21518March 20, 1997

PakistanCountry Assistance Strategy

Progress Report

The combination of weak governance, long-standing structural problems and persistent macroimbalances has brought the Pakistan economy to an impasse. Due to concerns about governance and thedeteriorating economy, Benazir Bhutto 's government was removedfrom office during November 1996, anda newly-elected government headed byformer Prime Minister Nawaz Sharif was installed on February 17,1997, with a decisive mandate. In theface of a precarious balance of payments, the Bhutto government haainitiated stabilization measures shortly before its removaL The interim government agreed with the IMF ona Stand-by Arrangement and announced a multi-year reform program containing a number of importantstructural reforms. The new government's reform directions should become more clear in the coming weeksand months. The November 1995 Country Assistance Strategy -- supporting fiscal adjustment, expandingaccess to improved basic social services, and nurturing a more competitive environment for privateinvestment and growth - remains valid Helping Pakistan to address its own governance concerns mustalso remain an integral part of virtually every aspect of the Bank's assistance strategy. Because of policyperformance and the deterioration in the economy over the past year, though, future lending volumes willlikely remain toward the low end of the base case range as set out in the 1995 CAS. Lending levels could beraised depending on the strength of the reform program to be implemented by the new government.

Introduction

I. Recent Political Developments. Citing corruption and economic mismanagement, thePresident of Pakistan dismissed Benazir Bhutto's government on November 5, 1996, dissolvedparliament, and called for new elections. Wanting to use the change il governments to addressgovernance issues and put the economy on a sound footing, the president named a caretaker primeminister reputed for his honesty and appointed an economic team headed by Shahid Javed Burki asspecial advisor for financial affairs. New elections were held on February 3, 1997, and thePakistan Muslim League (PML-N) headed by former Prime Minister Nawaz Sharif captured amajority of seats in the National Assembly, thus removing some of the political uncertainties thathad been facing Pakistan. The PML-N won a majority of provincial assembly seats in Punjab, thelargest of the country's four provinces, and will form coalition governments in Sindh and the NorthWest Frontier Province (NWFP). Only in Balochistan, the country's least populous province, willthe PML-N not be represented in the government. The new prime minister was installed onFebruary 17, and ministers were appointed to their posts on February 25.

2. Recent Macroeconomic Developments. As a result of weak policy implementation,Pakistan has made no significant progress in dealing with its large and persistent macroeconomicimbalances. Over the past two years, the stabilization programs put in place and the structuralmeasures adopted have not been sufficient to do more than buy time. The resulting cost to Pakistan-- in terms of reduced policy credibility, rising inflation, greater reliance on high-cost short-termdebt, and hence increased risk of future crisis -- is very high. Economic growth and povertyreduction have suffered.

3. The inability to reduce the fiscal deficit, which has remained in excess of 6% of GDPdespite a number of agreements to bring it to a 4% target, has been the key factor in the failure of

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Pakistan's stabilization programs. Monetary and exchange rate policies have also been weak andcontributed to the imbalances. The country's tax system, characterized by a very narrow base,remaining exemptions, and weak administration, remains a central problem. Unable to remove thespecial privileges enjoyed by influential constituents -- for example, large parts of the economysuch as agriculture remain largely untaxed -- the government instead has tried to raise revenues byimposing high tax rates and maintaining high import tariffs. Rather than cutting military and non-priority spending, expenditure reduction has fallen most heavily on the development budget andnon-wage O&M costs (though defense expenditures declined from 6.3% of GDP in 1990/91 to5.3% in 1995/96, they rose from 28% to 31% of the federal budget in those years respectively).The short-run macroeconomic impact of high fiscal deficits has been increased bank borrowing,rapid monetary growth and persistent double-digit inflation (annual rate of 13.8% as of February1997). Over the longer term, falling investment may provide an insufficient basis for futuregrowth.

4. Reflecting the underlying macroeconomic imbalances, Pakistan's balance of paymentsposition has become more precarious over the past year. Insufficient export orientation of tariffand other policies has resulted in weak export performance and a continuing lack of diversificationof the country's export base, which remains overly dependent on cotton and cotton products.Though improving during the fall of 1996, the trade deficit has widened considerably sinceDecember, perhaps due in part to a 7% appreciation of the real effective exchange rate since end-October. To finance the current account deficit, which was 6.6% of GDP in 1995/96 and likely tobe 6.2% in 1996/97, up from 3.2% in 1994/95, Pakistan has increasingly resorted to short-termfinancing, which now totals about $11 billion. This compares to foreign exchange reserves ofabout $1.0 billion (4 weeks of imports), down from $2.1 billion in June 1996, and as low as $514million in November 1996. The rapid growth of foreign currency deposits (FCDs, now$8.9 billion) over the last 18 months, the largest part of the short-term financing, not only makesPakistan more vulnerable to an external crisis, it has also increased the vulnerability of the financialsystem, particularly the smaller banks, to a banking crisis (foreign currency deposits are about 40%of total bank deposits).

5. While Pakistan has so far managed to avert major crises, none of the recent governmentsput in place a sustained reform effort, which is needed to correct the macro and structuralimbalances. The Stand-by Arrangement (SBA) agreed to in December 1995 went off-track by thespring of 1996. The Bhutto government imposed stabilization measures in late-October, and thecaretaker government agreed on the reinitiation of the SBA in December 1996. Also in December,the president announced a series of structural reform measures. The challenge of the newgovernment is to implement those and other measures so as to make fundamental economicchange. It will not be easy, however. Pakistan's problems reflect structural imbalances that arepolitically difficult and, when addressed, can only be expected to promote a supply responseslowly. Change is more difficult as political representation continues to favor landowners.Furthermore, Pakistan continues to suffer from weak institutions, including a weak bureaucracythat makes it hard to formulate and implement reform, and pervasive governance problems.

6. Nonetheless, the new government has come to power with substantial backing by thebusiness community and with a pro-business attitude, which could augur well for the reformagenda. With the removal of political uncertainty, the markets have responded, and initialsentiments are positive. In late February and early March, Nawaz Sharif announced a number ofausterity measures, spoke of reform initiatives, and conlstituted several committees to makerecommendations on revitalizing the economy, including looking at tariff reform and export

promotion. The new government has also given several mixed signals concerning its agenda,though, including taking actions to increase public sector pay, and postponing electricity and gasprice increases, which had been agreed with the Bank and IMF. As of the date of this report, anIMF mission was in the field in the context of the third review under the SBA and to continuedialogue on the need to restore macro balance and put the economy back oni track. Through ourresident mission and through sector and project missions, the Bank is engaging the newgovernment on structural issues. These discussions are being followed up throughi direct meetingsand communications with the president and prime minister, and during the planned April 22-23Consortium Meeting and the Spring Meetings of the IMF/World Bank.

Progress on the 1995 CAS

7. The Strategy. Helping Pakistan to reduce poverty through investing in people, raisingproductivity, and promoting economic growth remains the core of the Bank's country assistancestrategy. To achieve this, last year's CAS highlighted three development challenges, which remainvalid: supporting fiscal adjustment, expanding access to improved basic social services, andnurturing a more competitive environment for private investment. Helping Pakistan to address thecore issue of governance is embedded in virtually every aspect of the assistance strategy. (Seeattached matrix indicating progress against specific triggers.)

8. Supporting Fiscal Adjustment. As indicated in the 1995 CAS, improving the quality andstructure of the budget could be accomplished by changes in five major areas: broadening the taxbase to include the agriculture sector: reducing ad-hoc exemptions and concessions and improvingtax administration; reforming the existing set of taxes, particularly the general sales tax; improvingthe existing federal/provincial revenue-sharing arrangements; and creating fiscal space andchanging the composition of expenditures through meaningful adjustments in defense and othernon-developmental spending.

