World Bank fears policy reversals after general elections

The World Bank has expressed its fear that critical reforms, particularly trade tariff reforms, would be rolled back after the general elections, owing to vested interests, Dawn reported.

“Stakeholder risks are high due to strong and organised vested interests, potentially advocating to reverse critical reforms, particularly trade tariff reforms, increases to property taxation and energy sector reforms,” said the international lending agency said in an assessment of its $350 million loan which was approved under second Resilient Institutions for Sustainable Economy (Rise-II).

The loan was approved on December 20, as the bank stressed that the country needed urgent fiscal and structural reforms to restore macroeconomic balance and lay the foundations for sustainable growth.

Pakistan is scheduled to hold general elections on February 8. In November, the South Asian country and the International Monetary Fund reached staff-level agreement on the first review under Pakistan’s Stand-By Arrangement.

The approval from the executive board of the IMF would unlock $700 million from the $3 billion loan agreement.

In its report, the WB added that political pressure might affect the decisions taken to comply with the demands of the international lender.

“Political and governance risks are high because of the upcoming elections, as associated political pressures may erode fiscal restraint or the commitment to continued implementation of challenging reforms,” it said and added the commitment to structural reforms of the new government were also unknown.

According to the WB, macroeconomic risks were also high and stressed the need for additional external support following completion of the SBA. The IMF in its staff agreement had stated that strengthening macroeconomic sustainability and laying the conditions for balanced growth were key priorities under the nine-month agreement.

While speaking about the economic situation, the Washington-based lender highlighted that sustainability risk was high because of the need for provincial-federal coordination and frequent turnover of senior government officials in critical positions.

Like in the past, the lender went on to add that the next government would have to take “broader reforms” under the next IMF programme. Last month, caretaker Finance Minister Shamshad Akhtar stated that the country would have to remain in the loan programme due to the fragile economy.

“Over the medium term, broader and deeper reforms will be required to support necessary fiscal consolidation, improve confidence, and increase investment,” the WB said.

The bank called for reforms in trade policies, elimination of agricultural subsidies, and rationalisation of federal government expenditures over subject areas that are devolved to the provinces.

The reforms were also related to expanding the tax base and energy reforms. According to WB, cutting red tape and reducing losses of the state-owned enterprise were also necessary.

The WB warned that private and external flows would be limited if such reforms were not implemented.