. Pakistan has yet to fully benefit from economic relations with China, or with India,
if most-favored-nation status is granted.

10

Economic resilience. Three factors cushion the economy against international shocks: the
heavy weight of agriculture; the informal economy; and remittances (see below). Agriculture
still generates about 21 percent of GDP, 45 percent of jobs, and about 80 percent of export
earnings directly and indirectly. And despite malnutrition among the poor, it ensures there is
no risk of nationwide food shortages or famine. Pakistan has strong potential as a food
exporter it bounced back quickly from the floods to meet rising demand for food from
China, India, and Southeast Asia. In addition, as much economic activity is informal above
70 percent paradoxically the situation is rarely as bad as official statistics indicate.


In most provinces in 2007/08, about 72
percent went to rural areas, and the balance to urban areas. Punjab and KPK received the
highest shares, while Balochistan had less than 1 percent of the total.

Rapid growth of the female labor force. There are now more women than men in colleges
and universities. If female labor force participation rises from 23 percent to 27 percent as
expected, with a million well-educated and trained women joining the workforce every three
years, many will take jobs in the modern sector.

National Poverty Registry. Pakistan is one of the few countries in the world that has
developed a comprehensive National Poverty Registry (NPR), validated by the National ID
system, containing welfare information on more than 27 million households (170 million
people). This serves as a robust mechanism for targeting the development effort for the poor.

F. Government Priorities and Medium-Term Strategy
25. an ambitious economic agenda. This sets
targets for the end of its five-year term: raise the tax-to-GDP ratio from 9.6 percent to 15 percent,
bring inflation down to 7 8 percent, and raise investment from 12 percent to 20 percent of GDP.
It involves large infrastructure projects including dams. The government also set ambitious goals
on the human development side to double social assistance, to increase resources for education to
4 percent of GDP, and increase health spending to 2 percent of GDP. In the first 5 months, it has
taken important first steps to stabilize the economy. It entered into an IMF program on
September 4, 2013, setting the stage for fiscal and structural reforms (see Box 1).

26. The Government Energy Policy 2013 and a new approach to mobilizing revenue
appear promising platforms for reforms. Issued on J uly 31, 2013, the energy policy provides for
phasing out the energy subsidy over three years, except that targeted to the poor; retiring and
limiting the recurrence of the circular debt; prioritizing new investments and attracting private
sector; improving performance in energy companies and piloting privatization of some
Distribution Companies (Discos) immediately; smart metering with transparent billing and
cutting off nonpayers; and energy conservation and efficiency standards. Similarly, the tax
reform approach is based on three pillars: tax policy; measures to increase the tax base
(particularly eliminating exemptions supported by distortive Special Regulatory Orders (SRO),
11

which should increase revenues by some 1 1.5 percent of GDP); and improved tax
administration. This way, the government expects to avoid the need for further increases in tax
rates. The plan aims to incorporate 300,000 new taxpayers into the income tax net, with 75,000
first notices dispatched by end-March 2013. Finally, in December 2013 the FBR launched a plan
to enhance revenue administration for sales tax, excise, and customs (see Annex X on New Tax
Reform Strategy in Pakistan).

27. The government is in the process of developing a more comprehensive development
framework. five-year development vision
through a framework of 4Es: and Education
(e.g. energy); and the priorities listed under the draft Vision 2025 (see Annex VI on Pakistan
Vision 2025). Provincial governments have also developed or are working on their own
development visions and strategies, which will guide the
over the five-year CPS period.

I I I. WORLD BANK GROUP PAKI STAN COUNTRY PARTNERSHIP STRATEGY 2015 19

A. Lessons Learned from Previous CPS 2010-14 and Stakeholder Feedback

28. CPS a rich set of knowledge work,
7
-
overty, investment climate, job-enhancing
growth, policy notes on key reforms, provincial expenditure reviews, and access to finance,
contributed to the strategy formulation.


Lessons from the CPS Completion Report

29. The draft completion report (CR) of the CPS 2010 14 notes many lessons to inform the
new strategy. These include (see Annex II on CPS Completion Report):
a) Key strategic engagements take time. For many years efforts on fiscal reforms/tax policy and
energy made little or uneven progress. Yet these engagements have laid the foundation for
more recent, productive engagements. These are long-term issues because problems are
deeply embedded in political-economy and structural, institutional conditions.
b) Coordinating donor responses can make a big difference. Coordination on responses to
challenges as for floods, social protection and the MDTF underscores the value of
partnerships with stakeholders. Such partnerships also help to build a common narrative and
maintain focus on long-term issues.

7
Pakistan: The Transformative Path 2013; Pakistan: Finding the Path to J ob-Enhancing Growth A Country
Economic Memorandum (CEM) 2013; World Development Report 2013: J obs.

12

c) Traditional approaches to capacity building have only been moderately effective. Technical
assistance (TA), training, just-in-time analyses, and IFC advisory services have helped, but
staff turnover in the civil service is so high that it is hard to gain long-term traction. Focusing
Outsourcing
activities to the private sector or NGOs where feasible could also be considered.
d) There is a need to focus more on monitoring and evaluation and on results reporting from
the start. Data on many sector/project implementation indicators are only collected at project
completion too late for mid-course correction.
e) A simpler CPS results framework with fewer outcomes would help keep the engagement
focused. A simpler results matrix would also make it easier to monitor and report on simple
results everyone understands and remembers.
f) Strengthened attention at province level is not a choice; it is a necessity. Devolution (the
18
th
Amendment and the 7
th
NFC award) has fundamentally changed operational modalities.
While remaining engaged with the federal government, the WBG has increased its outreach
to provinces.
g) The Pakistan program must become more selective. There is no way that a World Bank
portfolio of over 30 projects and an IFC portfolio of 40 projects can be effective. Selectivity
criteria can help, but there is no substitute for strong leadership, led by the country, to make
trade-offs and enforce selectivity.
h) A strong counter-cyclical role played by IFC has helped ramp up support to the private
sector even in difficult circumstances. IFC has increased its short-term trade finance and
enhanced investments in infrastructure, especially low-cost and renewable power, to address

i) IFC-World Bank collaboration, built around an explicit agreement on joint priorities,
helped increase the impact of services provided. Keys to success included a strong field
presence with co-location, regular communication at all levels, and use of private networks to
leverage policy dialogue.

Feedback from Stakeholder Consultations and Client Survey

30. The WBG consulted with over 4000 individuals across Pakistan through a combination
of face-to-face meetings with stakeholders, interview-based Client Survey and an online
Facebook survey (see Annex III on CPS Stakeholders Consultations). The stakeholders
represented a diverse range -- civil society organizations, parliamentarians and political leaders,
civil servants, academics, think tanks, youth groups, media representatives, private sector, and
other development partners. In addition, over 700 clients and stakeholders participated in a
Client Satisfaction Survey conducted through Gallup Pakistan and 3000 provided feedback
through a Facebook survey.

31. There were common messages heard across the government and non-government
stakeholders:

13

a) Tackling the energy crisis with low-cost generation options like hydro-power and improving
access to community-led small-scale off-grid and renewable energy sources, such as solar for
remote areas of Balochistan and FATA.
b) Fostering entrepreneurship and access to finance, increasing economic opportunities and
productively engaging youth and women.
c) Improving social service delivery, particularly investing in education and health and focusing
on women and children
d) Addressing inequity in all shapes and forms (with special attention to lagging regions and
vulnerable groups).
e) Combatting climate change and improving water management disaster preparedness and
recovery support, storage dams, modern irrigation techniques, improving availability and
quality of drinking water.
f) Engaging withlocal communities, especially women and youth.
g) Enhancing economic growth and human development and partnerships with the private
sector was considered essential for reaching the development goals of ending extreme
poverty and building shared prosperity.
h) Expanding WBG engagement with academia, youth and local governments, and
communicating development results.

32. There were some unique features in priorities among the provinces and regions,
reflecting the different development contexts and needs.
improving the investment climate to attract the private sector, while in Khyber Pakhtunkhwa,
improving the security situation and creating jobs were identified as foremost priorities to create
conducive conditions for economic and social progress. In Balochistan, water scarcity,
transparency and benefit sharing in development of na and
came out as major concerns. For FATA, governance and
constitutional reforms and bringing the region at par with the rest of the country were identified
as crucial to achieving development results. Energy, economy, education, youth skills
enhancement, revenue mobilization, restructuring of state-owned enterprises, and climate change
were highlighted as the top priorities at the federal / national level.

B. Proposed WBG Country Partnership Strategy
33. The overarching goal of the Pakistan CPS (FY15 19) is to help the country accelerate
poverty reduction and build shared prosperity. nterim guidelines on
the overarching poverty and prosperity goals and strategy products.


34. The CPS is structured around four strategic themes, or result areas. The four strategic
results areas are energy, private sector development, inclusion, and service delivery (see Figure
8). Taking into account new realities, it proposes fundamental game changers for the next CPS
14

period. First, it deals with vulnerable macroeconomic external and domestic conditions that mark
l development challenges and
focuses on two key constraints on growth energy and private sector development. It explicitly
recognizes the critical role of the private sector to help respond to these development challenges,
and of the WBG in creating the enabling environment for more effective development solutions
and in using its limited resources to leverage other development and private funding for
maximum impact. Third, it supports the role of inclusion for dealing with what appears to be the
most significant challenge in the medium term: materializing the population dividend and
reaching out to the marginalized. Fourth, it accommodates the realities that the devolution of
more responsibilities to provinces, in line with the 18
th
Constitutional Amendment, implies for
the development process in terms of governance and service delivery. Finally, while the CPS
consolidates the response to conflict-
initiatives to support a new regional dimension opening up for Pakistan. Overall, the CPS builds
framework of 4Es and the key priorities identified as part of the
Vision 2025.

35.
systematically identify ways to enhance accountability and
transparency in all of the public and private institutions and systems we are working with. This
also means helping the Government to implement its stated zero-tolerance for corruption in all
transactions (see Annex XII). On gender, most WBG projects in Pakistan are currently gender
informed and all new projects will be screened for this. Further specific attention will be paid to
n, health, labor and private sector (see Annex XIII).
In light of the demographic trends, the CPS recognizes youth engagement as a critical theme,
and within this a particular emphasis on innovative approaches to promoting economic
opportunity for youth (see Annex XIV). The CPS seeks to address sources of fragility and
conflict, with an emphasis on restoring trust between citizens and the Governments of KP,
FATA, and Balochistan (see Annex XV). And finally, an underlying theme of the CPS is
creating more and better jobs, particularly by building the business environment,
competitiveness, marketable skills for a growing labor force, and facilitating cross-border trade
(See Annex IX).

Results Area 1: Energy

36. The WBG aims to address energy security, particularly power sector needs, as the top
priority and necessary condition for growth. Power sector goals could not be met in the
previous CPS for several reasons lack of clear government/sector policy; poor implementation
of reforms and setbacks from political opposition, public and private vested interests; and limited
WBG engagement and instruments to influence policy reforms. By making energy a stand-alone
results theme in the CPS, the WBG is placing greater focus on the sector issues. With an IMF
program in place, there is a broad consensus across government and major donors (WBG, ADB,
J ICA, DFID, USAID) on the key policy reforms and investment needs of the sector. This also
opens up the possibility of using a combination of instruments, particularly Development Policy
Financing, which was not available earlier. All these factors help the WBG to be in a unique
position to support energy reforms in a comprehensive and coordinated manner.

15

37. The WBG interventions will be at both the policy and investment levels, with an
increased focus on hydropower and other renewable energy. On the policy side, the World
Bank, with ADB and J ICA, will extend a series of Development Policy Credits (DPCs) aimed at
strengthening the policy and institutional framework within the energy sector. On the investment
side, it is supporting major public investments, while IFC will play a significant role by
mobilizing large private investments in the sector, using its debt and equity instruments, with
MIGA political risk insurance.

38. The WBG has started a Transformational Energy Initiative to support new investments
and reforms in the power sector. The program entails ongoing WBG investments including IDA
lending in the Tarbela-IV Extension; upcoming investment in the large hydropower project
Dasu Hydropower Stage 1 (2,160 MW); and first two in a series of DPCs to improve financial
viability, investment climate and transparency of the power sector. IFC has been supporting low-
cost generation using indigenous gas and hydropower resources as well as promoting alternative
sources (wind, solar, waste to energy), and has invested in (i) t

based on indigenous gas Uch-II (404 MW); (iii)
-
f
-
In addition to its own direct
funding, IFC will leverage and mobilize significant capital from international equity investors
and lenders to support the large pipeline of power projects in Pakistan. Finally, IDA and IFC are
working together to bring Central Asian power to Pakistan through Afghanistan (CASA-1000), to
help address energy shortages during the summer and support regional cooperation and
(see Annex VIII on WBG Pakistan Energy Initiative).

Outcome 1.1: Reduced Load Shedding

39. Reducing load shedding in the short term is key to revitalizing the economy. The
strategy addresses the immediate need to reduce load shedding through a combination of strong
policy dialogue and program support using DPCs as instruments. These will address
shortcomings in tariff setting and targeting of subsidy, and the weak sector governance and
accountability. These underlie the chronic liquidity crisis in the sector, known as the circular
debt, which contributes to the high levels of load shedding experienced particularly during the
summer months. Longer term measures to increase generation capacity and improve operational
and technical performance of the distribution companies, as well as reforms in the gas and
petroleum sectors are also needed and are discussed below. The key outcome to be monitored
from all these activities will be to reduce load shedding from 8 hours to 5 hours a day over the
CPS period.
16


Outcome 1.2: Reduced Cost of Electricity Production

40. The World Bank Group aims to mobilize substantial investments (up to $10 billion)
over the next five years to reduce power generation costs. The focus of the WBG strategy is to
shift the generation mix to low-cost sources and prioritizing supply of natural gas to thermal
power generation, thus making electricity more reliable and affordable. Hydropower
development along the Indus River Cascade will be the cornerstone of the WBG strategy, for
more and lower cost power generation. The WBG will support large public sector hydropower
projects, including Tarbela and Dasu, while IFC will engage with domestic and international
sponsors (from China and the Republic of Korea) to finance large private hydropower and
renewable power projects over the next three to five years. It will support the development of
small, predominantly renewables-based, electrification schemes to bring affordable electricity to
those not served by the grid, particularly in Balochistan. IFC will also invest in developing a
storage and regasification terminal to facilitate liquefied natural gas imports. The WBG is
supporting enhancing the supply of natural gas through the Natural Gas Efficiency Project. The
Power Sector Reform DPC will support the government in putting in place a policy framework
mandating expansion in generation through a least-cost plan, for all new future power
generation. The DPC will also help the government establish the policy and incentive framework
that allows direct contracting between gas producers and open access to the transmission system,
including determining transportation wheeling tariffs and starting a market for all new gas
discoveries. The key outcome to be monitored will be to cut the average generation cost from
12/kWh to 10/kWh over the CPS period.

Outcome 1.3: Improved Financial Sustainability of the Electric Power Sector

41. Reforms for enhancing the financial viability of the power sector need to proceed in
tandem with new investments. Clearly it is not possible to make the fiscal situation sustainable
without heavily cutting the huge power subsidies. The government has initiated a plan to phase
them out, targeting them toward the poorest and most vulnerable. Similarly, improving sector
governance, system efficiency and management, especially in Discos, is crucial for sustainability
of the sector in the long term. In addition, management autonomy and accountability needs to be
introduced in the Discos, including through privatization where feasible. Operational and
technical performance can be improved across a wide spectrum (losses, theft, voltage, and
other indicators of service quality), commercial areas (collection), etc. The WBG will support
these efforts through policy dialogue and a series of budget support operations (DPCs) prepared
with the IMF and other key development partners (ADB, J ICA, DFID). Based on the
in privatizing the Discos. To help the poorest offset the impact of reduced subsidies, the WBG
will work with the government to enhance coverage of the BISP cash transfers and other
mechanisms. The key outcomes to be monitored will be to reduce untargeted subsidies from 1.8
percent to 0.4 percent of GDP; and improved collection of billed electricity from 86 percent to
94 percent over the CPS period.

17

Results Area 2: Private Sector Development

42. It is critical for the WBG to help Pakistan change the trajectory of growth with greater
private sector development. Under this results area, the WBG will focus on policy reforms at the
federal and province levels to enhance the enabling environment, including legal framework and
unlock constraints on the private sector participation. These reforms and policy interventions will
also support outcomes under other results areas (such as energy). The Bank and IFC along with
MIGA support will help Pakistan attract and mobilize private investment. The WBG will also
focus on improving competitiveness and productivity of farms, small businesses, and key
economic sectors as well
as enhance skills, especially for youth and women in Balochistan, KPK and FATA.
Outcome 2.1: Improved Business Environment for Private Sector

43.
growth. Supported by the WBG, the Board of Investment has formulated a plan to improve its
Doing Business ranking. It includes federal actions to improve power access, streamline tax
payments, setting up a One-Stop Shop for business registration, and approving the credit
information law (all actions supported by the Fiscally Sustainable and Inclusive Growth DPC
and ongoing TA). Further assistance can be channeled through Indicator Based Reform Advisory.
At the local level, provincial governments are creating new courts to resolve commercial
disputes with support from IFC one in Sindh and another in Punjab. The Punjab Land Records
Project is helping computerize land registration and easing procedures for approval of
construction permits. The Bank and IFC will work together to improve competitiveness
including focusing on (i) labor intensive manufacturing by rehabilitating and developing
industrial estates (e.g. Punjab Apparel Park); (ii) reforming regulations and procedures for
construction permits; and (iii) attracting strategic investors into the agribusiness sector to support
conversion to high value added export. Support for revitalizing the private sector in Balochistan,
KPK and FATA will contribute to the development of local natural resources. The key outcome
to be monitored will be to make progress on Doing Business indicators such as cutting the
number of days required to start a business from 21 to 15

44. The WBG will promote increased private sector development through SOE reform,
including privatization. State Owned Enterprises (SOEs) are a heavy burden on already strained
fiscal resources, deliver poor services, and create market distortions all of which harm private
investment. Eight initial SOEs have already been cleared as priority for the first drive of
DPC on Fiscally Sustainable and Inclusive Growth as
well as Investment Climate and PPP advisory are supporting these efforts. The IFC will
support privatization transactions in the financial and infrastructure sectors through technical
advisory and strategic investments (subject to government inviting IFC to be part of the process).
Also, with the ongoing TA on SOE reforms, the WBG will continue supporting the government
in improving corporate governance and accountability of SOEs, amending the regulatory
framework for PPPs, and approving new regulations allowing the swift opening of special
economic zones (SEZs). The key outcome to be monitored will be to help the government
restructure or privatize at least five SOEs (including three in the power sector).

18

45. The WBG will support financial-infrastructure improvements. A key reform area in
financial intermediation to the private sector relates to reducing the underlying risks by
Credit bureaus and credit registries are essential parts of the financial infrastructure and facilitate
access to formal finance, reduce information asymmetries, increase access to credit for small
firms, lower interest rates, improve borrower discipline, and support bank supervision and credit
risk. The Bank DPC on Fiscally Sustainable and Inclusive Growth will support reforms to
. IFC will
support the deepening of financial markets through equity and debt investments in financial
institutions including further private participation, and expanding its advisory services to the
banks. IFC will also explore opportunities to support long-term market development through
local currency bond issuance and support to housing finance.

Outcome 2.2: Increased Productivity in Farms in Selected Irrigation Schemes

46. The WBG operations thus far have been focused on increasing efficiency of water
distribution and use, as well as promotion of agricultural value chains. Ongoing and planned
investment operations in Punjab, Sindh, and Balochistan will contribute to productivity
outcomes. Water resource management, particularly small-scale community water infrastructure
and storage in Balochistan will be a priority. Agricultural trade distortive policies will be
indirectly tackled through eliminating SROs supported by the Fiscally Sustainable and Inclusive
Growth DPC. Fostering agricultural value chains is part of planned TA. IFC will continue to
provide PPP support for grain storage facilities in Punjab and Sindh. In addition, it will support
supplier finance in agriculture, and TA to commercial banks to expand finance to agribusiness.
The key outcome to be monitored will be to raise yields of major crops (wheat, cotton, rice) in
selected areas by 20 percent.

Outcome 2.3:

47. -
enhancing growth, and improving youths skills so that they can perform these jobs. The
World Bank has operations to improve urban management in Punjab, FATA, and KPK, and will
be providing TA for Karachi. But if cities are to become growth-friendly clusters, skills will have
to be upgraded. (The Bank percent of
firms had provided training to their employees.) Technical and Vocational Education and
Training in Sindh, and the IFC-led Business Edge skills program are expected to provide
training, job-search assistance, internships, and microenterprise support to foster
entrepreneurship. Youth skills program for Balochistan and other regions will also be considered.
The key outcome to be monitored will be to increase the number of trainees in skills development
programs by 20 percent.

Outcome 2.4: Improved Trade Tariff and Ports / Borders Logistics

48. should improve after tariffs are
simplified and trade regulations streamlined. DPC on Fiscally
Sustainable and Inclusive Growth and related TA, the government expects to gradually return to
19

four tariff slabs, while phasing out SROs. Tariff reform would reduce the average tariff rate to
close to 10 percent, with reduced dispersion, and would pay off in the longer term by allowing all
. The key outcome to be monitored will be to
reduce average tariff rate from 14.4 percent in FY13 to 10 percent and no special tax exemption
issued.

49. Improvements in port operations and border post management are equally important.
A sound trade facilitation and logistical system can play a decisive role in attaining export-led
growth by reducing trade costs, upgrading service quality, improving connectivity between
domestic and foreign markets, and moving up the supply chain. Projects include the IBRD-
supported Karachi Port Improvement Project, the IFC Qasim International Container Terminal,
the Pakistan International Bulk Terminal and Intercity Transport Projects. Pipeline operations
are Wagah Border logistics improvement, and IFC Freight Train Project. Over the CPS
implementation period, the WBG will consider other opportunities to facilitate cross-border trade
between Pakistan and its neighbors and to help all provinces and regions achieve their full trade
potential. Particular focus will be on activities to increase local resource generation and exports
in Balochistan, KPK and FATA. The key outcome to be monitored will be to reduce waiting time
at Wagah by 20 percent and improve occupancy rate of selected Karachi Port berths from 74
percent to 50 percent.
Results Area 3: Inclusion

50. Pakistan needs targeted measures to benefit the poor and other disenfranchised groups
to address persistent disparities. There is uneven progress with rural-urban gaps and inequities
within and across provinces. Among the poor, women and girls and those living in the conflict-
affected areas are particularly vulnerable. The development efforts should reach these
disadvantaged regions and groups to provide equal opportunity, if the WBG were to achieve its
shared prosperity goal for the bottom 40 percent of the population.

51. The WBG will support inclusive growth by reducing inequities for vulnerable groups,
including women and youth, and those in poor or conflict-affected areas including
Balochistan, KPK and FATA. It will bring increased attention to these groups and areas that are
denied access to resources and services, hindering their full participation in society. One key
component will be efforts to increase financial access of MSMEs, particularly among women.
Another will be to address vulnerable groups either through stand-alone projects such as safety
nets or as part of activities supported under other results areas. The WBG will also help Pakistan
reduce its vulnerability to disasters, which usually has the biggest impact on the poor. To
measure the distributional impact of all the WBG interventions and to strengthen evidence on
development impact, the WBG will work with the Bureau of Statistics and relevant institutions
in the provinces to improve reliability of data(Figure6on Financial Access).


20
Figure 6: Financial Access

Source: World Bank Financial Inclusion Data.

Outcome 3.1: Increased Financial Inclusion for MSMEs and Women

52. Promoting financial inclusion for women, households in the poorest districts and
MSMEs particularly in Balochistan, KPK and FATA will help increase economic
opportunities for the disadvantaged. Given Pakistan low access to finance (only 14 16
percent), the DPC on Fiscally Sustainable and Inclusive Growth will support reforms to
enhance financial intermediation and access to finance by strengthening credit information. The
Bank will focus its analytical work on supporting development and implementation of the
Financial Inclusion Strategy to
include product development for MSMEs, low-income housing, and crisis-prone sectors (crops
and livestock), and insurance markets. On the investment side, Global Trade Finance and
Supplier Finance Programs will assist businesses and support commercial banks to expand
guarantees for increased access to finance for SMEs, while investments in four microfinance
banks will continue to expand outreach in the microfinance sector. IFC will also expand its
investments in banks with MSME focus, and enhance advisory and technical assistance in areas
including agriculture supply chain management, gender finance, entrepreneurship and
management skills, corporate governance, and sustainable finance. A key outcome to be
monitored will be to enhance MSME outreach by at least 25 percent, with women participation
increased by 10 percent. The WBG would also seek to increase overall financial inclusion by 10
percent (including women access by at least 3 percent).

Outcome 3.2: Reduced Vulnerability for Groups at Risk

53. The WBG has played a central role in strengthening social protection systems for the
poorest and will help take these programs to the next level. The WBG will support the
government to minimize the potential negative impact of fiscal adjustment and
21

structural reforms on the poor and vulnerable. The government has significantly increased
spending on safety nets and transitioned to a stronger institutional framework to cushion
vulnerable households from the negative effects of transitory income shocks. However, a large
share of public expenditure is still devoted to regressive and inefficient universal subsidies.
Administrative efficiency of social assistance programs should also be upgraded, in part through
further consolidation and coordination of interventions. The WBG will build on ongoing
engagements through BISP, the Pakistan Poverty Alleviation Fund, and interventions under the
MDTF for KPK, FATA, and Balochistan. Part of this will be to support innovative pilot
programs to focus on medium- and long-term interventions to help families move out of poverty.
This includes the livelihoods grants and conditional cash transfer programs to improve school
enrollments and attendance as well as transfers linked to improving their health status.
Facilitating access to productive assets for income generation is also important, and the WBG
support to microfinance, entrepreneurship, and skills development will contribute to that
objective. The key outcome to be monitored will be to expand BISP coverage by 20 percent and
expand the use of conditional cash transfers to 25 districts.

