Countries and Regions

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p. 4 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Level

Country Strategy and Program Update 2002-2004: Pakistan

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IV. Country Performance and Lending Levels

31. During the Pakistan Development Forum, the Government, in its debt burden reduction and management strategy, noted that from 2000 to 2004 at least $6 billion of exceptional assistance on soft terms will be required from ADB, IMF, and World Bank and another rescheduling of $4 billion from the Paris Club will be needed to meet the external financing needs. Consequently, during the CSP Mission, the Government requested ADB for (i) higher levels of loan approvals;⁵ (ii) a higher percentage of access to the Asian Development Fund (ADF);⁶ and (iii) a continued high proportion of program loans.⁷ More specifically, the Government requested over the next three years lending levels of $500 million to $700 million per annum, allocation of 60 percent ($300 million to $420 million) of it in ADF, and continued higher levels of program loans.⁸

A. Lending Level Proposed

32. The proposed lending program for Pakistan during 2002-2004 consists of 22 projects totaling $1,922 million, or an average of about $641 million per year (Appendix 4). The ADF allocation, based on the performance-based allocation (PBA) exercise is $225 million for 2002. The proposed lending program for 2002-2004 of $1,922 million comprises $702 million from the ADF and $1,220 million from ordinary capital resources (OCR), or an average of $234 million ADF and $407 million from OCR per year. This average is subject to change depending on the outcome of the PBA exercise in 2003 and 2004. The programmed annual average ADF lending of $234 million during 2002-2004 compares with the actual annual average ADF lending of $151 million during 1997-2000.⁹

33. The PBA’s country-specific criteria are under discussion with the Government. These include areas of macroeconomic management, structural reform, sectoral reform, and portfolio management. The high case criteria for macroeconomic management includes achieving a significant reduction of fiscal deficit, further expanding the coverage of general sales tax (GST), and promulgating the new income tax ordinance. The structural reform criteria in the high case scenario includes successful implementation of the devolution plan, and initiation of a comprehensive civil service reform program. The high case sectoral reform criteria include (i) privatization of some major public sector enterprises and significant progress for several others; and (ii) initiation of a program aimed at eliminating public sector interventions in agricultural markets, particularly wheat. The portfolio performance high case criteria include a significant improvement in portfolio performance as indicated by reduction in the proportion of problem projects, an improved disbursement ratio, better compliance with loan covenants, and greater timeliness in submission of auditor’s reports. Performance against these indicators will determine the base, high, and low ADF lending scenarios (Appendix 4). Poor performance will result in a low case lending scenario of up to 20 percent less than the base case, while good performance will trigger a high case lending scenario of up to 20 percent higher than the base case.

B. Loan Program

34. The proposed lending program for 2002-2004 comprises 22 projects of which core poverty and poverty intervention projects constitute 48 percent of the total program (Appendix 4). The proposed program is aimed at achieving a sustainable reduction in poverty through proper sustainable growth, promoting social development, and improving governance. The country program will focus on seven sectors: (i) agriculture and rural development, (ii) energy (the gas subsector and renewable energy development), (iii) transport (strengthening intersectoral linkages and market access), (iv) finance (including microfinance), (v) health and education, and (vi) water supply and sanitation in both urban and rural areas. In addition, the CSP will specifically focus the assistance program to support good governance. The program is subject to further refinement based on the full CSP currently under preparation.

35. The CSP will also promote a shift toward more direct assistance to selected provinces in line with the priorities of the ongoing devolution plan. The provincial government’s commitment to policy reforms and the track record of the ongoing ADB portfolio will be considered in determining the level of assistance for the specific provinces. Against these criteria, North West Frontier Province (NWFP) and Sindh seem to be the strongest candidates for selection at this stage. This will be further discussed with provincial and federal government prior to finalization.

C. Technical Assistance and Economic and Sector Work Program

36. The Technical Assistance (TA) program (Appendix 4) supports good governance, gender development, and environment, which are key elements of the CSP update. The program also supports project preparation. The TA program for 2002-2004 includes 27 TAs for a total of $14.75 million. The TA program is estimated to be between $5 million to $6 million annually, and be supplemented with cofinancing resources.

37. Economic and sector work (Appendix 5) will support analyses on important economic policy concerns and sectoral issues that are crucial to deepening ADB’s knowledge of the sectors and to continuing policy dialogue. The economic sector work will be closely aligned to the loan and TA program. The poverty-related studies including the poverty analysis, poverty reduction strategy, and poverty reduction partnership agreement–the main tasks in 2000-2001–have paved the way for studies in more specific areas in 2002-2004. The country economic review and periodic updates, public sector expenditure review, Government budget review, and country risk analysis will also be undertaken. In addition, the private sector assessment based on the private sector development strategy and the governance reform study, gender assessment, and water resources sector strategy will also be undertaken.

D. Summary of Changes

38. Two standby loans – the Road Sector project (now the Sindh Roads Sector Development project) and the Sindh Rural Development project-have been programmed firm for 2001 and 2002, respectively. Appendix 6 provides the project selection briefs and technical assistance concept papers.

39. The Teachers’ Training and Primary School Quality Improvement project has been combined into the Primary School Quality Sector Development project. Also, the Civil Service Reform has been renamed the Governance Reform project. A new project, on Gender Reform, was added.

40. The Gas Transmission project has been moved forward from 2004. The Poverty Reduction Program, Low Income Housing, Small and Medium-Scale Industries, and the Nutrition Improvement projects have been renamed the Decentralized Social Services (SDP), Housing Finance, Small and Medium Enterprises (SDP), and Women and Child Nutrition Development projects. New projects include Punjab Rural Water and Sanitation II, Balochistan Roads Sector Development project; and Agribusiness Export Development (SDP).

41. Renewable Energy Development (SDP) and North West Frontier Province (NWFP) Health Sector Reform projects have been moved from 2003. New projects include Balochistan Acquifer Recharging (SDP), and Microfinance Sector Development II.

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