Portfolio Management in Pakistan by mdn17717


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Pakistan, while also challenging economic stability across the country. At the request of the Government,
the B ank i n collaboration with the A DB, t he E U a nd t he U N, s tarted t o pr epare a P ost C risis N eeds
Assessment (PCNA) f or KP an d FATA. The P CNA i s s till underway, bu t c ommunity and ot her
stakeholder consultations already indicate potential priorities to address the structural sources of crisis and
contribute to peacebuilding during stabilization, consolidation and ultimately the transition to long-term

124.     Increased Employment and Livelihood Opportunities in Conflict-Affected Areas. The absence
of e mployment oppor tunities a nd i nadequate l ivelihoods i n F ATA a nd KP has cr eated a favorable
environment f or opportunistic m ilitant g roups w hose e conomic incentives f or potential recruits g reatly
outweigh available opportunities. Consultations with communities as part of the PCNA process indicate
that creation of employment is identified as the most highly rated priority for intervention. KP and FATA
are dominantly agrarian economies, with livelihoods substantially predicated on agriculture and livestock.
Also evident was the i mportance of prioritizing opportunities especially, but not exclusively, for young
men (ages 15-29) who comprise the main target group for militant recruitment. Bank support, financed
by the pl anned E mergency R ecovery C redit or f rom t he MD TF may include support fo r
agricultural/livestock-linked e mployment and livelihoods, expansion of general and technical/vocational
education, investment in energy and transport, and social protection.

125.      Increased Responsiveness and Effectiveness of the State. Political and governance deficits may
be the single most important driver of crisis in FATA and KP today, perpetuating a historical experience
of di senfranchisement, a lienation, c orruption, pov erty a nd und erdevelopment, a nd facilitating t he
conditions of lawlessness, insecurity and extremism t hat have fuelled the downward spiral of crisis.
Effective governance will require the establishment of robust interfaces that directly involve communities
in t he pl anning, pr ioritization a nd implementation of programs. The w rit of the st ate is m ost d irectly
extended and strengthened at the community level through those local government structures which are
potentially the most visible interfaces of the state. The strengthening of local government, particularly its
ability t o efficiently and equitably de liver ser vices, can greatly enha nce t he l egitimacy of t he st ate and
counter the claim to legitimacy by militant groups as a viable alternative to the state.

126.     To implement the f indings of t he P CNA as w ell as t o contribute t o the f inancing and
implementation of the DNA, the Bank will administer a Multi Donor Trust Fund (MDTF) 7 with estimated
contributions of about $150 million from various donors. The Trust Fund will support a comprehensive
reconstruction and development strategy designed to restore infrastructure, services and livelihoods while
addressing governance and other challenges that contribute to conflict. In addition the Bank will prepare
an Emergency Recovery Credit which w ill c omplement t he M DTF p rogram. F inally, a pl anned K P
Human D evelopment ope ration w ill focus on strengthening s ervice d elivery i n t he context of conflict.
This i s a hi ghly complex area and one w here t he B ank doe s not ha ve a t rack r ecord of engagement i n
Pakistan. H ence, specific interventions will be developed on the basis of the findings of the PCNA, but
will need to be flexible and adapted during implementation.

                V.        I M PL E M E NT I NG T H E ST R A T E G Y : T H E W B G PR OG R A M

                                          A. Portfolio Management

127.     During t he l ast C AS pe riod, de spite mounting political, s ecurity and e conomic challenges,
portfolio performance remained reasonably strong (see Annex B8 and Table 12). The disbursement ratio
improved f rom 34 pe rcent i n 2008 t o 40 pe rcent f or FY09, against a r egional av erage of 24 percent.
Although P rojects- at- Risk i ncreased to 19 pe rcent in FY10 (partly on a ccount of g reater realism in
assessing por tfolio pe rformance), the ov erall por tfolio r iskiness w as l ess t han the S AR an d Bank
averages. While average project age has not increased, almost half the projects in the current portfolio are

    Establishment of a Programmatic MDTF for the Northwest Frontier Region of Pakistan IDA/R2020-0006.

five years or older, including two of the three largest projects. One third of the portfolio has had closing
dates e xtended, i n m ost c ases on a ccount of additional f inancing r equired t o respond t o c ost ov erruns
from unforeseen inflationary pressures or to expand the scope or scale of well performing projects. This
was broadly in accordance with the Region’s policy on project extensions.