9. Actions agreed under the SBA are a start toward fiscal reform, thoughi there are the mixedsignals noted above (paragraph 6). The new National Finance Commission Award, announced inearly February, includes all federally-collected taxes in the divisible pool and thus gives greaterincentive to federal efforts to broaden the tax base and to provinces to exploit their taxing potential.Also under the SBA the federal government has agreed to raise Rs 2 billion from new agriculturaltaxes this year and increase revenues substantially in next year's budget. Each province haspromulgated ordinances introducing a land-based income tax for this purpose. These now need tobe enacted into law by the newly-forming provincial assemblies, and the taxes need to be collected.The federal government agreed to broaden the GST to include the import and manufacturing stagesand within a year the wholesale and retail level. Most exemptions and concessions from customsduties and the sales and income taxes are to be removed; the exceptions, mostly in the powersector, are where government is legally bound through existing agreements. Net privatizationproceeds are to be used only for reducing govemment debt, permanently improving the structure ofexpenditures and creating fiscal space for developmental spending. Spending cuts initiated inDecember included reductions in the wheat and rail subsidies and Rs 20 billion from the non-corePublic Sector Development Program (PSDP). Cuts in public employment were also announced.

10. IBRD/IDA's program is helping in each of these areas. Specifically, we are providinganalytical support on the choice of agricultural tax scheme; preparing a Public Expenditure Reviewwith ODA's participation as an input into preparation of next year's budget; continuing the annualPSDP review conducted jointly with ADB and OECF; monitorinig the PSDP on a quarterly basis

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jointly with government to determine whether high priority and SAP expenditures are protectedfrom budget cuts; and undertaking other substantial informnal TA and ESW for the government.The fiscal decentralization study provided technical input into the NFC's deliberations. Incoordination with the IMF, which is assisting on tax administration matters, IDA is helping thegovernment with financial management, economic policy, and institution building support underthe Improvement to Financial Reporting Project. EDI is planning seminars oni the sources ofinflation and on inter-governmental fiscal relations, the timing of which will be worked out with thenew government.

11. Expanding Access to Improved Core Social Services. Poverty reduction remainsconstrained by Pakistan's long neglect of basic social services. Some progress has been observed,however, since government launched the Social Action Program (SAP) in 1992. For instance,participation in primary schools has climbed from 64% in 1993 to 69% in 1996, family planninguse has risen from 6.9% of women in 1991 to 13.4% in 1996, and SAP spendinig has increasedfrom 1.5% to 1.8% of GDP. Nevertheless, these sectors are beset with governance problemsincluding political interference in recruitment and site selection, lack of transparent procurement,and weak accountability. While most SAP sub-programs, for instance, are being implementedsatisfactorily, the governance problems and the stringent fiscal situation of the past few monthshave affected SAP implementation in a nuinber of areas. To help achieve poverty reduction, andgiven the new government's strong commitment to address these continuing problems, socialsector reform remains a central aspect of IDA's assistance to Pakistan.

12. The overall goal is to improve the quality of basic service delivery, thereby increasingaccess and use of services by the poor, especially women and girls. More specifically, IDA'ssector strategy is (i) to build government capacity to develop strategies, operational plans, andbudgets, and to ensure timely expenditure on quality inputs; (ii) to improve implementation andaddress widespread governance problems by increasing transparency and accountability,decentralizing to district, community and facility level, strengthening beneficiary participation,utilizing NGO/government partnersiiips, hiring staff and making siting decisions on merit, andbuilding management information systems and monitoring mechanisms; (iii) to increasegovernment expenditures on basic social services consistent with capacity improvements; (iv) topromote sustainability by protecting basic programs from budget cuts, emphasizing basic ratherthan higher level services, reducing the share of incremental costs of basic services covered bydonors, and encouraging greater contributions from users and communities; and (v) to encourageNGO and private sector participation in social service delivery, including approaches that allowgovernment to finance such efforts. IDA is working with the authorities on strategic restructuringof the social sector portfolio and is leading the multi-donor effort to develop SAP's second phase.Restructuring projects consistent with the above strategy should improve implementation, helpstrengthen governance, and enhance stakeholder involvement. The second SAP project isscheduled for appraisal later this year. In addition, a new Poverty Alleviation Fund is underpreparation in full partnership with NGOs and government.

13. Nurturing a More Competitive Environment for Private Investment. Banking reform.The problems facing the banking system are severe, with wide-ranging implications for macrostability and long-term growth prospects. Due to extensive political interference in lending andcollections and systematic bail-out of key industries, non-performing loans have quadrupled overthe past seven years and amount to about 30% of the system's total portfolio. Defaulters areconcentrated (the top 250 defaulters represent 60% of the problem), but many cases are stuck in thecourts. In addition, the banking system has been experiencing slower deposit growth, and negative

real rates of interest on deposits and non-market yields on government securities have resulted indisintermediation, segmentation, and crowding-out of the private sector. As noted earlier, largeFCD withdrawals could trigger a banking crisis.

14. The caretaker government developed a comprehensive program to restore the bankingsector's solvency and integrity and overcome the sector's severe structural weaknesses. Thoughnot fully implemented, the interim government did issue ordinances to strengtheni the autonomy ofthe central bank, giving it the sole authority to regulate banks. The new government has indicateda commitment to banking reform, and we are hopeful that it will pursue the actions identified. Theprogram would include sale of government holdings in the three remaining nationalizedcommercial banks (which account for 70% of total deposits), liquidating insolvent and illiquiddevelopment finance institutions, and pursuing substantive progress in actual loan recovery. Theprogram would also have short- and medium-term dimensions to stop the flow of bad lending, dealseriously with defaulters, impose credit discipline, eliminate all credit subsidies, install goodgovernance through privatization, and enhance the capacity of regulators to do their jobs. Theongoing Financial Sector Deepening and Intermediation Project is providing technical assistancetoward the institution building aspects of the program, and is being restructured to provide moresupport for privatization. With strong implementation of the program in the context of crediblemacroeconomic adjustment, the IBRD is prepared to provide support through banking sectoradjustment operations. .

15. Agriculture and natural resource management. IBRD/IDA's strategy in agriculture -- tolimit the role of the public sector; shilf management responsibility to the private sector; helpremove policy distortions; improve the efficiency of public expenditures; strengthen institutionsand build local capacity; and assist resource management and environmental protection -- isreflected in the strides over the last year in the irrigation and drainage sector. There is now. agreater understanding among federal and provincial governments and farmers' representatives onneeded institutional reforms in the sector. Each province has agreed to set up a ProvincialIrrigation and Drainage Authority, which will shift management and operating responsibility fordrainage to farmers' groups. Pilots on participatory management at distributary levels have begununder several Bank-financed projects in Punjab, Sindh and the Northwest Frontier provinces. Aftera halt in most agriculture lending over the past two years as we worked on restructuring theexisting portfolio, this progress provides the basis to move forward with IDA support for theNational Drainage Program later in 1997. This project has been negotiated and is awaiting the newgovernment's confirmation and the provincial assemblies' adoption of new legislation beforerequesting board consideration. To promote policy reform, including introduction of a meaningfulagricultural income tax, agricultural enterprise restructuring and removal of subsidies, IBRD isplanning to support an Agricultural Sector Investment Project in the coming year.

16, Private Sector Development. Pakistan's privatization / private infrastructure program --particularly in the power sector where private investment of $5 billion has been committed -- isconsidered, along with the Philippines, the strongest in Asia. Building on a strong track recordduring 1996 when a number of important transactions were completed and others brought into anadvanced stage (see matrix for details), government should complete a number of additional majortransactions during 1997. These include strategic sales (an electricity supply company and areaelectricity board, gas companies, most remaining state-owned commercial banks and additionallarge industrial units); public offerings of residual or minority shares and the launching of aprivatization mutual fund in the local and international markets; and management contracts as astep toward strategic sales in several electricity boards and utilities.