54. The WBG will have focused interventions for the second vulnerable group comprising
women and girls. Within each activity, not just health and education but also infrastructure,
finance, governance, training, and agriculture, the WBG will identify approaches to ensure that
women have increased access to services. In education, the WBG will seek stronger access for
girls as a priority, such as Promoting Girls Education in Balochistan (MDTF). The key
indicators to be monitored will be to increase girls gross primary education enrollment by 15
percent more than the overall rate.

55. Those living in border areas affected by violence form a third vulnerable group. WBG
will continue to support the government in the implementation of the Post-Crises Needs
Assessment (PCNA) and the Balochistan Development Needs Assessment (BDNA), with
continued emphasis on addressing the drivers of crises. The engagement will focus on increasing
employment and livelihoods opportunities and improvements in delivery of basic services. Over
the past three years, the World Bank has piloted an MDTF for KPK, FATA, and Balochistan for
a total of $160 million from 11 donors. The MDTF has been used in basic health and education
services, emergency road rehabilitation, rural development, governance, and economic
revitalization. The WBG has learned a great deal on how to operate in these areas and plans to
expand operations under a second phase (targeted at more than $200 million) with a
programmatic approach to reduce fragmentation with each of the three regions. The WBG will
use the MDTF to help provide a framework through which all donor interventions can be
coordinated in these areas and build capacity of the government to lead the donor coordination
effort. There is no stand-alone indicator to be monitored, as operations in the MDTF will be
integrated into the rest of the program.

Outcome 3.3: Increased Resilience to Disasters in Targeted Regions

56. The WBG will work with the government to improve understanding of disaster risks to
build resilience and strengthen disaster risk management and early warning systems. It will
build on existing programs and expand dialogue. The WBG will support efforts for multi-hazard
risk assessments for major urban centers, updated provincial disaster risk management plans and
22

standard operating procedures, and enhanced disaster response and coordination capacity at the
national, provincial, and district or city level. The key outcome to be monitored will be to
increase the number of provinces with disaster risk management plans, improved management,
and early warning systems.

Results Area 4: Service Delivery

57. Weak institutional governance and service delivery disproportionally affect the poor.
The poor and disadvantaged are overwhelmingly dependent on public services, and lack of
quality access restricts human opportunity as well as negatively impact growth. The recent
Lancet Commission on Global Health notes that investing in health has a huge payoff. Mortality
reductions account for 11 percent of recent economic growth in low- and middle-income
countries. Evidence suggests similar economic pay offs for education. Investing in people is
therefore critical not only for human development gains but to sustain growth and development
outcomes. However, increasing funding alone is not sufficient. Addressing weaknesses in the
public service delivery mechanisms and promoting transparency are also necessary.

58. The WBG aims to b . The pace of
improvement is far too slow and needs to be accelerated. This requires the governments to
improve resources management increasing revenues and allocations, as well as improving
targeting and efficiency of pro-poor expenditures. revenue collection -- tax-to-GDP
ratio is the lowest in South Asia and most of the -development
expenditures (Figure 7). At the same time, lack of administrative capacity and transparency are
also contributing to poor outcomes. The WBG will work with federal, provincial and local
governments to help improve revenues and expenditures to fund services, and setting more
ambitious stretch targets for areas of past WBG involvement that are not producing change fast
enough (such as health and education). Previous WBG strategy dealt with resources, social
services and governance aspects under separate pillars. Yet the nature and scale of these
interlinked challenges call for a more integrated approach. They also call for greater focus on the
roles of federal and provincial governments, with the former providing coordination or
stewardship, even as service provision is devolved to the latter. The WBG will also facilitate
innovative approaches and delivery mechanisms involving the private sector.

23
Figure 7: Public Expenditures

Source: Finance Department, Government of Pakistan; and Bank staff calculations.

Outcome 4.1: Improved Public Resources Management

59. The WBG will focus on helping government mobilize revenue and improve
development expenditures to create fiscal space. As documented in the CPS Completion Report,
WBG could not achieve the revenue mobilization targets under the previous strategy for several
reasons including lack of political will, public and private vested interests resisting tax reforms,
institutional capacity, and lack of the WBG instruments to influence policy reforms to
compliment interventions supporting administrative efficiency. Building on the lessons and the
opportunity to use the policy instruments, the DPC on Fiscally Sustainable and Inclusive
Growth is supporting the government comprehensive national tax reform agenda to increase
the tax-to-GDP ratio. Ongoing analytical engagement and investment operations at subnational
level through PERs, PEFAs, and DSA in KPK, Balochistan, Punjab, and Sindh
PIFRA-II will support the launch of a medium-term budgetary
framework at federal and provincial levels. The Punjab and Sindh Public Management
Improvement Program will also support more efficient use of public resources, while
subnational PEFAs aim to support expenditure reform focusing on improvements in the
efficiency of provincial departments. The key outcomes to be monitored will be (i) to increase the
tax-to-GDP ratio by two percentage points from 9.6 percent to 11.5 percent at federal level, no
special tax exemptions issued, and expand tax revenues at province level; (ii) to increase non-
wage recurrent expenditure by provinces in education and health by 20 percent; and (iii)
improve quality and timeliness of government accounting, auditing, and reporting at federal and
province levels against PEFA scores.
24

Outcome 4.2: Improved Access to Maternal and Child Health Services

60. Health outcomes are very poor, as public delivery systems struggle to keep pace with an
ever-increasing population. The will primarily focus on
improving maternal and child health for the poor. Specifically, it will support efforts to improve
coverage of immunization services to address recurrent outbreaks of vaccine preventable diseases
in children, including polio. Building on the multi-sectoral dialogue on nutrition from previous
years, it will support provinces in rolling out plans for scaling up nutrition interventions and
strengthening cross-linkages across health, agriculture and related sectors. Besides addressing
maternal mortality and fertility rates, the WBG will engage in a broader dialogue and analytical
work on population management. The WBG will help strengthen health systems as well as
capacity and stewardship in provincial governments, such as the ongoing support for Punjab, in
the context of post 18
th
Amendment. The key outcomes to be monitored will be (i) to increase the
percentage of births attended by skilled health personnel from 52 percent to 60 percent; (ii) to
increase use of modern contraceptive methods from 26 percent to 30 percent; and (iii) to
increase fully immunized children by 20 percent.

Outcome 4.3: Increased School Enrollment and Adoption of Education Quality Assessment

61. Pakistan needs to address its education emergency as a matter of urgency. The WBG
investment in the sector is over $1 billion, with a focus on improving access, quality and learning
outcomes at primary and secondary levels in Sindh, Punjab and Balochistan and higher education
standards at the federal level. The results-based approach and community-managed schools
under these programs have supported improvements in the quality and accountability of teachers
and the leveraging of PPPs in education. The Global Partnership for Education is considering
complementing these efforts with two education projects of up to $100 million in Sindh and
Balochistan. At the federal level, the WBG will continue to support the government in
developing standards, quality assurance, and monitoring and evaluation to address disparities and
facilitate attainment of the objective of education for all. In higher education post 18
th

Amendment, the WBG will continue to strengthen quality and relevance at federal and province
levels. IFC will aim to explore its E4E (Education for Employment) initiative to include
Pakistan, with a view to improving the quality of private post-secondary education to better suit
the needs of the labor market. The key outcomes to be monitored will be to increase gross
enrollment rates at primary school by at least 10 percent; have at least three provinces carry out
annual student achievement tests; showing positive trend in learning outcomes.
Outcome 4.4: Adoption of Performance and Transparency Mechanisms in Selected Institutions

62. Weak implementation capacity and lack of transparency and accountability are
contributing to deteriorating service delivery standards. The WBG will support efforts to
improve performance and transparency in public institutions, by continuing to provide technical
and advisory support for enacting right to information legislation and establishing performance
monitoring mechanisms at federal and province levels. The MDTF and IDA Governance Support
Operations in KP, FATA and Balochistan; Punjab Public Reform Management Project, and
Punjab Cities Governance Project would help establish credible performance management and
. The key outcomes to be monitored will be to
25

increase by 30 percent the number of departments/services with citizen feedback in place, and to
increase number of service delivery units in the federal and provincial governments with
improved performance management systems.

Cross-Cutting Themes

63. Interwoven within these four pillars is a cross-cutting program to leverage cross-border
and regional opportunities and markets. In energy, this will mean helping Pakistan put in place
the policy, institutional, and infrastructure arrangements to import electricity from energy-rich
Central Asia (beginning with CASA-1000) and potentially establish an interconnection with
India, which will be a key building block of the planned South Asian Association for Regional
Cooperation Electricity Grid. The Bank and IFC will continue the recently begun support to the
government and private sector to expand trade with ducing barriers,
thereby stimulating competitiveness, productivity, and consumer welfare. This effort will also
support confidence-building measures (such as dialogue and joint investments in economic
infrastructure with Afghanistan and potentially between Pakistan Punjab and Indian Punjab),
contribute to improving the overall investment climate, and position Pakistan as an attractive
investment destination as well as a viable transit route between the West/Central Asia and the
more rapidly growing countries further east (Annex XVII).

64. Another interwoven theme is deepening engagement at the province level, while further
clarifying the roles between the provinces and the federal government. On the finance side, the
engagement with the DPCs on Fiscally Sustainable and Inclusive Growth, governance
projects at the province level, and further related TA at federal and provincial levels will provide
a focus to help the government further clarify and strengthen intergovernmental finance flows as
well as support local governments. At the sector level, service operations at the provincial level
will focus increasingly on results but also help to build space as feasible for a "stewardship" role
for the federal government. This approach will help to empower provinces to take greater charge
of service delivery with the finances necessary, while recognizing that the federal government
can continue to play a role in advocacy, information campaigns, research into alternative models
of delivery, and building countrywide standards and data systems. Informally, the WBG has also
established province-level teams that can come together across sectors (Annex XI on World


65. - climate change adaptation and mitigation in public and
private sectors, focusing on energy, water and agriculture investments. Climate change threatens
the water, food and energy security of Pakistan. The WBG efforts aim to reduce vulnerability,
improve readiness and achieve low-carbon green growth and resilient development. This would
involve supporting (i) preparedness towards disasters and climate related emergencies; (ii) water
conservation and management by modernizing irrigation networks and installing high efficiency
irrigation systems; (iii) efforts for low-carbon development, particularly in energy (renewables)
and industries (see Annex XVI on Climate Change).
26
Figure 8: Pakistan CPS Results Chain: Results Areas and Outcomes
27

66. Given limited resources and principles of
comparative advantage, the WBG cannot extend help in all areas (see Annex VII on Filters for
Selectivity). The results areas are therefore kept quite focused


67. The most important filter in selectivity is to ensure that the CPS outcomes under the
four results areas are tightly linked to poverty reduction and shared prosperity goals. The
impact of CPS outcomes on poverty reduction and shared prosperity is appraised and articulated
under Annex I(a) - Summary Matrix Pakistan CPS Selectivity and Impact on the WBG Goals.

The Result Area 1 addressing energy has the highest priority. The WBG and Pakistan led
studies have demonstrated the direct link between power supply and growth, and similarly,
between growth and poverty reduction and shared prosperity. These studies indicate annual
GDP losses due to power load-shedding equivalent to about 2 percentage points; and direct
and indirect employment losses for the poor.
The Result Area 2 addressing private sector development has mixed impact in terms of
reducing extreme poverty but very high impact on shared prosperity. Studies show the
correlation between policies improving the business climate and rising rural productivity to
growth -- based on the link between higher efficiency and productivity. Similarly, improved
job skills are correlated to quality jobs. These findings are most relevant for the large mass of
individuals that are just above the poverty line and able and willing to benefit from new
opportunities, whereas the very poor might have much less possibility to directly benefit.
WBG interventions under inclusion and service delivery areas will help bridge this
opportunity gap.
The Result Area 3 addressing inclusion is critical in terms of its impact on reducing
extreme poverty. By directly supporting women, youth and the most vulnerable the WBG
will be providing support to the poorest and disadvantaged. But just as importantly, by
supporting girls education and programs, such as micro-lending to bring them into the
economy, they will contribute to the economic growth of Pakistan.
The Result Area 4 addressing service delivery is also high priority in terms of development
impact, especially for human development outcomes for the poor. Analysis shows strong
correlation between education and health outcomes and productivity and growth. Since the
poor are dependent on public services, improvements in fiscal space and administrative
efficiency targeting human development outcomes, are all strongly linked to rapid growth
and poverty reduction.

68. Beyond their contributions to the twin poverty goals, further filters have been
established to ensure that WBG operations remain focused where they can have the most
impact. The most important of these is government ownership and commitment, as evidenced by
clear national and province level strategies and sectoral plans. Priority would also be given to
larger, more transformational operations where the WBG can play a catalytic role, and areas
where the WBG has a comparative advantage and which involve cross-sector collaboration,
28

where others find it hard to operate. Balance is also needed between Federal/Province and
between provinces. Additional selectivity filters would be whether an operation is grounded in
sound analytic work; and if the implementation readiness of a project allows for speedy
disbursements. The IFC and MIGA will continue to pay close attention to the integrity of
potential private sector partners (see Annex VII for further details on selectivity filters).

69.
Fiscally Sustainable and Inclusive Growth DPC


C. Implementing the FY15 19 Pakistan Country Partnership Strategy
i) Financing and Principles of Engagement
70. The CPS envisages an indicative financing envelope of about $11 billion over the five-
year CPS period (see Table XX). This includes an IDA lending of about $1.1 billion per year
(or $5.5 billion over the CPS period). These levels are notional, as actual allocations will span
two IDA replenishment cycles -- IDA-17 and the first two years of IDA-18
8
. Pakistan could also
benefit from additional regional IDA allocations for participation in projects that promote
regional integration, particularly in energy and trade.

71. IBRD lending would require strengthened macroeconomic balances, evidenced among
other things by foreign exchange reserves equal to at least 2 months of imports of goods and
services and a stable or declining public debt to GDP ratio, lower than the 64.2 percent projected
for end-2013/14. If IBRD lending resumes, it would be limited to investment lending of $500
million a year and a maximum of $2 billion in total over the CPS period. Within this, lending


72. IFC intends to continue expanding its investments in Pakistan with an envelope of
$500 million 700 million a year from its own account, and another $50 million 100 million
per year from other investors. About half this amount will be in short-term supplier and trade
finance, while the rest will focus oncatalyzing private investments in high development impact

8
IDA17 financing will be projected in J une 2014 (the projections will include the final allocation for FY15 and indicative
allocations for FY16 and FY17). Pakistan allocation is fixed at 7% of the total country-allocable envelope and is assumed to be
in the proximity of the IDA 16 levels (SDR 2,110 million). The financing is indicative and could change depending on exchange
rates, and adjustments to terms of IDA assistance introduced in the context of the IDA17 Replenishment. The strategy assumes
that IDA18 allocation will be on the same order of magnitude as in IDA17.
29

projects in (i) infrastructure, including low-cost and renewable energy; transport; logistics and
communications; (ii) expanded access to finance and development of long-term capital markets;
and (iii) selected industrial, agriculture, manufacturing, and services growth sectors with an
emphasis on jobs and exports. IFC will also focus on expanding its TA to improve the business
climate, corporate governance, and capacity building of MSMEs, as well as support PPP
projects. IFC will also look at options for supporting the efforts at privatization of
key SOEs. will be firmed up as the program takes shape.

73. The MDTF for the areas bordering Afghanistan will be expanded. The first round of
the MDTF working with 10 donors covering FY12 14 amounted to about $160 million. The
Bank is in the process of replenishing this at a larger level (notionally shown here at $200
million but actual amounts will be set by MDTF donors). But more importantly than the size is
that, based on experience, we will reposition the MDTF in two important ways: (i) the WBG will
establish programmatic engagements with each province for a holistic dialogue on priorities
(rather than via discrete small operations as now); and (ii) the WBG will use the MDTF as a
forum to coordinate and catalyze other donor funding (to reduce fragmentation across donors).

Table XX: FY15-19 CPS Financing Envelope
Period FY15 19 IDA
9
IBRD MDTF
10
IFC MIGA
11
Total
Total Financing $5.5 bln $2.0 bln $200 mln $2.5-3bln $50-200 mln About $11bln

74. All projects and programs will be vetted against the outcomes of this CPS (see Table 2
on indicative program). The CPS deliberately does not contain a detailed list of future projects,
except for those already planned. Instead, the WBG plansto engage the government in an annual
work program planning exercise to review progress against the CPS outcomes and agree on a
pipeline of projects and analytical activities that will best deliver these outcomes. The CPSPR
will then report on these activities as identified and extended. Key criteria will be those
operations (i) that have a line of sight impact on the outcomes sought in this CPS; (ii) where
WBG has knowledge leadership and/or can play a catalytic role in bringing financing from
others; and (iii) where commitment of the federal and provincial governments is strong. The
WBG will also build flexibility to reallocate resources within
further support a rapid response in eligible crisis and emergency situations.

75. The program and activities will be reviewed. The strategy includes and duly
reflects the ongoing projects as well as pipeline to be delivered in FY14. While all ongoing
projects in some way contribute to the attainment of CPS goals, many are fragmented and are not
as results oriented as they could be. This also includes several projects that were developed
during FY14, but because of IDA allocation limitations had to wait until the first quarter of FY15
to be delivered. During the CPS period, the World Bank will review these operations, as needed

9
IDA allocations are in SDR terms and the US dollars equivalent may change depending upon the prevailing exchange rate.
10
This amount is notional and is not intended to pre-empt MDTF donor discussions.
11
Tentative volume of gross guarantee issuance by MIGA over the CPS period; to be determined by client demand and on a case
by case basis
30

and decide with the government whether and how these could be consolidated, restructured, or
even partially cancelled to make room for more transformative, higher impact activities.

76. Getting the CPS results and impact on the twin goals of poverty reduction and shared
prosperity will also require a shift in the instruments and engagement as follows:

Increase in Development Policy Financing. For the past five years, no Development Policy
Financing was possible. In FY14, the Bank would propose extending two DPCs Power
Sector Reform and Fiscally Sustainable and Inclusive Growth DPCs. These DPCs have been
designed as a series and will form the backbone of the WBG reform program. The WBG will
also explore province-specific policy operations. Policy operations are expected to amount to
20 30 percent of the total IDA/IBRD financing envelope.
Leverage large private sector funding to complement public sector reforms. The WBG will
mobilize significant private funding, particularly as regards low cost energy production along
the Indus River Cascade. This includes IFC supporting large international private investors,
MIGA providing risk mitigating instruments, and IDA/IBRD guarantees. The goal would be
to catalyze more funds from the private sector than the World Bank puts in directly (aided by
the close collaboration between the institutions, and drawing on comparative advantages of
the Bank, IFC, and MIGA together).
Increase focus on results. The WBG has had good experience with results based operations
in Pakistan in the education sector. In the last year, the WBG has also extended this to an
urban, health and a governance project. The WBG would target an increasing number of its
investment portfolio to be results based, with stretch results, and with much stronger
accountability for results. This also includes more emphasis on reviewing results at the
strategy and portfolio levels, and expanded use of project level third party monitoring and
impact evaluations.
Reach out to the underserved, neglected and poor. This means a stronger focus on poorer
districts, crises-affected provinces, women and youth. The WBG will target increased
development resources, improvements in health and education outcomes and service
delivery, financial inclusion, safety nets to protect against income shocks, and building more
resilience to the impact of natural disasters and climate change.
Build knowledge partnerships and capacity, develop deeper understanding of the political
economy and facilitate evidence based dialogue to strengthen public and private institutions,
ensure wider ownership of the development narrative and generate greater confidence in
reforms.
Reduce fragmentation in subnational engagements: This means establishing province
specific programmatic engagements and bringing different sectors together at the province
level to raise the dialogue and focus on key barriers to poverty reduction and results.

77. ting key activities.
The CPS has benefited from having a Country Economic Memorandum and 16 sector policy
notes at the start. Thirteen AAA pieces were delivered in FY13 and eighteen pieces are planned
for FY14. These include critical pieces on business registration and State-owned Enterprise
(SOE) reforms; policy notes on subnational fiscal management; and a competitiveness study.
31

Analytical work during the first half of the CPS will prioritize activities that will both support
lending and provide knowledge transfer. This means a strong focus on private sector
development and intergovernmental finance. Towards the second half, a new stocktaking
exercise to determine a new generation of AAA will be undertaken to help inform the next CPS.
Population, climate change and water are likely to figure prominently in this work.

Table 2: First Two Years Indicative Lending and Analytical Program
12

Tentative Lending and AAAs FY15
AAAs Lending US$ m
Linked to Lending:
TA in Support of Implementing the DPCs (power,
tax, commerce, private sector development, social
protection)
Intergovernmental Finance and Local Governments
Political Economy Analysis of the Power Sector
Provincial Public Expenditure Reviews
Advisory to support PPP and SOE Privatization
Analysis of Wheat Sector and Grain Storage
Management
TA and Reimbursable Advisory Service (RAS) on
Financial Inclusion and Infrastructure Support
Reproductive health/Population Policy TA
J obs, Competitiveness and Skills Study
Advocacy/Quick Notes:
Continued support for Poverty Analysis and Data
Youth Engagement Strategy
Climate Change and Water
Girls Education and Women Entrepreneurship
TA on Regional Trade
TA on Karachi Transformation
IDA/IBRD:
Pakistan: Power Sector ReformDPC II
Pak-India Power Connectivity
Pakistan: Fiscally Sustainable and Inclusive Growth
DPC II
Sindh Irrigated Agriculture Productivity Enhancement
Project
Sindh Water Sector Improvement AF
Sindh Agriculture Growth Project
Sindh Public Sector ReformProject
Punjab Skills Project
Financial inclusion project
Enhanced Nutrition for Mothers & Children

300
100
300

200

160
76.4
50
50
tbd
40
IDA/IBRD Total 1,276
MDTF 50
IFC 500
MIGA 50
FY15 Grand Total 1,876
Tentative Lending and AAAs FY16
AAAs Lending US$ m
Linked to Lending:
TA and advisory to banks and MSMEs to improve
access to finance and investment climate
TA and advisory support on competitiveness and
regional economic cooperation
Agriculture, health and nutrition nexus
SME Portal developed for Regional Trade
Advocacy/Quick Notes:
TA on Water and Sanitation
Continued support for Poverty Analysis and Data
Urban Poverty
Food Security
IDA/IBRD:
Dasu Hydropower Project II
Punjab Agriculture Competitiveness Project
Sindh Barrages
Trade Facilitation & Logistics Project (Wagah Border)
Social Safety Net
Health
National Immunization support

700
100
150
100
tbd
tbd
50
IDA/IBRD Total 1,100
MDTF 100
IFC 600
MIGA 50
FY16 Grand Total 1,850

12
Mix of IDA, IBRD to be determined once Pakistan meets the criteria / parameters for IBRD lending; MDTF amount is
indicative and subject to donor Round II pledges; IFC and MIGA commitment figures are indicative number, scope and size of
projects to be determined by client/country demand.
32

ii) Portfolio Management
78. The total portfolio commitment has increased over the past CPS period, but
disbursements have not kept pace. On December 31, 2013 the Pakistan portfolio of active
projects under implementation consisted of 36 investment operations, including 12 funded from
the Multi-Donor Trust Fund (MDTF) for the conflict-affected areas bordering Afghanistan. Total
net commitments for this portfolio were about $4.5 billion for IDA/IBRD, and $0.1 billion for
the MDTF. The portfolio is balanced with a mix of fast disbursing DLI based operations and
more traditional projects. However, the amount disbursed during the Bank Fiscal Year (J uly to
J une) has decreased from $807.5 million in FY11 to $554 million in FY13. Disbursements in
FY14 are expected at around $600 million, not counting DPCs.

79. Key factors contributing to overall slow disbursements and implementation of the
portfolio include staff turnover, weak capacity to deal with procurement and financial
management, and delays in government approvals. Building on lessons from implementation
and as part of ongoing practice, the World Bank will continue to conduct frequent joint reviews
with the Government of Pakistan counterparts to identify measures to remove these bottlenecks
and accelerate disbursements. These reviews and engagement will be strengthened at: (i) the
federal level, by having high-level reviews of flagship projects at the Economic Coordination
Committee of the federal cabinet that can track and influence the pace of implementation; (ii) the
provincial level, working with
ministers, as well as the delivery units that some provinces like Punjab and KPK are already
setting up to strengthen implementation; and (iii) the federal, provincial and local government
levels, to strengthen public financial management programs focusing on the weakest areas of
accounting, internal and external audits, procurement systems, budget transparency, and social
accountability. Specific attention will be on meeting readiness criteria for implementation,
encouraging use of available tools such as retroactive financing, and building in flexibility in
project design for emergency response including increased attention to preparedness and shared
approaches for managing disaster risk. Additionally, efforts are underway to build partnerships
with leading institutes in the country for capacity building support. WBG will strengthen
capacity through building systems; and facilitating outsourcing / contracting out to the private
sector (e.g. for community mobilization). (See Annex XVIII).

80. s expanded over the past few years. As of February 28, 2014,
IFC s committed portfolio in Pakistan amounted to $809 million in 38 companies. Infrastructure
represents the largest exposure of about 56 percent of the committed balance, while general
manufacturing and services represents 25 percent, and financial markets 19 percent.
current gross commitment is $310 million ($217 net) in 3 projects. These are in the financial
services, p were signed in FY11, FY12 and FY13
respectively. A weak macroeconomic environment
-



33

iii) Communications and Knowledge Sharing
81. The WBG will continue to communicate results and share knowledge. In light of
development priorities identified during CPS consultations, especially areas of improvement
pointed out by the Client Satisfaction Survey 2013, the WBG will (i) expand development
dialogue through partnerships with the academia, media, civil society organizations, and other
stakeholders; (ii) increase development effectiveness by using political economy analysis and
embedding strategic communication in operations; (iii) establish the relation between the
knowledge and operational work and how it helps reduce poverty and build prosperity; and
(iv) regularly communicate CPS progress on results, share results stories, and solicit feedback
using traditional and online platforms. To sustain economic reforms and ensure development
effectiveness, broad public ownership is important. The
governments for effective communication will help them broaden support for, and sustainability
of, development initiatives and reforms.

iv) Collaboration and Partnerships
82. The WBG coordination has improved over the years and the WBG will continue to
work across IDA/IBRD, IFC and MIGA to present the best solution to the client. The last
strategy period saw credible efforts for WBG joint and coordinated tasks, particularly in energy
and access to finance. The four results areas under the CPS provide further opportunities for
WBG institutions to work together. The WBG will continue to improve on this front by
leveraging the newly established global practices and program leaders, and by building on its
knowledge partnerships with the World Bank Institute and the Water and Sanitation Program.