128.     The       strategy      for
portfolio management in the                               Table 12: Bank Portfolio Indicators
CPS f or t he ne xt four y ears w ill Indicator                              2006       2007       2008   2009
continue t o e mphasize qua lity a t
                                        Projects Under Implementation        19.0        20.0      22.0    26.0
entry a nd p roactive m anagement
of pr oject im plementation issues      Projects at Risk (%)                   2.6        5.0       18.2   15.4
in collaboration w ith the              Commitments at Risk (%)                0.0        5.0        7.1    9.6
government. Regular interaction         Disbursement Ratio (%)                34.0       37.5       33.8   39.9
with the government counterparts will assume even greater significance given the increasingly uncertain
and r isk pr one pr oject i mplementation e nvironment. The pr actice of ho lding regular po rtfolio r eview
meetings w ith E conomic Affairs D ivision (EAD) at t he federal l evel, a nd with the P lanning a nd
Development Departments of the Provincial governments will continue as it has helped to ensure timely
attention to p roject i ssues and a chievement of i ntended ou tputs a nd r esults dur ing t he i mplementation
period. In view of t he l essons l earnt from i mplementation ov er t ime, the Bank’s c ountry t eam i s
increasingly f ocusing on s implifying t he de sign of n ew pr ojects. E ffective us e i s be ing m ade of the
“additional financing” mechanism to quickly scale up programs that have demonstrated effectiveness. In
terms of pr ogramming, w e e xpect to see a shift in the por tfolio m ix dur ing t he ne w C PS pe riod w ith
IBRD-funded s ector i nvestment pr ojects supplementing t he I DA-supported S ector-wide pr ogrammatic
(results-based) operations a nd the development po licy c redits focused p rincipally on t he P RSC s eries.
Finally, the project supervision strategy will place greater emphasis on providing implementation support
to the g overnment a nd allocating r esources a ccording t o t he Operational R isk A ssessment F ramework
(ORAF)-assessed risk profile of a project, according to ORAF.

129.    During the CPS pe riod, IFC will continue to work on maintaining a di versified portfolio in
Pakistan while se eking t o partner w ith new cl ients. I n t he ev ent of a n adverse pol itical and
macroeconomic env ironment, I FC will focus p rimarily on por tfolio management, i nvestments in s hort-
term self liquidating trade finance, supporting portfolio companies, and providing Advisory support. A
substantial proportion of IFC’s portfolio management in Pakistan is handled in the field.

130.     Managing Security Risks. T hough B ank G roup operations in P akistan c ontinue t o show
satisfactory performance, given the uncertainty and security challenges, a business as usual approach is no
longer tenable. The deterioration in security conditions has already led to significant changes in the Bank
Group’s ope rational pr actices. Over t he pa st t wo y ears, t he B ank G roup ha s p rogressively i ntroduced
flexibility in procedures (including expanded Bank-financed access to computer and telecommunications
services to all staff) to allow staff to work off-site, increased vigilance and improved physical facilities to
enhance safety and security of the WBG staff and visiting missions. A strong core of field-based national
staff manages the majority of Bank Group operations in Pakistan, allowing the Bank to continue serving
the client in challenging circumstances (IFC has two field offices in Pakistan—Islamabad and Karachi).
However, the ongoing security concerns do constrain our ability to readily draw in international staff to
complement national staff and to readily deploy resident staff to deliver and supervise operations as we
try to manage the security footprint with a view to reducing the risk exposure of staff. This constraint is
particularly binding during periods of volatile security conditions and it particularly affects our ability to
deploy non -resident i nternational s taff. O ne s trategy to partly r elieve thi s constraint is to increase the
complement of relevant international st aff in Islamabad. However, as a Phase III location under the
UNDSS secur ity r isk r anking sy stem, Pakistan is a non -family pos ting -- a de signation w hich, in
combination with increasing perceptions of insecurity i n the country, has rendered Pakistan a relatively
unattractive si te for l ong-term assi gnments f or i nternationally r ecruited staff ( IRS). Another mitigation
approach i s t o r educe t he level a nd c omplexity of out put t o s implify bot h our s afety a nd s ecurity r isk

