ADB advises Pakistan to provide targeted subsidies, enhance tax-to-GDP ratio

The Asian Development Bank (ADB) has suggested Pakistan to provide targeted subsidies to mitigate inflationary pressure on people and enhance tax to GDP ratio to come out of existing uncertain economic situations.

In an interview, Director General, Central and West Asia Department Yevgeniy Zhukov and Country Director Pakistan Resident Mission Yong Ye – with one-voice – highlighted the importance of targeted subsidies to assist downtrodden segments of the society and effective mobilisation of domestic resources to help improve the national economy.

The International Monetary Fund (IMF) has also been advocating for the provision of targeted subsidies, which are very crucial, Yong Ye said, stressing to strengthen the Benazir Income Support Programme (BISP), improve its verification system and make this package more affordable for the country by reaching to only those people who needed assistance.

Responding to the same query, Director General of, the Central and West Asia Department Yevgeniy Zhukov said the Asian Development Bank had been extending financial assistance to the government to strengthen social security through the BISP programme.

He said the bank was engaged with the BISP since 2016 while it provided assistance of $600 million since 2021 for conditional cash transfers in the areas of health and education besides $1.5 billion, under the Countercyclical support facility of which substantial part would be going through the BISP to provide the much-needed assistance to the people mostly affected by the ongoing difficulties.

Zhukov was of the view that Pakistan should improve revenue collection as it has one of the lowest tax-to-GDP ratios standing at only 10 percent whereas there are countries in the region having Tax to GDP ratio of about 20 percent to 25 percent.

If the Pakistan government is collecting only 10 percent, it may not have enough money to provide support and enhance income, he cautioned.

“It is important for the current and coming governments to continue working seriously on the structural reforms for the domestic-resource mobilization,” he said, adding the IMF has been working in this area with the government.

Zhukov said Pakistan has the potential to perform well economically; however, there was a need to improve the public sector governance and carry out the reform process seriously. “As long as Pakistan puts its internal things in a proper order, I think there is no reason why Pakistan should not be prospering,” he added.

Replying to another question, ADB Country Director Pakistan Resident Mission Yong Ye said there was a mechanism to materialize the Geneva pledges [made with Pakistan after it faced devastating floods last year].

He said the second meeting [of the Geneva conference] was scheduled to be held by the end of the current month wherein the countries would report progress about their made pledges, adding the core group including World Bank, ADB, European Union and United Nations could help Pakistan monitor commitments made in July 2022.

While expressing sympathies with the flood victims, Director General of the Central and West Asia Department Yevgeniy Zhukov said the ADB had approved a $1.5 billion programme for Pakistan before the floods to address the negative impacts of the Russia-Ukraine war on its economy, which was redesigned for providing social protection to the flood-affected people.

Read More: Pakistan’s economic growth to remain lower in FY23, says ADB report

He said, in December 2022, the ADB approved an additional package of emergency assistance which consisted of several parts including a $175 million emergency loan, and supplemented it with $5 million in grants.

Zhukov said the work done by the ADB through emergency assistance was not only to rehabilitate the damaged- infrastructure and emergency assistance but also develop a strong-enough infrastructure that could sustain similar floods, if they took place in the future.

He said the bank was working with Pakistan and other development partners, including the International Monetary Fund and the World Bank, to help the government introduce important structural reforms in various areas including public finance management, domestic resource mobilization, and energy sector reforms.”

He said the bank was keen on working with its partners and also with the Pakistan government to make sure this reform agenda was taken forward.