Countries and Regions

	Table of Contents
p. 25 of 25 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Pakistan

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IX. Local Cost Financing

102. In 1999, ADB loans to Pakistan financed about $59 million equivalent in local cost, or 15 percent of total ADB project lending to Pakistan in that year. This percentage should be seen in light of the fact that three project loans in 1999 were in the social sectors or for poverty alleviation. Over the past two years, the percentage of ADB financing of projects has steadily decreased. In 1997, it averaged 57 percent of total project costs while in 1999 it averaged 48 percent. With a project loan pipeline strongly tilted towards basic human needs, including social infrastructure and poverty alleviation and the continuing severe budgetary situation, the need for local cost financing remains critical.

103. Increased domestic resource mobilization is being pursued under the IMF Program, and is one of the main elements of the ADB's policy dialogue in Pakistan including in the agriculture, water resources, urban development, power and transport sectors. Measures to improve public expenditure management are also underway to streamline expenditures on civil services. In this regard, the Government should continue its efforts to protect externally funded projects from budgetary cuts, increase its local cost financing portion, and increase budgetary allocations to social sectors, particularly under SAP.

104. The benefits of the reform program and corresponding sustained increases in domestic resource mobilization will, however, take time and the fiscal situation will remain extremely precarious over the medium term. In order to increase fiscal revenue, for example, in May 2000 the Government announced that a survey would be launched in 13 major cities to register new taxpayers and improve the documentation of the economy. However, rapid improvement in revenue collection will require the business community and citizens generally to fully comply with the Government's plans; so far there has been widespread opposition to such measures, especially from the trading sector. A weak economic outlook in the short-medium term will also not be conducive to quick solutions to the fiscal crisis. Accordingly, continued ADB support through local cost financing is considered to be justified in view of the prevailing situation. As partial economic sanctions still apply, the ADB's operations are limited only to the basic human needs category and to those loans covered under the IMF's structural reform framework. Thus a higher percentage of local cost financing would be expected since the ADB's operations focus mainly on human development (education, health, population program, women in development), poverty reduction, and natural resource management concerns.

Back VIII. Economic and Sector Work Program	Country Assistance Plans - Pakistan