By TII News Service

MANILA, SEPT 03, 2015: ASIAN Development Bank (ADB) has factored in challenges in enhancing tax revenue that Pakistan is facing in ‘Country Partnership Strategy Pakistan 2015-2019' (CPS-Pak).

CPs-Pak, released on 29th August, notes: "High fiscal deficits in the past have undermined macroeconomic stability. Large fiscal deficits contribute to a low domestic savings rate and have led to borrowing from the central bank, the State Bank of Pakistan, and/or commercial banks-contributing to the risk of inflation, potential crowding out of the private sector, increased total public debt, and a higher country risk premium. Tax revenues are low, and the spending structure-with significant interest payments, untargeted subsidies, and defense spending-leaves little space for development spending on infrastructure and social services."

It adds: "Challenges of governance cut across sectors and impede private sector development and effective public service delivery. Fiscal decentralization has raised the prospect of better public service delivery but also challenges in terms of coordination among federal and provincial entities, capacity at local levels, and mitigating fiscal risks by matching devolution of functions with revenues. The preferential access to credits and inputs of public sector enterprises (PSEs) disadvantages private firms where they coexist. Trade policy has an anti-export bias. Pakistan compares well with many of the countries in South Asia in the overall ease of doing business, but it fares worse in some key components such as starting a business, registering property, getting electricity, paying taxes, and enforcing contracts."

ADB says that implementation of CSP is "vulnerable to the risk that the reforms stall during the CPS period, which could lead the IMF program to go off track, stop the policy-based budget support from ADB, render the balance of payments and the fiscal position unsustainable, deter investment, and hinder the achievement of development outcomes. The urgency of reforms and the government's resolve to implement them mitigates this risk."

ADB will collaborate closely with development partners to support the government's reform agenda with sequencing and attention to capacity development. ADB's diverse project pipeline will also allow for adjustments as appropriate

As regards infrastructure development and energy security, ADB has resolved to promote (i) a reliable and affordable energy system by rationalizing tariffs, confining subsidies to those for low-income population, reducing transmission and distribution losses, and increasing the supply of, and access to, energy; (ii) better domestic and regional connectivity to lower trade and transport costs with the development of economic corridors, railways rehabilitation, and border services.

The Bank would also facilitate development of provincial roads and urban public transport systems to provide wider access to markets, jobs, and public services. It would also support stronger water resource management and irrigation to improve agricultural productivity, increase farm incomes, strengthen food security, and buttress the natural resource base.