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17. To continue the success of the privatization program over the coming year, we will beassisting government with a program that includes: (i) hastening the build-up of capacities of thepower, gas, and telecommunications regulatory authorities to provide a proper environment forprivatization, deregulation and private sector investment; (ii) commercializing WAPDA to make itaccountable for improving its operational and financial performance; (iii) privatizing PakistanRailways, completing equity sales in the gas companies begun last year, and initiation ofprivatization of petroleum development and marketing companies to create a more level playingfield; (iv) removing incumbent management of enterprises in the privatization program whereneeded to expedite privatization, which has already started with new management for PakistanTelecommunications and the board of Pakistan International Airways; (v) promoting greatertransparency in the privatization processes, and strengthening the institutional and technicalcapacity of the privatization commission to undertake its expanded program; and (vi) workingthrough the judicial system to dispose of existing legal stay orders oni privatization of certainmanufacturing units. Through an IDF and under ongoing projects, IBRD/IDA will continue toassist these programs.

18. Another key element for nurturing a competitive economic environment is the continuationof trade liberalization. We plan to assist this effort through sector work later this year. Focused onpolicies, procedural impediments and institutions which give rise to Pakistan's anti-export bias, thestudy will emphasize the need for tariff reform, access to imported inputs at world prices, a modernexport financing system, and efficient export procedures. This work will complement that of theADB, which may provide financial assistance to Pakistan in the context of a strong trade refonnprogram.

19. Infrastructure development. In the transport and urban infrastructure sectors, IBRD/IDA'sstrategy has been to catalyze private investment to bring in badly needed financing and to tapprivate management and technical capacities. There has been movement in the transport sector,less so in urban areas. We are working with Karachi Port Trust to convert it into a landlord modeof operation providing public services with the private sector providing commercial and otherservices, including financing for new facilities. In roads, government and the National HighwayAuthority are considering establishing an arms-length highway maintenance fund to be financed byuser fees and administered by a board of major stakeholders, not by government. To achieve theobjective of developing modern bulk commodity and container freight services between Karachiand Lahore, the railway open access policy, now published, will allow private rail freightcompanies access to existing railway infrastructure. The first step in its implementation is acontract to move oil to the private power stations, for which two bids have been received and arebeing evaluated. In urban infrastructure, provincial authorities in Sindh have begun a detailedstudy of the options for privatizing water/sanitation facilities.

20. Governance. Governance problems in Pakistan, wilicih led to the Bhutto government'sremoval from office, to the accountability process instituted by the interim government, and toinitiatives already undertaken by the new government, continue to be pervasive. IBRD and IDAare assisting the effort to improve governance with actions under individual projects, and throughsector program agreements such as under SAP. Bank-financed projects are promoting transparentprocurement processes, including third-party monitoring and merit-based personnel practices.Under several ongoing operations, for example in the provincial education and health projects, weare financing development of management information systems to build a basis for rationalpolitical choice on school and clinic locations and other expenditure decisions. To empower

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beneficiaries to hold decision-makers and bureaucrats accountable for their actions, we are workingwith government to involve stakeholders and make use of NGOs in community mobilizatiop,training of government staff, and service delivery; for instance SAP has provided financing totwenty-eight NGOs that are pioneering participatory approaches to social service delivery. We areproviding assistance to government's legal reform efforts in the banking sector and in irrigation anddrainage. In late 1996, we helped government organize a workshop aimed at beginning to form anational consensus on procurement reform. We are now assisting the development of aprocurement reform program, a process which is likely to be lengthy given the many interestsinvolved.

21. Because information, as with community participation, can help discipline governance,IBRD and IDA are trying to put as much information into the public domain as possible. Aperiodic public report on the status of our loan portfolio and a two-page public documentsummarizing the results of each ESW report are examples of our information-sharing activities. Topromote greater understanding of community participation, we inaugurated an in-country taskmanager training program in Pakistan in October 1996, in which ten Bank staff lived for two weeksin rural Balochistan and the Northern Areas under the tutelage of two NGOs. We will repeat thisprogram in 1997. The Poverty Alleviation Fund concept is an outcome of this NGO training.Moreover, a widely participatory approach being used in preparing a provincial assistance strategy,oni a pilot basis for Balochistan, will be employed for other provincial strategies to be developedlater this year and for the next overall country assistance strategy.

22. Lending. The 1995 CAS presented four scenarios to reflect the range of possible polidyoutcomes. Within the Base Case, two lending scenarios bracketed the most likely outcomes in1996 and indicated total annual lending of $500-750 millioni, with $250-450 million from lBRDand $250-300 million from IDA. For much of 1996 Pakistan performed at the low end of the basecase. Lending and guarantees during FY96 totaled $520 million, of which $445 million came fromIBRD ($350 million for the Ghazi Barotha Hydropower Project alone) and $75 million from IDA.

23. A number of policy uncertainties surround our projection for lending in FY97 and beyondas the new government will need to get organized before major initiatives can be announced.Given the weak performance of the past year -- macro and creditworthiness indicators worsenedover the period -- and the mixed policy signals, we have projected key macroeconomic indicatorsassuming continued low base case performance. This implies a continuing slow pace andinsufficient depth of reform implementation, though no significant backtracking. As the 1995 CASpoints out, this policy scenario contains a number of risks as economic growth would be lower, andinflation higher, than with stronger policy implementation. Pakistan's policy instability andheightened vulnerability to adverse shocks means that this scenario is not sustainable over themedium to longer term.

24. Due to the weak policy performance and deteriorating indicators, no IBRD lending willtake place during FY97. IDA lending during FY97 may total $370 million, including $285 millionfor the National Drainage Program. Over the coming years, continued perfornmance at the low endof the base case would only provide a basis for average annual IBRD/IDA lending of$300-400 million, with $200-250 million from IDA and at most $100-150 million from IBRD.This represents a lower level of lending than in the CAS's low base case scenario, reflecting theweak performance and creditworthiness concerns. Nonetheless, stronger economic policy andprogram implementation, including maintaining a strong poverty orientation, would improvePakistan's creditworthiness and provide a basis for a larger lending program. The triggers laid out

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in the 1995 CAS remain valid. Of particular importance are actions to ratify the ordinances onagricultural income taxation and to collect the taxes due; reduce import tariffs and liberalize thetrade regime; undertake meaningful banking reform, not only through privatization, which is thespecific trigger contained in the 1995 CAS, but also through initiation of the comprehensivebanking reforms discussed above; and continue social sector reform.

25. Portfolio Management. The Pakistan portfolio consists of 38 projects with a totalcommitment value of $3.9 billion. The number of projects rated as unsatisfactory on eitherimplementation progress or development objectives increased from 5 in FY95 to 10 in FY96 aridremains at 9 (23.7%) as of end-February 1997. After improving over the previous two years, thedisbursement ratio also deteriorated, declining from 19.7% in FY95 to 17.5% in FY96 due toslower disbursements portfolio-wide but particularly in the transport and education sectors. Whiledisbursements in the first half of FY97 substantially improved over last year (13.6% as comparedto 8.0% last year), possibly indicating better annual performance, the stringent fiscal situation hasalready slowed implementation of some projects.

26. To better deal with the increasing number of problem projects and strengthlen results acrossthe portfolio, we have indicated to government that we are no longer conducting business-as-usual.Restructuring the social sector portfolio is intended to reduce politicization and other governanceproblems, improve delivery mechanisms through stakeholder involvement, increase ownership, andhence improve implementation. To promote an implementation culture we are insisting on closingprojects as scheduled and using mid-term reviews to restructure slow-disbursing projects. Inaddition, we have shifted a substantial amount of leadership responsibility and accountability forproject supervision and up-stream work to the resident mission. Currently, 34% of the portfolio ismanaged by the resident mission. Project task managers in the resident mission are more readilyavailable for consultation whenever clients require assistance, and we are building resident missioncapacity to handle procurement issues. We hold regular high-level meetings on problem and slow-disbursing projects with officials of the federal and provincial governments with a view to takingconcrete actions for improvements. Addressing problems in the existing portfolio is alsosupplemented by stringent assessment of the potential risks and rewards of adding new operationsto the portfolio.

27. IFC and MIGA. IFC's rapid expansion over the last four years, in line with the responseto economic liberalization and the increasingly favorable climate particularly in the power sector,has made it the largest originator of finance for the private sector in Pakistan. The FY96 programconsisted of 15 projects for a total of $404 million ($205 million for IFC's own account), with atotal project cost of $1.4 billion. This program included A and B Loan support totaling $115million for Uch Power Limited, which was the first instance of IFC and IBRD collaborationthrough loans and a partial risk guarantee. To coordinate other aspects of the programs, anIFC/IBRD working group on private sector development matters has beeii established, comprisingthe resident representatives of each institution and other staff in the field and in headquarters.