management and our program management. T his latter option is an integral part of the CPS (paras. 78-
80) while m anagement ha s be en a ctively l ooking a t opt ions t o a ddress t he s taff m ix a nd de ployment

131.     Looking f orward, de spite t he r isky ope rational e nvironment, t he de mand f or B ank G roup
services, both from the GoP and other development partners remains strong. Hence the challenge will be
to creatively manage security risks in order to deliver the WBG program. As it has been over the past two
years, this w ill b e a dy namic pr ocess of w orking w ith t he government a nd o ther partners s uch a s U N
Department of S afety a nd S ecurity ( UNDSS) t o m onitor r isks a nd a djust our ope rational s tance
accordingly. A si gnificant cha llenge i n this respect will be t o find ways t o enhance supervision in the
field while m itigating r isks assoc iated with staff travel. Risks ass ociated with implementation of
operations i n KP and FATA, where w e a re sc aling up operations in response t o requests f rom t he
government a nd de velopment pa rtners, w ould be g iven pa rticular attention a nd r esources. T he
supervision strategy w ill f ocus on v arious op tions to s trengthen m onitoring a nd e valuation of B ank
programs. These may include:

    •   Operational v isits by pr ovincial pr oject teams ( headed by a s enior P rovincial G overnment
        official) to Bank’s Islamabad Office for project implementation reviews.
    •   Third-Party monitoring a nd s upervision and p romotion of s ustained be neficiary pa rticipation i n
        projects in collaboration with civil society organizations (CSOs).
    •   Project supe rvision by t hird-party t echnical and financial aud itors as independent M onitoring
        Agents, paid from Bank loan proceeds.
    •   Use of the Global Distance Learning Network (GDLN) for project launch and supervision-related
    •   Use of e xisting or ne wly-established video-conferencing ( VC) facilities at provincial capitals to
        facilitate f requent m eetings and contacts be tween Project st aff and Bank supe rvision teams i n
        Islamabad and Washington. Besides establishing IT connectivity, consideration will also be given
        to the provision of VC equipment to project implementation entities to facilitate communications,
        as part of project implementation and monitoring arrangements.

132.    The above are already relatively well-used practices in the program. Learning from examples in
Afghanistan, Sri L anka, Nepal and ot her B ank r egions, we w ill a lso se ek t o make g reater us e of
technology t o increase the r eliability of suc h “remote su pervision” m ethods. These could i nclude
GIS/GPS based monitoring systems including transmission of GPS-indexed photographs of project sites
and implementation activities through mobile or satellite phones.

                                               B. Financing

133.     Based o n P akistan’s I DA 15 a llocation of S DR 2. 0 billion ( including ha rd t erm IDA), a nnual
average IDA availability w ould be in the range of $1.0 billion. However since IDA 15 us age was
frontloaded w ith commitments o f $1.6 b illion i n F Y09, a nnual a verage I DA a vailability i n F Y10 a nd
FY11 is expected to be about $800 million per year. The priority lending program targets IDA lending of
$2.6 billion over FY10-12. Priorities for IDA financing include education, social protection and health as
well as PRSCs which would support cross-cutting structural reforms.

