WB urges Pakistan to control budget deficit, expand tax base

ISLAMABAD: The World Bank (WB) has urged Pakistan to stay on the path of economic reforms to control the runaway budget deficit and widen the tax base, indicating that it will keep building the pressure to overhaul the tax system.

The visiting World Bank Vice President for South Asia, Isabel Guerrero, underlined the “need for staying on the reform path and redoubling efforts aimed at reducing fiscal deficit and improving tax-to-GDP ratio,” which is the lowest in the region, compelling Pakistan to meet expenditures by borrowing money.

During a two-day visit to Pakistan, Guerrero held meetings with President Asif Ali Zardari and other key officials, including the government’s economic team, led by the Federal Minister for Finance Dr Hafeez Shaikh.

The WB has been pushing Pakistan to expand the tax base, and the government’s inability to do so has led to a delay in the release of $300 million loan meant for poverty reduction and credit support programme.

The WB is also advocating the imposition of value added tax or reformed general sales tax (GST). Its expert, Salvani, is working with the government to draft the reformed GST bill.

“Improving economic governance, human development and social protection, improving infrastructure to support growth, and helping Pakistan cope with the impact of conflict and reducing the probability of future conflicts are the main pillars of the World Bank support to the country going forward,” Guerrero stressed.

The World Bank board of directors has recently cleared a new country partnership strategy for Pakistan which envisages financial support of up to $6.2 billion over a four-year period.

Guerrero also discussed the progress made by the bank’s group in strengthening local resources to better assist the country, especially in the fields of rural development, energy and water resource management.

She reviewed with the government’s economic team the progress made in setting up a multi-donor trust fund for development in conflict-hit border areas in Khyber-Pakhtunkhwa, Federally Administered Tribal Areas and Balochistan.

The international community has decided to set up a $1 billion trust fund to rebuild war-affected areas under the administrative control of the WB.

“The World Bank will focus on strengthening its coordination with Pakistan’s development partners to help support the government,” she added.

Finance Minister Hafeez Shaikh highlighted the challenges being faced by the national economy mainly inflation, energy deficit and circular debt. He said that for maintaining macro-economic stability, policies of fiscal and debt reduction and reducing inflation to a single digit were being followed.

Published in The Express Tribune, July 17^th, 2010.