core sector communique

Boosting Energy Supply, Revenue Mobilization Key to Pakistan’s Fight against Poverty, says World Bank Vice President

Islamabad, Friday April 2, 2010 – Isabel Guerrero, World Bank Vice President for South Asia, today pledged continued support for Pakistan’s efforts to boost tax revenues and to expand the supply of power in the country.

During a two-day visit to Pakistan, Guerrero called on President Asif Ali Zardari and Prime Minister Yousaf Raza Gillani and key officials, including the government’s economic team led by the Finance Adviser to the Prime Minister, Dr. Hafiz Sheikh, to discuss the economy and vital reforms in the power sector and tax administration.

Ms. Guerrero commented on the substantial economic progress since her last visit to Pakistan in 2008. The government has implemented tough economic measures to stabilize the economy. The country’s fiscal deficit has declined and foreign exchange reserves have rebounded. Continued implementation of these measures will help steer the country back onto a high growth path for significant poverty reduction. Ms. Guerrero discussed with the government officials the importance of increasing tax revenues. The country’s tax to GDP ratio at about 10 percent is among the lowest in the world, leaving the country vulnerable to shocks and dependent on external aid.

“To become independent of foreign aid, Pakistan needs to strengthen its own revenue generation,” Guerrero said. “Resources to finance more schools, health centers, roads and other critical infrastructure remain severely limited. The Bank is supporting implementation of the Government’s plan to introduce a national broad-based VAT on goods and services which we have seen bring in substantial additional revenues in countries worldwide.”

Guerrero also discussed measures needed to restore the financial health of the power sector and reduce load shedding in the country. In her meetings with officials including Shakil Durrani, Chairman of the Water and Power Development Authority, she discussed the need for actions to increase efficiency and reduce losses.

“The Government has taken bold actions over the last 24 months to improve the financial health of the power sector. Reducing the cost of subsidies in the budget is important. Now the focus is on reducing costs and freeing up idle generating capacity – for example by allocating more gas to the power sector,” Guerrero said at the conclusion of her visit. “The World Bank will provide strong support to expand power supply in the coming years, and at the same time, work with the sector to continue to improve its financial health and quality of services.”

Guerrero also discussed with the Government the Bank’s upcoming Country Partnership Strategy (CPS) for Pakistan. Spelling out the priorities in the strategy, Guerrero said the Bank will support removal of constraints to economic growth and the Government’s capacity to better manage shocks to the macro economy and households. Specific support will also be in areas of economic management, education, conflict risk management and mitigation, and social protection.