134.     The e conomic r ecovery now unde rway ha s opened up the prospect for resumption of IBRD
lending to Pakistan and the CPS envisages IBRD lending of up to $2.0 billion over the CPS period. The
priority lending program targets IBRD lending of $1.075 bi llion over FY 10-12. The actual volume of
IBRD lending w ould de pend on P akistan’s c reditworthiness a nd I BRD’s a bility t o pr ovide f inancing
given overall ca pital cons traints. However, in t he e vent macroeconomic r eforms st ay on track w ith
continued improvements i n e conomic pe rformance a nd c reditworthiness t his C PS propos es I BRD

investment lending averaging about $500 million per year within an overall IBRD l ending e nvelope of
$2.0 billion. Maintenance of a so und macroeconomic framework (characterized by reserves equal to at
least 3 months of next year’s imports of goods and services and a stable or declining government debt to
GDP r atio) would be r equired f or any IBRD l ending. Lending a mounts f or F Y11-FY13 a re i ndicative
and dependent on I BRD's overall lending capacity. Priorities for IBRD lending are power, water, ports.
IBRD guarantees would also be used to support private investment in the energy sector.

135.     Development policy lending represents a smaller share of the proposed lending program than in
the last CAS which envisioned up to 50 percent of total lending taking the form of policy-based lending.
While P RSCs a nd potential pr ovince-level D PCs w ill be r etained t o s upport c ross-cutting s tructural
reforms e ssential to supporting g rowth, s ectoral policy-based l oans a re no t proposed. During t he C PS
period, I BRD r esources w ill be de voted t o investment l ending. O verall, de velopment pol icy l ending
accounts for about one quarter of the priority lending program.

136.      Modulating Bank Support. Taken together, the modulation of IBRD and IDA financial support
over t he C PS p eriod w ould c onstitute an ov erall range of s upport of a pproximately $ 3.7-$6.0 billion.
Reflecting the need for flexibility, the IBRD/IDA financing envelop is not fully programmed beyond the
priority l ending pr ogram. The actual l evel of financing would be guided by performance i n i mproving
macroeconomic performance and (in the case of IBRD financing) creditworthiness. At the global level,
in assessing performance, critical consideration will be given to Government’s progress in improving key
macroeconomic indicators (particularly the tax/GDP ratio) while adhering to the guidelines in the Fiscal
Responsibility L aw for po verty-related e xpenditure. Reaching the upper end of t he r ange w ith IBRD
lending of up t o $700 million in a single year within the overall envelope would require strong ongoing
progress to maintain and improve macroeconomic m anagement. T o manage I BRD’s e xposure r isk, no
fast d isbursing I BRD l ending i s e nvisaged. In t he e vent of a reversal in m acroeconomic s tabilization,
IDA lending would focus on sustaining ongoing programs in health, education and social protection, with
potentially additional operations for community driven development.

137.     IFC Financing Program. In the last CAS period (FY06-09) IFC committed investments in 48
projects w ith t he total v alue o f $95 8 million, g reatly exc eeding the t arget of $500-600 m illion. IF C's
current c ommitted po rtfolio i n P akistan i s $771 m illion in 40 pr ojects, a nd t he t wo largest se ctors a re
financial markets and power. During t his period IFC al so increased its advisory act ivities si gnificantly
particularly in the areas MSME development including access to finance. In the upcoming CPS period
(FY10-14) IFC i ntends t o invest b etween $1.3 billion and $1.5 bi llion provided t hat t he e conomic and
security si tuations do not de teriorate s ignificantly. The emphasis w ould b e i n f inancial m arkets,
infrastructure, health and education and agribusiness. IFC is in the process of developing a programmatic
approach for advisory services in collaboration with other donors.

138.     Leveraging Other Resources. Beyond IBRD/IDA financing and IFC investments, the CPS will
seek t o leverage ot her r esources i n support o f t he st rategy. International experience i n po st-crisis
situations including Afghanistan and elsewhere has demonstrated the value of a coordinated framework
for po oling f inancial assistance und er the ov erall l eadership of the G overnment i n l ine w ith P aris
Declaration principles of c lient ow nership, a lignment w ith a c ountry’s ow n de velopment s trategy,
harmonization w ith c ountry s ystems, a nd a f ocus on r esults. T he Mu lti-donor T rust F und f or t he
Northwest B order Region will provide such a framework. In e ducation, ong oing e ducation op erations
tightly linked to provincial education sector reform programs in Sindh and Punjab provide a platform for
other partners’ financing including Canada, the EU, and UK DFID. The Bank has also played a critically
important role in helping the government to develop a new safety net institution and programs (BISP) that
are now serving as a platform that increasing numbers of donors, including UK DFID and U S, are
supporting. Looking ahe ad, partners ar e considering t he de velopment of a n M DTF t o s upport publ ic
financial management reform, a high priority for a several partners. Ongoing Bank-executed trust funds
to support Bank engagement on PRSCs and the water sector would also continue.