28. However, lack of confidence of private investors in the previous government's economicpolicies and the political uncertainty following that goveniment's dissolution have led someinvestors, particularly in the manufacturing sector, to put off new investments. Coupled with IFC'sviews on the need to reestablish a good economic management track record, IFC's FY97 programis expected to be more modest than in the past four years, likely in the range of $60-70 million ofIFC's own resources. The growth of IFC's portfolio will also be limited by country exposure

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considerations. IFC's total exposure in Pakistan now amounts to 14.1% of total net worth while thepolicy is to limit this exposure indicator to 15%.

29. Pakistan is MIGA's third largest country in terms of exposure ($143 million) and thesecond largest in terms of number of contracts. In FY96 MIGA issued one contract of guaranteefor Pakistan, which was in the manufacturing sector. In FY97, MIGA so far has issued oneguarantee in the power sector, board approval has been given to a second, and MIGA is currentlyconsidering another power sector application. Interest in MIGA guarantees in Pakistan remainsstrong, as evidenced by thirteen new preliminary applications received so far this fiscal year in avariety of sectors, including finance and banking, agriculture, construction, oil and gas, and powergenerationi.

30. While MIGA's assistance in any country is largely demand-driven, depending primarily onprivate investors' view of the political and investment climate, MIGA's developmental mandateand fiscal responsibility to its member countries requires the Agency to maintain a diversifiedportfolio. These concerns will influence MIGA's assessment of applications for future guaranteesissued for Pakistan. Given MIGA's per-country exposure limit of $225 million, growth in Pakistanin the next few years will be limited.

31. Risks and Opportunities. As discussed in the 1995 CAS, the Bank's strategy in Pakistancarries high risks. The primary risk in the coming year is that the new government might notsustain or broaden the interim government's reform initiatives. Without due attention tostabilization and structural reform, the likelihood of Pakistan experiencing a balance of paymentsand possibly a banking sector crisis is high. Indeed, into the medium-term, continuing to muddle-through would keep Pakistan on the knife's edge, vulnerable to shock, and is not sustainable.Secondly, there is considerable risk that lack of fiscal adjustment with resulting continuing fiscaldifficulties could set back implementation of core development projects and programs, includingthe SAP, in spite of government's agreement to protect high priority development programs frombudget cuts. In the current situation, project implementation at provinicial level has already beenslowed despite an existing agreement to protect such programs. Equally, however, we need to beprepared to take advantage of opportunities which arise. As the new government considers how toachieve its election mandate, it may very well move quickly to implement programs, such asbanking reform, trade liberalization, or others. Despite the risks, we remain prepared to support ameaningful reform agenda by providing timely technical and financial assistance, and possiblyenlarging our assistance program, should the right circumstances arise.

James D. WolfensohnPresident

by Gautam S. Kaji

PAKISTAN: PERFORMANCE ON 1995 CAS BENCHMARKS

0f.010~~: ' : B'',: ''1,'''''a--...~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ....

Consoliatling Fiscal AdjustlmentIn 1995/96 Pakistan's budget deficit was 6.3% of GDP rather thani the targeted 4.6%, due to both

Progress in consolidating fiscal adjustment, including substantially lower than targeted revenue collections and higher expenditures. Large borrowingrequirements led to higher than programmed domestic credit expansion in 1995/96 (18.7%

- a continued fragile macroeconomic situation, witlh fiscal instead of 14.3%), greater money supply growth (13.4% instead of 12.1%); a widening tradedeficit between 5-5.5% of GDP deficit (4.7% of GDP); and a larger-than-programmed current account deficit (6.6% of GDP

instead of 4.3%). The trade deficit fell during the fall of 1996, but has risen since December,perhaps partly due to a 7% real effective exchange rate appreciation since end-October. Foreigncurrency deposits and short term debt (totaling about $11 billion) far exceed foreign exchangereserves (which now stand at $1 billion). Annual inflation dropped to 10.8% in 1995/96 from13% the previous year, but has once again risen to 13.8% (February 1996 - February 1997).

- efforts to broaden the tax base through adoption of an Under the SBA, government has agreed to raise Rs 2 billion in farm taxes in FY97 andagriculture income tax by some provinces, and other modest collections substantially in FY98. All provinces have adopted ordinances on agricultural incomeefforts taxation; these now need to be enacted into law by the new assemblies. In FY96 and early FY97

the previous government eliminated several tax exemptions and concessions, including those forSpecial Industrial Zones, adhcred to the agreement not to introduce new ones; and began a phasedprogram to eliminate remaining exemptions and concessions. Most concessional tariff rates wereraised to their statutory levels. PIU for the federal agricultural wealth tax was increased to Rs400. The previous government introduced an automatic petroleum price adjustment mechanismunder which prices are adjusted in line with international prices. Electricity price increasesplanned for March did not take place. Domestic gas prices were increased by 15% in December,but a 10% hike scheduled for March, agreed with the Bank and IMF, has not taken place.

- protection of most high priority projects, but limited SAP and the core developmenit program were relatively mor-e protected than other expendituresadjustments in large expenditure categories (e.g., defense) to fiom the budgetary cuts announced as part of the stabilization package, but revenue collectionpermit more development spending shortfalls delayed federal-provincial transfers and slowed project implementation across the

board. Public investment program is ilow unduly low at 3.5% of GDP, which could affect bothgrowth and poverty reduction prospects. A number of lower priority programs have continued toreceive budgetary allocations. Social sector spending has increased to 1.8% of GDP. Between1990/91 and 1995/6, defense spending rose from 28% to 31% of federal expenditures but declinedfrom 6.3% to 5.3% of GDP.

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Base Case Performance Benchmarks in 1995 CAS Results on the Ground(Low Base Case Scenario)

Expand)ing Access ond lImprovinig Delivery of Core SocialServices

Continued progress in implementing SAP, including As of end-lY96 and as of October 1996, all sub-programs were agreed. At end-December 1996,- agreement on federal government sub-programs under SAP, 7 of 12 provincial sub-programs, 3 of 12 federal areas sub-programs, and 2 of 3 federal sub-including tihe population and welfare program, 8 out of 12 programs are in compliance, though some barely met the standard. Government has taken actionsprovincial sub-programs, 8 out of 12 Federal Areas sub- on a number of the sub-programs in the past 2-3 months, which IDA is evaluating. The mainprograms problems concern inadequate financing, persistent recruitment bans, and slow progress on some

management reforms. Though some truly noteworthy progress has occurred under SAP, the SAPsectors continue to be affected by governance problems including political interference inrecruitment and site selection, lack of transparent procurement, lack of accountability,administration of mixed quality, and poor quality of services provided. SAPP2 is being preparedthrough a participatory process and will focus on these issues as well as government'sexpenditure and financing plans.

Government is making good progress in strengthening the weak assessment, planning, andmonitoring systems by building provincial management information systems in health andeducation. It is also undertaking the Pakistan Integrated Household Survey which, along withnew census information, when available, will give greater basis for site selection and otherexpenditure decisions. Government, with Bank ESW assistance, is also developing health andeducation sector strategies.

Suipportiltg a More Conipetitive Environmieitrfor PrivateI,,vestment and Accelertited Growtih

Further structural reforimi to establish a more competitiveenvironment, including

A 10% surcharge was imposed on all imiiports in October 1995 (keeping a 65% maximumi), and- reduction in maximum import tariff to 55% in FY97 and in the maximum tariff remained at 65% for FY97. In FY97 budget, many conicessionial tariff ratessome tax/tariff exemptions were raised to the statutory level that will prevail at the end of the tariff reform program.

- establish regulatory framework for telecommunications and Government has establishied but not fully staffed the telecommunications regulatory agencies.power sectors and initiate judicial reform process Government has established NEPRA, but implementation has been slower than expected. An

effective judicial reform program has not been initiated.

