Q&A: Boosting growth, resilience, and competitiveness in Pakistan with ADB Country Director for Pakistan Xiaohong Yang

Article | 2 March 2021

With a youthful, growing population and strategic location, Pakistan has the potential for rapid economic growth and development. Under Vision 2025, the country aims to achieve upper middle-income status and provide quality jobs to its growing labor force.

But Pakistan has struggled with boom-and-bust cycles in previous years due to low export capacity, weak domestic revenue, and other systemic challenges. This has been exacerbated by the coronavirus disease (COVID-19) pandemic, which caused a sharp downturn in 2020 and is likely to push more people into poverty.

The Asian Development Bank recently endorsed a new country partnership strategy (CPS) for 2021–2025, designed to help restore economic stability and growth. ADB Country Director for Pakistan Xiaohong Yang explains the strategy.

1. What is the focus of ADB’s operations in Pakistan in the next 5 years? 

ADB’s assistance to Pakistan will focus on three strategic pillars: improving economic management, building resilience through human capital development and social protection, and boosting competitiveness and private sector development to expand economic opportunities. 

Given the economic and social vulnerabilities exposed by the pandemic, this CPS places particular emphasis on building resilience. ADB will seek to upgrade education and health facilities, improve the quality of health care, strengthen social protection systems, and upskill workers so they can weather future crises. 

This CPS also introduces specific features to deal with Pakistan’s structural problems which have been aggravated by the pandemic. For example, it places greater focus on domestic resources mobilization, combining institutional reforms with physical and social infrastructure investments to generate sustainability and development impact. 

2. How will ADB strengthen resilience in Pakistan? 

Poverty reduction is the government’s main priority and remains a significant challenge. Today, around a quarter of the population lives below the poverty line, while a further 20 million are near-poor and highly vulnerable to shocks. The country also has the second-highest number of out-of-school children in the world, while there is significant divergence in health outcomes among the population.

ADB will seek to enhance productivity and well-being by improving education, nurtrition, health systems, clean water and sanitation, affordable housing, and social protection. ADB will promote system-wide reforms on skills development, and investments in secondary education with a special emphasis on increasing girls’ enrollment. The challenge of out-of-school children will also be addressed through support for Ehsaas Kafalat conditional cash transfers for primary education, targeting children, particularly girls, from poor and vulnerable households. 

ADB will also continue to support disaster risk reduction and management, including investments in irrigation infrastructure which will make Pakistan more resilient to water shortages, future flooding, and food security.

3. What will ADB do to lift the prospects of women and girls?

Gender inequities continue to be a significant challenge in Pakistan with low literacy rates and labor force participation for women. COVID-19 has heightened the risk of increased gender disparities in the country. 

Yet if Pakistan can close the gender gap, it could raise GDP by as much as 30%. ADB will support women’s economic empowerment, provide quality opportunities for social advancement, and enhance women’s resilience to external shocks. ADB will aim to increase women’s access to financial services and raise their skills and education levels – increasing their access to higher-skilled and waged employment such as the ICT sector, and bolster social protection programs, where women are the primary beneficiaries.

ADB will prioritize interventions to cut women’s time poverty and drudgery by improving their access to modern technology, particularly in the agriculture sector, connecting them to affordable and reliable energy, and contributing convenient water supply and sanitation solutions. ADB will help ensure women’s access to safe transport systems and urban spaces while improving the capacity of executing and implementing agencies to implement gender-inclusive projects.

4. What is ADB doing to support Pakistan’s COVID-19 recovery?

In addition, ADB quickly mobilized about $6 million in grants, together with $9 million in co-financing from other bilateral donors for immediate humanitarian and health emergency expenditures and training for health workers. ADB is also financing technical assistance for the Central Asia Regional Economic Cooperation Program (CAREC) region, strengthening preparedness for future health threats, and supporting cooperation that enables safe access to vaccines in the region. CAREC is a partnership of 11 countries to promote economic growth and development through regional cooperation.

ADB is currently working with Pakistan to access ADB’s Asia Pacific Vaccine Access Facility – a $9 billion resource envelope with country-specific allocations, accessible in line with our members’ readiness. These APVAX resources are in addition to the regular country allocation.

ADB is part of a well-coordinated donor mechanism that is helping the country meet the eligibility criteria for APVAX including vaccine needs assessment and allocation plan, strengthening the supply chain and storage facilities, human resource training and procedures for selecting suppliers for safe use of vaccines. Pakistan is currently considering different options to make use of this facility to meet its vaccination targets for 2021.

In response to the pandemic, ADB is taking major steps in providing critical finance for the government to implement its pro-poor fiscal and monetary policy, introducing best practice, building capacity, and sharing knowledge through close partnerships with all stakeholders. 

5. How will ADB help foster an enabling business environment?

A robust private sector is critical to Pakistan’s goal of achieving upper-middle-income status, but the high cost of doing business limits its competitiveness. Unreliable access to basic infrastructure is also a significant constraint for private sector activities, while access to finance remains limited for women entrepreneurs, small businesses, and other underserved segments.

ADB will support the government in implementing tariff and tax reforms. The streamlined import tariff and tax procedures will help private businesses thrive and facilitate export diversification. 

ADB will deploy its sovereign and nonsovereign operations to support infrastructure, agribusiness, and finance sector investments. It will target reforms that boost competitiveness and private sector development, create jobs and drive market innovation. Recently issued local currency linked bonds will allow ADB nonsovereign operations to engage sectors like education, health and manufacturing.

Our focus is on engaging public and private sectors to promote renewable energy, energy efficiency and build livable cities. We will continue to invest in rural infrastructure, strengthen agricultural value chains, improve connectivity, and increase access to finance by promoting lending to small- and medium-sized enterprises, women-led and women-driven businesses, and new business areas such as agribusiness, digitization, and tourism.

6. Will ADB help Pakistan address climate change?

Yes, ADB will maintain its support for building climate resilience and adaptation into communities and infrastructure. This includes investing in rehabilitation and upgrade of the irrigation systems, the sustainable management of watersheds and mangrove forests, improving the management of water resources, and strengthening flood risk management in vulnerable coastal districts. We will also help to bolster climate policy, financing, and planning frameworks, upgrade the management of solid waste, and provide safe water in cities and towns.

We will also step up efforts to boost climate change mitigation through technology with a focus on low-carbon and renewable energy, energy efficiency and conservation, and mass transit systems in urban areas. For example, we supported the construction of a hybrid-electric bus rapid transit system in Peshawar that is significantly faster, safer, and more environmentally friendly than the city’s previous transport options.

7. What role is there for regional cooperation in Pakistan?

Pakistan has the potential to become a regional hub for trade and economic activity, but greater cooperation is impeded by weak connectivity and trade links.

Through its membership of CAREC and other regional platforms, Pakistan can continue improving connectivity, developing multimodal transport systems, and strengthening cross-border trade.

Flagship projects such as the Turkmenistan–Afghanistan–Pakistan–India Pipeline Project and the Turkmenistan–Uzbekistan–Tajikistan–Afghanistan–Pakistan Electricity Project will contribute to Pakistan’s energy security. Sanitary and phytosanitary measures to promote agricultural trade will be improved and aligned with international standards. The country will also benefit from the development of regional and national tourism, as well as regional approaches to fighting pandemics.