                                     C. Analytical and Advisory Activities

139.    Provision of world-class knowledge is an integral part of the proposed strategy and analytical and
advisory services will continue to be used to support the policy dialogue on sector reforms and inform the
content of lending operations. Recent regional and corporate reviews of AAA work suggest there is room
for improvement. S pecifically, c lient involvement a nd c ollaboration, i ncluding k nowledge pa rtnership
with local institutions has been seen as limited with the result that policy conclusions are seen as a donor-
driven a genda. In a ddition, much of t he focus of AAA i s on what t o do w ith relatively little attention
given to involving practitioners and experts in sharing with clients, in practical ways, how to do t hings.
Finally dissemination efforts are uneven and not well planned.

140.    Addressing these issues will be a focus of a more strategically programmed and managed AAA
program dur ing t he C PS period. I n or der to use t he Bank’s knowledge t o l everage greater i mpact, the
AAA program will increase the use of programmatic non-lending technical assistance (NLTA). D uring
the past few years, NLTA combining short, on-demand policy notes with advisory support and capacity
building has proved to be valuable for supporting reform implementation, often in combination with or as
a precursor t o, lending. E xamples i nclude the i ntensive N LTA support for implementation of enhanced
targeting of safety net program and in tax administration. Second, the Bank will increasingly use AAA to
work with local policy think tanks and academic institutions to build capacity for policy analysis and to
promote a more informed public policy debate. Finally dissemination will be more carefully planned with
a view to maximizing impact.

                           Table 13: AAA – Selected Core Outputs by CPS Pillar
                                  FY10                     FY11                 FY12                   FY13
                        • Public Expenditure     • Country Economic    • Provincial Revenue   • Poverty Assessment
                          Review                   Memorandum            Mobilization           Update
                        • Poverty Assessment     • Governance and      • Tax Administration   • Sector Governance
                        • Gilgit-Baltistan         Political Economy     NLTA                   Analysis
Improving Economic
                          Economic Report          Notes               • Country Gender       • NBFI/Bond Market
                        • Competition Policy     • Strengthening         Assessment             Development
                          NLTA                     Insolvency NLTA     • Export
                        • FSAP Update                                    Competitiveness/
                                                                         Trade Study
                        • Health Sector Report   • Education Sector    • BISP Impact          • Education Impact
                                                   Report                Evaluation             Evaluation
Improving Human
                                                 • Social Protection                          • Labor Market Report
Development and
Social Protection                                                                             • Health Sector
                                                                                                Expenditure Review

                        • Current Issues in      • Climate Change      • Provincial Roads
                          Power policy note      • Agriculture Value     Review
Infrastructure to
                          series                   Added NLTA
Support Growth
Improving Security      • Post Crisis Needs      • Governance and
and Reducing the Risk     Assessment               Political Economy
of Conflict

141.     IFC will continue efforts to raise corporate governance standards in the private sector by working
with key market institutions such as the State Bank of Pakistan and the Securities Exchange Commission
of Pakistan to deliver training and disseminate knowledge. It will also strive to build local capacity to
deliver corp orate g overnance se rvices to the m arket. I n or der t o enhance t he pe rformance and
competitiveness of Pakistani S MEs, IFC Advisory S ervices w ill be provided t o S MEs t o develop their
business skills and managerial capacities. IFC will capitalize on intermediaries and partners, such as local
training companies and large corporations, to expand its outreach to local SMEs. A specific target group

for these A dvisory ac tivities w ill b e c orporations in high growth sec tors and sectors o f strategic
importance t o P akistan’s socioeconomic de velopment ( e.g., t he financial s ector, t elecommunications,
general manufacturing, health and education).