3

Base Case Performance Benchniarks in 1995 CAS Results on the Ground(Low Base Case Scenario)

- uneveni progress in privatization, including United Bank The sale of Kot Addu power plant was successfully concluded. This was the first utilityLtd. and Kot Addu, but delays on large manufacturing and privatization in Pakistan and generated over Rs 9.5 billion for 36% of total shares along with thegas companies. management control, exceeding most expectations. A total of 19 private power projects have

reached financial closure, with a net capacity addition of 4350 MW by 2000. The IBRD and IFChave helped finance 8 of these projects totalling 72% of net capacity. Bankers' Equity Ltd. (5 1%)was sold for about Rs 600 million. Eleven medium- and -large scale manufacturing units weretransferred to the private sector bringing the total of such units to 85. Bidding for the Jamsiloropower plant, which is expected to generate revenues of around Rs 2.5 billion, is expected to takeplace by mid- 1997. The sale of 26% of Sui Northern Gas to a strategic investor is expected to becompleted in mid-1997. The sale of United Bank Ltd. was attempted but could not be finalizedon an "as is where is" basis. The bank is now being restructured prior to sale planned for 1997.Bids for Habib Bank have been received, and sale is expected in the next two months. To dateprivatization has generated Rs 56 billion, Rs 13 billion of which in 1996.

Portfolio Mantagement Disbursement ratio during FY96 was 17.5%, which is comparable to FY93 and FY94, but lowerthan the 19.7% achieved in FY95. In the first half of FY97, however, the disbursement ratio had

- disbursement ratio below 19-20% reached 13.6% (compared to 8% last year), which likely indicates an end-FY97 figure exceeding20%, though fiscal stringency will likely slow project implementation. As part of actions toimprove portfolio performance, a CPPR was held with the caretaker government. Overallimplementation of the last CPPR action plan hias been mixed. Good progress re environmenit forproject preparation and implementation. For example: improved preparation effort (adoption ofa new PC- I format wilicih features beneficiary participation, more rigorous financial, economicand technical analysis, and tip-front approval of PC- I earlier than project effectiveness),preparation of guidelines for project supervision; wvillingness to execute Trust Funds; delegatingmore authority to project staff; and issuing notification to all agencies to use Bank proculrementguidelines. There has been limited or no progress in other areas: addressing procurement delays,staff transfers, availability of counterpart fundinig.

Pakistan - Key Economic IndicatorsAttachment ipage 1 of I

Economy Original CASforecast_ a/ Actual Currentforecast

FY96 FY97 FY98 FY99 FY96 FY97 FY98 FY99

Growth rates (%)GDP(factorcost) 5.4% 5.0% 5.4% 5.8% 6.1% 4.5% 5.2% 5.2%Exports b/ 4.8% 7.4% 7.6% 7.5% 0.4% 5.0% 7.9% 8.3%Imports b/ 7.8% 7.4% 7.2% 6.6% 33.5% 0.4% 4.4% 5.5%

Inflation (%) 11.8% 10.0% 7.8% 7.2% 10.8% 11.9% 9.6% 8.7%

National Accounts (% GDP)Current Account Balance c/ -4.5% -4.4% -4.5% -4.4% -6.6% -6.2% -5.3% -4.9%

Gross Investment 19.6% 19.3% 21.3% 22.4% 19.6% 19.2% 19.8% 20.2%

Public finance (% GDP)

Fiscal Balance -5.0% -4.9% -4.8% -4.6% -6.3% -5.2% -5.1% -5.1%Foreign financing 2.2% 2.1% 1.9% 1.6% 2.0% 1.1% 1.0% 1.0%

International Reserves 1975 1741 1722 1706 2053 1113 1266 1393

(Reserves as weeks of import 8.4 6.9 6.2 5.6 8.2 4.4 4.8 4.9of goods, CIF)

Prograrn FY96 FY97 FY98 FY99 FY96 FY97 FY98 FY99

Lending ($ million) _d/ 868 545 510 591 520 370 440 270

IDA 323 295 232 283 75 370 300 110IBRD 545 250 278 308 445 0 140 160

Gross disbursements 720 557 496 472 527 602 777 763

IDA 299 210 196 204 239 272 434 453

IBRD 421 347 300 268 288 330 343 310

-a/ 1995 CAS projections_b/ Exports and imports of goods and non factor services in 1981/82 prices._c/ Includes official transfers

d/ Commitments

Attachment 2Page 1 of I

Bank Portfolio Performance and Management

Indicator FY94 FY95 FY96 FY97

Portfolio Performance

Number of projects under implementation 49.00 47.00 48.00 38.00

Average implemcntation period (years)b 4.74 4.55 4.79 5.02

Percent of problem projects rated U or HUc(for past years, rated 3 or 4)

Development objectivesd 4.08 8.51 18.75 21.05Implementation progress (or overall 4.08 10.64 20.83 23.68

status for past years)'Canceled during FY in USSm 137.37 59.22 28.97 77.58Disbursement ratio (%)r 14.93 19.66 17.52 14.73

Disbursement lag (%)5 32.41 30.31 30.75 29.67Memorandum item: % completed projects 14.55 19.70 19.12 19.12

rated unsatisfactory by OED

Portfolio Management

Supervision resources (total US$ thousands) 3408.97 2991.16 3812.13 2167.21Average supervision (USS thousands/project) 69.57 63.64 79.42 51.60Supervision resources by location (in %)

Percent headquarters n.a. n.a. 57.82 51.85Percentresidentmission n.a. n.a. 42.18 4815

Supervision resources by rating category

(US5 thousands/project)Projects rated HS or S 70.15 64.93 78.44 55.46ProjectsratedUorHU 55.98 52.81 83.15 47.38

Memorandum item: date of last CPPR 12/96

a. For FY94-96, includes all projects that were active at any time during that year. For FY97, reflects only those projectsactive as of Februay 28, 1997.

b. Average age of projects in the Bank's country portfolio.c. Rating scale: "HS' denotes "Highly Satisfactory', "S" denotes 'Satisfactory', "U" denotes 'Unsatisfactory", and "HU'

denotes 'Highly Unsatisfactory'.d. Extent to which the project will meet its development objectives.e. Assessment of overall performance of the project based on the ratings given to individual aspects of project implementation

(e.g.. management, availability of funds, compliance with legal covenants) and to development objectives. The overallstatus is not given a better rating than that given to project development objectives.

f. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year:investment projects only.

g. For all projects comprising the Bank's country portfolio, the percentage difference between actual cumulative disbursementsand the cumulative disbursement estimates as given in the "Original SARIPR Forecast' or, if the loan amounts have beenmodified, in the "Revised Forecast." The country portfolio disbursement lag is effectively the weighted average ofdisbursement lags for projects comprising the Bank's country portfolio, where the weights used are the respective projectshares in the total cumulative disbursement estimates.

Note:Disbursement data is updated at the end of the first week of the month.Suipervision resources include Salaries, Benefits, and Travel for all sources of funds but excludes FAO staff and PCR taskcosts.

n.a. Not Applicable

Attachment 3Pakistan - Bank Group Fact Sheet FY 1994-2000 Page 1 of?