83. The WBG will continue to emphasize working with multilateral and bilateral
development partners to address the key constraints to poverty reduction and shared
prosperity. There has been a strong track record of donor coordination in the last strategy period
and the WBG will build on it. Close coordination around managing dialogue on pressing
economic issues during the political transition in 2013 and the IMF program are good examples.
Also, the results-based instruments and MDTF proved to be good platforms for partnerships.
Similarly, several donors are committed to co-financing the Power Sector Reform DPC (ADB,
J ICA) or to using the Fiscally Sustainable and Inclusive Growth DPC as a foundation to provide
their own support. Donors and government continue to seek coordinated financing mechanisms
and enhanced policy and strategic dialogue to increase aid effectiveness and reduce the strain on
government capacity. The WBG is committed to fostering trust and better coordination among
development partners, and will continue to engage in a constructive manner in related working
committees and other forums.

84. A strong trust fund portfolio indicates the strength of our growing partnerships. The
Pakistan trust fund portfolio has 64 active grants with a total commitment of $117 million.
Disbursements over the last CPS period were $165 million (equivalent to 6 percent of IBRD/IDA
disbursements over the same period). During previous CPS period of FY10 14, trust funds
mainly complemented IBRD/IDA project funding and around 85 percent of the total
commitment was recipient executed. Major donors in the current portfolio include the Gates
Foundation ($68.6 million), DFID ($11 million), J apan ($6.31 million), UN Foundation ($9.2
million), and USAID ($2.14 million). DFID had also funded large co-financing TF grants during
34

the CPS period. Going forward, the Global Partnership for Education (GPE) is considering to
fund two education projects of up to $100 million in Balochistan and Sindh. The major sectors
supported through trust funds are Human Development ($78.9 million) and Social Protection
($11 million). Some of the other sectors mobilizing trust fund resources include Water and
Sanitation. A recent trust fund assessment helped ensure greater alignment with country and
regional strategies and a tighter focus on demand- versus supply-driven programs. Based on
lessons learned, the current portfolio mainly includes programmatic TFs to reduce fragmentation.
Also, TF sources are increasingly being used to fund TA and advisory services (see Annex XIX
on Partnerships and Trust Funds Overview).

85. The MDTF has been successful in coordinating donor programs for crisis-affected
regions. With the financial contributions of eleven donors, the MDTF has been instrumental in
supporting the development priorities of the crisis-affected KPK, Balochistan and FATA. Such
mechanisms can help bring together many different actors for common goals. The WBG is
discussing the replenishment and scaling up of the MDTF to meet the continuing needs of the
targeted regions, and to help mitigate the likely impact of the 2014 transition and ISAF
drawdown in Afghanistan (see Annex XV on Restoring Trust between Citizens and
Governments in KPK, FATA, and Balochistan).

86. Partnerships with private sector and other stakeholders, including academia, civil
society, youth, parliamentarians and political leaders will be expanded. The WBG will
continue to consult these groups when designing strategies and programs, and taking it a step
further will encourage their feedback and participation throughout to support implementation and
advocacy. Also, the WBG will enhance its dialogue with the private sector seeking regular
feedback on key reform areas.

v) Monitoring and Evaluation
87. Increased focus on results will guide CPS monitoring and evaluation at the strategy as
well as project level. The results framework will guide the monitoring of the CPS
implementation. The framework lays out 14 priority outcomes aligned with
plan with 25 indicators many of them common to the World Bank, IFC, MIGA, and the
MDTF to reflect their aggregate contribution to program outcomes. The CPS outcomes are a
narrower but aligned sub-set of the broader country-level goals the government is seeking, and
reflect the selective focus and level . Achievement of these results would
derive from the ongoing portfolio and pipeline of future programs. As the program develops and
legacy operations are more thoroughly reviewed or restructured to enhance their link and impact
on the twin goals, the outcomes and indicators may need adjustment. Any such revisions will be
documented and reported in the mid-term CPS progress report.
88. Annual results reviews are being introduced to strengthen strategic monitoring and
evaluation. These will be dedicated to a discussion of results and will be, in addition to the
regular six-monthly portfolio reviews, conducted with the federal and the provincial
governments. The rationale for such reviews is to focus on outcomes at the program level rather
than the physical progress of individual projects.

35

89. Third-party monitoring and impact evaluations will continue. These tools have been
-to-
reach areas, and for the MDTF. The WBG will expand their use. Community / Beneficiary
engagement in program design, implementation and monitoring; as well as use of social
accountability mechanisms will be enhanced.

I V. MANAGING RI SKS

90. Achieving the results and outcomes supported by this CPS entails mitigating economic,
political, security, and implementation risks.

91. Reform fatigue may set in. Pakistan has a history of starting strong and finishing weak,
but it is more likely to stay the course if results are good. Still, changing political dynamics,
vested interests in public and private sector, weak implementation and negative external shocks,
such as a fall in remittances, slow recovery of FDI and other inflows, terms-of-trade shock,
severe drop in demand for exports, or a natural disaster, might undermine growth and reform
momentum, in turn leading to suspension of the IMF Program. This likelihood is partly mitigated
by WBG efforts to bring reforms upfront, strengthening political economy analyses to address
likely roadblocks, and by a strong TA program providing implementation and hands-on support.
If the program performs well, the World Bank may be able to bring in additional IBRD lending,
but if reforms are not maintained, including a possible suspension of the IMF Program, the
World Bank could not continue its Development Policy Financing. It would need to reorient its
program, while maintaining the critical social sector support. Any such shifts or reorientation
would be brought to the Board in the CPSPR.

92. Slow reform progress may hold back private sector development. Private sector
investment and FDI might not pick up as expected given increased political, economic and
security risks. The private sector may be affected by lack of progress in privatization, tax
simplification, enhancement of the investment climate, and market-based energy tariffs in power
and gas. WBG will work with development partners and other stakeholders to sustain dialogue
on an enabling policy environment for private sector. IFC will mitigate such risks by standing
ready to provide counter-cyclical support to help current (and new) private sector clients
continue their operations and maintain their workforce, aiming to offer flexible and timely
assistance. IFC will also ensure proper sequencing of activities with the World Bank to improve


93. violence and natural
disaster, could derail results. Project implementation has suffered long delays in recent years due
to staff turnover and capacity constraints. Poor security adds a further constraint, while renewed
conflict in Afghanistan could bring more stress to Pakistan. Similarly, any natural disaster may
well affect the pace of the . The CPS therefore assumes much higher operational
risk. Some of these risks are beyond the igate fully, but it will seek higher
level reviews of key projects to improve progress, address capacity issues, improve disaster risk
management as well as help improve economic opportunities as a means to reducing the risk of
conflict.

36

94. Overall, CPS implementation risks are substantial/high, but opportunities to make a
difference are enormous. The WBG approach is to accept informed risks and undertake
proactive mitigation, drawing on the findings of the World Development Report 2014
13
and
lessons from past engagement in Pakistan. The WBG will (i) build stronger partnerships at
various levels of governments federal, provincial, local levels; (ii) mainstream broader
/policy dialogue beyond official government circles to build a
deeper constituency for reforms and WBG interventions; (iii) provide timely TA and capacity-
building support on key reform issues, especially at province level; and (iv) continue producing
timely and focused analytical and advisory work, for advocacy and to identify and mitigate sector-
or reform-specific risks.




13
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Annex II
Page 1 of 44



Annex II: FY10-14 Pakistan Country Partnership Strategy Completion Report


Country: Pakistan
Date of CAS: FY10-14
Date of Progress Report: November 16, 2011
Period covered by CPS Completion Report: J uly 2010 to J une 2014
CPS Completion Report completed by: Roger Grawe

I. Introduction and Background
1. This Completion Report is a self-assessment by the Pakistan country teamof results under the
World Bank Group
1
Country Partnership Strategy FY10-13 (Report No. 53553-PK), J uly 30, 2010 (CPS)
and the Country Partnership Strategy Progress Report (CPSPR) FY10-14 (Report No. 65286-PK),
November 16, 2011. The self-assessment focuses on two summary evaluations: (i) CPS program
outcomes, which would contribute to the achievement of country development goals; and (ii) World Bank
Group (WBG) performance
implementation.
development goals, but rather of programachievements directly linked to WBG-supported activities and
in Pakistan.
2. Overall, the Completion Report rates the achievements of the CPS program outcomes as
moderately unsatisfactory.
2
While the majority of outcomes were either mostly or partially achieved,
with the IFC strategy and programexceeding expectations, key transformative outcomes were not
achieved. The Completion Report rates overall WBG performance as good. On design, the CPS pillars
, and the inclusion of a Multi-Donor Trust Fund
for conflict affected areas was positive. The main weaknesses were the underestimation of
implementation risks and inadequate mitigation measures, and the realismof the initial CPS results
framework; the latter was substantially revised during the CPSPR. The WBG showed good ability to
adapt to changing circumstances, including addressing support for unforeseen floods in 2010 and 2011,
strengthening analytic and technical support during a period of lagging reform commitment, thereby
building the foundation with other partners for renewing policy reforms prior to and after the 2013
elections. The WBG struggled during implementation to understand and adapt to the devolution of
responsibilities to the provinces.
3.
hands. The Government had prepared a second Poverty Reduction Strategy Paper (PRSP II) and an IMF
programwas in place. However slowing reformmomentum, massive floods in 2010 and 2011, and
continuing security concerns dampened progress. The CPS Progress Report (CPSPR) in November 2011,
reported low growth, accelerating inflation and deteriorating public finances, the latter exacerbated by the
18th Amendment to the Constitution, enacted in 2010, which devolved most government services to the
Provinces and the related 7th National Finance Commission award which allocated a significantly

1
In this report, the World Bank Group (WBG) constitutes the World Bank (WB), the International Finance
Corporation (IFC), and Multilateral Insurance Agency (MIGA). The WB lending windows are the International
Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). MIGA
activities during the CPS period were mostly in conjunction with IFC investments and are not covered separately.
2
This report follows guidelines issued jointly by the Operations Policy and Country Services unit and the
Independent Evaluation Group in November 2013 with respect to ratings methodology and categories.

Annex II
Page 2 of 44



increased share of revenue to the provinces. The IMF programhad been off-track for over a year before it
closed in September 2011. Elections held in J une 2013 brought a successful democratic transition, with
the convincing win by the PML-N providing a mandate to implement growth-oriented reforms and
August 2013, and has been on-track with this program since then.
4. PRSP II, consolidating these into
four pillars: i) Improved Governance and Public Sector Performance, ii) Improved Human Development
and Reduced Vulnerability; iii) Improved Infrastructure to Support Growth and iv) Improved Security and
Reduced Threat of C
assisting the government to raise the ratio of tax revenue to GDP through strengthened tax policy and
administration; ii) supporting power sector reformto ensure a sustainable expansion of power supply; and
iii) addressing security issues related both to coping with the consequences of conflict and reducing the
development (primarily education), skills, social protection, and livelihoods, ports, water management
and financial management. The CPS foresaw engagement in additional areas such as urban development
and provincial fiscal management as contingent on the readiness and likelihood of success of individual
activities as well as progress in the transformational agenda. Finally the CPS identified selected areas in
which the WB would not significantly engage: these included coal, civil service and judicial reforms,
health, agriculture, telecoms, and highways.
5. IFC expected to support the energy sector with a focus on renewable power generation (hydro
and wind) and energy efficiency, privatization of utility and distribution companies with the objective of
improving efficiencies. IFC also expected to support access to finance to underserved groups, especially
micro, small, and medium enterprises (MSMEs), by strengthening financial intermediation, improving
business management and corporate governance practices at enterprise level. Other areas of IFC program
included investment opportunities in logistics, transport health, education, and agribusiness (including
warehousing and logistics) as well as supporting PPPs. IFC also expected to step up its programof
advisory services.
6. The CPSPR underscored the significance of the political and macroeconomic risks; but confirmed
WBG commitment to the transformational agenda and core program, emphasizing that the
transformational challenges were long-term. The CPSPR updated the CPS Results Matrix to reflect slow
progress in economic governance and power and better align outcomes with the WB operational program.
7. The CPS put forward a financing programof $3.7 billion over the initial three years of the CPS
period, approximately $1 billion of which would be IBRD. IFC anticipated investing $1.3 - $1.5 billion
during the CPS period. The CPS also anticipated mobilizing up to $150 million in a multi-donor trust
fund (MDTF) to support security under Pillar 4. Confirming the strategic focus of the CPS, the CPSPR
extended the period to FY14 and anticipated a total IDA allocation of $4.5 billion and IBRD
commitments totaling $1 billion. Based on approved projects through mid-FY14 and anticipated
operations during the remainder of FY14, IDA commitments will total $4,975 and IBRD $762 during the
CPS period
3
. IFC far exceeded its CPS targets, both in the investment and advisory areas, and committed
over $2.3 billion (during FY10-13) with record investments of $696 million in FY11.

3
Project details are reported in Table 2. Anticipated operations during the second half of FY14 include two DPLs
totaling $600 million, which would constitute about 12 percent of the total IDA allocation if planned commitments
are confirmed.
Annex II
Page 3 of 44



II. Progress Toward Key Development Goals
8. Economic performance in Pakistan was disappointing during the CPS period with slow
growth, low investment, deteriorating public finances and a weak external sector. GDP growth
averaged less than 3 percent p.a. between 2009 and 2013 as private investment declined from14 percent
of GDP to less than 11 percent. The public sector deficit expanded from6.6 percent of GDP in 2010/11
to over 8.5 percent in 2012/13 underscored by a declining tax ratio that hovered slightly below 10 percent
of GDP (one of the low
external reserves dipped to dangerously low levels. Severe floods in 2010 and 2011 and continuing
security crises stretched management capacities, especially at the provincial level. Significant declines in
security expenditures failed to translate into increases in public sector development expenditure while
energy and untargeted subsidies continued at high levels.
9. Pakistan continued to lag in human development with insufficient progress to meet MDGs
in education and health; however social protection measures were modernized and coverage
improved. Access to education remained low at all levels with only marginal increases in net enrollment
ratios. Disparities in gender, income, location and social groups continued to influence participation
significantly. The primary completion rate remained extremely low and the limited data available suggest
that poor learning outcomes persisted Improvement in health outcomes was slightly greater but still
behind those achieved elsewhere in the region while child and mother nutritional status continued to
stagnate at unacceptably low levels. High fertility rates persisted with contraceptive prevalence stagnant.
Health service coverage improved in maternal care and immunization though not sufficiently to affect
outcomes in the short term. Both education and health expenditures remained extremely low.
10.
Pro-poor social protection expenditures rose significantly during the CPS period to 0.79 percent of GDP
in 2012, approaching the target of 0.9 percent of GDP set in PRSP II. The main safety net mechanism, the
Benazir Income Support Program(BISP), developed a comprehensive objective targeting mechanism
through a national household census thereby increasing coverage of the poor. The introduction of good
governance and accountability arrangements propelled BISP to the forefront of internationally recognized
good practice in delivering social protection; cash transfers to disaster victims also achieved global
standards. Partly as a result, overall poverty in Pakistan appears to have declined significantly to 13.6
percent in FY11, although data reliability remains an issue
4
.
11. Infrastructure shortfalls, especially in power, worsened with significant adverse effects on
economic performance. Between 2010 and 2013, effective energy generation capacity stagnated while
demand continued to grow resulting in peak demand (at current prices) shortfalls of around one-third for
electricity and one-quarter for gas with economic losses estimated close to 10 percent of GDP, with
untargeted energy subsidies around 2 percent of GDP. Transport, communications and water
infrastructure also continued to underperformin both physical and financial dimensions. Transport
inefficiencies alone led to economic losses equivalent to 4.6 percent of GDP while public finances were
strained by continuing financial losses of both railways and the national airline. Delays in 3G licensing
also cost both the economy and government finances. Productivity growth in agriculture, a key
contributor to poverty reduction and broader structural change, has remained flat during the past decade.

4
Pakistan will meet the poverty reduction MDG. Data issues include an outdated poverty line, which led the
however the current government has made the 2010/11 estimates official and appointed a commission to review
poverty statistics.
Annex II
Page 4 of 44



12. Insecurity continued to exact a toll on economic and social well being, although there were
some notable improvements in governance. Progress on institutional reforms such as Right to
Information legislation, legal ombudsman, and public expenditure consultations demonstrated that
government could be responsive to citizen concerns. Access to border regions remained difficult with
inevitable impact on development activities; nonetheless many pilot activities demonstrated the feasibility
of scaling up development activities in conflict-affected regions with a strong emphasis on capacity and
institution building. The 18
th
Amendment to the Constitution and related National Finance Commission
7
th
award fundamentally changed the institutional environment for service delivery with significant
complications for public finance, institutional reform and regional equity. Continued uncertainty
regarding local government elections and implementation of the local governance systems in three out of
four provinces added to this complexity.
13. in many
areas and created many challenges for the implementation of the CPS and WBG support.
III. Program Outcomes of the WBG CPS 2010-2014
14. A series of sector consultations and country team meetings resulted in the CPS ProgramSelf-
Evaluation Summary (Table 1). The country team gave greater weight to outcome clusters associated with
transformational activities. Data gaps weakened some outcome assessments, particularly those related to
delayed or on-going WB operations and unspecified benchmarks characterized some qualitative
outcomes. While not minimizing these shortcomings, the country teamwas confident in making a
reasonably robust overall assessment. Overall, the Completion Report assesses the CPS program
outcomes as moderately unsatisfactory.
15. Pillar 1: Improved Governance and Performance of the Public Sector - moderately
unsatisfactory. Outcomes related to improved macroeconomic management and the transformational
goal of improved tax policy and administration were not achieved, notwithstanding adjustments made to
the relevant deficit and tax indicators at the time of the CPSPR. Outcomes in public sector management
capacity and those in public expenditure management were mostly achieved building on the
market governance were partially achieved with stronger performance in micro-finance (with important
IFC contributions) than in the areas of labor and trade. Implementation of the CPS under this pillar relied
primarily on analytic support and limited investment lending as the planned series of policy-based
operations could not move forward. Public sector performance across all dimensions was significantly
impacted by devolution under the 18
th
Amendment and the accompanying reallocation of public finances
as mandated by the 7
th
National Finance Commission (NFC).
16. WB support to strengthen macroeconomic management and tax administration contributed
to deeper and broader understanding of the underlying issues but failed to stem continuing
deterioration in fiscal and revenue outcomes. The WB was unable to initiate the planned series of
policy- gramcame off-track already by mid-
2010. Efforts to resuscitate the programwere complicated by the economic and social shocks emanating
fromthe 2010 and 2011 floods. The WB played a major role in ameliorating the crisis through a highly
collaborative Damage Needs Assessment followed by the mobilization of significant support for oil
imports fromrestructured IDA credits ($300 fromthe unused portion of the 2005 Emergency Earthquake
Credit) and technical and financial support to the cash transfer programfor flood affected households.
IFC also stepped up its investments in agri-business with $30madditional financing and facilitated access
to finance to support MSMEs. The implementation of the 18
th
Amendment and the 7
th
NFC award
significantly reduced flexibility on the expenditure side. WB analytic work contributed to a better
understanding of the need to reduce subsidies and raise tax revenue. The CPSPR adjusted program
outcome targets; but fiscal outcomes continued to fall short. The new Government entered into a program
Annex II
Page 5 of 44



groundwork for a renewal of WB policy based support which took place towards the end of the CPS
period with the preparation of DPCs focused on growth and energy reforms.
17. Investment lending support to tax administration reforms failed to improve tax revenue
performance. The failure of the Tax Administration ReformProject (TARP) to lead to improved tax
revenue performance underscored the limitations of administrative reforms in the absence of
complementary policy and legal reforms. The TARP ISR also detailed other shortcomings, which
contributed to poor results including insufficient TA, underestimated implementation risks including the
institutional and political environment, and inadequate monitoring and evaluation effort. At the
provincial level, IFC advisory services initiated work for streamlining General Sales Tax processes and
improving private sector compliance in Punjab.
18. A combination of investment lending, non-lending technical assistance (NLTA) and analytic
work contributed to significant progress in public expenditure management and government
accountability. Investment lending to improve financial reporting and auditing (PIFRAI- II) supported
the implementation of a world-class financial management system (FMIS) at the federal level leading to
the achievement of almost all financial reporting targets and substantial progress procurement institutions
and capacity. The WB supported the use of country systems through the inclusion of fourteen WB
projects in the FMIS. Analytic support through public expenditure reviews and NLTA contributed to the
full implementation of a mediumtermbudgeting framework at the federal level and its initiation at the
provincial level. Although aggregate institutional ratings (WEF Global Competitiveness and WB CPIA)
deteriorated slightly during the CPS period, institutions and systems of accountability received support
fromthe WB Punjab Land Records Management and Information Systems project (LRMIS) and the
MDTF Governance Support project with some notable achievements. In Punjab the transformation of
land records has already reached high levels of customer satisfaction with significant impact on the ability
of households to manage their major asset more efficiently. In KPK, pro-active advocacy and technical
support contributed to international best practice Right to Information legislation (under development in
Punjab as well) and other accountability initiatives, including proposed anti-corruption legislation, and the
use of mobile devices to enhance citizen feedback and internal monitoring.
19. Measures to improve the governance and performance of markets relied on WB analytic
and advisory instruments with only partial success although related IFC investment and advisory
services exceeded targets. In the absence of the intended policy-based lending, WB interventions
consisted primarily of assessments (e.g. ICA, Doing-Business) and NLTA. Labor, trade and other product
market outcomes were not significantly affected. Measures, including IFC investments, to support
financial sector deepening contributed to the growth of active micro-credit borrowers.
program, aimed primarily at SMEs, also expanded significantly, though partner banks faced the
challenges of non-performing loans. IFC advisory services ramped up in areas of access to finance,
investment climate, PPPs and sustainable business, exceeding targets in most areas. Two significant
initiatives in this cluster of activities involved the extension of doing-business assessments to the sub-
national level and the heavy emphasis in WBG support on improving financial access for women
entrepreneurs. IFC focused on gender based results through its investments and advisory programs,
including enhancing the number and quality of women on boards, training of women entrepreneurs, a
study on women-owned SMEs for financial institutions, and investments in microfinance and SME banks.
The WB also contributed a key piece of analytic work on gender and access to finance.
20. Pillar 2: Improved Human Development and Reduced Vulnerability - moderately
satisfactory. The majority of outcomes in the education cluster were mostly achieved, although
improvements in targeted indicators (net enrollment rates) were modest. Safety net outcomes were also
mostly achieved with exceptional support to the use of the poverty score card and the computerized
national identity card to improve targeting. Health outcomes were only partially achieved in spite of
Annex II
Page 6 of 44



their relatively narrow focus on two vertical programs, polio and aids. Rural livelihoods outcomes were
achieved though household impact was uncertain. Lending played the lead role in the education sector
and was prominent in all clusters while AAA made particularly prominent contributions to social safety
nets and health. Improved governance and accountability was a major focus of capacity building efforts.
21. WB operational activities responded to decentralization challenges in education and
broadened support beyond basic education to skills development and tertiary levels. The CPSPR re-
focused education outcomes on net primary enrolment in Punjab and Sindh where WB operations were
concentrated. These outcomes were met in Punjab but not in Sindh.
5
Overall, enrolment gains were
growth rate did put additional pressure on net enrollments. The substantial lending for education (an
aggregate portfolio of $1.2 billion in education) was structured to disburse against a set of quantitative
and qualitative indicators (DLIs) that supported measures to improve sector governance, increase
accountability and introduce quality criteria. Achievements in these areas marked good progress toward
the milestones identified in the CPS.
6
The focus on DLIs strengthened collaboration with key
development partners (notably DFID) and, especially in the second generation of projects, involved
counterparts at the provincial level contributing to capacity and institutional development. During the
CPS period, the WB also broadened its education interventions to include skills development and tertiary
education. Although data on anticipated outcomes was not yet available,
7
these operations signaled the
intention of the WB to provide greater support to the key issue of jobs growth.
22. Analytical and advisory work supported by strategic, timely financial support contributed
tect vulnerable citizens and help households recover from natural
disasters.
cards, WB inputs contributed to a world class safety net mechanismthrough BISP, currently benefiting
4.9 million households.
8
. The use of cash transfers to help 1.2 million families recover fromthe 2010/11
floods created an internationally recognized benchmark for disaster relief, including best practice in donor
coordination. Innovations in FM included the use of debit cards and electronic verification systems to
replace the archaic postal money order system. A monthly reconciliation system monitored fund flows
and internal audits covered cash transfer payments. This resulted in a high percentage of beneficiaries
getting money in an efficient and transparent manner.
23. Experience from the programs on polio and AIDs combined with the impact of the 18
th

amendment contributed to a shift in WB health sector support to a broader systems approach
embracing cross-sectoral challenges such as nutrition. The CPS foresaw little additional operational
support in the health sector beyond carryover activities related to vertical programs combatting polio and
a national initiative against AIDS. A high profile outbreak of polio led to additional funding to polio
eradication and targets were achieved; but formulation of a national AIDS project was stalled and
replaced by a provincial intervention in Punjab (a consequence of the 18
th
Amendment) necessitating a
revised outcome in the CPS PR. WB interventions were incorporated into a more systematic approach to
the health sector in two provinces (Punjab and KPK) linked to a strategic health public expenditure