142.     Mainstreaming Gender. The 2005 Country Gender Assessment and the previous CAS note that
there a re s ignificant a nd entrenched obs tacles t o a ddressing g ender i mbalances i n Pakistan and hence
policy i nterventions di rected s pecifically at gender i nequality i n t he public domain are needed. W ith a
view to increasing the focus on addressing gender across the entire Bank program, a gender review of the
portfolio was recently carried out. The review found that the overall performance of the Bank’s lending
portfolio in Pakistan can be r ated as “m oderately sat isfactory” on mainstreaming g ender i ssues a t t he
design and implementation stages with hum an de velopment s ectors—education, he alth a nd s ocial
protection—performing be tter o n mainstreaming g ender issues, as t here i s a l ong hi story of analytical
work and technical assistance available to these sectors. Nevertheless the findings suggest there is room
for improvement in designing interventions across all sectors to address gender issues.

143.     The g ender r eview r eflects curr ent pra ctices and identifies ar eas of po tential i mprovement f or
integrating gender i n sectors a nd pr ojects. It r ecommends t hat s ectors and project t eams com mit t o
undertaking m ore f ocused g ender a nalysis to m ore t horoughly a nd s ustainably m ainstream gender
concerns into sectors and projects. Practical, operationally relevant notes that guide each sector on how to
effectively integrate gender into its operations will support this analysis. Going forward the country team
will s eek t o reflect g ender i ssues m ore di rectly i n project de sign by: ( i) und ertaking gender pol icy
dialogue at the design stage for areas of a ctivities where gender mainstreaming can be promoted, using
social assessments t o i nform t he de sign of public s ector reforms ne eded t o promote r ecruitment of
women, and capacity building of cl ient t eams; (ii) t aking account of ov erarching ar eas of w eakness in
addressing g ender issues, so that e ffective s trategies can be i dentified and i ncluded in future ( similar)
project p reparation, a nd ( iii) f or ope rations w here a di rect i nteraction w ith c ommunity or be neficiary
groups i s n ot e xpected, carrying out r apid gender a ssessments in order t o ascertain that no aspect of
project design or implementation will have undesirable gender-related effects. Through its microfinance
investments, IFC has reached over 75,000 women borrowers in Pakistan, and this emphasis will continue
throughout t he C AS pe riod. IFC i nvestments a lso will t rack gender di saggregated out come i ndicators
(e.g., female jobs created, female students enrolled etc.). Similarly, IFC Advisory Services will continue
raising awareness among women to resolve disputes through mediation. In addition, IFC will also seek to
promote gender diversity in board of directors and senior management in the private sector.

144.     The c ountry t eam a lso w ill be gin t o adopt new i nstruments f or gender w ork, i n addition t o the
above m easures to integrate gender into s ector and project ope rations. S uch i nstruments w ould include
any combination of t he f ollowing: (i) a stand-alone project aimed at providing skills training t o young
men a nd w omen w ho a re unable t o remain i n school—with gender g roups se parated and skills types
deemed socially acceptable f or each group—to e nhance t heir chances of secure e mployment i n growth
sectors of P akistan’s economy; ( ii) analytic w ork on gender i ssues i n conflict-affected or ot her fragile
contexts, such as KP; and (iii) learning activities that build capacity of country team staff, managers and
clients to better incorporate gender concerns into their planning, policies and programs.

                                               D. Partnerships

145.     The G overnment l eads coordination o f the p olicy dialogue a nd dono r s upport in P akistan and
Bank's program is coordinated with, and supported by, the efforts of other development partners. There
are limited do nor c oordination m echanisms, but a number of w orking c ommittees s upport increased
collaboration and moving towards Paris Declaration goals. There is growing interest among development
partners to formulate and develop a joint Results Framework for our support to Pakistan as a tool to foster
better, s imple, explicit an d transparent dono r co -ordination of a nd di alogue in s upport of P akistan’s
development a genda. The B ank ha s ag reed t o t ake t he l ead on this initiative and will w ork w ith

Government a nd de velopment pa rtners t o m ove t his f orward. A nnex I V pr ovides a m ore complete
discussion of partnership activities.