IBRDIIDA Lending Program, FY 1994-2000

Pamr Current Ps/rtoleld

(alegor) FY94 FY95 FY96 FY97 I:Y98 FY99 FY00

Coslilimitiseuts (UISSmI) 741.5 706.0 459.9 370.0 440.0 270.0 420.0

Sector (%)h

Agriculture 0.0 3.5 5.8 92.2 17.0 0.0 52.4

Education 27.0 21.2 0.0 0.0 11.4 0.0 0.0

Electric Pwr & Engy. 31.0 35.4 76.1 0.0 0.0 0.0 0.0

Environment 2.0 0.0 0.0 0.0 0.0 0.0 11.9

Finance 0.0 30.6 0.0 0.0 0.0 0.0 0.0

Oil & Gas 0.0 0.0 0.0 0.0 0.0 0.0 0,0

Popultn, Hlth & Nutn 0.0 9.2 5.8 0.0 0.0 0.0 23.8

Public Sector Mgmt. 40.0 0.0 0.0 7.8 0.0 0.0 0.0

Social Sector 0.0 0.0 0.0 0.0 56.8 25.9 0.0

Telecommunicationes 0.0 0.0 7.6 0.0 0.0 0.0 0.0

Transportation 0.0 0.0 0.0 0.0 14.8 46.3 11.9

Urban Development 0.0 0.0 4.7 0.0 0.0 0.0 0.0

Water Supply & Santn 0.0 0.0 0.0 0.0 0.0 27.8 0.0

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Lending instrument (%)

Adjustment loans' 33.7 0.0 0.0 0.0 0.0 0.0 0.0

Specific investment loans and others 66.3 100.0 100.0 100.0 100.0 100.0 100.0

IOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Disbursements (USSm)

Adjustment loans' 133.9 146.6 -0.6 0.0 0.0 0.0 0.0

Speciftc investment loans and others 405.9 544.1 527.0 602.0 777.0 763.0 543.0

Repayments (USSm) 194.5 235.0 326.0 346.0 344.0 368.0 397.0

Interest(US$m) 215.5 234.0 238.0 292.0 287.0 291.0 295.0

a. Ranges that reflcct the base-case (i.e., most likely) scenario. Planned IBRD and IDA commitments are presented for each year as a combined total.

b. For futiure lendinig, rounded to nearest 0 or 5%. To convey the thrust of country strategy more clearly, staff may aggregate sectors.

c. Strctural adjustment loans, sector adjustment loans, and debt service reduction loans.

Note:Disbtirsemenlat data is plidated at the cid (it the fi st week of the moith.

Attachment 3Page 2 or2

Pakistan - IFC and MIGA Program, FY94-96Past Curlr ent

Caregory FY94 F:Y95 FY96 FY97IFC approvals (US$mi) 177.6 217.0 204.9 9.5

Sector (iio.)Cement & Construction I I I I

Chemicals & Petrochems 0 0 1 I

Fertilizer & Agri-chem 0 1 1 0Financial Services I I I 0

Indust &,consumer Svcs 0 0 1 0Infrastructture 0 I I 0

Mining & Minerals I I 0 0

Motor Vehicles & Parts 0 1 1 0Textiles I I I 0Timiber, Pulp & Paper I I 0 0

(blank) 0 0 0 0

TOTAL 5 8 8 2

investmnent instrument (%)Loans 93.0 58.0 77.0 95.0Equity 7.0 14.0 10.0 5.0

Quasi-equity' 0.0 18.0 1.0 0.0

Other 0.0 10.0 12.0 0.0

TOTAL 100.0 100.0 100.0 100.0

MIGA guarantees (US$m) 150.0 158.0 137.0 143.0

MIGA commitments (US5m) 0.0 0.0 0.0 0.0

aIncludes quasi-cqtiity types of both loan and equity inslrtiuiiciits.

Attachment 4Page 1 of 1

Pakistan - Key Exposure Indicators

Actual Prelim ProjectionIndicator I 1991 1992 1993 1994 1995 1 1996 1997 1998 1999 I

Totaldebtoutstandingand 17958.0 20094.0 22182.0 25358.0 29604.0 31915.8 32664.4 33855.8 35380.4disbursed (TDO) (USSm)'

Netdisbursements (USSrn 933.0 1028.0 1849.0 2469.0 1439.0 2334.8 1280.7 1520.3 1811.6

Total debt service (TDS) 1957.0 2093.0 2430.0 2674.0 3521.0 3341.0 3178.4 3093.1 3143.7(USsmi)

Debt and debt servicc indicators

(%)TDOfXGSb 191.4 204.8 222.4 255.9 249.1 265.5 261.5 245.2 231.6TDO/GDP 39.4 41.1 42.8 48.9 48.9 49.3 51.6 49.5 47.6TDS/XGS 20.9 21.3 24.4 27.0 29.6 27.8 25.4 22.4 20.6ConcessionallTDO 70.8 63.5 60.6 60.1 54.9 58.3 60.6 61.0 60.1

IBRD exposure indicators (%)IBRDDS/publicDS 13.9 16.2 16.0 16.3 13.1 13.7 19.2 19.3 19.5Preferred creditorDS/public 47.6 39.4 46.0 47.2 39.8 47.8 53.5 52.7 52.2DS

1BRD DS/XGS 2.4 2.8 3.2 3.6 3.5 3.6 4.6 4.0 3.7Share of B13RD portfolio 1.8% 2.4% 2.5% 2.6% 2.7% 2.7% 3.1% 3.0% 2.9%

IFC (US$m) /c

Loans 51.8 24.9 85.1 164.5 128.7 161.7 9.0 -Equity and quasi-equity Id 12.4 2.0 13.3 13.0 70.6 20.6 0.5

MIGA /c

MlGAguarantees(JSSm) .. .. 117.2 150.5 158.0 137.0

a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short term capital.

b. "XGS' denotes exports of goods and services, including workers' remittances.

c. No projections available.

d. Includes equity and quasi-equity types of both loan and equity instruments.

Attachment 5Page 1 of 4

Status of Bank Group Operations in PakistanIBRD Loans and IDA Credits in the Operations Portfolio

Last AROPDifference

Original amfount in USS millions between expected Supervision Rating

Project Loan or Fiscal and actual Development ImplcmentationID Credit No. Ycar Borrower Purpose IBRD IDA Cancellations Undisbursed disbursements' Objectives Progress

Number of Closed Loans/Credits: 164

Active Loans

PK-PE-36015 C29210 1997 GOP IMPRFINREP&AUDIT 28.80 27.93PK-PE-10501 C29010 1997 GOP PVT SECTOR GROUND WA 56.00 53.50PK.PE-39281 L39650 1996 GOP GliAZI BAROTHA HYDROP 350.00 309.96 32.26 S SPK-PE-34101 L39500 1996 GOP TELECOM REG & PRIVAT 35.00 34.50 8.55 S SPK-PE-37S27 C28830 1996 GOP NORTHERN HEALTH 26.70 25.57 1.33 S SPK-PE-10478 C28290 1996 GOP NWFP COMMUNITY INFRA 21.50 17.08 2.25 S SPK.PE-10492 C27800 1996 GOP BAL COMMUN IRRIG AGR 26.70 25.03 1.53 HS UISPK-PE-10450 L38120 1995 GOP PV'rSECEGYDEVII 250.00 135.04 62.04 HS HSPK-PE-10470 L380S0 1995 GOP FIN SECDEEPEN&INTE 216.00 214.77 8S.74 U UPK-PE-10481 C27470 1995 GOP FORESTSECTORDEVELO 24.87 19.34 4.44 U UPK-PE-10492 C26880 1995 POPULATION WELFARE P 65.10 57.62 7.06 S SPK-PE-10486 C26870 1995 GOVT. OF PAKISTAN NWFP PRIMARY EDUCATI 150.00 134.70 19.34 S SPK-PE-10458 L37640 1994 GOP POWER SECT. DEV. PRO 230.00 155.35 67.98 S SPK-PE-10456 C25930 1994 GOP SOCIALACTIONPROGRA 200.00 28.32 15.44 S SPK-PE.10453 C25840 1994 GOP BALUCHISTAN NATURAL 14.70 11.22 -1.02 S S

PK-PE-10452 C255S0 1994 GOP SINDH SPECIAL DEVELO 46.80 36.94 30.51 S UPK-PE-10421 C25120 1993 ISLAMIC REP. OF PAK. NORTH PAKISTAN RESOU 28.80 20.30 1.65 S SPK-PE-10417 C24820 1993 GOVT. OF PAKISTAN BALOCHISTAN PRIMARY 106.00 64.72 21.55 HS SPK-PE-10415 C24680 1993 PAKISTAN 1992 FLOOD DAMAGE RE 100.00 36.33 25.61 S SPK-PE-10414 C24640 1993 GOVT OF PAKISTAN FAMILY HEALTH 11 48.00 40.01 14.82 U U