5
The impact of the 2010/2011 floods especially in Sindh province affected school access and is likely to have
affected the reliability of data on school attendance.
6
IEG ICR reviews of the Punjab and Sindh Education Sector Projects confirmed progress across a broad range of
education management outcomes, rating both operations as moderately satisfactory.
7
Project support to tertiary education met with bottlenecks early on due to ownership issues and then later on
account of the 18
th
amendment, there were pressures to make the higher education commission at the federal level
redundant in favor of provincial management of the sector.
8
An estimated 7.2 million households are eligible for assistance. The shortfall will be progressively closed as
households receive their unique identification number.
Annex II
Page 7 of 44



review; The broader approach to the sector developed during the CPS period also led to the preparation of
-
Improved Nutritio initiatives focused on mothers and children health in line with the
CPSPR.
24.
WB support helped shift PPAF focus to livelihoods in the poorest districts/regions, building
linkages to the private sector and strengthening PPAF capacity in monitoring and management
systems. At the beginning of the CPS period, the WB had entered its second decade of support to PPAF
with a third project. The emphasis in this operation broadened froma primary focus on microfinance to
rural institution building for sustainable livelihoods, especially through linking community and farmer
organizations with the private sector and with government line departments. CPS outcome targets for
such linkages were fully met. In addition the WB encouraged PPAF to go deeper into the poor regions
and develop a broader institutional perspective, building capacity for monitoring and evaluation,
introducing management systems, and encouraging a more integrated approach to PPAF activities. The
WB also supported PPAF to develop its role in promoting cross cutting issues, notably gender and
nutrition. A key lesson for a poverty-focused institution such as PPAF is the importance of developing a
strong results framework with a continuous M&E feedback loop to determine better what is working and

25. Pillar 3: Improving Infrastructure to Support Growth - moderately unsatisfactory
although IFC exceeded its investment targets in energy, transport and logistics. Outcomes in the key
sector of energy, which emerged as the key constraint to
not achieved. Transport, irrigation and agriculture outcomes were partially achieved while urban and
environment outcomes were mostly achieved. Lending was the primary vehicle for WBG support under
this pillar. Analytic and advisory activities made important contributions in agriculture and urban and
were the sole source of WB support on the environment while IFC pursued an active investment program
in alternative energy sources to support its focus on climate change. Informal TA, often linked to project
implementation support was also an important contribution particularly in energy and irrigation.
26. The WBG ramped up financial support to the energy sector although improvements in
sector performance remained elusive; several investments by IFC supporting alternative energy
sources and privatization had promising results. After a long hiatus in direct support to the energy
sector in Pakistan (1995-2008), the WB renewed lending first to electricity transmission and distribution
(ETDP) in 2008 and to gas distribution and hydropower generation (Tarbela IV extension) in 2012. Both
distribution projects have fallen short of expectations. Tarbela IV extension (which accounts for about
two- tarted
satisfactorily in its early construction phase. Recognizing long-standing institutional constraints and the
impact of the 2010/11 floods, the CPSPR modified outcome targets related to transmission and
distribution losses, load-shedding and financial performance; but even these more modest targets were
missed. On the positive side, WB informal technical and analytic support was markedly successful in
rebuilding relationships with government counterparts and other development partners in the sector. , IFC
contributed to private sector innovation through pilot and precedent-setting activities, including wind
power, waste-to-energy and run-of-the-river hydro in addition to low-
the Karachi Electric utility company helped ensure the success of that privatization and was deemed by
the client as best practice in terms of hands-
investments including supervision of the only privatized integrated utility in the power sector are expected
to contribute to about 1,640 MW by 2016. By the end of the CPS period, sector dialogue and
coordination with key partners improved sufficiently so that the WB was able to initiate the preparation of
a DPC focusing on energy reforms linked to the eventual achievement of programoutcomes.
Annex II
Page 8 of 44



27. The WBG maintained engagement in the transport sector through contributions to
construction activities; but support to logistics and trade facilitation was less successful. Both the
WB and IFC supported rehabilitation of berths at Karachi port;
9
but the CPS outcome relating to reduced
container transit time remained unmeasured pending the completion of the relevant project. IFC exceeded
its target with four investments in container and bulk shipping, projects that are currently performing
well. However WB support to trade and transport facilitation (TTF), which should have been the core of
TTF project
encountered serious implementation obstacles due to a shift in national priorities and a complex
institutional environment lacking reformchampions.
10
Although not included as a CPS outcome, the
-going support to highway rehabilitation (with additional financing fully disbursed during the
CPS period) contributed to notable improvements in road condition, road safety and travel time.
28. Continuing assistance for irrigation and water management combined with AAA to step up
engagement on the broader issues of agriculture sector reform and growth. On-going operations
during the CPS period continued the long-standing WB focus on upgrading and improving irrigation
infrastructure in the Indus basin and supporting water management institutions in Punjab, Sindh and
Balochistan. The targeted equity improvements in water delivery performance remained undocumented
pending the completion of WB projects; but proxies indicated improvements in systemreliability and
efficiency. O&M and financial recovery target assessments were also pending. The same portfolio of
activities also contributed to the use of improved agriculture techniques as indicated by increased
cropping intensities and crop yields
11
.During the CPS period the WB responded to a Government request
to help accelerate agricultural growth and productivity. This led to a number of AAA inputs and
preparation of Punjab Irrigated Agriculture (FY13) and Sindh Agriculture projects (FY15). IFC initiated
several activities to strengthen its agriculture and agribusiness portfolio including three investments.
29. Good progress in urban service delivery and management benefited from innovative WB
operational support in Punjab supplemented by technical assistance and sector analysis. WB efforts
focused on institution building for improved service delivery in all towns and cities in Punjab linking
five largest cities made considerable headway toward managing each metropolitan area and its service
providers through a single authority with accountability and appropriate managerial and fiscal autonomy
30. Environmental policy formulation in the public sector and demonstration investments by
the private sector received timely support from the WBG, though challenges remain in
mainstreaming responses to environment challenges. WB supported a dispersed institutional structure
with analytical and advisory activities, focusing on the formulation and implementation of a national
strategy culminating in the cabinet approval and launch of a National Climate Change Policy in 2013. IFC
placed great emphasis on climate change, especially through its program of energy investments in
renewable sources. IFC exceeded its targets in this area and has built a strong pipeline for continued
investments in renewable energy sources. IFC also provided key advisory services linked to guidelines
for sustainable energy finance and renewable energy sources.
31. Pillar 4: Improving Security and Reducing the Threat of Conflict - moderately satisfactory.
This rating takes into account that activities took place in areas significantly affected by conflict. As post-
conflict activities, results were assessed at an earlier stage of the results chain largely focusing on the
achievement of project implementation targets. With this caveat, outcomes clustered under the objective
of increased employment and livelihood opportunities for conflict-affected areas were mostly achieved

9
IFC withdrew from its investment due to the inability of its partner to meet the necessary conditions.
10
The Government commented that the TTFP was overly complex, involving too many implementing agencies.
11
Data from Sindh and Balochistan only.
Annex II
Page 9 of 44



and increased responsiveness and effectiveness of the state were partially achieved, as delays in the
initiation and implementation of the relevant projects suggest caution in translating project inputs to
sustained results. While MDTF-financed projects were the primary instrument supporting Pillar IV
outcomes, AAA activities (also MDTF-supported) helped lay the basis for project support.
32. After a slow start, MDTF supported projects are making good progress and largely on
track to achieving the set objectives in the CPSPR. The slow start-up period for the MDTF was
effectively utilized in developing a stronger analytic base through a public expenditure review in KPK
and a Development Needs Assessment in Balochistan. Even more important, extensive NLTA and
project preparation activities created strong relationships with implementing agencies and local
stakeholders that contributed to progress on the portfolio. The 2013 annual donor review cited these
activities as contributing significantly to the goal of rebuilding confidence in government and the state,
which they consider as an essential step in achieving a lasting peace. While results related to employment
opportunities and community infrastructure did not fully achieve the targets set in the CPSPR results
framework, progress has accelerated since the CPSPR and activities are on course to achieve thesegoals.
IV. Performance of the World Bank Group
33. The Completion Report assesses the performance of the World Bank Group as good. This rating
the effectiveness of the WBG
response to adapting to challenging and difficult circumstances during the implementation of the CPS by
strengthening partnerships and analytic underpinnings while building a stronger pipeline. The WBG was
overly optimistic in the initial design of the CPS with disappointing results in the transformative areas
that the CPS designated as high priority. The CPSPR reflect these developments, and put the WBG on
track to build a strong pre- and post- election dialogue that enabled it to engage strongly with the new
Government through both AAA and a series of policy DPCs.
34.
emerged in the original design of some WB interventions as country circumstances evolved. The
CPS mapped well into the priorities of the P
macroeconomic stability, protecting the poor and vulnerable, human development, energy, agricultural
productivity, private sector involvement in infrastructure through PPP and improved governance. The
CPS explicitly recognized the security challenges facing Pakistan and translated WB support for the 2009
Post Crisis Needs Assessment (PCNA) into a full pillar under the strategy. The CPS also built on a key
lesson fromthe previous CAS by increasing the focus on long-standing structural issues - designating tax
revenue, power availability, and security/conflict as transformational issues. While this built greater risk
into the program, it correspondingly raised its potential development impact. However, weaknesses in the
design of WB interventions emerged soon in the CPS period. The off-track Government program
precluded the planned series of DPCs, which were the cornerstone of WB support to the transformational
objectives in tax reformand energy. Investment operations in these areas were unable to deliver the
intended results without policy leverage. With regard to the security objective, the direct WB role was
limited to administering the MDTF after a shift in government priorities led to the cancellation of an
approved IDA credit
12
. This left the MDTF on its own relatively limited resources and reduced the

12
The IDA credit focused on the provision of cash transfers to poverty affected families and had been prepared and
negotiated with representatives of the KPK and FATA authorities; however after approval, the Provincial Core
Committee requested the WB to shift the financing to infrastructure. The WB could not comply under the approved
objectives of the project and consequently the Government requested its cancellation. Thereafter the provincial
government focused on grant support, thereby limiting opportunities to leverage complimentary IDA financing.
Annex II
Page 10 of 44



35. The CPS tackled the perennial issue of selectivity explicitly but disconnects emerged with
the adequacy of interventions under some objectives and also failed to consider adequate mitigation
measures for some key risks. The CPS proposed a hierarchy of transformational, core and contingent
activities defined by sector and also indicated a number of sectors in which the WB would not expand
lending activities. This sector specific approach limited achievements of several CPS objectives and
dialogue with the authorities. CPS performance could have been facilitated better by selectivity criteria
that put more emphasis on WB comparative advantage and project development impact rather than
including or excluding particular sectors. The CPS also took insufficient account of the impact of the 18
th

Amendment and 7
th
FC award on the dissolution of federal ministries and the challenges of aligning CPS
objectives with WB instruments at the provincial level. In recognizing the macroeconomic risks, the CPS
13
The CPS also
underestimated the extent of the capacity and institution building necessary to mitigate risks related the
implementation of devolution. WB sector teams and provincial authorities both cited capacity gaps at the
provincial level as a key constraint to achieving a higher level of performance under the CPS. Although
the CPS failed to anticipate the risks of natural disasters, the CPSPR took these into account and linked
mitigation measures to program flexibility and enhanced preparedness planning.
36. The quality of the CPS Results Framework improved in terms of less reliance on process
indicators but realism and relevance of outcomes and indicators fell short. The CPS Results
Framework identified 17 outcome clusters, 42 outcome indicators and 60 milestones. Only six indicators
relied on process measures: all others were intermediate outcomes of varying impact on or relevance to
the CPS higher-level objectives. Lack of realismin relation to available data, inadequate linkage to WBG
interventions or lack of progress toward outcome targets resulted in revisions to about 30 percent of the
original outcomes in the CPSCR. Nine additional outcomes were added linked to these revisions. Many of
-going WB activities. The resulting matrix was highly
complex, difficult to monitor and consequently unhelpful in evaluating overall progress toward CPS
outcomes. Although the results framework covered IFC activities as part of the array of CPS
implementation instruments, IFC input into the formulation of outcomes and milestones was not evident.
37. In the implementation of the CPS, the WBG tackled significant program management
challenges. Through an intensive upgrading of office and country security measures and sustained
recruitment the international staff complement in Islamabad increased from one to twelve by the end of
the CPS period including the key positions of lead economist and operations advisor. This reinforced a
pro-active approach to managing portfolio quality that included biannual federal and provincial portfolio
reviews. Third party monitoring provided additional oversight over MDTF activities in the border areas.
As a result the number of projects at risk declined from 20 percent in FY11 to 15 percent in FY14 and
commitments at risk from 27 percent to 13 percent over the same period. The use of DLIs at the
provincial level encouraged mainstreaming fiduciary capacity and the WB aligned 12 projects with
country information systems with two more in the pipeline. IFC also made significant contributions to
corporate governance with both its advisory services and in the implementation of its investment
programs. Overall, safeguard and fiduciary activities were well integrated into the WBG program.
38. The WBG used analytic and advisory assistance (AAA) effectively both in project
development and as direct support to CPS objectives. AAA was the sole instrument supporting
over one-third of CPS outcomes across all four CPS pillars (Table 3). The high profile and wide
dissemination given to the CEM, Finding the Path to Job-enhancing Growth, and to the set of policy
notes prepared for the new Government in 2013, Pakistan, the Transformative Path, helped to build a

13
The fiscal bind created by the combination of the 18
th
Amendment and the award of the 7
th
National Finance
Commission imposed constraints on federal finances that reduced the options to undertaking unpopular, politically
difficult fiscal reforms quickly and drastically or missing program targets. The government chose the latter.
Annex II
Page 11 of 44



broader understanding of reformoptions and to lay the groundwork for Government actions leading to an
IMF programand the renewed prospect of WB policy support. The Flood Damage Needs Assessment
and the Post-Crisis Needs Assessment were key inputs, along with a Poverty Assessment, Safety Net
review and less formal reports, to WB contributions to BISP and other measures (such as the cash transfer
programfor flood victims) to protect vulnerable households. The two needs assessments were also major
vehicles for enhancing partnerships with other development agencies. Sector and regional PERs
effectively laid the groundwork for expanding operational activities more strategically in health and in
KPK.
one of the largest in the region, with over 40 projects and a funding commitment of over $10 million, an
increase of two-thirds over the previous period. Advisory services contributed to enhancing access to
finance for MSMEs, building capacity of small businesses, improving corporate governance, creating a
better business environment, and encouraging mediation. In addition, IFC carried out a Jobs Study with a
leading bank to assess the impact of access to finance on growth and job creation in SMEs. Overall, WBG
AAA was directly relevant to the CPS objectives and contributed significantly to CPS results.
39. Coordination with development partners improved significantly during the CPS period. At
the onset of CPS implementation, other development partners were looking to the WB to provide
leadership in responding to both the security crisis and back-to-back flood disasters and in coordinating
that response with a more effective policy dialogue with the Government. The Government insisted that
resources devoted to crisis response be additional to amounts pledged some years earlier in Tokyo in the
context of the Friends of Democratic Pakistan forum. The Government was also unwilling to link
(stalled) reforms to additional resources and at the same time was engaged in the initial stages of
implementing the 18
th
Amendment, which put crisis response burdens more directly on provincial
governments. Flood damage and foreign exchange shortages associated with both conflict and floods had
-standing energy crisis leading to the creation of a special energy task
force headed by the ADB. WB relationships with other partners and the Government in energy issues had
suffered from technical and analytic lapses and needed rebuilding. Responding to this demanding
situation, the WB mobilized a large multi-sectoral teamto coordinate needs assessments and in particular
brought in top global expertise to develop an early recovery cash transfer programfor flood victims. The
WB team mobilized broad support from both development partners and the concerned Government
, which covered
over one million affected households. As coordinator of the MDTF, the WB played a pivotal role in the
overall donor response to the security crisis. A subsequent donor review of the functioning of the MDTF
appreciated the progress and highlighted areas for improvement to which the WB effectively responded.
14

On the energy front, the WB took decisive steps to strengthen its technical position and work closely with
the ADB and other DPs to development a coordinated position on energy sector issues.
15
In addition the
WB helped mobilize and coordinate several cross-cutting and
challenging areas including: i) chairing. the Inter-Agency Group on Gender and Development from
J anuary - J une 2013 and developing a gender policy note for the new government; ii) providing leadership
in nutrition and social expenditures at the D-10 forum leading to the Government adoption of the
Scaling Up Nutrition (SUN) framework
16
and to provincial PERs to improve efficiency and composition
of social spending. IFC strengthened collaboration with DPs in the areas of access to finance and
investment climate with advisory services and programs.

14
MDTF partners confirmed their satisfaction with the WB response to the donor review, though some noted that
the WB could have been more pro-active in responding to donor concerns prior to the review.
15
ADB and UASID both confirmed the effectiveness of current working relationships in the energy sector.
16
The SUN movement is an alliance of over 100 partners from member countries, international donors and
governmental agencies and UN agencies. It seeks commitment and actions by member countries to address under-
nutrition, scaling up cost-effective nutrition interventions.
Annex II
Page 12 of 44



40. The IFC and WB worked to strengthen synergies during the CPS period. With an
investment programapproaching $2 billion representing an increase of approximately 50 percent over the
previous four years, IFC emerged during the CPS period as a leading provider of foreign exchange
nal constraints on its ability to expand in
priority areas (such as SMEs) due to high country risk ratings for Pakistan and the inability to lend in
domestic currency, IFC was nevertheless able to exceed its investment targets across its operating units.
In line with the CPS priorities, IFC stepped up its engagement with the power sector and other
infrastructure, including transport, ports, and logistics with the aimto support the modernization and
efficiency of the entire sector value chain. IFC continued to support access to finance through its
international trade finance program- the GTFP, and working with banks to develop SME-specific
instruments, also focusing on women and rural clients. In addition IFC explored possible investments in
health and education in line with Pillar 2 of the CPS. Parallel financing between IFC and the WB proved
problematic due to differing time lines and operating procedures. However management commitment to
a stronger strategic alliance improved coordination and led to better exchange of information at sector and
task teamlevels.
41. WBG implementation of the CPS responded strongly both to the challenging situation at
the outset of the CPS and to changing circumstances during the CPS period. Particularly notable in
this effort was a programof NLTA around key economic issues during the political transition both before
and after the J une, 2013 elections. Outreach to youth, academia, media, politicians, and policy makers
broadening the development dialogue in Pakistan. AAA, NLTA and policy dialogue paid dividends with
the renewal of policy support to macroeconomic and energy objectives. The WB also responded flexibly
to changing circumstances in sectors that the original CPS had precluded in its sectoral approach to
selectivity. As a result, the CPS period closed with strong prospects for effective WB support to
development objectives in health, agriculture, transport and governance. As the implications of the 18
th

Amendment and 7
th
NFC award became more apparent, the WB increased its analytic work and
implementation support to the provinces and adjusted CPS outcomes to reflect the increased provincial
focus. IFC responded to the volatile and difficult operating environment in Pakistan by increasing its
short-termfinance interventions, especially through trade finance support to the private sector.
42. The CPS Progress Report (PR) was a timely and pertinent update of the CPS. The CPSPR
was prepared on a timely schedule early in FY12 and appropriately documented the impact of changing
country circumstances on the CPS programand outcomes. The CPSPR also extended the CPS timeframe
, documenting an increase in total
WB resources available to Pakistan from$3.7 billion over the original three years to an estimated $5.9
over five years. The PR proposed a programof fewer but larger operations, increased engagement with
the provinces and increased performance based operations. The first two goals were achieved: i) average
project size increased from approximately $115 million in FY11 with eight operations (not counting the
flood emergency credit and two additional financing operations) to an average of almost $200 million
(not counting IBRD and two additional financing operations) for eight operations spread over the three
years following the PR and ii) lending to the provinces (primarily Punjab) increased to approximately 50
percent of total commitments in FY12-14 as compared to less than 10 percent in FY11. The proportion of
performance based lending using DLIs also increased from29 percent of total commitments in FY11 to
34 percent midway through FY14. The PR also reviewed the risks identified by the CPS noting that
overall risks had increased particularly those associated with political transition, macroeconomic
performance and programimplementation. Mitigation measures identified by the PR concentrated on
intensive engagement and dialogue, especially at the provincial level and front-loading IDA assistance to
support critical expenditures on social spending and growth enhancing infrastructure. This risk and
mitigation assessment provided a more realistic framework for CPS implementation.

Annex II
Page 13 of 44



V. Lessons, Learning and Recommendations
43. Detailed lessons arising fromthe individual output clusters are reported in the relevant column of
the Summary of CPS ProgramSelf-Evaluation (Table 1). Broader, more generic lessons include those
drawn fromthe previous CAS CR re-validated by experience during the current CPS and lessons newly
generated fromthe current experience.
44. Lessons revalidated fromthe previous CR include the following:
A focus on long-term strategic issues take time. Progress on core long termissues, such as
fiscal reforms/tax policy and energy is very likely to be uneven because problems are deeply
embedded in political economy with structural, institutional parameters. During much of the CPS
period, WB efforts on fiscal reforms/tax policy and energy made little or uneven progress. But
over time, these efforts laid the foundation for more productive engagements, which carriedover
to lay the basis for progress during the next CPS period.
boosting role helped support the private sector and attract foreign investors at a difficult time in
Pakistan. This highlights the importance of remaining engaged and playing a counter-cyclical
role even in difficult and volatile situations. The sustained improvement in PFM and the
development of a world-class financial management systemover the last 15 years is testament to
the value of supporting long-termstrategic issues.
Flexibility is essential in taking a long-termview and adapting to uneven progress. WB needs to
adapt to changing circumstances using all available instruments, remaining open to opportunities.
Enhanced partnerships coordinating donor responses can make a big difference.
Coordination on responses to challenges during this CPS period -floods, social protection and
MDTF, energy -- underscores the value of partnerships with stakeholders. Such partnerships help
to build a common narrative and maintain focus on long-termissues.
Take a realistic approach to capacity building and institutional reform-traditional
approaches to capacity building have only been moderately effective. Enhanced project
implementation support, just-in-time analyses and NLTA (including IFC advisory services), rapid
response facilities, and ed to capacity and
institution building; but staff turnover in the Pakistan civil service is so frequent that long term
benefits remain elusive. In such circumstanc
-governmental parties, as the WB did prior to
the elections, can pay capacity dividends. Institutionalizing self-paced online courses and regular
training of operational staff in partnership with local institutions such as IBA, LUMS, could help.
Timely, reliable M&E There is a need to focus more on M&E and results reporting from
the start. Data on many sector/project implementation indicators is only collected at project
completion, too late to provide information for mid-course correction. Systemic reviews of M&E
status for the CPS could be useful; but only if there is a strong commitment to mainstream.
45. new learning from the FY10-14 CPS included:
Strengthened attention at the province level is a necessity. Devolution (18
th
Amendment and
7
th
NFC award) fundamentally changed operational modalities. The WBG has increased its
outreach to provinces, enhancing the potential for bringing services closer to the people but also
raising challenges of regional inclusiveness, capacity building and institutional development at
state and local levels, and ensuring partner harmonization across provinces. Engagement with the
federal government should support national standards, guidelines, targets and regulatory
Annex II
Page 14 of 44



frameworks to guide provincial governments and ensure that national goals (such as MDGs)
remain on target. The WBG
Pakistan is a high risk high reward environment. Risk analysis and mitigation strategies
need greater attention. Risk-reward trade-offs could be more explicit in programdesign and
mitigation strategies could take a more central role both in design and implementation, enhancing
the importance of M&E and more frequent programre-alignment as experience accumulates.
Program selectivity needs continuous management attention CPS experience suggests
identification of selectivity criteria at the level of CPS programobjectives (not sector activities)
taking into account development impact and WBG comparative advantage with frequent reality
checks during implementation is a useful way forward. This approach confirms that there is no
substitute for strong country management engagement and accountability to promote and enforce
selectivity.
instruments if possible, taking advantage of opportunities to promote integrated, multi-sector
approaches to achieving CPS outcomes.
A simpler CPS Results Framework with limited numbers of outcomes would help keep the
engagement focused. A simpler results matrix would also make it easier to monitor and report on
simple results everyone understands and remembers. Country management and the country team
should apply selectivity stringently to the number of outcomes and objectives for which the CPS
will be accountable and then determine the appropriate mix of sectors and instruments to achieve
these goals, undertake frequent monitoring and evaluation of the progress toward those goals and
identify adjustments to the programaccordingly. This approach would imply greater integration
across sectors, proactive project restructuring and cancellations for non-performing projects.
Success in transformational activities requires that institution building and support to
reforms go hand in hand (a key lesson of the Tax Administration and Reform project). This
will inevitably create a challenging environment when lack of progress precludes policy-based
lending. Such circumstances may require reassessing the mix of instruments or their sequence.
Just-in-time AAA and NLTA demonstrated high pay-off and could figure more explicitly in
the results framework through mechanisms such as rapid response facilities.
IFC has been able to ramp up support to the private sector even in difficult circumstances.
Increased short-termtrade finance. Investments in infrastructure, especially in low cost and
renewable power, and the use of private sector networks to leverage policy dialogue were all
effective.
investors at a difficult time in Pakistan. The WB and IFC could further pursue -
as part of their joint outreach efforts.
IFC-WB collaboration, built around an explicit agreement on joint priorities holds promise.
Keys to success included a strong field presence with co-location, regular communication at all
levels, and appropriate sequencing of collaborative activities.
Annex Tables:
Table 1: Summary of CPS ProgramSelf-Evaluation
Table 2: Planned Lending Programand Actual Deliveries (FY10-14)
Table 3: Planned Non Lending Services and Actual deliveries (FY10-14)


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Annex III
Page 1 of 2
Annex III: CPS (FY2015-19) Stakeholders Consultations for World Bank Group Pakistan

1. The process of developing the World Bank Group Pakistan CPS has been participatory and a
diverse range of stakeholders and clients in Pakistan have been consulted. Beginning in J uly 2013 and
lasting through J anuary 2014, consultations under round one were conducted in various forms: in face-to-
face meetings, by mail, as well as online. Almost 30 meetings were held in five different cities across
Pakistan by the CPS core team, attended by over 400 individuals. Meetings to discuss national
development priorities were held in Islamabad while sessions with provincial stakeholders were
conducted in Lahore, Quetta, Karachi, and Peshawar. Discussions for the Federally Administered Tribal
Areas (FATA) were held in Peshawar; and for other regions in Islamabad.