146.     The World B ank G roup, unde r t he l eadership of t he G overnment, w ill c ontinue t o i ncrease
partnership efforts. This will include enhanced utilization of trust funds and ensuring that trust funds are
fully i ntegrated i nto World B ank budg eting and strategy proc esses. L ikewise t he World Bank w ill
continue to carry out analytical work jointly with other development partners. IFC will leverage existing
partnerships an d build new one s w ith partners such as I FC i nvestment cl ients, large co rporations, and
development organizations to expand its outreach and enhance its development impact. Partnerships with
Standard Chartered and the Aga Khan Foundation are already in place. During the previous CAS period,
joint analytical work was conducted with the UK Department for International Development, ADB, and
the United Nations. The World Bank and the IMF developed a strategic partnership for implementation
and m onitoring the I MF S tand-By A rrangement w hereby t he W orld B ank l ed policy di alogue on t ax
administration, electricity and social protection issues.

147.     The energy sector investments are a k ey priority in the CPS 2010-2013 and we are coordinating
our ef forts w ith partners h aving si gnificant eng agement i n this a rea. The B ank, jointly w ith ADB, is
leading the electricity pricing and sector financing dialogue linked to the IMF stand-by facility. In terms
of investments, ADB has Multi-Tranche Financing Facilities (MFF) focused on electricity transmission,
strengthening of distribution network (covering all eight DISCOs) and energy efficiency programs. We
have an ongoing project for electricity distribution and transmission improvement for four of the DISCOs,
mainly financing activities complimentary to the ADB’s operations. U SAID is an emerging player with
major energy sector investments an nounced recently as part of their new assistance plan. They are
working on f our new pr oduction p lant r efurbishments, including T arbela to provide 45 0 a dditional
megawatts of power as part of the US$125 million energy program announced in October 2009. USAID
has also announced financing of some hydro projects and focusing on po licy reform as well in order to
attract private investment in the sector. The Bank is in active discussion with the USAID team to ensure
synergies in assistance plans. Japan and KfW are other active players in the sector involved in specific
projects, mainly for power transmission. IDB is partnering with the Bank in the Central Asia - South Asia
(CASA) Electricity Import Project.

148.     The B ank ha s b een actively e ngaged w ith the G overnment a nd ot her de velopment p artners in
helping strengthen social safety nets in Pakistan. Our reform initiative with the Benazir Income Support
Program ( BISP) i s serving as a v iable platform t o channel f unds t o support G overnment’s programs i n
this area. To date, U SAID ha s pr ovided $85 m of di rect b udget s upport t o BISP f or c ash t ransfers t o
eligible beneficiaries identified under the Bank program. USAID has announced plans for more resources
for BISP under the ongoing strategic dialogue. DFID provided interim TA support of $2.5 m through a
trust fund to support technical work to prepare the Bank program of safety net support. D FID’s current
program has allocations for f urther work in this area. ADB’s Accelerated Economic T ransformation
Program (AETP) window had a trigger on be neficiary targeting under BISP and the next tranches of the
program are expected to continue t his focus. EU and A usAid are ot her i nterested partners currently in
contact with us with plans for possible financing of safety net activities. We will continue to share broad
contours a nd p rogress of safety ne t reforms w ith interested pa rtners t o facilitate c omplimentarity in
programming development resources.

149.    The e ducation s ector is a nother area w ith encouraging pr ospects f or partnerships. The B ank i s
working with DFID, EU, CIDA, to coordinate support around the medium term education sector reform
programs of Punjab and Sindh. USAID has shown interest in providing parallel resources to the program
as well. A similar initiative is being prepared for the KP. Financing such holistic sector programs has
reduced duplication of effort and encouraged each partner to support overall sector results and outcomes.