PK-PE-10405 C24100 1993 GOVT. OF PAKISTAN AN EAST.SADIQIA SO PHAS 54.20 42.42 20.16 S SPK-PE-10325 C19871 1993 GOP KARACHI WATER& SANI 91.90 86.92 -5.50 U SPK-PE-10401 L35000 1992 GOP DOMESTIC ENERGY RESO 180.00 2.38 S2.78 51.57 HS SPK-PE-10399 C23S30 1992 GOP AND GOPROVINCE AN (G ENV. PROT. & RES. CO 29.20 21.57 4.47 S S

l'K-PE-10394 C23540 1992 GOVT OF PAKISTAN MIDDLE SCHOOLINC. 115.00 95.30 53.53 U UPK-PE-10375 L33350 1991 GOVT.OFPAKISTAN KARACHIPORTMODERN. 91.40 41.71 41.71 S S

PK-PE-10367 1.33180 1991 GOP MICRO-ENTERPRISES 26.00 12.10 11.61 S UPK-PE-10360 L32521 1991 GOP/SNGPL CORP. RESTRUCT. & SY 60.00 39.74 -20.26 S SPK-PE-10360 L32520 1991 GOP/SNGPL CORP. RESTRUCT. & SY 130.00 8.48 .32.60 S SPK.PE-10377 C22570 1991 ISLAMIC REP. OF PAKI SCARP TRANS. II 20.00 11.74 8.70 S S

Attachment 5Page 2 of t

I'K-PEL-10371 C22400 1991 GOVT OlF PAKIS'IAN FAMILY IIEAL'I'N 45.00 32.42 19.95 U U

PK-PE-10366 C22280 1991 0 VI'. OF PAKISTAN AN RURAI WA'I'ER 136.70 28.36 68.64 58.48 S U

PK-P'IE-10352 1.32410 1990 GOP PLANNING DIV MIN R TRANSPORT SFCTPROJE 18400 43.36 43.36 S S

PK-P'E- 10344 1.31480 1990 GOP RllRAL ELECTRIFICATIO 123.00 79.47 79.47 U Ui

PK-P'E-10349 C21540 1990 AGRIC. RES. 11 57.30 5.16 27.04 20.05 U S

PK-PtE-10346 C21020 1990 (iOV'r. OF PAKISTAN SIND I'RIMARY EDUCA. 112.50 50.47 27.65 S S

PK-l'E-10344 C20780 1990 GOP RURAL ELECTRIFICATIO 37.00 0.76 .3.71 UJ U

PK-PE-10313 1.29820 1988 GOP/NDFC PRIVATE SECTOR ENERG 150.00 33.26 33.26 HS HS

PK-PE-10305 C18950 1988 GOP PUNJAB URBAN DEVELOP 90.00 18.71 15.89 S S

l'K-PE-10209 C15320 1985 LEFT BANK OUTFALL DR 150.00 81.42 26.20 S S

TOTAL 2025.40 1882.77 35.91 2296.53 858.04

Active Loans Closed Loans Total

Total disbursed (IBRD and IDA) 1655.04 6437.89 8092.93

Of wvhich repaid 51.39 1861.46 1912.85

Total now held by IBRD and IDA 3820.87 4484.89 8305.76

Amouint sold 0.00 45.09 45.09

Of which repaid 0.00 45.09 45.09

Total undisbursed 2296.53 29.25 2325.78

a. Intended disbursements to date mninus actual disbursements to date as projected at appraisal.b. Following the FY94 Annual Reviewv of Portfolio Performance (ARPP), a letter-based system was introduced (HS=highly satisfactory, S=satisfactoiy, U=unstatisfactory, HU=highly unsatisfactory);

see I'l 1kw4).ee/IhIptrol entm Sed. inl' rojec/ and /'nrt0/aIk, l'erfurnrsuwe Rnt/img A*'lwdzolnKt.v(SecM94.90 1). August 23, 1994.

Note:Disbursement data is updated at the end of the first week of the month.

Attachment 5Page 3 of 4

Pakistan - Statement of IFC InvestmentsCommitted and Disbursed Portfolio

As of 1/31/97

(In US Dollar Millions)

Coimimitted DisbursedI I

IFC IFCI ~I r

FYApproval Comtipaniy Loan Equity Qulasi Pat-ic Loan Equitty Qu asi Partic

1965180187191/94/95 Packages 25.00 3.46 0.00 7.85 19.65 3.46 0.00 7.85

1982 Packages 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001983/84/94 PPL 19.88 1.56 0.00 11.24 12.35 1.56 0.00 11.47

1984/94 NDLC 9.84 1.25 0.00 3.30 9.84 1.25 0.00 3.301985/92 Mari Gas 14.32 0.00 0.00 0.00 14.32 0.00 0.00 0.00

1987 Millat Tractors 1.02 0.00 0.00 0.00 1.02 0.00 0.00 0.001988 Hala Spinning 3.57 0.00 0.00 0.00 3.57 0.00 0.00 0.001990/91/96 FIlB 8.50 1.50 0.00 0.00 0.00 1.50 0.00 0.00

1990 Pak Suzuki Motor 4.41 0.00 0.00 0.00 4.41 0.00 0.00 0.001990 Suez-MLF-Hoeclhst 1.02 0.00 0.00 1.02 1.02 0.00 0.00 1.021991/95/97 Engro Chemical 32.54 6.05 0.00 12.22 23.54 6.05 0.00 3.22

1991 EIL 0.00 0.24 0.00 0.00 0.00 0.24 0.00 0.001991 EIM, the Fund 0.00 0.76 0.00 0.00 0.00 0.76 0.00 0.001991t95 Intl Housing 4.97 0.87 0.00 0.00 4.97 0.87 0.00 0.00

1991 Prudential 0.00 0.40 0.00 0.00 0.00 0.40 0.00 0.001991/94/95 PILCO 10.72 1.04 0.00 2.20 10.72 1.04 0.00 2.201992/96 BSIS 0.00 1.11 0.00 0.00 0.00 1.11 0.00 0.00

1992 RUPAFIL 1015 0.00 0.31 0.00 10.15 0.00 0.31 0.001993 Crescent Gree,iwd 14.98 3.10 0.00 9.21 14.98 3.10 0.00 9.211993 CDCPL 0.00 0.16 0.00 0.00 0.00 0.16 0.00 0.00

1993 Fauji Cement 24.00 5.00 0.00 20.00 24.00 5.00 0.00 20.00

1993 Muslim Comm Bank 6.09 0.00 0.00 0.00 6.09 0.00 0.00 0.00

1993 Pakistan Service 11.00 3.00 0.00 0.00 11.00 3.00 0.00 0.001993/96 Sarah Textiles 6.00 0.20 1.48 0.00 6.00 0.20 1.48 0.001994 Atlas Lease 8.41 0.36 0.00 2.20 8.41 0.36 0.00 2.201994 BRR Modaraba 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.001994/95/96 D.G. Khan 25.00 5.49 0.00 40.00 25.00 5.49 0.00 40.00

1994/96 First Lcasing 3.50 1.69 0.00 0.00 3.50 1.69 0.00 0.001994/95/97 Maple Leaf 38.00 5.72 0.00 35.00 30.00 5.72 0.00 35.001994 Molhib 0.00 2.31 0.00 0.00 0.00 1.18 0.00 0.00