2. The WBG met with individuals from civil society organizations, media representatives,
parliamentarians, Chief Ministers and cabinet members, civil servants, academics, think tanks, youth
groups, the private sector, and other local and international development partners.



3. Along with this, the World Bank Group commissioned aClient Satisfaction Survey, conducted
by Gallup Pakistan, and a short survey on its Pakistan Facebook page, to which 700 and 3000 people
respectively responded.

Consultation Sessions Round I:

4. Below are some common messages and themes heard across various groups of stakeholders:

Jobs creation remains an important goal for the country, through a strategy that is private sector led,
for which conducive investment conditions and a strong regulatory environment are necessary.
Partnerships with the private sector were considered essential for reaching the development goals of
ending extreme poverty and building shared prosperity.
Governance and anti-corruption reforms came out as the third important theme, with an increasing
recognition that support to devolution / local governments, public service delivery mechanisms, and
promoting transparency is important.
Tackling the energy crisis with low-cost generation options like hydro-power, and improving access
to community-led small-scale off-grid and renewable energy sources for difficult areas like
Balochistan and FATA.
Fostering entrepreneurship and access to finance, increasing economic opportunities and
productively engaging youth and women.
Annex III
Page 2 of 2



Improving social service delivery, particularly investing in education and health and focusing on
women and children.
Addressing inequity in all shapes and forms (with special attention to lagging regions and vulnerable
groups).
Combatting climate change and improving water management disaster preparedness and recovery
support, storage dams, modern irrigation techniques, improving availability and quality of drinking
water.

5. There were some unique features in priorities among the provinces and regions, reflecting the
differ
climate to attract the private sector, while in Khyber Pakhtunkhwa, improving the security situation and
restoring peace were identified as foremost priorities. In Balochistan, water scarcity, transparency and
and private sector access to finance
came out as major concerns. For FATA, governance and constitutional reforms and bringing the region at
par with the rest of the country were identified as crucial to achieving development results. For other
regions, attracting private investment was of key importance to develop natural resources and reduce
dependence on federal transfers. Energy, economy, education and youth skills enhancement, revenue
mobilization, restructuring of state-owned enterprises; and climate change were highlighted as the top
priorities at the federal / national level.

Client Satisfaction Survey:

6. The Client Satisfaction Survey
development priorities should be in the next five years. All in all, over 1000 hours of interviews were
conducted and 711 responses received 523 from stakeholders and 188 fromWorld Bank Group clients.

7. Education and energy were identified as the two major priorities that the WBG should focus on.
Other priorities identified included economic growth, job creation, agricultural development, law and
justice, health, and anti-corruption. The organization was seen as the best among its category, although
stakeholders and clients had divided views about the effectiveness and value for money of some Bank
programs. The WBG was advised to work more with academia and local governments.

Facebook Survey:

8. Conducted on the World Bank Pakistan's page, the survey reached approximately 20 percent of
two-thirds of respondents were less than 35 years old. Education was by far the most important
development priority, with energy, job creation, and governance also featuring prominently.

Consultations Sessions Round II:

9. Second round of stakeholder consultations meetings were held in March 2014 (Karachi, Lahore,
Quetta, Islamabad) to validate the draft strategy. The proposed CPS result areas were endorsed and some
further suggestions to improve focus and implementation were shared.

10. Full summaries of the consultation meetings (Round 1 & 2) and detailed findings of the Client
Satisfaction and Facebook surveys can be found at:
http://www.worldbank.org/en/news/feature/2014/02/06/world-bank-holds-country-wide-consultations-
for-new-pakistan-strategy
Annex IV
Page 1 of 2



Annex IV: Poverty and Shared Prosperity in Pakistan

1. WBG is aiming to contribute to improvements in measuring progress towards poverty
alleviation and shared prosperity and how programs and policies contribute them. A main goal
during the CPS period is to put into place an institutional framework to regularly estimate, monitor, report
and evaluate poverty and shared prosperity; and to analyze the impact of programs and policy measures.

2. Pakistan has made impressive progress in reducing absolute poverty and improving shared
prosperity during the last two decades. According to World Bank Group the percentage of
population below the national poverty rate fell from 34.7 percent in FY02 to an estimated 13.6 percent in
FY11. This decline is impressive by international standards. From 2002 to 2008, the pace of poverty
decline ranked 13
th
out of the 37 countries for which data are available. The factors explaining the FY02-
08 poverty rate decline are well known, but those suggested behind the FY08-11 decline (remittances,
support to selected agricultural prices, better crop seeds, BISP targeted interventions) remain affected by
data reliability issues. Nonetheless, the country has already achieved the first Millennium Development
Goal (MDG) by more than halving the proportion of people whose income is less than $1.25 a day
between 1991 and 2011.
percent), Pakistan would be on track to meet the WBG goal of reducing extreme poverty to 3 percent by
2030. Higher growth (7 percent) would advance reaching such milestone by about a decade.

3.
prosperity. Real per capita consumption of the bottom40 percent of the population grew 5.5 percent in
FY06-08. This rate of growth for the bottom 40 percent exceeded that of the top 60 percent, which grew
by 4 percent over the same period. However, progress slowed down to 1.4 percent in FY09-11 due to a
variety of shocks at the end of the decade, including floods, conflict, the global slowdown and the
aftermath of the macro crisis of 2007/08. The improvement in living standards for the bottom40 percent
remains impressive by regional standards: Between 2002 and 2011, shared prosperity in Pakistan was
higher than in all SAR countries, except for Nepal.

4. Despite this impressive progress, nearly 26 million people remain poor. Poverty rates
remain sizeable in each province, and too many households are still vulnerable to falling back into
poverty. Punjab has about 57 percent of the poor, followed by Sindh (23percent), KPK (14 percent) and
Balochistan (6 percent). Poverty rates do not vary significantly across provinces, except for Balochistan,
as a sizeable portion of residents in Balochistan are nomadic and live in conflict areas that are difficult to
reach. Since 2002 reductions in poverty have been fastest in KPK (28.5 percentage points); and in more
populous and rural Sindh and Punjab, falling by 24.8 and 17.8 percentage points respectively between
FY02 and FY11. rapid, but remain fragile, in part because many
households are clustered near the poverty line. Therefore, a small reduction in consumption can greatly
increase poverty rates, and vice versa.

5. Furthermore, poverty measurement remains controversial in Pakistan. An inordinate
amount of energy and attention in the poverty debate has focused on the accuracy of a single number
the Poverty headcount rate instead of on the underlying factors driving poverty and the programs that
might improve the welfare of the poor. The large decline in headcount poverty has been met with
considerable public skepticism, and respected economists in Pakistan are producing estimates that are at
odds with the official figures. The 2007/08 poverty figures were never officially released and estimates of
the 2010/11 poverty rate were only recently validated. Poverty estimates are indeed affected by several
methodological imperfections. The Government has established a Technical Group to review poverty
methodology, find sources of variance in poverty estimates, update the poverty line based on a revised
consumption basket, and recommend final official estimates. Nonetheless, different estimates do not alter
the main conclusion that poverty has fallen substantially.
Annex IV
Page 2 of 2



The poverty line has not been updated in many years. The official national poverty line is based on
the simple food energy intake approach (with minimum caloric intake of 2350) using the 1998-99
data. As a result, the current reference basket may not accurately reflect the consumption patterns of
the households in the bottomquintiles. A re-estimation of the poverty line is urgently needed to
obtain accurate estimates.
The poverty line is updated using the inflation rate from the Consumer Price Index (CPI), applied to
household data on consumption collected in the Pakistan Social and Living Standards Measurement
(PSLM) Survey. The CPI may not be an adequate index to adjust for inflation over time, however, as
PBS collects price data for the CPI only frombig cities and ignores price changes in rural areas.
The CPI measures price changes for the average household, but the poor spend an above-average
share of their budget on food. Since food prices have been growing faster than non-food process, the
CPI has underestimated price increases for the poor. Correcting for this raises poverty by about 3
percentage points. Also, spatial price adjustment for expenditure is carried out using unit prices for
food in the PSLM. As a result, spatial price adjustment is based entirely on food prices and its
reliability declines when food and non-food prices change at a different rate over time.
PBS has not collected a population census data since 1998. The lack of a recent population census
reduces the reliability of the sampling frame used to select the PSLM households and determine the
population weights. This is a serious problemin Balochistan with a vast territory and a highly
dispersed population. Migration and conflict may have also aggravated the sampling problemin
Khyber Pakhtunkhwa (KPK) in the last few years.
The household survey questionnaire does not include sufficient information on the expenditure of
durable goods. As the share of non-food consumption increases in Pakistan, consumption estimates
without durable goods become more unreliable.
6. A new institutional approach is called for as the debate, among other things, needs to shift
from poverty measurement to poverty analysis.
will shift towards institutionalizing the work through a constructive partnership with official authorities,
donors and academia toward high-quality and timely poverty and shared prosperity measurement,
analysis and program evaluation. WBG proposes to support the Pakistan Bureau of Statistics and the
Ministry of Planningin their effort to foster a partnership among in-country professionals/think tanksthat
will carry out the poverty update with its publication at a fixed date each year, and refocus the poverty
debate on programs and policies.

7. In the short term (1 to 2 years), we propose to make progress on two fronts. The first is to
organize a national conference in mid-2014 on poverty measurement that will set a roadmap for poverty
data upgrade. The WBG should contribute with a solid review of the relevant literature on poverty in
Pakistan, presenting alternative indicators and robustness tests, and discusses the merits of different
methods. At the same time, we plan to continue providing technical assistance to the Pakistan Bureau of
Statistics with computer-assisted personal interviews (including mobile data collection devices) to collect
price and household data, and if requested, support a new census.

8. In the medium term (3-
tools to (a) improve poverty monitoring; and (b) to evaluate social policy and programs. Currently,
poverty estimates are only representative at the province level, and additional proxies of poverty collected
at the Moaza or Tehsil level could be used to generate more detailed estimates to help policymakers
locate poor pockets within districts. In addition, there is a great need to generate more evidence on the
effectiveness of different interventions in reducing poverty. Examples of programs or policies that could
be evaluated include past expansions in education and infrastructure, particularly health programs such as
lady health workers or childhood immunizations; income promotion such as the Pakistan Poverty
Alleviation Fund; the impact of BISP transfers; or training programs designed to help households use
remittances more effectively. Generating better evidence on the effects of these programs on poverty can
provide valuable information to guide future efforts to reduce poverty.
Annex V
Page 1 of 3



Annex V: Status of Millennium Development Goals (MDGs)

1. Pakistan is signatory to the MillenniumDevelopment Goals (MDGs) and is regularly measuring
its progress towards achieving the eight goals. Overall,
erratic and uneven and it is lagging behind its neighboring countries. Despite some improvements, it
remains the worst performer in the South Asia Region, only Afghanistan has worse indicators. Review of
data which is available only for 33 indicators, indicates that the progress is mixed with Pakistan on track
to achieve the targets on 11 indicators and off track on the remaining 22 indicators. The achievement of
MDGS varies for federating units across Pakistan. Punjab performance is significantly better than the
average in 14 and 10 of the MDGs indicators respectively. Sindh and Balochistan lag significantly
behind other provinces. The country is not likely to achieve the MillenniumDevelopment Goals
(MDGs) related to human development (education and health), is partially on track to achieve those
related to eradicate extreme poverty and on track to achieve those related to ensuring environment
sustainability.

Summary of Status of MDGs in Pakistan
1

MDG Goal Status Indicators off Track
Eradicate Extreme Poverty and Hunger Partially on Track 2/3
Achieve Universal Primary Education Off Track 3/3
Promote Gender Equality & Empower Women Off Track 3/5
Reduce Child Mortality Off Track 3/6
Improve Maternal Health Off Track 5/5
Combat HIV/AIDS, Malaria & other diseases On Track 4/5
Ensure Environmental Sustainability On Track 4/6

2. On reducing extreme poverty, Pakistan is on track by more than halving the proportion of people
living on less than $1.25 a day between 1991 and 2011. The percentage of population below the national
poverty rate has fallen from34.7 percent in FY02 to an estimated 13.6 percent in FY11.

3. Pakistan has made some improvements in primary school enrollments and gender parity in
primary and secondary education. However, despite improvements, efforts remain inadequate to address
the large burden caused by the growing population and Pakistan is unlikely to achieve MDGs related to
primary education, but it is on track for gender parity.

4. ternal and child health (MCH) has improved, but it remains a poor
performer in the South Asia Region, only Afghanistan has worse indicators. Significant inequity exists in
health service access and utilization, and little has changed for the poorest and rural population since the
1990s.

5. Pakistan is also off track on most MDGs related to health, nutrition and population. Given its
current rate of progress,
births and the under-five mortality rate (U5MR) will be 78, considerably above the MDG4 targets of 33
and 43 deaths per 1000 births respectively. Pakistan will not achieve the MDG related to nutrition as the
progress is off track on achieving target related to under nutrition where interventions coverage remains
limited. Childhood malnutrition in Pakistan is higher than in sub-Saharan Africa, and the rate of decline
is significantly slower than in the rest of South Asia. In addition,

1
Pakistan MDG Status Report 2012, Government of Pakistan and UNDP Pakistan
Annex V
Page 2 of 3



although declining
progress on improving health outcomes, the rate of progress is much slower and the poor, in particular,
are being left behind.

6. Child mortality is declining but it is still high. The IMR and the U5MR at 74 and 89 deaths per
1,000 live births are significantly higher than Bangladesh and India. At these levels, it implies that almost
1 in every 10 children born in Pakistan between 2001-02 and 2011-12 died before reaching five years of
age. Maternal mortality remains high at 276 per 100,000 live births however no recent data is available.
The rate of births attended by skilled attendants and institutional delivery, often used as a proxy for the
maternal mortality rate, are increasing significantly, which is likely to have an impact on maternal
mortality. Pakistan also lags behind its neighbors in immunization coverage and contraceptive prevalence
rate. Both have shown improvements in recent years however the rates are less than a third and less than
half that of other South Asian countries.

7. Pakistan has made efforts to address issues related to human development in recent years but the
efforts are inadequate and not enough for achieving MDGs targets. The slow and uneven progress is
likely to negatively impact on economic growth. Interventions focused on improving MDGs outcomes are
necessary for the sector to serve both as a catalyst to growth and as a beneficiary of it. To achieve this
Pakistan needs to improve significantly its performance which requires strong leadership, good
governance, and effective management, particularly at the provincial and district levels to implement
fundamental reforms, restructure institutions, and strengthen systems in the context of the 18
th

Amendment to the Constitution In addition, the country requires substantial investments in human
development to meet the growing basic health nutrition and education needs of the large population.
Without this investment, Pakistan is unlikely to capture a potential demographic dividend and to enjoy
high levels of economic growth.




Annex V
Page 3 of 3



Pakistan: Status of Millennium Development Goals (MDGs)






Goal 2001/02 2007/08 2010/11 2011/12
Target
(2015)
Goal 1: Eradicate Extreme Poverty and Hunger
Proportion of population below the calorie based food plus non-food poverty line 34.50 17.20 12.40 .. 13.00
Prevalence of underweight children under 5 years of age 41.50 38.00 .. 31.50 <20
Proportion of population below minimumlevel of dietary energy consumption 30.00 .. .. .. 13.00
Goal 2: Achieve Universal Primary Education
Net primary enrollment ratio 42.00 55.00 56.00 57.00 100.00
Completion/survial rate Grade 1 to 5 57.00 47.00 49.00 50.00 100.00
Literacy rate 45.00 56.00 58.00 58.00 88.00
Goal 3: Promote Gender Equality and Women's Empowerment
Gender parity index, primary education 0.82 0.88 0.88 0.90 1.00
Gender parity index, secondary education 0.75 0.82 0.85 0.81 0.94
Youth literacy gender parity index 0.65 0.78 0.79 0.81 1.00
Share of women in wage employment in the non-agricutural sector 9.65 9.89 10.45 .. 14.00
Goal 4: Reduce Mortality
Under 5 mortality rate (deaths per 1,000 live births) .. .. .. 89.00 52.00
Infant mortality rate (deaths per 1,000 live births) 77.00 .. .. 74.00 40.00
Proportion of fully immunized children 12-23 months 53.00 73.00 81.00 80.00 >90
Proportion of under 1 year children immunized against measles 57.00 76.00 82.00 81.00 >90
Proportion of children under 5 who suffered fromdiarrhea in the last 30 days 12.00 10.00 11.00 8.00 <10
Lady health worker's coverage (percent of target population) 38.00 76.00 .. .. 100.00
Goal 5: Improve Maternal Health
Maternal mortality ratio 350.00 .. .. .. 140.00
Proportion of births attended by skilled birth attendants 24.00 40.00 47.00 51.00 >90
Contraceptive prevalence rate 28.00 30.00 .. .. 55.00
Goal 6: Compat HIV/AIDS, Malaria and Other Diseases
HIV Prevalence amont 15-49 year old pregnant women .. .. .. 0.04
Baselineto be
reduced by 50%
Proportion of population in malaria risk areas using effective malaria prevention and
treatment measures 20.00 30.00 40.00 .. 75.00
Incidence of tuberculosis per 100,00 population 181.00 181.00 230.00 .. 45.00
Proportion of TB cases detected and cured under DOTS (Direct Observation Treatment
Short Course) 79.00 85.00 .. .. 85.00
Goal 7: Ensuring Environemental Sustainability
Forest cover 4.80 5.00 5.20 5.20 6.00
Land area protected for conseration of wildlife 11.20 11.30 11.50 11.50 12.00
GDP (in 1980-81 Rs.) per ton of oil equivalent (energy efficiency) 27,047 24,852 .. .. 28,000
Sulfur content in High Speed Diesel 1.00 1.00 0.60 .. 0.5-0.25
Proportion of population with access to improved water sources 86.00 91.00 87.00 89.00 93.00
Proportion of population with access to sanitation 45.00 66.00 66.00 72.00 90.00
Annex VI
Page 1 of 1



Annex VI: Pakistan Vision 2025
1. The Ministry of Planning, Development and Reformis undertaking work on two development
plans; a long term plan Vision 2025, and a five-year medium term plan for the tenure of the current
government.
2. The Vision 2025 aims at transforming Pakistan into a developed and export-led economy with
strong social values through promoting inclusiveness, peace and security and greater inter-provincial
harmony. It aims to achieve a per capita income of US$ 5,000 by 2025 through private sector led growth,
a responsive and accountable civil service, vibrant civil society, and strong democratic values and
institutions.
3. As such, the objectives of Vision 2025 include a good quality of life and high living standard for
all citizens, while depending on domestic resources, reducing poverty and investing in job creation and
youth centric programs.
4. The following are the proposed pillars of the Vision:
1

i. Energy security through a holistic and integrated approach espousing principles of
availability, efficiency, affordability and competition.
ii. Sustained and inclusive higher growth in a stable macroeconomic environment. To achieve
an annual average growth rate of 7 to 8 percent that is inclusive and endogenous.
iii. Private sector led growth through incentivizing innovation, quality and productivity
enhancement in an open economy without distortionary concessions and exemptions.
iv. Modernization of existing infrastructure and creation of state of the art new infrastructure to
support a vibrant and growing economy through innovative modes of financing like Public
Private Partnerships and reducing the government footprint. Improving regional connectivity
through trade corridors, motorways, energy corridors, and industrial zones.
v. Improving Competitiveness in Industry & Trade: Transforming productive sectors into
value-added and globally competitive sectors through facilitation, dynamic productivity
growth, transparency, fairness, customer satisfaction, innovative and knowledge based
production mechanism.
vi. Internal resource mobilization with focus on Taxes, Investment & Export promotion (TIE).
vii. Institutional and governance reforms: Strengthening democratic governance through
institutional reforms in public, judicial, financial, and economic institutions. Ensuring
supremacy of merit, transparency, community participation and digitalization. Introducing
professional management in State Owned Enterprises (SOEs) in a transparent fashion and
holding themaccountable with periodic performance evaluation.
viii. Harnessing the potential of Social capital especially human resource development to reap
demographic dividend through creating job opportunities.
ix. Revival of Confidence through extensive stakeholder consultations, improving security,
enhancing competitiveness, providing incentives and establishing Business and Economic
Councils.



1
http://www.pc.gov.pk/?page_id=145
Annex VII
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Annex VII: Filters for Selectivity for the Pakistan CPS FY15-19
1.
This can be traced to three factors (i) the tendency to extend ongoing projects rather than complete
them, (ii) the desire to be in all provinces in all sectors, in light of the devolution of responsibilities to the
provinces, and (iii) the establishment of the MDTF for border areas, with its large number of small
projects. Similarly, IFC has ramped up its investments in the private sector since the last five years, with
a portfolio of some US$810 million in 38 companies. These increasing trends across the WBG are
understandable, but at the same time there are risks that the World Bank Group will be spread too thin,
reducing rather than increasing its impact. Therefore it is critical that strong selectivity filters be
established with buy-in fromthe Country Team, Government and Civil Society.
2. The most important filter for selectivity will be how the operation fits within the twin goals
to (i) reduce extreme poverty and (ii) build shared prosperity. For this, the CPS has identified the
four pillars or result areas of intervention (energy, private sector development, inclusion, and service
delivery) and a few key outcomes sought in each area. Any project to be considered will first be viewed
within this lens and for their ability to directly contribute to the two goals of poverty reduction and shared
prosperity. The WBG would aim that our entire program be directly linked to the key CPS outcomes that
in turn contribute directly to the twin goals.
3. The other top filter will be country, province and region level priorities. The Government has
laid out significant goals in its political manifesto, has established several sectoral plans such as in energy
and tax reform, and is working on a comprehensive national development framework. In addition, each
of the provinces is either preparing a provincial strategy or has sectoral strategies within it. Taken as a
whole, these documents can be used to guide WBG operations. Where these do not exist, it will be
important to get clear guidance and commitment fromappropriate authorities. Feedback of civil society,
the beneficiaries, the poor and the private sector can also be used. The WBG would aim for all activities to
be linked to one or more of these national / provincial priorities and would only go forward with a project
with the clear guidance of the government as appropriate.

4. Beyond the above two overarching filters, the World Bank Group would take into account the
following considerations in developing its programs:

Priority should be given to larger, more transformational operations. This often means working with
other partner organizations and the private sector to leverage our interventions. It can also mean
finding ways of working across sectors within a particular province, or across provinces within a
particular sector (while at the same time keeping projects as simple as possible). However, there will
always be roomfor smaller pilot operations or continuing on a selected basis ongoing operations that
have a good track-record.

Activities that work across sectors or between IFC/Bank/MIGA or between countries should be given
special attention. The WBG Group is often at its best, and can add most value, when it works at the
intersection of institutions, regions / places or sectors, where others find it hard to operate.

Balance is Needed Between Federal/Provincial and Between Provinces: The bulk of operations in the
portfolio should be in the provinces, and there should be some balance between provinces
(particularly between the two largest Punjab and Sindh and the least developed Balochistan) in the
portfolio. As a benchmark, a 30/70 split between Federal and Provincial operations would be aimed
for.

Annex VII
Page 2 of 2



Balance is Needed between Development Policy Financing and Investment Operations: As long as
the macro-environment permits, budget support policy operations are appropriate. Synergy is greatest
where you have areas supported by both policy reformin budget support operations and related
investments. But budget support would remain within 20-30 percent of the program overall (inclusive
of Development Policy Financing Operations at both the federal and provincial levels).

For MDTF, the first round started small, with the intention to scale up success. As we approach the
second round, it will be important to make good on this promise and scale up those areas of success.
It will also be important to make the MDTF the tool to coordinate funds from all sources going
towards expenditures in a particular area.

For IFC and MIGA: In addition to the above filters (client priorities and large, transformation
projects which exploit synergy among the World Bank Group) the IFC and MIGA also need to pay
close attention to the sponsors and management (Integrity Due Diligence IDD) of the operation to
keep reputational risk manageable. At the same time, special focus will be on private sector
development in the least developed Balochistan, KP and FATA to enhance local resource generation
and employment opportunities.

For Analytic/Advisory Work: Analytic work should be prioritized around the same filters as for
lending with three additional filters used to identify priorities: (i) analytic work that directly supports
effective implementation of operations, (ii) analytic work that fills an important knowledge gap, and
(iii) analytic work that plays an advocacy role on issues that are emerging in importance.

5. The CPS will rely on selectivity filters rather than pre-identifying specific sectors we would
not be involved in. Nevertheless, the filters do suggest certain areas where WBG operations would
be less likely. Such areas include mining development and clean coal power generation, which are
currently being supported by private sector or development partner e.g. ADB. Other areas of great
potential are highways and railways, but here the Government itself and other donors may be the best
provider and the additional value the WBG would bring beyond financing is unclear. Nevertheless, these
areas are not ruled out, and in fact some knowledge and capacity building efforts may be useful even
when lending is not yet warranted.

