Regions and Countries

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p. 4 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program 2004-2006: Pakistan

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IV. Country Performance and Assistance Levels

A. Lending Level Proposed

24. The Government has been implementing a focused debt management strategy since this strategy was adopted in 2001. The strategy seems to be effective, as Pakistan’s public debt, as a percentage of GDP, declined from 101.8% in FY2002 to 90.7% in FY2003. Total external liabilities also declined from $36.5 billion on 30 June 2002 to $35.6 billion on 31 March 2003. As a result, the ability of the Government to service debt and thus its debt absorption capacity improved. Interest payments on public debt, for example, declined from 39.8% of total government revenues in FY2002 to 30.2% in FY2003. Against this backdrop, the proposed lending program for Pakistan for 2004–2006 at $2.67 billion for 26 firm loans in the various operational sectors (Appendix 1, Table A1.10) is somewhat higher than the $2.4 billion level approved in the CSP for 2003–2005. Sector Road Maps are attached in Appendix 2 and Concept Papers for lending products in Appendix 3.

25. Of the total lending package proposed, policy-based lending is to decline relative to the level of such assistance in the past 3 years, but will still constitute 35–40% of total assistance to provide support for consolidation of the ongoing reform effort and to support second generation reforms at the sector and provincial levels. The Asian Development Fund (ADF) portion of the proposed lending for 2004–2006 will depend on the performance-based allocation (PBA) criteria (monitoring indicators and triggers for 2004–2006 are detailed in Appendix 1, Table A1.12) and ADF availability. Depending on ADF resources availability in 2004, the ADF lending program will need to be reviewed. The issue will be revisited and confirmed during the Country Program Confirmation Mission. The 2005 and 2006 ADF lending program will depend on the outcome of the discussions regarding ADF replenishment.

26. The available ADF resources at the level indicated will not be sufficient to fully finance the large number of social sector and other poverty-focused interventions in the pipeline. Consequently, it is proposed that, other than a small proportion for capacity building, ADF funds be allocated to poverty-focused and social sector interventions on a pro-rata basis. This means that, on average, poverty-focused and social sector projects will have one third to one half of the loan financing from ordinary capital resources.

B. Nonlending Program

27. The currently identified nonlending program for Pakistan amounts to $16.1 million for 43 projects during 2004–2006 (Appendix 1, Table A1.11). This includes project preparatory and advisory TA in the various sectors of operations, along with the economic, thematic, and sector work (ETSW) program. The TA and ETSW program will complement ADB’s lending assistance to Pakistan, help build government capacity, and provide intellectual support for strategy and policy development on economic, social, and governance issues. Concept Papers for nonlending products are in Appendix 4.

C. Summary of Changes to Lending and Nonlending Programs

28. Several changes and additions are proposed in the lending and nonlending programs that align the program more closely to the strategy set out in the CSP. Thus, in line with the focus on good governance in the strategy, the share of the lending program for 2004–2006 earmarked for governance has increased substantially relative to that in the CSP (Table 1). Similarly the proportion of the lending program allocated for agriculture and rural development projects is significantly increased, as are the shares for the crosscutting thematic priorities of subregional cooperation and sustainable environment management.

29. Following the CSP emphasis on supporting reforms at the provincial level, a Balochistan Resource Management Program is included in the 2004 program, along with TAs in 2004 and 2006. The Punjab Resource Management Program, originally planned for 2003, has been expanded and a cluster approach comprising several subprograms, is proposed: following the first subprogram in 2003, two further subprograms have been included in 2005 and 2006. To support these subprograms, a series of TAs are included in 2004, 2005, and 2006. Also, a Punjab Local Justice Support Project is included in 2006. Finally, TAs for Strengthening Alignment of ADB Operations to Devolution and Strengthening NGO Engagement in ADB Policy and Operations in 2004, and for supporting implementation of Decentralization Support Program in 2005, have been added.

30. In line with the emphasis on rural development to promote pro-poor growth, the size of the Balochistan Rural Development Project has been increased; a Sindh Coastal and Inland Lakes Community Development Project is included in 2005; and a PPTA for a Border Area Rural Development (NWFP) added in 2006. Rural development will also be promoted through a Water Resources Development Project in 2006, which is the first of the proposed provincefocused water sector projects. The focus on improving social service delivery is maintained, although the sequencing of the proposed decentralized social services (DSS) programs in the various provinces has been changed. A new Technical Education Project is included in the program for 2004, and a Social Health Insurance Project in 2006.

31. To strengthen subregional cooperation, the size of the NWFP Road Sector Development Project has been increased to build in a subregional connectivity component, and a Subregional Connectivity Project is included in 2006. For sustainable environment management, in the backdrop of little improvement in environment indicators (Table A1.4, Appendix 1), the number of environment related projects has been increased. A Cleaner Fuel Project is included in 2004. Also a series of province-based projects have been included, which have urban environment improvement as a major objective. These include the Rawalpindi Environment Improvement Project in 2004, a Sindh Basic Urban Services Project in 2005, and a PPTA for a Balochistan Basic Urban Services Project in 2006. Also, the Sindh Coastal and Inland Lakes Community Development Project in 2005, and the Sindh Forestry Sector Project included in 2006, have a strong environment focus. For private sector development, the PPTA for the Public-Private Infrastructure Finance Facility has been advanced to 2003 from 2004; an ADTA on Enhancing Pakistan’s International Competitiveness is included in 2004; and two standby projects, Trade, Export Promotion, and Industry Program II, and Power Transmission and Distribution Enhancement Project, are included in 2006 (PPTAs in 2005).

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