150.   Post-crisis support for KP is a CPS priority w here the B ank from t he very start has sought
enhanced coordination among all i nterested partners. The Multi-Donor Trust Fund (MDTF) for the

border region aims to facilitate harmonization of donor programs with government’s priorities as well as a
mechanism for enhanced donor coordination across sectors in line with strategic priorities agreed between
donors and government. The MDTF management committee will have representation from ADB, IDB
and U N. In t erms of f inancial c ontributions, the B ank ha s s igned t he A dministration A greement w ith
DFID and Australia. Other likely contributors to the fund include US, EU, Denmark, and Turkey. The
strategic priorities and programming of the MDTF will be informed by the ongoing Post-Conflict Needs
Assessment (PCNA), which is b eing pr epared i n c ollaboration with t he U N, E C, and A DB as k ey

151.      Given its strategic importance, Pakistan is a r ecipient of substantial donor resources linked to its
proximity a nd hi storic relationship t o t he c onflict i n A fghanistan a s w ell a s b roader e fforts t o c ombat
violent extremism. Over the past two years, Pakistan’s partners have sought to increase their assistance
and to mobilize resources from the international community. In support of these efforts, the World Bank
co-organized w ith t he G overnment of Japan the Tokyo D onors C onference i n April 2009 a nd pr ovides
technical support, as needed, to the "Friends of Democratic Pakistan" meetings. Government and donors
recognize that ex traordinary assi stance p rovided as a r esult of t hese ef forts ne eds to be a ligned with
Government’s overall poverty reduction vision. With this in mind, the Bank will seek to support GoP’s
efforts t o r einvigorate t he Pakistan D evelopment F orum a s a f orum f or f ostering t his a lignment. T he
Bank w ill al so seek t o create p latforms, like MD TF, through which donors can channel add itional
support. The Bank will also continue to explore options using SwAP-like instruments to allow donors to
support ongoing Government-owned programs such as those in education.

                               VI.        RISKS AND RISK MITIGATION

152.    Several key risks for the implementation of the CPS surfaced clearly during the last CAS period.
These risks included macroeconomic slippage, security risks, and exogenous shocks and all three of these
risks materialized in ways that had significant impact on the CAS and WBG program.

153.     Political Risk. The FY 10-13 CPS will be implemented in the context of economic austerity and
other unc ertainties. Hence t here i s a pos sibility t hat the e conomic s tabilization program w hich e ntails
considerable short term economic pain for many Pakistanis could be reversed. This risk is mitigated by
the significant resources at stake under the IMF Stand-By Arrangement as well as the strong support from
a w ide r ange of e xternal donors and pa rtners w ho have a s ignificant s take i n P akistan’s suc cess a s a
stable, democratic country. At the same time, it will be important for the Bank and other partners to seek
to further mitigate this risk by building more ownership and buy-in by working to build understanding of,
and support for needed economic reforms across the political spectrum.

154.    Macroeconomic Risks. Although Pakistan has made progress in stabilizing the economy,
reviving g rowth of G DP, exports a nd foreign e xchange reserves and r educing inflation and the current
account deficit, the fiscal situation remains vulnerable and inflation high. P artly owing to robust inflow
of workers’ remittances, the balance of pa yments situation has improved. However, there is a r isk that
remittances will decline, especially from the countries of the Middle East, notwithstanding Government’s
strong efforts to provide incentives to foster greater flows. Also, exports continue to perform poorly and
the slow global recovery may continue depressing external demand as well as foreign inflows. Renewed
widening of e xternal i mbalances w ould need t o be c ountered through greater efforts to c ontrol internal
imbalances. The IMF-supported Stand-By Arrangement supported by intensive dialogue with the Bank
will mitigate these risks by committing the authorities to fiscal and current account deficit targets.

155.    Conflict and Security. The success o f t he r ecent military ope rations in Swat a nd S outh
Waziristan has created some opt imism about t he po ssibility f or a r apid end to t he conflict. H owever
chances are good the conflict, which is primarily taking place in remote and difficult terrain, will prove to
be protracted. At the same time, the war in Afghanistan is growing in intensity. The conflict is likely to
have sev eral sp ikes be fore l ong t erm st ability and peace a re achieved. Targeting pr ograms i n c onflict

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