Annex VIII
Page 1 of 2



Annex VIII: World Bank Group Pakistan Energy Initiative
1. Based on
preliminary estimates, the poorly performing electricity sector is thought to have reduced GDP growth by
2 percent per annum for the past several years. The sector relies heavily on government support, through
direct subsidies amounting to about 1.75 percent of GDP in FY12/13. Costs that cannot be recovered
from consumers or the government accumulate on the books of the public electricity distribution
companies (Discos). The Discos in turn fail to pay fully for goods and services they receive, especially
electricity, thus spreading the shortfall throughout the supply chain. Commonly called the circular debt,
these accumulated arrears amounted to about four percent of GDP in FY12/13. Actions are required to
address two main distortions: the longstanding gap between the cost of service and revenues gained either
fromtariffs or subsides; and the unusually high cost of providing that service. At the same time, there is a
need to address the inequities caused by poorly targeted subsidies and ensure that the sector develops in a
socially and environmentally sustainable way.
2. For sustained economic growth, Pakistan needs to increase generation capacity by over
10,000 MW in the next 5 years. It must also reduce reliance on imported fuel oil/diesel based thermal
generation. The sector requires huge investments requiring at least $3-4 billion in funding annually. This
funding far exceeds the capacity of the public sector and development institutions combined. Innovative
financing solutions and instruments are, therefore, required to attract private funding fromnew sources,
especially in low cost hydro and renewable sources. Reforms of the sector are critical to sustain the
investments in new generation and enhance the financial viability of the sector.
3. The WBG has embarked
significant new investments and reforms in the power sector. The programaims to mobilize over $10
billion to support new generation in a mix of public and private projects that address current supply gaps
and future needs. The programwill also support significant reforms for enhancing the financial viability
of the sector. The objectives pursued under this programinclude: significant reduction in load-shedding;
reduction in energy production costs; and improve sustainability of the energy sector. The program
comprises the following ongoing and new WBG initiatives:
(I) Ongoing WBG Energy Projects in Pakistan
Tarbela fourth extension. Approved Feb 2012. The project installs a 1,410 MW hydro plant on an
existing damwith an already constructed tunnel and adds 6 percent
Natural Gas Efficiency Project. Approved Apr 2012. The objective is to reduce physical and
commercial losses of gas in the pipeline system. It covers the south of the country (Sui Southern Gas
Company Ltd). The project is being restructured.
IFC Energy investments: IFC has been supporting low cost generation using indigenous gas and hydro
two
private sector hydro projects- Laraib (84MW) & Star Hydro (147MW); one private power based on
indigenous gas- Uch-II (404 MW); two wind projects- Zorlu (50MW); and Metro (50MW); and a
waste to energy- KOEL (25MW). In addition, IFC has financed about 800MW of electricity
generation for the first privatized integrated electricity utility (K-Electric).
Laraib Energy, the first private sector hydro power with 84MW capacity came into operations in
September 2013. Uch-II Power with 404MW capacity is expected to come on stream by mid-2014,
while IFC-supported investment by Korea Water in Star Hydro
operational by 2016.
(II) New Energy Reform Program supported by the World Bank:
4. The World Bank is preparing a series of Power Sector ReformDevelopment Policy Credits
(DPCs) with parallel financing by the ADB and J ICA (the first DPC is scheduled for Board on May 1,
2014). The DPCs will support the following reforms in the near term:
Annex VIII
Page 2 of 2



Opening up the gas sector: to give priority allocation of gas to the power sector; and improve third
party gas access rules.
Addressing circular debt: Government to issue guidance for circular debt management related to
payment of arrears by distribution companies
Reducing discretion in tariff setting: Revising regulatory rules to set tariffs faster and for a longer
period through objective regulatory channels and publishing principles for setting tariffs.
Least-cost investment plan: for all new investments in the sector
Improving performance of energy companies, including corporatization/privatization: Reducing theft,
arrears and losses; improved management with clear performance contracts; and privatization of few
distribution companies.
Improving transparency: Widen the availability of information to consumers and others to increase
accountability, including publishing the order and cost with which it takes the power.
(III) New WBG Energy Investment Projects:
IDA plans to support the first phase of Dasu Hydropower Project (2160 MW) in FY14. This
investment will alone bring down the overall cost of generation in Pakistan by as much as 5-12
percent, depending on assumptions.
IFC is engaging with local and international sponsors (Chinese and Korean) to finance private energy
projects, including hydro, thermal, and renewables as well as LNG imports. IFC is expected to
mobilize substantial equity investment with international investors for the establishment of a platform
company to develop hydro, thermal, and wind power over the next five years. These efforts will
leverage and mobilize significant capital to support the large pipeline of power projects in Pakistan.
IDA and IFC are working together to bring Central Asia power to Pakistan through Afghanistan
(CASA-1000). IDA is also doing a feasibility study for an India / Pakistan transmission line.

Pakistan Energy Program: Indicators of Transformative Effect
Problem Current situation Situation in 2020 if program is
successfully implemented
Comment
Insufficient generation
capacity & supply
21,000 MW operational
93 TWh

33,000 MW
1

145 TWh
Financing to be secured by 2020 if the
combined program is successful.
High costs of energy Average cost 12 per kWh Average cost 10 per kWh at least
20percent lower
At constant 2014 prices
Carbon intensive energy 30 percent renewables in
energy mix of capacity
50 percent renewables in energy
mix of capacity
Since some renewables do not generate
continuously the mix in the actual
electricity generated will be lower
High losses in production
and consumption
Average distribution losses 19
percent; Average collections
85 percent
Average distribution losses 16
percent
Average collections 96 percent
Expected levels in line with requirements
for Disco
Poor Sector Performance
in a weak institutional
setting resulting in
financial deficit
2

Total subsidy 1.8 percent of
GDP plus 4 percent of GDP in
circular debt
Total subsidy 0.4 percent of GDP DPC actions support reduction in losses,
improved collection, timely notifications
through multi-year tariff keeping in view
subsidy limitations.

1
WB investments Tarbela IV 1410 MW hydro, Tarbela V 1000 MW hydro, Dasu Stage I 2160 MW hydro, CASA importing
1000MW, India Pakistan Interconnector importing 1000, operationalizing existing capacity 2500 through additional 800mmcfd
gas supplied at 40 percent higher cost. IFC investments additional 687 MW fromexisting portfolio (Star Hydro, Uch II, Zorlu
and Laraib) and additional 2 370MW of hydro solar and wind through CSAIL.
2
Financial deficit accrue for following reasons: (1) actual distribution losses (19 percent) being higher than NEPRA target (16
percent), (2) non-collection of bills (current collection rate is 89 percent), (c) 6-9 months delay in tariff determination and
notification particularly with rising cost and (d) late payment of subsidies.
Annex IX
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Annex IX: Promoting More and Better Jobs for Pakistan

1. With an entry of 1.2 million people every year, Pakistan has one of the fastest growing
labor-force in the world and this number is likely to increase significantly in the coming years.
During the next 20 years, over 2 million workers will be entering the labour force per year. As such the
jobs to absorb these new entrants into the job market. The Government of Pakistan is fully cognizant of
the issue and is geared to meet this challenge over the long termand is dedicated to building a sustainable
s better jobs
strategy hinges on:
2. Improving business environment and productivity: With a significant potential of providing
increased job opportunities, the growth of micro, small and mediumenterprise (MSME) sector is severely
constrained by several factors. Two central ones are the lack of access to finance and tax regulations.

The key issue is that the commercial banks endure a much higher risk and cost in terms of
identification of bankable MSMEs and conducting their due diligence for them. On the demand side,
the MSMEs lack information on the requirements to qualify for bank financing. The government
intends to enhance access to finance by developing an enabling environment that makes MSME
lending safer, cheaper, and faster, rather than on prescriptive measures such as directed lending
programs, which often lead to distortions. For this, the government is strengthening credit bureaus to
help overcome adverse selection and moral hazard in lending, improving efficient secured transaction
providing technical assistance and financial literacy training to MSMEs.

base is very small, and firms in the tax net bear a heavy tax burden. This dissuades new firms from
voluntarily registering themselves as taxpayers. In addition, weak political will and inadequate
administrative capacity to enforce tax laws causing the bulk of the tax burden to fall on a limited
number of large formal manufacturing firms, thus penalizing the important creators of jobs. In
addition, serious distortions have been created in the tax structure through large number of tax
exemptions and concessions, which accentuate inequities in the systemand discourage productivity
increases. The Government is striving to enhance the efficiency and fairness of the tax system by
bringing into the tax net a higher number of individuals and businesses; reducing tax exemptions and
concession; and enhancing the transparency of the tax system. For this, the management and
organization capacities of revenue administration are being enhanced; information technology is
being updated and improved to efficiently process massive information flows from taxpayers; and
investigative and enforcement capacity of tax authorities is being supplemented. A better functioning
tax systemwould not only remove distortions which hamper economic activity, but by generating
-in investments.
3. Tackling energy shortages through a reliable energy sector
availability features prominently as a major obstacle. Approximately 75 percent of firms cite electricity
as a major or severe constraint to business; and reported 69 hours of power outages, on average, per
month, and lost revenue equivalent to 9.2 percent of sales. Reforming the power sector is, therefore,
crucial for these firms to expand, and thereby create more jobs. This will mean addressing the energy
sector deficit in Pakistan which is estimated to reduce growth by no less than 2 percentage points a year.
The Government of Pakistan is pursuing a number of avenues to improve the financial and commercial
viability of the power sector. These include: (i) increasing the level of tariffs to reflect the cost of supply
and rationalizing tariffs to address cross subsidization; (ii) reducing losses by improving collection; (iii)
curbing leakage and improving overall efficiency; (iv) enhancing efficiency through improved
Annex IX
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governance and better management practices of the sector; and (v) improving the capacity and
independence of regulatory agencies to ensure transparency and accountability in tariff-setting.
4. Enhancing marketable skills and competencies of Pakistani workers. The Government of
Pakistan is making significant investments in education to equip its youth with the skills needed to
compete effectively in the global market. Nevertheless, education completion levels in Pakistan remain
low, especially for its rural and female population. Further,
modest, with a recent study showing that only 52 percent of students enrolled in Grade 5 were at the
reading level expected of students in Grade 2, and only 34 percent of children enrolled in Grade 5 could
do simple arithmetical divisions.

Like many developing countries, in Pakistan too, the demand for low skilled workers is waning, while
the demand for more highly skilled workers those with secondary and tertiary education is
outpacing supply. This is reflected by higher wage premiums for students who have completed
higher levels of education than those with little schooling in Pakistan. In 2008, there was a 26 percent
wage premium for students who had completed higher secondary versus students who had incomplete
primary schooling in Pakistan.

and private investments in tertiary education and pre-employment training systems. In addition,
equity of these systems needs to be enhanced by improving the access of females to such systems and
students from the poorer or crises affected regions, particulalry Balochistan, KPK and FATA. Pre-
employment vocational training, in particular, provides a viable alternative for students who do not
pursue tertiary education. The Government has increased its investment in pre-employment training
significantly, but as in other countries, it is critical that such training should be of high quality and
impart skills relevant to the labor market. These include ICT, communication, analytical and
behavioral skills. Moreover, it is important to encourage firms to invest more in on-the-job training.
Firms in Pakistan, for instance, provide considerably lower levels of on-the-job training relative to
comparator countries. The most recently available figures show that only 17 percent of medium-sized
farms and only 35 percent of large farms invest in on-the-job training in Pakistan.

Annex X
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Annex X: A New Tax Reform Strategy for Pakistan
1. The Government has designed a Tax Reform Strategy aimed to increase tax collection from
9.7 to 14 percent of GDP by 2016/17. The GOP estimates that no less than two-thirds of such effort will
have to come from the federal government and one quarter from the provincial governments. And
success will rely on significant improvement in tax compliance and in the broadening of the tax base by
improving registration, closing the tax gaps and making taxation more equitable. Such a goal is consistent
with its commitment to achieve a sustainable deficit of around 4 percent of GDP by FY2016/17 where
over half of such adjustment should come fromrevenue mobilization. As an initial step, since December
2013, FBR is implementing a Plan to enhance revenue mobilization for sales, excises and customs taxes.
These efforts have been assisted by a WB Project Preparation Facility (PPF) for a Revenue Mobilization
DLI project, the IMF and DFID. WBG will continue to actively provide technical assistance on tax
administration in closeliaison with our development partners.
2. Lessons learned from the success and failures of previous tax efforts have guided the
preparation of the new strategy. The World Bank financed Tax Administration ReformProject
(TARP) left important learning that helped shape the new strategy:
A tax reforminitiative is likely to be more successful if it integrates tax policy, with tax
administration and legal measures.
The institutional capacity of the Federal Board Revenue (FBR)--both managerial and technical--
has been eroded over time and needs to be carefully assessed before ramping up reform amplitude
and intensity. Any reorganizational plans need to be carefully phased with adequate safeguards
and internal ownership.
Hence institutional development, including strategic planning, change management, audit and
enforcement controls, need to move in parallel with revenue mobilization efforts.
An IT-supported performance monitoring and evaluation systemshould be in place fromthe
beginning.
3. The FBR tax reform strategy relies on three pillars: tax policy measures, measures to
increase the tax base (the elimination of exemptions rooted in distortive Statutory Regulatory
Orders--SROs), and improved tax administration.
Main initial tax policy measures were approved with the FY13/14 budget. These have been the
one percent increase in the General Sales Tax (GST) last J uly and the Gas Infrastructure
Development Cess (GIDC) introduced end-December. With a broader tax base and higher
collection, GOP expects to avoid further increases in tax rates.
Broadening the tax net relies on a 3-year program of elimination of most tax exemptions and
loopholes granted through Statutory Regulatory Orders (SROs). The ultimate objective of the
SRO plan is to achieve an increase in revenues of some 1 1percent of GDP, with all designated
SROs eliminated in no more than three years. So far, GOP has issued no new SROs granting so-
-
December 2015 legislation is expected to permanently prohibit the practice. FBR plans to start
eliminating the first batch of SROs identified in the FY2014/15 budget, to be approved by end-
J une, as part of a package of identified actions totaling 0.75 percent of GDP. Necessary changes
will also be made in the tax laws to prohibit a future resort to such ad-hoc policy measures.
Tax administration reforms are projected to gradually deliver further improvements in revenue
collections. A massive initiative to incorporate 300 thousand new taxpayers into the income tax
net is moving ahead. FBR is on track to issue 75,000 first notices by end-March and to follow up
with a second notice to at least 75 percent of those who did not respond satisfactorily to their first
Annex X
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notice within 60 days. FBR will also issue a provisional tax assessment to 75 percent of those
who did not respond satisfactorily within 60 days to the second notice. So far, over 6,000
individuals have registered and filed returns as a result of the initiative, and this number is
expected to rise in the coming months. In addition, FBR has reactivated ballot-based audit and
published in mid-February a Tax Directory of all current parliamentarians at both the federal and
provincial levels in an effort to foster a culture of transparency and compliance.
4. Greater government, and FBR ownership of the strategy enhances its chances of success.
One of the critical success factors for reforms is its broad ownership by the country. In Pakistan with the
exception of few occasions, there has never been a broad based ownership of reforms nor has any reform
package been designed and formulated by the economic managers of the country. In most cases, the main
motivation for reforms has been to secure infusion of short termliquidity to avert the impending foreign
currency crisis. As soon as the liquidity situation improves, the will to continue with reform wanes. This
moment is then utilized by powerful interest groups to reverse or at least dilute the policy content.
Government policies are then reversed or at the minimum diluted. As such, inculcating a strong
ownership of the tax reforms within FBR and the general government is the integral part of FBR
strategy.
1
In the next attempt promoting ownership on the strategy, FBR will prepare an appropriate
communication plan to disseminate it among taxpayers. This plan will not only highlight the key features
of the strategy, but also the rights and responsibilities of the taxpayers. This would be the first step
towards protection of the taxpayers rights, especially of the small taxpayers.
5. But efforts at increasing tax collection cannot spare provinces. A well-known reason for a
low tax-to-GDP ratio is the extremely poor tax effort by provinces. Although it is true that major broad-
based taxes are in the federal domain, yet the provinces have not effectively utilized the tax bases
assigned to themby the Constitution. Provincial taxes, on the average, have contributed less the 4 percent
to overall tax collection (equivalent to less than 0.5 percent of GDP). However, this contribution
increased to almost 7 percent after GST on services was transferred to the province in 2010/11 following
the 18
th
Constitutional Amendment, for which Punjab and Sindh has set-up adequate mechanisms to
collect revenue. Notwithstanding the increased contribution to revenue by province, there is significant
scope for even more improvement. This could be achieved by:
Expanding the base of services GST: by bringing import of services into the tax net or levying
presumptive tax on informal services;
Updating the evaluation of properties: by reducing the differential in rates of property tax for
rented and owned properties, and devolving the property tax to city governments;
Levying a presumptive agricultural income tax at marketing stage; and
Strengthening provincial tax administrations: by modernizing them not only to support
-filing, one of the major obstacles
identified by the Doing Business reports.
6. All these measures can help increase the provincial revenue collection to over 1 percent of
GDP in next two years. In order to help provinces achieve this goal, the WBG is actively involved with
the governments of Sindh
2
and Punjab
3
in improving tax policy and administration at provincial level.


1
A Real, Relevant and Owned Strategy for FBR
the FBR management, the leadership of FBR field units and international experts openly discussed the future reform
direction for FBR.
2
Under the Sindh Public Administration Reform Project
3
IFC is working Punjab Revenue Authority to improve business processes in collection of services GST.
Annex XI
Page 1 of 2



Annex XI:

1. Over the last two years there have been some significant changes in the federalismlandscape of
Pakistan. The Seventh NFC Award sharply increased the share of provinces in federally collected
revenue, while the 18th Amendment has introduced some profound changes in multi-order governance in
Pakistan, including devolution of significant number of additional functions from the federal to the
provincial governments. Some other key functions, e.g. electricity generation, statistics, planning and
regulation, have been made a shared responsibilities of the federal and provincial governments. These
changes have also created significant challenges for World Bank Group (WBG) operations in the country
requiring some fundamental adjustments in the type and modality of our engagement with the
government, and the designing of our projects and programs.
2. Although the transitional process had been quite orderly it is by no means complete. The slow
adjustment to these changes is mainly an outcome of weak political and administrative institutions, which
are not yet strong enough to adequately manage changes of this magnitude. Insufficient coordination
between the federal and provincial and among the provincial governments has been the main obstacle in
the process. Going forward, significant inter-government coordination would be required to make
decentralization work for the maximum benefit of the country, especially in critical areas of security,
energy, social safety nets, resource mobilization, water management, regional cooperation and population
growth. The federal government will need to build a more proactive role in meeting these critical
challenges posed by the devolution process, and the World Bank Group and other development partners
can support the federal and provincial governments in this endeavor through various instruments.
3. The most critical of decentralization challenges include: (i) complication of fiscal and financial
management; (ii) fragmentation of debt management and increased riskiness of borrowing arrangements;
and (iii) a marked shift in development and service delivery focus toward the provinces with insufficient
attention on coordination and capacity.
4. The WBG has been working with the federal and provincial governments to meet some of these
challenges:
a) WBG is working with the federal and provincial governments to improve their fiscal and
financial management systems. After the NFC Award and the 18th Amendment, fiscal
management in Pakistan has become more complicated. Greater revenue transferred to the
provinces, along with inherent rigidities in expenditure, has created acute fiscal difficulties for the
federal government. In order to achieve overall fiscal stability and discipline, provinces would
have to play a more prominent role than before. The WBG has been actively working with
provinces to meet the fiscal management challenge. Over the last two years a number of
analytical products were designed to develop awareness among the stakeholders and build
consensus on some of the more important issues related to fiscal and financial management in the
devolved set-up. These products include: two sub-national PERs, PEFA assessments of the
federal and two provincial governments and an international workshop in the implications of the
18
th
Amendment. Moving forward, revenue mobilization is going to be critical area for ensuring
sub-national fiscal discipline. Under its governance and TA projects in Sindh and Punjab, WBG
is helping the provincial governments to strengthen their tax administration apparatuses.
b) WBG is also engaged with the federal and provincial government to reduce the debt
management risk created by the 18th Amendment. Weak fiscal management has led to a sharp
increase in public debt, which needs to be carefully managed. In addition, by giving the provinces
the right to borrow frominternational donors and financial markets, the 18th Amendment has
heightened the debt concerns and has reinforced the need for more active debt management at the
Annex XI
Page 2 of 2



provincial level. Over the last two years, World Bank has helped the Punjab government to
undertake a Debt Management Performance Assessment (DeMPA) and is presently working with
Sindh government on a similar exercise.
c) WBG is in the process of developing a comprehensive approach to engage with the provincial
governments to meet the service delivery and development challenges. With increased revenue
transfers, provinces are expected to play a much bigger role than before in economic and social
development. Being closer to the people, province-centric development has many obvious
advantages; yet there are some inherent risks. Most important of these are:
i. Uneven development: Fiscal capacity varies significantly across provinces. As such,
distribution of federal
ensuring developmental equity across provinces. Now with federal government likely to
reduce its role in development, there is genuine risk of uneven development across
provinces.
ii. Weak capacity: The returns fromthe expected rapid growth in development spending by
provinces can be jeopardized by weak institutional capacity of the provincial
governments to design, execute and manage a larger portfolio of projects. There is a real
risk, especially in smaller provinces, that the weak delivery mechanisms can adversely
affect the quantity and/or quality of devolved services.
iii. Inadequate ownership: Regarding the devolved functions, e.g. immunization, lady health
workers and population programs, there is a risk that the provinces may have different
priorities than the federal government and therefore may shift their level of commitment
and financing for some of these activities.
5. Moving forward, donor coordination would be vitally important: Given the political, equity and
client-relationship undertones behind each of these issues, it is critically important to develop a consensus
among the donor community on the way forward and the role that each donor would play in different
areas of each sector. These roles would depend on the capacity, comparative advantage and interest of
each donor. For example, the World Bank can provide its knowledge and financial resources to help
provincial governments meet these challenges, while it may be appropriate that institution and capacity
building aspects of sector development be undertaken by bi-lateral donors through grant financing.
6. WBG, through its analytical and advisory work, will continue to deepen its dialogue with the
federal and provincial governments on many areas of intergovernmental relationship to help them
better manage the challenges and attain maximum benefits from the decentralization process. As a
continuation of our engagement with the government on fiscal and financial management, an international
workshop on national and sub-national fiscal rules is planned for April 2014 to highlight the role of
appropriately designed fiscal responsibility laws in establishing fiscal discipline. As the deliberation on
the next NFC Award would start early in the next fiscal year, WBG would be willing to assist the process
through dissemination of knowledge on best global practices on modes and management of fiscal
decentralization; and, if asked by the government, provide technical support to the NFC.
7. WBG will remain engaged and willing to provide support to the local governments when they
are formed. The decentralization process in Pakistan is an evolving and on-going process. For logistical
reasons, there have been delays in formation of local governments; however in each province elections for
local governments are planned in the next few months. Local governments will provide new
developmental opportunities, along with new risks and challenges. Moreover, as a deviation fromthe
past, each provincial government has opted to define a different set of roles, responsibilities and powers
of local government. Therefore the process of decentralized governance in the coming few months is
likely to be even more complex than in the past. WBG will look for opportunities to work with the local
governments when they are established to deliver local development solutions and strengthen capacity
and accountability of local systems for better results.
Annex XII
Page 1 of 2



Annex XII: Governance Action Plan

Governance Context in Pakistan
1. Pakistan is still facing significant governance challenges that may hamper attempts of
policy changes leading to poverty reduction and economic growth. Pakistan is facing broad critical
governance challenges ranging fromrule of law, democratic governance and security to corruption
legacy, resource management, and civil service effectiveness both at federal and provincial levels.
Addressing these challenges will be critical to success of policy decisions aimed at improving the energy
sector, service delivery, competitiveness, as well as stability in the country.
2. Meanwhile, progress has been achieved in terms of political governance. In terms of political
governance, important milestones were achieved with the adoption of the Constitution 18
th
Amendment,
which has delegated service delivery responsibilities and resources
1
to provincial governments, and the
completion of the full termof a

Government Program Addressing Governance Challenges
3. At the federal level, Pakistan Vision 2025 is expected to include a broad governance agenda
and measures to strengthen resources mobilization. Pakistan Vision 2025 governance agenda is
expected to be articulated around the following priorities: (i) Strengthening democratic governance; (ii)
Modernizing Public Sector Management through E-Government and Civil Service Reform; (iii)
Introducing performance monitoring and professional management of SOEs; (iv) Enhancing revenue
mobilization through establishing a broad and equitable tax systemthat facilitates tax registration and
compliance.
4. At the provincial level, the governments of Punjab, Sindh, KPK, Balochistan, and FATA
are formulating and implementing good governance strategies.
programs are comprehensive and intend to improve government performance and service delivery by
strengthening performance monitoring, public finance management, revenue mobilization, transparency
and accountability.

World Bank Group Response to Pakistan Governance Challenges
5. The World Bank Group is proposing an approach simultaneously selective and integrative
to support Pakistan federal and provincial governments to address governance challenges. This
approach is intending to integrate mainstreamed actions in each sector; to develop governance operations
supporting specific governance reforms; and coordinate actions with other donors. Meanwhile,
interventions will be selective, targeting priority areas and developing standardized instruments across
sectors. The following main types of actions are foreseen: (i) Mainstreaming Governance and Corruption
(GAC) in WBG Programs through Risk Management; (ii) Sector Governance; (iii) Donor Coordination
on Anti-corruption; (iv) Projects supporting governance reforms; (v) Fiduciary safeguards in WBG
Programs; and (vi) Private Sector Good Governance Program.

(i) Mainstreaming GAC in World Bank Programs through Risk Management

IMPACT: A standardized governance risk management will be mainstreamed in each
WBG Project. This risk management approach consists of a risk management diagnostic at

1
The last National Finance Commission (2010) increased the provincial share in revenue from 46.25 percent to 57.5
percent.
Annex XII
Page 2 of 2



preparation stage complemented with mitigating measures. A teamhas been set-up for this
purpose and works in coordination with project teams. Disbursement rates will be used as
proxy to output and outcome.

I ICT instruments to support monitoring of project outputs and outcomes.
M
Management of Risk through systematic diagnostic embedded in the portfolio management
process.
P
Private Sector interventions: IFC will continue to enhance its Comprehensive Integrity Due
Diligence (IDD) for each project before formally engaging with clients.
A
Accountability measures through supporting Accountability Institutions and Social Accountability
actions.
C
Country systems strengthening for effective mitigation of risks in areas such as financial
management, procurement, Ombudsman.
T Transparency interventions such as support to Right to Information, open government.