1994 Orix Finanice 0.00 0.58 0.00 0.00 0.00 0.58 0.00 0.001994 Orix Lcasing 9.84 1.25 0.00 3.30 9.84 1.25 0.00 3.30

Attachment 5Page 4 of 4

1994 PACRA 0.00 0.17 0.00 0.00 0.00 0.10 0.00 0.00

1994 P'1&(1. 4.38 (.00 0.00 0.00 4.38 0.00 0.00 0.00

1994 Rcgent Knilvear 13.95 0 00 0.00 2.80 8.13 0.00 0.00 2.80

1995 ABAMCO 0.00 0.29 0.00 0.00 0.00 0.29 0.0( 0.00

1995 Al S l.al Pir 40.00 9.50 0.00 0.00 24.68 5.86 0.00 0.00

1995 Bank of Khybcr 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

1995 BRR Sccond 0.00 0.00 5.00 0.00 0.00 0.00 s.00 0.00

1995 BSJS Fund 0.00 0.50 0.00 0.00 0.00 0.50 0.00 0.00

1995 First Crescent 0.00 0.00 5.00 0.00 0.00 0.00 5.00 0.00

1995 First UDL 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00

1995 Kohihoor 25.00 6.30 0.00 36.60 25.00 6.30 0.00 36.60

1995 Rupafab 11.00 1.20 0.00 0.00 11.00 0.00 0.00 0.00

1996 Atlas mv BaHik 8.50 0.00 0.00 0.00 3.50 0.00 0.00 0.00

1996 AES Pak Geii 20.00 9.50 0.00 24.00 9.60 3.21 0.00 24.00

1996 Beaconholuse 7.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

1996 CresceiClnCemn 15.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00

1996 Crescent IBanik 16.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00

1996 Engro Paktanik 12.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

1996 Gul Alimed 27.00 4.10 0.00 35.00 27.00 4.10 0.00 35.00

1996 Uch Power 40.00 0.00 0.00 37.50 20.00 0.00 0.00 37.50

Total Portfolio: 542.59 83.66 31.79 283.44 399.67 6633 31.79 274.67

Approvals Peniding Commitment

Loan Equiry Quasi Parric

1994 FAUJI INCREASE 0.00 0.00 0.00 10.00

1995 FIRST GRINDLAYS 0.00 0.00 15.00 15.00

1995 FIRST UNDRWRITNG 0.00 0.98 0.00 0.00

1995 KARACHI II 0.00 0.00 0.00 22.00

1995 MAPLE LEAF INCR. 0.00 0.00 0.00 25.00

1995 PAKISTAN UNITTR 0.00 1.95 0.00 0.00

1996 GENERAL TYRE 11 8.30 0 00 2.40 0.00

1996 ORIX INVEST INCR 0.00 0.31 0.00 0.00

Total Penditg Coimiitmtient: 8.30 3.24 17.40 72.00

Pakistan

PRICES and GOVERNMENT FINANCE

Domestic prices 1975 1985 1994 1995 Inflation ()

(X change) |20Consumerprices 5.7 11.3 13.0Implicit GDP deflator 24.0 4.6 12.3 14.3 -10 90 a1 9

Government finance -20(% of GDP) 40Current revenue 17.0 17.3 17.2 -s0Current budget balance -6.0 -6.9Overall surplusideficit -6.0 4 9 -GDP de CPI

TRADE1975 1985 1994 1995

(millions USS) Export and import levels (mill. US$)

Tolal exports (fob) 2,457 6,745 8,074 14,000Cotton 279 so 62 12,000

Rice 222 242 454 1.0

Manufactures 1,922 3,775 4,627 '0000

Total imports (cit) .. 6,531 9,469 11,050 60000Food . .. 945 1,627 40

Fueltand energy .. 1,398 1,400 1,587 2,000

Capital goods 2,427 3,083 0

Export price index (1987-100) . 2,427 3,083 59 90 91 92 93 94 95

Import price index (1987.100) . . 2,427 3.083 D Expots n ImportsTerms oftrade (1967=100) .. 100 100

BALANCE of PAYMENTS

(niiliions uss) 1975 1985 194 1995 Current account balance to GP ratio (%)

Exports of goods and non-factor services 1 231 3.247 8,369 9,862 0

Imports of goods and non-lactorservtces 2.539 7,113 11,066 12.742 -l 0r r0 01 92 93 .04 r0

Resource balance -1,308 -3,867 -2,697 -2,880

Net factor income -95 -506 -1,597 -1.729Net current transfers 229 2.688 2,390 2.397 -3

Current account balance, -4

before official transfers -1,175 -1,685 -1,590 -1,900 -o

Financing items (net) 1,051 637 3,175 2.193 -_

Changes in net reserves 124 1,048 -1,585 -293 7

Memo:Reserves including gold (milK. US$) - 1,429 3,101 3.468Conversion rate (locaLWS$) 9.9 15.2 30.1 30.8

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1994 1995

(millions USS) | Composition of total debt, 1995 (mill. USS)

Total debt outstanding and disbursed 5,753 11835 25358 29412IBRD 283 352 2797 3323IDA 484 1312 2893 3340

Gs5160 C:1510Total debt service 306 1178 2674 3519

IBRD 38 58 361 410IDA 6 20 48 56

F: 11952Composition of net resource flowsJ

Official grants 185 257 199 205 0D12218Ofricial creditors 708 450 1485 897Private creditors 18 -170 -108 762Foreign direct investment 25 131 430 409 EIPortfolioequity 0 0 1,334 106 E:10745

World Bank programCommitments 98 689 540 591 A - IBRD E- BilateralDisbursements 81 151 540 690 9 - IDA D - Other rnuilateral F -PrivatePrincipal repayments 20 37 195 235 C - IMF G - Short-termNettlows 61 114 345 455 _

Interest payments 24 41 212 231Net transfers 37 73 133 224

Intemnalional Economics Department 3119197

Pakistan

PRICES and GOVERNMENT FINANCE1975 1995 1994 199S Inflation (%)

Domestec pnses(% change) 20Consumer pnces 5.7 11.3 13.0 I

lrnplicil GDP deflator 24.0 4.6 12.3 14.3 -10 so90 Si 92 93 94 95

Govemnment finance 30(% of GDP) -40Current revenue . 17.0 17.3 17.2 -x0Current budget balance .. -6.0 -5.9 GDP def COverall surplus/deficit .- 6.0 -5.9

TRADE

(-I-lions USS) 1995 1994 19 Export and import levels (mill. US$)Total exports (fob) .. 2,457 6,745 8,074 14001)

Cotton 279 80 62 12OG00Rice M a 222 242 454 10,0..Manufactures .. 1,922 3,775 4,627 80

Total imnports (cii) .. 6,531 9,469 11,050 80

FoGd 4.: 95 1,2Fuel and energy .. 1,398 1.400 1,587 2000Capital goods .. ,, 2,427 3,083 2,000_____.______ .._ _ __

Import price index (1967=1 00) .. . . . E-spoits 0 importsTerms of trade (1987=100) ..

BALANCE of PAYMENTS

(/ll7 US$)5 1965 1994 1995 Current account balance to GOP ratio (%)Exports of goods and non4actor services 1,231 3,247 8,369 9,882 |Imports of goods and non4actor services 2,539 7,113 11,066 12.742 1 g l 0 | 1 9 S 3

Resource balance -1,308 -3,867 -2,697 -2,880

Net facdor income -95 -506 -1,597 -1,729 * -U uNet current transfers 229 2,688 2,390 2,397 |3

Current accounr balance, U4before official transfers -1,175 -1,685 -1,590 -1,900 .o

Financing items (net) 1,051 637 3,175 2,193 - UChanges in net reserves 124 1,048 -1,585 -293 |7

AfMem:Reserves including gold (Ilt/. USS) -. 1,429 3,101 3,468Conversion rate (locaWUS$) 9-9 15.2 30.1 30.8

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1994 1995 I

(mi//ions USS) | Composition of total debt. 1995 (mill. USS)Total debt outstanding and disbursed 5,753 11835 25358 29412

IBRD 283 352 2797 3323IDA 484 1312 2893 3340 C11

Totaldebtservice 306 1178 2674 3519 1 IIBRD 38 58 361 410IDA 6 20 48 56 F: 1952

Composiion of net resource flowsOlficialgrants 185 257 199 205 D.12218Ofriclal creditors 708 450 1,485 897Private crediors 18 -170 -108 762Foreign direct investment 25 131 430 409 E- 10745Portfolio equity 0 0 1,334 106 E 1 4

World Bank programCommitments 98 689 540 691 A - IBRO E- BilateralDisbursements 81 151 540 690 S-IDA D- Other multeral F -PnvatePrincipal repayments 20 37 195 235 F G - Shon-termNetflows 61 114 345 455Interest payments 24 41 212 231Net transfers 37 73 133 224

International Economics Departnent 3119197