(ii) Sector Governance
At the Federal level: Governance and Political Economy analysis targeting four areas
(Energy; Tax Administration; Large Procurement and Contracting activities; and SOEs).
At the Provincial level: Monitoring of Service Delivery Performance through ICT in areas
including Education, Health, and Livestock.

(iii) Donor Coordination on Anticorruption
The Anti-Corruption Action Group (ACAG) includes the Bank and other donors involved in
governance, and functions as a cooperative to develop
corruption related issues.

(iv) Specific programs supporting Governance Reforms
Federal Level: Technical Assistance on Revenue Mobilization and SOEs funded by DFID.
Federal Level: IDF supporting Ombudsman institutions.
Punjab: Public Management Improvement Program (PforR) supporting government
actions on tax administration; transparency; public procurement; and performance
monitoring of service delivery. Programdeveloped in cooperation with DFID.
Sindh: Public Sector Reform Program supporting government actions on tax
administration; public financial management; public procurement; and monitoring and
evaluation. Program developed in cooperation with the EU.
KPK, Balochistan, and FATA: Governance Support Programfocusing on J udicial; Public
Procurement; Service Delivery; and Anti-corruption. Programfinanced by the Multi-Donor
Trust Fund.

(v) Fiduciary safeguards in WBG Programs
Enhanced fiduciary safeguards will be implemented in projects as described in the fiduciary
section of each project. This will complement actions mentioned in this annex.

(vi) Private Sector Good Governance Program
Collective action by business associations and relevant chambers of commerce will be
explored for government to business (G2B) transactions where unethical or corrupt
practices are detected.
Corporate governance programof IFC will be leveraged to support task teams to send a
clear signal to the relevant private sector entities on the ethical standards expected under
WBG financed projects. A guidance note will be prepared to facilitate this effort.

Annex XIII
Page 1 of 2



Annex XIII: Investing in Women

1. Gender equality and women empowerment are central to reducing poverty and achieving
sustainable development. By prioritizing and integrating gender in education, health and labor policies,
Pakistan can make meaningful progress towards achievement of its MillenniumDevelopment Goals. J ust
as importantly, empowering women and investing in women and girls can be key drivers of peace-
building, social justice, economic growth and reducing inequality. Although Pakistan has come a long
way in addressing these issues, it has progressed at a much slower pace when compared to other
developing countries, particularly in South Asia. The World Economic Forumreport 2013 suggests that
Pakistan moved down in the rankings from 134th to 135th position due to a worsening in political
empowerment this year and occupied the last spot in the Asia and Pacific region. The country ranked 124
, ment and a staggering 135 on equal
economic participation and opportunity. Currently only 22 percent of women participate in the labor
force.
2.
inequalities in Pakistan in which society and tradition can be powerful forces in differentiating access to
resource and services and marginalizing women and girls, particularly in poor and rural areas and in time
of natural disasters and insecurity. Lack of government resources, high poverty and low levels of literacy
all contribute to the fact that very few women are aware of their rights, while also complicating the
implementation and enforcement of reforms required to improve their situation.
3. The Government of Pakistan has a concrete agenda for women development and empowerment.
Major efforts include: Protection Against Harassment of Women at the Workplace Act (2009), the
ReformAction Pla undertaking a coherent gender reformagenda. The Poverty Reduction
Strategy Paper (PRSP) and MediumTermBudgetary Framework have also incorporated various gender-
sensitive amendments. While these efforts have made some impact, the country needs a comprehensive
gender development strategy with stronger implementation to create a substantive long termchange.

WBG Gender Portfolio Review 2013
4. The WBG Gender Portfolio Review 2013 assesses gender development changes in
operations in Pakistan building upon the findings of the earlier Gender Portfolio Review done in 2009. It
was found that Gender mainstreaming at the Bank has made significant progress with regards to gender
informed inputs. Inclusion of gender analysis in social assessments, gender specific interventions and
gender sensitive results indicators are some of the areas where improvements have been made post gender
portfolio review 2009.
5. Thirty one (31) projects were evaluated for their level of gender integration and were rated using
a Threefold Rating Matrix along three separate dimensions, namely, analysis (assessed the quality of
analysis), action (provided details of the gender interventions undertaken by project operations) and
monitoring and evaluation (evaluated gender responsive impact of interventions). Any project was
marked as gender informed if it included at least one dimension in its social assessment, safeguard
policies or feasibility reports.
6. It was found that 92 percent of the projects fromthe human development sector were gender
informed as opposed to only 66 percent from the economic sectors. The Education sector projects took
the lead in embracing gender integration as an important tool for development. The Private sector (IFC)
mainstreamed gender as an important cross-cutting theme in its advisory and investment services. On the
Investment Services side, most of gender related impact has come frominvestments in the microfinance
Annex XIII
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and SME sectors which have directly or indirectly facilitated women both in terms of access to finance
as well as in job creation. On the Advisory Services side, Corporate Governance and Business Edge
projects were both gender inclusive and worked towards reducing gender-based barriers in the business
environment.
7. However, there were a few gaps identified across sectors including energy, finance and
infrastructure due to the fact that gender planning is technical in nature and involves a transformative
process way. Overall, a continued effort needs to be made to ensure that gender equities are addressed
throughout program design and implementation and quality based indicators are used in the results
framework.

Looking Forward
8. The World Bank Group chaired the Inter-Agency Group on Gender and Development (INGAD)
fromJ anuary - J une 2013 and developed a note for the new government which highlights three critical
areas education, health and labor where clear strategies, financing and implementation mechanisms
are needed to tackle gender challenges, both at the Federal and Provincial levels. The WBG CPS 2015-19
mainstreams actions on these three dimensions and also provides a special focus on gender under the
Result Area III on Inclusion. A central element in implementing these strategies will be the collection and
analysis of gender-disaggregated data, and effective monitoring and evaluation of this data to enable
policy makers to see what works and what does not, and holding service providers accountable.
9. Education: Article 25A ensures education for all, and this should be monitored and enforced.
Increasing the education budget for all children and enhancing quality, efficiency and accountability of
education expenditures are critical; however there is an equal need to focus on building gender based
infrastructure and human resources. An effective strategy to address gender disparities in education
should focus on increasing enrollments and decreasing dropouts of girls, particularly in the rural areas.
Investments in improving the quality of teacher training, building gender aware infrastructure such as
separate bathrooms and boundary walls, and standardizing a gender sensitive curriculum will also
improve gender indicators in education.
10. Health: Gender sensitive health strategies and budgets, particularly at the provincial level, need
to be shaped so that they address both access and availability
contraceptives, child vaccinations and nutrition, and in rural and poor areas. Increased support for Basic
Health Units and Rural Health Centers can significantly improve maternal and neo-natal health, as can the
deployment of Lady Health Workers and roll-out of health insurance. Malnutrition can also be addressed
through awareness campaigns as well as increased availability of nutrition supplements.
11. Labor: The upcoming youth bulge, has the potential of paying a demographic dividend, if and
only if an investment is made now in empowering women. One of the greatest catalysts for robust
economic growth is investment in women and
To do so, it is important to ensure that both men and women have equal opportunity to increased
education, vocational skills training, job placement and access to credit. Laws that address Workplace
safety, social benefit and security, and gender harassment need to be properly implemented and
monitored.
12. Private Sector: Ongoing and new work to advance gender focus in the private sector would
include: (i) expanding opportunities for women entrepreneurs to grow their businesses with increased
access to finance and access to markets; (ii) improving
markets; and (iii) increasing as leaders and stakeholders by expanding training for women
directors on corporate boards.

Annex XIV
Page 1 of 2



Annex XIV: Youth Inclusion in Pakistan

Why is Youth Important to Pakistan?

1. Pakistan today is one of the youngest countries in the world; and youth play an important
role in the economy. Around two thirds (68 percent) of the population is under the age of thirty, and the
median age is 22. Over the next several decades, Pakistan is poised to become the fourth most populous
country in the world. With nearly 53 million active youth (under 25), the challenges of inclusion and
empowerment of these young people will only continue to grow as the proportion of young people in the
country rises. Youth in Pakistan is increasingly urbanized and tech-savvy segment of the population.
More than a third of youth currently lives in urban areas and their share is expected to reach 50 per cent
by 2030. The large numbers of Pakistani youth represent not only a source of labor but also the potential
to bring innovation, entrepreneurship, new skills and ideas to the economy. Global experiences have
demonstrated that the participation of a growing youth population into the economic fabric can contribute
to accelerated growth and development in the country. In addition, nearly a fifth of the 85 million
Pakistanis registered to vote are between 18 and 25. Looking beyond the short termpromises made
during the recent elections, it is important to recognize both the emerging trends and deeper changes
taking place in Pakistan, as well as the increasing role that young people may play in these changes.

What are the Key Issues and Priorities ?

2.
r
gender, religion, and social class. However, youth face particular forms of exclusion that are specific to
their social transitions to adulthood. Within a hierarchical culture, social norms dictate seniority over
youth and this hierarchy persists even within gender, religious and social groups. Thus the ability to speak
place in society. With rapidly shifting values and norms, and multiple and often conflicting social
identities, young people in Pakistan are fixed in traditional pathways to transitioning to adulthood that
remain stifling and limit voice, opportunity and empowerment.

3. Youth face barriers to opportunities in two areas: employment and education. Longstanding
unemployment is often linked with eroded trust and social cohesion, which could further exacerbate

percent versus an overall unemployment rate of 5 percent), this figure translates to 3.7 to 4.6 million
young people.
1

e in excess of 7 percent.
2
For
young people, access to employment opportunities not only signifies material improvements, but has
important implications for social transitions to adulthood, political participation and belonging, and social
cohesion. Second, the quality of education has not equipped young people with necessary skills. Pakistan
spends less than 3 percent of GDP on education. Poor quality of education and outdated skills limit
opportunities for youth. Pakistan has a relatively large proportion (32 percent) of uneducated youth with
no vocational and life skills, who end up in elementary occupations or remain either unemployed or
inactive.
3
Eroding public services, particularly in critical areas such as education, undermine the future
skill development and opportunities of the emerging generation. This, combined with underemployment
1
World Development Indicators, 2008
2
Pakistan, May 2011
3

Pakistan, May 2011
Annex XIV
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is typically considered major structure factors to continued youth exclusion, and is linked with an increase
in the likelihood of violence. While not predictive of conflict, countries with young age structures and a
combination of unemployment, poor education, and weak governances are more highly correlated with
violent conflict.
4


Government Strategy and Program for Youth Engagement

4. Both the Federal Government and the provincial Governments, especially Punjab and Sindh have
instituted youth programs to enhance skills and promote employment. For example the Federal
government as a part of its broader youth programprovides loans to youth for small businesses, as well as
training and skills development.
5
Both the Punjab and Sindh Governments also have youth programs
aimed to address unemployment of youth by providing training and skills development e.g. The Sindh
Benazir Bhutto Shaheed Youth Development Program(BBSYDP)
6
and the Punjab Youth Internship
Program(PYIP).
7
In addition the Government has several initiatives focused towards enhancing youth
learning achievements. One such program is the federal governments Youth Laptop Scheme, where
eligible students frompublic sector HEC approved universities receive laptops.
8
The effectiveness of
these programs is yet to be determined, as no systematic evaluations have been done to date.

World Bank Group Support for Youth Engagement

5. The World Bank recognizes the
development. Integrating youth and addressing needs and priorities of the younger generation is critical
understanding the specific youth exclusion patterns, and improving engagement with young people in the
development process. This was reflected in improved mainstreaming of youth participation in existing
operations, and in collaboration between the MDTF and University of Peshawar where Youth Advisors
were selected for Governments of KPK and FATA. This encouraged the development of valuable skills
and created networks for long termengagement of youth in local development challenges.

6. The new CPS brings focused attention to supporting innovative pathways to social inclusion
and youth employment under the Result Area III -- Inclusion. One area of increasing focus will be on
youth employment opportunities, recognizing this as an important avenue for individual material security
and broader economic growth, but also as a social transition to adulthood and social inclusion. To this
end, innovative pathways to inclusion in the local, national and global will be supported to promote the
expansion of employment. For example, opportunities in the fast-moving digital economy hold great
potential for young Pakistanis. Studies estimate that the online contracting market is worth US$1 trillion
globally.
9
While the tech industry in Pakistan is still nascent, it may be well positioned to partake in this
high growth sector. The World Bank hopes to support the Government of Pakistan in exploring
innovative ways to expand economic and job opportunities for youth via technology solutions, and to
support entrepreneurship and innovation that could create new employment avenues for young people.


4
In 1990s, countries with a very young structure were three times more likely to experience conflict than countries
with a mature structure. Between 1970 and 1999, around 80 percent of all new outbreaks of civil conflicts occurred
in countries in which 60 percent or more of the population was under age 30. (BARGAD 2010)
5
http://youth.pmo.gov.pk/
6
http://www.bbsydpsindh.gov.pk/
7
http://pypb.punjab.gov.pk/
8
http://youth.pmo.gov.pk/?page_id=28
9
Connecting to Work, Raja, S. Imaizumi, S., Kelly, T.Paradi-Guilford, C., The World Bank, September 2013
Annex XV
Page 1 of 2



Annex XV: Restoring Trust between Citizens and Governments
of KPK, FATA and Balochistan
Status of Engagement
1. The WBG engaged for several years with the provincial Governments of KPK, FATA and
Balochistan, mainly through IDA window. The last CPS had dealt with crises-affected provinces and
regions under a separate pillar supported by the Multi Donor Trust Fund (MDTF). The new strategy
brings attention to mainstreaming the dialogue on special needs of the groups and regions at risk under
the Result Area III - Inclusion.
2. The MDTF was established in 2010 as a mechanismto support the provincial governments in
implementing their post-crises development priorities. The fund is supported by eleven development
partners. Currently, the total funds allocated to MDTF stand at US$ 157.15 million, committed to 11
projects.
3. Since 2011, MDTF has made gains both in terms of establishing robust delivery mechanisms as
well as achieving results on the ground and has moved froma funding mechanism for KPK, FATA and
Balochistan to a strategic instrument aimed at contributing to PCNA (Post Crisis Needs Assessment) and
BDNA (Balochistan Development Needs Assessment) objectives while helping provincial and regional
governments to build their own capacity to address wider development needs.
4. WBG Global Center on Conflict, Security and Development (CCSD): During this period,
MDTF benefitted fromthe support of the WBG CCSD hub in Nairobi, which helped design the MDTF
strategy, from the PCNA operationalization report (OPCNA) to the new Programmatic approach, and
provided guidance and global experiences/best practices on management of the Third Party Monitoring
Agents (TPMAs), and results/monitoring for emergency projects.
5. External Donor Reviews: Since 2012 three donor reviews were completed, providing
recommendations in the most critical areas of MDTF operations. The most important were aimed at
building a more strategic MDTF i.e. contributing more efficiently to PCNA objectives and thus to
peacebuilding through efforts for restoring trust between citizens and the governments. The
recommendations of the reviews concentrated on (i) improving the MDTF Results Framework and
project outcomes and indicators, (ii) measuring the performance of the Governance Support Programin
its effort to build capacity of the local administration for basic services delivery, (iii) strengthening the
MDTF Secretariat, and (iv) designing a communication strategy.
6. s and Donors Recommendations, the MDTF Secretariat has developed a
comprehensive results framework, which represents a collation of portfolio level results and maps these
activities against the PCNA Strategic Objectives. The MDTF Consolidated Results Framework (CRF)
presents a log frame for the portfolio and captures all deliverables. The CRF presents key outcomes and
outputs outlined in the Operationalisation of the PCNA (OPCNA) document and the associated results,
which are delivered through the portfolio.
7. In consultation with the governments and development partners, the MDTF is currently
developing a round-II strategy and results framework to scale up engagement in the three regions. The
strategic focus, however, needs to be strengthened in order to advocate for an increase in on-budget
bilateral support and to help donors and governments to prioritize and harmonize their investments and
align them with the agreed PCNA objectives.

Annex XV
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Lessons from Implementation and Emerging Needs
8. To that end, the MDTF has undertaken multiple analyses to identify i) those activities and sectors
that would ensure capitalizing on the achievements/gains so far; ii) key lessons that can be drawn from
implementation experience to date; iii) new needs that can be addressed by the MDTF; and, iv) under-
covered sectors and geographical locations. These analyses have generated three broad conclusions.
First, the studies found that MDTF activities to date are not sufficiently strategic in that the actual
interventions undertaken by the MDTF may not significantly contribute towards the outputs
highlighted in the PCNA.
Second, while MDTF activities to date have made considerable impact towards enhancing the
capacity of provincial governments in piloting development interventions for greater state legitimacy
and state-citizen trust, these interventions have been fragmented. Further, the PCNA financing to
date has been skewed towards infrastructure, education and health sectors at the expense of
investments in the areas of law and justice, communications, governance and social protection.
Third, the lack of flexibility has resulted in slow pace of implementation and disbursements. While
the use of country systems is essential for capacity building, it does come at a price in terms of speed
of implementation and the resource intensive nature of technical support. Initial concerns over slow
implementation have resulted in improved understanding of government & Bank policies/procedures
by all parties with more effective application in support of programdelivery and consultations, such
as the MDTF Advisory Committee to inform decision making and to raise and discuss impediments
to implementation. These innovations need to be strengthened to make MDTF more efficient.
Towards a Programmatic Approach and Scaling up Existing Interventions
9. Noting the recommendations from the analyses that the MDTF should consolidate its
programming, the MDTF will establish a single programming window for each of the two provinces and
FATA. Each programwould have components that align with the three MDTF engagement themes: (i)
Growth and job creation, (ii) Policy reform and governance and (iii) Improved service delivery
10. In addition, the MDTF would manage a fourth program that provides a mechanismto allow for
quick response in areas experiencing rapid deterioration of the economic and social environment,
particularly in the context of the ISAF drawdown from Afghanistan.
11. Scalability will be essential to capture the economies of scale that are likely to accrue from
Round I activities both in terms of i) building on previous success; ii) enhancing the geographical
coverage of MDTF activities beyond the initial pilot phase; iii) moving from a project to program
approach where MDTF-supported interventions become more strategic with a whole-of-sector focus; and
(iv) possibly matching MDTF funds with IDA resources thus leveraging greater funding for development
priorities.
12. Being also less fragmented and more flexible, MDTF will ensure that its development impact is
transformational, increases exponentially and that the benefits are sustained. This requires that the MDTF
adopts a new programmatic approach towards implementation. This programmatic structure would
provide flexibility to shift resources between components as well as allowing greater capacity to adapt
operations in response to changing security situation.
Annex XVI
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Annex XVI: Climate Change in Pakistan

1. Pakistan is the 54th most vulnerable country and the 25th least ready country for global climate
disruption according to the Notre Dame Global Adaptation Index for 2012. In a 4C hotter world without
deep, fast reduction of global carbon emissions, Pakistan could face extreme risks this century including:
(i) Seas higher by at least one meter leading to coastal erosion, saline sea water intrusion, and risk for
coastal cities in particular; (ii) 6C hotter temperatures with some 4 in 5 summers much hotter than
usual
1
; (iii) Increased drought, with less rain by up to some 30 percent in western Pakistan,
2
and greater
groundwater stress; (iv) 75 percent higher peak river flows for the Indus River delta, due to glacier melt
and greater monsoon variability as well as cloud bursts leading to flash floods, exposing more people to
inundation; and (v) More intense cyclones, fueled by warmer and higher seas.
The Urgency of Action and Potential Opportunities to Manage Climate Change Risks
2. The above risks threaten the water, food and energy security of Pakistan in coming decades.
There is an urgent need for significant investment and innovations to reduce vulnerability, improve
readiness and achieve low-carbon, resilient development. Integration of climate change and other policy
for use in decades to come. Particular opportunities include renewables and greater attention to energy
efficiency, development of low-cost public and private generation - especially hydropower and long-term
transport planning. For adaptation, opportunities include flood defense, assistance for development of a
policy framework that emphasizes demand management and conservation, modernize current / traditional
irrigation networks / early warning and preparedness systems, fiscal resilience and insurance instruments.
Commitment to Climate Action
3. Pakistan adopted a National Climate Change Policy in 2012, with the overall goal to promote
climate resilient development, as well as to mainstreamclimate change issues within various sectors of
the economy through implementing adaptation and mitigation measures. The policy envisages a number
of shifts to better manage climate risks: (i) Climate-resilience. Priorities include better data of water
systems, and disaster risk management; (ii) Clean, low-carbon and low-water growth. Financial and
governance reforms as well as public investments in the energy sector particularly in clean technology are
a priority; (iii) Finance. Mobilize domestic and international sources of finance to realize the above plans;
(iv) Capacity building and institutional strengthening; (v) Awareness building; and (vi) Regional
cooperation. The strategy further highlights a number of important sectors/ areas where climate change
adaptation measures need to be mainstreamed and vulnerabilities addressed through relevant mitigation
measures. These include: (i) Water Resources; (ii) Disaster Preparedness; (iii) Energy; (iv) Transport; (v)
Urban/ Town Planning; (vi) Industries; (vii) Agriculture; and (viii) Forestry.
What the World Bank Group Can Do to Help Support the Shift
4. The national priorities envisaged by the Government of Pakistan demonstrate important areas of
convergence with global best practices in the area of climate change adaptation. Owing to relevant
international experience, the World Bank Group can help support the Government in implementing the
envisaged shifts in a number of areas:

1
p.113, Figure 5.4).
2
World Bank 2013, p.115, Figure 5.6. Precipitation in western Pakistan by 2071-99 would be around 10-35 percent
less annually, relative to 2051-80 multi-modal mean.
Annex XVI
Page 2 of 2



a) Water Conservation and Management.
and water demand and the potential impact of climate change to exacerbate water deficiencies,
the Bank can support GOP to develop a policy framework that emphasizes demand management
and conservation and pricing schemes for water use. As part of such national policy formulation,
Pakistan may consider implementing regulations that monitor and enforce water use schemes. In
parallel, the Bank can support investment in water conservation, modernize current / traditional
irrigation networks and install high efficiency irrigation systems in water-scarce areas.
b) Low Carbon Development. Thenational policy has highlighted climate-resilient development as
a primary goal for the country. The World Bank Group may assist the government in its
respective efforts through facilitating access to available financing sources, providing technical
assistance, and supporting the integration of adaptation/ mitigation strategies in sectors such as
agriculture, energy, transport, urban planning, and industries. The CPS envisages investment in
large scale hydro projects to change the energy mix, as well as exploring small scale renewable
energy potential. Furthermore, the role of the IFC will be important to engage with the private
sector towards piloting and implementing mitigation and adaptation measures.
Support access to climate finance for low-carbon/low-water development. Pakistan formally
requested access to the Clean Technology Fund (CTF) in April 2013. CTF will consider the
question of new membership in J une 2014 when the outlook for operationalization of the
Green Climate Fund will be clearer.
Explore possibility of a low-carbon growth study. This will facilitate readiness to access
climate finance by Pakistan. The study would identify and prioritize low-carbon interventions
for the next 5-10 years consistent with longer-termvision for green growth. A low carbon
study should identify options based on consensus within different sectors on reference
scenario emissions, specific mitigation measures and financing needs.
c) Improved Preparedness towards Climate related Emergencies. A number of recent events
have demonstrated
flooding and meteorological events. Given the socio-economic impact of such events in the past
as well as increased risk in the future from rising sea levels, higher river flows, and likelihood of
drought, Pakistan needs to improve the availability and use of hydro-meteorological data as well
as to make sizable investments in preparedness for and ex-ante mitigation of climate related
shocks. The World Bank Group may support a number of important activities, including:
Improve Early Warning Systems and access to risk information. To meet the challenges
arising fromthe increased risk of hydro-meteorological disasters resulting froma change in
the climatic conditions, Pakistan needs to have access to better risk information for better
targeting of mitigation investments. It also needs to have a mechanismfor communicating
risk information through the creation of multi-hazard early warning systems going down to
the community levels to better warn the vulnerable communities for improved preparedness.
Support establishment of a Glacier Monitoring and Research Center. The Hindu Kush-
Basin, which covers 65 percent of Pakistan. Data on most glaciers is lacking. Policy makers
need better data to prepare for hydrological changes.


Annex XVII
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Annex XVII:

1. Pakistan is strategically placed to become a regional hub for trade and investment by
connecting the markets of South Asia, Central Asia and the Middle East.
changing geo-political scene, democratic transitions and emergence of a dynamic private sector, Pakistan
is strategically located to gain fromregional economic cooperation. Although national development
issues remain central to poverty alleviation, recent trends and events, such as widening political support
for regional economic cooperation have opened policy space for leveraging the economic opportunities
within the region which could become a dynamic global marketplace.
2. South Asia is one of the least economically integrated regions of the world with intra-regional
trade accounting for just 5 percent of total trade. In addition to enhancing economic growth, stability and
prosperity, regional cooperation could pave the way for South Asian countries to collaborate on shared
climate change-related challenges which threaten sustainable growth. The desire of South Asian leaders to
-down of ISAF troops from Afghanistan, and
the large numbers of young people entering the work force, make this is an open enough moment for
strengthening the resolve and policy focus on regional economic cooperation.
3. Building momentum for economic cooperation. India and Pakistan have revitalized ministerial-
level negotiations on expanded trade including granting Non-Discriminatory Access to India. India has
modernized its Attari border post with Pakistan and offered to export 500 MW of power. India and
Bangladesh have enhanced their bilateral ties while Afghanistan and Pakistan have started implementing
a 2011 transit and trade treaty. These developments and the slowdown of western economies are among
the factors further strengthening the case for regional economic cooperation.
4. While gains from greater cooperation through power trade, commerce and river basin
management will be substantial, they will be asymmetric across countries, within countries and in time.
The greatest gains are in the power sector, with connectivity enhancing system reliability, lowering costs
and carbon emissions, and relieving debilitating shortages by enabling sustainable development of the
hydro/gas-based power generation potential of the region. Transmission infrastructure, clean energy
generation, and fair pricing agreements across borders hold the key to realizing this potential. There are
abundant unexploited opportunities for regional economic cooperation in South Asia, in areas such as
commerce, transport, energy, agriculture, wild life conservation, governance, migration, tourism, climate
change adaptation, health/epidemiology and education.
5. Cross-border trade is especially important for smaller and/or landlocked provinces/countries,
including Afghanistan, Bangladesh, Bhutan, Nepal, Northeast India, and parts of Central Asia.
Expanded intra-regional trade, increased investment and supply-chain integration, will need policy
reforms, and improvements in regulations, border management, and infrastructure, with due regard to the
SMEs are likely to play a large role in
expanded commerce, creating a wider canvas of opportunities for cooperation and poverty reduction.
6. Recognizing the strategic importance of regional economic cooperation, the WBG created a
new Regional Integration Program in FY11 to promote and support economic cooperation. The
program, working closely with relevant WBG teams, has made progress in building political support for
regional cooperation, deepening knowledge in key areas, and developing a selective portfolio of
transformative cross-border operations. Three projects ($280 million IDA) are under implementation and
the pipeline is expected to grow in the coming years.
7. The overall aim of the WBG Regional Cooperation Strategy for the next 3-5 years is to step up
support for three main objectives which are listed below:
Annex XVII
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i. Help put in place the building blocks for an integrated regional electricity market in South
Asia (with links to Central Asia) to relieve energy shortages that constrain sustainable and
equitablegrowth. The activities include low capital intensity transmission projects that better
utilize existing endowments like CASA-
plants in Nepal, Afghanistan, Central Asia and Pakistan will be supported. The proposed
India-Pakistan power transmission line will be a critical link for power sharing in the region.
ii. Double the volume of trade and investment in goods and services to enhance
competitiveness. The strategy focuses on helping the government develop evidence based
policies to enhance regional trade. The WBG is supporting the regulatory framework,
business processes and infrastructure at border posts to facilitate higher volumes of trade, and
in Pakistan, the up-gradation of the Wagah border post on international standards.
iii. Improve the in-country and cross-border authorizing environment for regional economic
cooperation ound the need for,
and benefits from, increased regional cooperation. Building on analytical work on the costs of
the status quo and high impact opportunities, and by leveraging lessons fromSouth Asia
region and global experience, the strategy will facilitate sustained action in priority areas
where there is already sufficient demand across countries and build support for new high
priority areas.
8. Although the goal is to move towards an integrated market across South Asia for overall trade,
the strategy foresees an intermediate stage involving promoting sub-regional cooperation/integration
based on practical realities rooted in the sub-
the regional agenda by the countries. One sub-region comprises Bangladesh, Bhutan, India and Nepal
(with links to South East Asia) in the Northern and Eastern part of the South Asian subcontinent and a
second, Pakistan and Afghanistan (with links to India, Central Asia and the Middle-East). This approach
also helps manage programrisks deriving fromthe possible renewal of political tensions in any one part
of the subcontinent.

Annex XVIII
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Annex XVIII: Portfolio Management
Portfolio status
1. The World Bank has 35 active projects in Pakistan for total commitment of $4.5 billion. Most of
the commitment is IDA ($3.5 billion), while IBRD amounts to $0.95 billion. The WB also administers a
small Multi-Donor Trust Fund (MDTF) of $130 million in commitments for the conflict-affected areas
bordering Afghanistan.
2. About 57 percent of the portfolio provides support at the federal level; and 43 percent directly to
the provinces. The human development sector is the largest share with 38 percent, followed by energy
with 27 percent, and agriculture with 15 percent. Disbursements have been good - $554 million in FY13,
for a disbursement ratio of about 20 percent. The ratio throughout the last CPS period was above 20
percent. Balancing the portfolio with a mix of fast-disbursing and regular investment operations has
helped maintain the good disbursement ratio. There are currently 5 projects (total commitment of $734
million) at risk. The riskiness of the portfolio has steadily decreased from a high of 28 percent in FY11to
the current (FY14) 16 percent.
3. IFC has committed around $4.5 billion in cumulative investments. Its portfolio as of February
2014 amounted to US$809 million in 38 companies. Exposure in the infrastructure cluster represents
about 56 percent of the committed balance, financial markets 19 percent, while the remaining 25 percent
includes general manufacturing and services. IFC committed $555 million in FY12 and $514 million in
FY13. The portfolio performance is strong with only one non-performing loan out of a total of 38
projects.
4.
financial services, power and manufacturing sectors. These were signed in FY11, 12 and 13 respectively.

Implementation issues
5. World Bank: The South Asia Region Portfolio Performance Assessment conducted in FY2014
highlighted several key issues affecting the quality at entry and during implementation, including high
staff turnover, weak capacity for fiduciary aspects, lack of implementation readiness, project complexity
and inadequate risk analysis and mitigation. Other cross-cutting issues like fragmentation and limitations
in accessing project sites in conflict-affected areas have added to implementation problems.
6. IFC: Despite weak macro-economic environment and a persistent energy crisis which has
negatively affected the private sector (including IFC clients) in the last five years, IFC has managed to
maintain its portfolio quality through proactive engagement, including assisting clients to address
operational issues and policy related issues in a timely manner. Having a strong portfolio teamon the
ground to actively engage in portfolio management has helped maintain portfolio quality during the
difficult external environment.
7. K volatile security, law
incoherent government policies and delays in
regulatory and policy action adversely impacting growth of private investment in infrastructure sector
development; (iii) shortage of energy making local industry uncompetitive in international market; (iv)
lack of local currency funding product to support manufacturing agribusiness and services sectors; (v)
lack of innovative products and services catering for SMEs and an under developed capital markets and
non-banking financial sector; and (vi) weak corporate governance, limiting growth and investment
potential of SMEs, - 2 companies.

Annex XVIII
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Moving forward
8. Building on lessons from implementation and recommendation of the recent review, the World
Bank will work with the Government of Pakistan to remove the bottlenecks and improve the pace of
implementation and project outcomes. Specific attention will be on meeting the readiness for
implementation requirements before Board presentation.
9. In addition to portfolio reviews, we plan to raise the bar by (i) having high-level federal reviews
of flagship projects at the Economic Coordination Committee level the federal cabinet -- that can track
of provincial cabinet ministers, as well as the Delivery Units that some provinces like Punjab and KPK
are already setting up to strengthen implementation; (iii) at federal, provincial and local government
levels, strengthening our PFM programs focusing on the weakest areas of accounting, internal and
external audits, procurement systems, budget transparency, and social accountability; and (iv) building in
flexibility in project design for emergency response and by increasing attention to preparedness and
shared approaches for managing disaster risk.
10. Consultation and dialogue with the private sector, elected representatives, civil society, youth,
communities and other stakeholders, including the media, will continue to be a key requirement in project
design and implementation. In addition to ensuring the presence of communication specialists on the
ground, staff and government counterparts will be encouraged to undergo communication and media
training.
11. The use of third party monitoring will be stepped up, especially in the conflict-affected areas, as
will the use of technology, such as Caliper to plan, process and track procurement, Pointer to remotely
Video conferencing for more regular interaction with governments and
implementing agencies.
12. More focus will be given to the development of programs consistent with the CPS themes,
making optimal use of the Global Practices and the convening abilities of the ProgramLeaders across the
practices. This will assist address fragmentation. Simplicity and readiness for implementation, a better
blend of local and global knowledge and experience including in program leadership, will help address
the design and implementation support issues that have contributed to slow implementation.
13. For MDTF, use of country systems will continue, with cognizance of trade-off between capacity
building and implementation efficiency. Governments will continue to lead implementation, but will be
encouraged to make more use of private sector and NGOs. To address fragmentation, design of the
second round will take a programmatic approach consistent with the thematic pillars, but simplicity of
operations will also be ensured. Co-financing will be encouraged, to help mainstreamthe MDTF.
14. Project risk assessment and mitigation will be enhanced in accordance with the recommendations
of the governance and corruption -- PGAC-II strategy
15. IFC will provide counter-cyclical support to help existing and new clients continue and expand
their business operations. It will consider providing flexible and timely assistance, including through
short-termfinancing instruments, selective debt and equity investments, advisory service work, and active
portfolio management. IFC will work closely with WB to improve the overall investment and business
climate, remove specific constraints on the energy sector and take forward the privatization agenda. With
capacity (especially Tier-2 companies), including introducing better corporate governance, skills
development, improved financial and operational management. It will also work with client banks to
improve their lending practices and expand outreach.
Annex XIX
Page 1 of 4



Annex XIX: Partnerships and Trust Funds Overview
Partnerships

1. In the spirit of the Paris Declaration and aid effectiveness commitments, the WBG supports the
Government in leading coordination of the donor support in Pakistan. The Economic Affairs Division has
established a Donor Coordination Cell and has been working to improve its functional capacity. In the
provinces, the Provincial Planning and Development Departments are responsible for coordinating with
development partners. Donor coordination and cooperation in Pakistan have deepened in recent years
through regular meetings of the Heads of Agency, the MDTF Core Group and Steering Group
Committee. A series of bilateral meetings are also being organized to strengthen partnership and strategic
dialogue.

2. The Table 1 highlights the engagement of development partners in Pakistan with reference to the
priority themes identified in the proposed Vision 2025. The World Bank regularly coordinates with these
development partners to ensure effectiveness and synergies. Key examples of such partnerships have been
outlined below.


Coordination on Policy Reforms

3. WBG took the lead and actively worked with the IMF, ADB, DFID and USAID in the pre and post-
election transition dialogue on key reforms, including brainstorming on the reforms supported under the
IMF program. The partnership has helped support a shared understanding and common narrative on key
reformareas. This was important for providing inputs to not only the planned IMF program, but also for
informing the overall dialogue on short and medium-termpriorities with the new governments elected in
2013.

4. -termstabilization programand on
selected structural reforms in tax administration, SOEs, and the power sector. To compliment, the
with the WBG brings focus on medium to long-termstructural adjustment
Table 1: Coverage of Country Priorities Areas by Development Partners



Energy Security
Macroeconomic stability and
investment climate

Human development ,
Municipal management, gender

Water and transport
Trade and skill development
Social Protection
Disaster Management and
Environment

Agriculture
Capital and finance
Revenue mobilization, public
financial management, PPPs


























Annex XIX
Page 2 of 4



efforts in these reformareas as well as trade competitiveness, the business climate and private participation,
access to finance, and social safety nets. The WBG is also engaging in parallel technical assistance work
supporting institutional capacity.

5. The WBG is collaborating closely with the IMF on the (a) two DPCs Fiscally Sustainable and
Inclusive Growth DPC and the Power Sector Reform DPC; (b) financial sector reform, including joint
efforts to prepare a Financial Sector Assessment Program; and (c) debt management through joint missions
and preparation of a Medium-TermDebt Strategy.

6. Other development partners are also contributing to the dialogue on policy reforms and supporting
the DPC series. DFID is planning to provide parallel financing, and its representatives have
participated in the discussions primarily focusing on tax policy and administration, the BISP safety net,
and the One Stop Shop (OSS) for businesses. ADB and USAID are also supporting the power sector
reform and have shown interest in providing parallel technical assistance, and support for SOEs reform.

Collaboration in Social Sectors

7. The WBG has been actively engaged with the Government and other development partners in
helping strengthen social safety nets in Pakistan. Our reforminitiative with the Benazir Income Support
Program(BISP) is serving as a viable platform to channel funds to support the Government. USAID and
the ADB have provided direct budget support to BISP for cash transfers to eligible beneficiaries identified
under the programand DFID has financed a WBG administered Trust Fund used to support TA work on
safety nets. The education sector is another area with encouraging progress onpartnerships. The WBG is
working with DFID, EU and CIDA, to coordinate support around the mediumtermeducation sector
reform programs of Punjab and Sindh. Recently, the Global Partnership for Education has joined hands
with the WBG to provide a total of $100 mln for education programs in Sindh and Balochistan.

8. Similarly, in the health sector the WBG continued its innovative partnership with the Bill &
Melinda Gates Foundation (BMGF), Centers for Disease Control and Prevention (CDCP) and Rotary
International (RI) through the UN Foundation (UNF). These have supported three Partnerships for Polio
Eradication Projects through IDA buy-down mechanism, which converts the IDA credit to a grant for the
government. Similarly, the Punjab Health Sector ReformProject is also working closely with DFID to
fund sector outcomes for enhanced impact.
Joint Crises and Emergency Response

9. Militancy Crisis: Responding to the militancy crisis in KPK and FATA, the Bank worked
closely with the Federal, provincial and regional governments and development partners to carry out the
Post-Conflict Needs Assessment (PCNA). The PCNA was prepared in collaboration with the UN, EU,
and ADB as key partners. Based on the PCNA, the WBG took the lead in establishing and managing the
Multi-Donor Trust Fund (MDTF) for KPK, FATA, and Balochistan. The MDTF involves extensive
collaboration, as it is supported by 11 donors - Australia, Denmark, European Union, Finland, Germany,
Italy, Sweden, Turkey, United Kingdomand United States collectively contributing US$ 159 Million.
To support priority interventions in Balochistan, a comprehensive Balochistan Development Needs
Assessment (BDNA) was also carried out. As the MDTF enters into its round two, it will continue to
operate as an instrument to strengthen donor coordination and provide greater policy and investment
coherence, within the country, province and region led frameworks.

10. Flood Emergency Response: After both the 2010 and 2011 floods, the Government requested
the WBG and the ADB to play a lead role for preparing a joint Damages and Needs Assessments (DNAs)
in coordination with the One UN, the EU and other donors. The Government and Donors further looked
Annex XIX
Page 3 of 4



to the WBG to assist them in building a robust Citizens Damage Compensation Program(CDCP). WBG-
funding and the project framework also leveraged the support of US, DFID, and Italy to finance the
second phase of the CDCP. Going forward, such partnerships will be further strengthened as the team
prepares for additional financing of the project.

Analytical Work, Trust Funds and other Alignment Initiatives

11. The WBG has been encouraging joint analytical work to inform policy dialogue and program
development around key issues. s analytic and advisory work also leverages partnerships
with donors as well as corporate and development organizations to expand outreach and enhance
development impact. During the previous CPS period, the Bank also worked with DFID, EU, USAID and
ADB to deliver Public Expenditure and Financial Accountability (PEFA) updates for Punjab and
Sindh. Similarly, the WBG chaired the Inter-Agency Group on Gender and Development (INGAD)
fromJ anuary - J une 2013 and developed a note for the new government which highlights three critical
areas education, health and labor where clear strategies, financing and implementation mechanisms
are needed to tackle gender challenges, both at the Federal and Provincial levels.

12. The WBG has been able to develop and enhance these partnerships through improved utilization
of trust funds and ensuring that they are integrated into World Bank budgeting and strategy processes.
More details and analysis of the Trust Funds Portfolio are given in the following section.

13. The WBG will continue to build on the strong foundation of partnerships based on mutual trust
and accountability. In the same spirit, the WBG Country Partnership Strategy 2015-2019 benefitted from
consultation and valuable feedback of development partners. This would be used as a basis for a sustained
dialogue in the coming years to ensure complementarity and effectiveness of donor support to Pakistan.

Trust Funds Overview

14. The Pakistan Trust Fund Portfolio currently has 64 active grants with a total commitment of US$
117 million. Disbursements over the last CPS period were US$ 165 million (equivalent to 6 percent of
IBRD/IDA disbursements over the period). Of the 64 grants, 13 (20 percent) are Recipient Executed Trust
Funds (RETF) and 51 (80 percent) are Bank Executed Trust Funds (BETF). In terms of management, 45
(70 percent) grants are managed by the South Asia Region and the remaining 19 (30 percent) are Network
managed or managed outside the region.
FY10-14 TF Snapshot (amounts in US$ millions)
Trust Funds Summary * FY10 FY11 FY12 FY13 FY14
Number of Grants 59 60 53 62 64
Net Commitment 117.6 132.2 210.5 195.5 117.4
Total Disbursement 39.9 120.1 199.2 109.7 19.6
*Data as of end December 2013 excluding MDTF and IFC

15. Overall, the CPS period of FY10-14 experienced an increase in the use of TFs which has largely
remained unchanged in terms of number of grants but TF financing fluctuated with spikes owing to key
co-financing activities such as (i) Tax Administration ReformProject by DFID ($20.1m), (ii) Pakistan
Third Partnership for Polio Eradication Project by Bill and Melinda Gates Foundation and UN
Foundation ($55.6mand $9.2m respectively) and, (iii) Flood Emergency Cash Transfer Project by DFID
($91.3m). Trust Funds often complement IBRD/IDA project funding and are normally executed by
recipient agencies as around 85 percent of total commitment during FY10-14 consisted of RETFs. In
addition, TF sources are increasingly being used to fund Technical Assistance and Advisory Services. The
table below gives more information on donor-wise distribution of Trust Funds. The major sectors
Annex XIX
Page 4 of 4



supported through trust funds are the Human Development (US$ 78.9m), and Social Protection (US$
11m). The Water and Sanitation Programhas also mobilized significant trust fund resources for financing
activities in Pakistan.
Donor Wise Summary (amounts in US$ millions)
Donor Number of
Grants
Net Grant
Amount
Total
Disbursement to
Date
FY14 Disbursement
to Date
AusAID 5 1.58 1.22 0.18
Gates Foundation 4 68.58 0.29 0.18
IBRD 3 1.33 0.56 0.25
J apan 5 6.31 3.02 0.02
UN Foundation 2 9.20 2.40 0.59
UK - DFID 5 11.03 5.03 2.27
USAID 9 2.14 1.56 0.38
Netherlands 1 1.86 0.64 0.13
Multiple Donors 30 15.43 4.90 1.42
Total 64 117.46 19.62 5.42

16. The current TF portfolio mostly includes programmatic TFs -- main ones are the Carbon Fund
(2, US$ 8m), Polio Buy Down (6, US$77m), J apanese Social Development Fund J SDF (2, US$2.8m),
Institutional Development Fund (IDF) (3, US$1.33m), Policy and Human Resource Development
PHRD (2, US$3m) and Water and Sanitation Program- WSP (11, US$1.78m). Going forward, Global
Partnership for Education (GPE) will be funding two major education projects of up to US$100m in
Balochistan and Sindh.

Trust Fund Portfolio Performance

17. Alignment: Overall, during the CPS period FY10 14 the TF portfolio has been broadly aligned
with the CPS goals. Use of co-financing arrangements allows for the trust fund activities to be formally
linked to ongoing IDA / IBRD projects; however technical assistance and standalone trust funds are also
generally aligned with the overall lending portfolio. The Pakistan Country TF Guidelines, which were
implemented in FY11, allow for easy checks to ensure alignment as well as ownership and demand
from the clients and government. All recipient executed TF grants are required to have requests from
the recipient, duly endorsed by the Economic Affairs Division (EAD.) The practice of including RETFs
in portfolio reviews has been initiated and regular reports on these RETFs are shared with the EAD.

18. Risks and Performance: The risks for TF grants are generally the same as for regular lending
projects and AAAs including: lack of capacity, inadequate needs assessment, very little sustainability,
lack of commitment from the government, and slow approval processes. There is often a lack of
management attention given the relatively smaller size of the grants. However, the overall implementation
performance and achievement of results of the Trust Funds portfolio has been satisfactory during FY10-
14. TFs linked to ongoing projects are supervised along with the IDA/IBRD projects and many
standalone grants have supervision budgets built in to allow teams to carry out implementation support.
At the corporate level, there have been several reforms that have ensured that there is more management
focus and integration in country programs as well as improvement in transparency and access to TF data.

19. Lessons and Recommendations: To ensure successful implementation of the TF program, early
consultations with the government and the WBG country management are necessary. This would also
expedite Government approval at various stages of design and implementation and regular reviews will
allow for timely advice and guidance. This formalization of the review process is critical for effective
delivery. In addition, strengthened focus and attention on needs assessment and monitoring is required.
Annex XX
Page 1 of 2
Annex XX: Provincial Graphs

Source: World Bank 2013. Punjab Public Expenditure Review Report.; World Bank staff calculations based on
HIES/PSLMS; Labor force survey 2010/11; P is provisional.
Source: World Bank 2013; World Bank staff calculations based on HIES/PSLMS; Labor force survey 2010/11:
P is provisional.
Annex XX
Page 2 of 2
Source: World Bank 2013. Punjab Public Expenditure Review Report.; World Bank staff calculations based on
HIES/PSLMS; Labor force survey 2010/11; P is provisional.
Source: World Bank staff calculations, based on HIES/PSLMS.
Note: Balochistan poverty estimates for 2006 and 2008 are omitted due to concerns about data quality.
P is provisional.
CPS Annex B2
Page 1 of 2



CAS Annex B2 -
Selected Indicators* of Bank Portfolio Performance and Management
As Of Date
1/30/2014
Indicator 2011 2012 2013 2014
Portfolio Assessment
Number of Projects Under Implementation
a
24 23 25 24
Average Implementation Period (years)
b
3.0 3.4 3.7 4.0
Percent of Problem Projects by Number
a, c
12.5 13.0 12.0 16.7
Percent of Problem Projects by Amount
a, c
10.5 12.5 11.8 14.9
Percent of Projects at Risk by Number
a, d
29.2 21.7 20.0 16.7
Percent of Projects at Risk by Amount
a, d
20.5 18.6 16.9 14.9
Disbursement Ratio ( percent)
e
62.1 33.4 18.7 7.1
Portfolio Management
CPPR during the year (yes/no)
Supervision Resources (total US$)
Average Supervision (US$/project)
Memorandum Item Since FY 80 Last Five FYs
Proj Eval by OED by Number 176 15
Proj Eval by OED by Amt (US$ millions) 16,316.8 2,653.3
Percent of OED Projects Rated U or HU by
Number 24.0 28.6
Percent of OED Projects Rated U or HU by
Amt 32.0 6.6
a. As shown in the Annual Report on Portfolio Performance (except for current FY).
b. Average age of projects in the Bank's country portfolio.
c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP).
d. As defined under the Portfolio Improvement Program.
e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the
beginning of the year: Investment projects only.
* All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio,
which includes all active projects as well as projects which exited during the fiscal year.



CAS Annex B2
Page 2 of 2



IFC Investment Operations Program

FY10 FY11 FY12 FY13 FY14*

Commitments (US$m)
IFC Own Account (OA)
516.1 696.1 555.1 345.4 276.1
IFC Own Account +Mobilization
616.1 696.1 555.1 513.9 276.1

IFC OA Commitments by Sector (%)
Utilities 1% 0% 0% 0% 0%
Construction and Real Estate 0% 0% 0% 3% 0%
Transportation and Warehousing 6% 1% 21% 0% 0%
Food and Beverages 0% 0% 1% 0% 0%
Chemicals 10% 4% 0% 0% 0%
Finance and Insurance 77% 80% 61% 96% 100%
Electric Power 7% 14% 18% 1% 0%
Total 100% 100% 100% 100% 100%

IFC OA Commitments by Instrument (%)
Guarantee 74% 80% 61% 96% 100%
Loan-LN 13% 16% 35% 3% 0%
Quasi-Equity (inc. Loan Type) 10% 4% 0% 1% 0%
Straight Equity (inc. Fund) 4% 0% 4% 0% 0%
Total 100% 100% 100% 100% 100%
*FY14 as of end-February 2014

CPS Annex B8
Page 4 of 4




Statement of MIGA'S Exposure
in Pakistan as of December 31, 2013

1. MIGA'S EXPOSURE (CONTINGENT LIABILITY)
Transfer Expropriation War & Civil Breach of
Non Honoring
of
Maximum

Restriction

Disturbance

Contract Sovereign
Financial
US$ million Obligations
Gross Exposure 161.8 161.8 72.0 148.5 0.0 310.3
percent of total portfolio 2.5 2.1 1.3 4.2 0.0 2.7
Net Exposure -380.8 -380.8 -428.0 -401.5 0.0 217.7
percent of total portfolio -11.1 -9.0 -14.4 -23.8 0.0 3.2
CUP 0.0 0.0 0.0 0.0 0.0 0.0
Current Amount* 124.7 124.7 35.0 0.0 0.0 124.7
* On a gross basis

2. NET EXPOSURE BY SECTOR
Pakistan Asia MIGA Worldwide
US$ million percent US$ million percent US$ million percent
Agribusiness 0.0 0.0 0.0 0.0 176.7 2.6
Construction 0.0 0.0 0.0 0.0 5.8 0.1
Financial 47.2 21.7 47.2 5.9 2,229.2 33.0
Financial Services 0.0 0.0 0.0 0.0 365.1 5.4
General Banking 47.2 21.7 47.2 5.9 1,565.2 23.2
Investment Fund 0.0 0.0 0.0 0.0 0.0 0.0
Leasing 0.0 0.0 0.0 0.0 178.6 2.6
Mortgage 0.0 0.0 0.0 0.0 120.3 1.8
Infrastructure 98.5 45.2 415.8 51.6 2,924.3 43.3
Electric, Gas and
Sanitary Services 0.0 0.0 20.9 2.6 34.0 0.5
Power 98.5 45.2 213.4 26.5 1,064.9 15.8
Telecommunication 0.0 0.0 172.5 21.4 399.7 5.9
Transportation 0.0 0.0 0.0 0.0 876.0 13.0
Water Transportation 0.0 0.0 0.0 0.0 263.1 3.9
Water Supply 0.0 0.0 8.9 1.1 206.5 3.1
Other 0.0 0.0 0.0 0.0 80.0 1.2
Manufacturing 72.0 33.1 195.9 24.3 623.2 9.2
Mining 0.0 0.0 147.0 18.2 153.6 2.3
Oil and Gas 0.0 0.0 0.0 0.0 386.0 5.7
Retail 0.0 0.0 0.0 0.0 113.7 1.7
Services 0.0 0.0 0.0 0.0 135.0 2.0
Tourism 0.0 0.0 0.0 0.0 11.9 0.2
Total 217.7 100.0 805.8 100.0 6,759.2 100.0