Document of The World Bank

Report No: 25156

IMPLEMENTATION COMPLETION REPORT(IDA-36550)

ON A

CREDIT

IN THE AMOUNT OF SDR 395.2 MILLION(US$500 Million Equivalent)

TO THE ISLAMIC REPUBLIC OF

PAKISTAN

FOR A

SECOND STRUCTURAL ADJUSTMENT CREDIT

June 23, 2003

Poverty Reduction and Economic ManagementSouth Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective )

Currency Unit = Pak Rupees (PKRs)US$ 1.00 = PKR 57.00

FISCAL YEARJuly 1- June 30

ABBREVIATIONS AND ACRONYMS

AsDB Asian Development Bank MTBF Medium-Term Budget FrameworkCAS Country Assistance Strategy NAB National Accountability BureauCBR Central Board of Revenue NCBs Nationalized Commercial BanksCFAA Country Financial and Accountability Assessment NEF National Education FoundationCGA Comptroller General of Accounts NEPRA National Electric Power Regulatory AuthorityCPP Community Participation Project NGOs Non-Government OrganizationsDISCOs Power Distribution Companies NRB National Reconstruction BureauDFID United Kingdom Department for International Development NSS National Saving SchemesECC Economic Commission of the Cabinet NWFP North West Frontier ProvinceESR Education Sector Reform OGRA Oil and Gas Regulatory AuthorityFCDs Foreign Currency Deposits PAC Public Account CommitteeFPSC Federal Public Service Commission PAD Pakistan Audit DepartmentGAVI Global Alliance for Vaccines and Immunization PIFRA Improvement to Financial Reporting & Auditing ProjectGENCOs Power Generation Companies PPAF Pakistan Poverty Alleviation FundGST General Sales Tax PPL Pakistan Petroleum LimitedHIPC Highly Indebted Poor Countries PRGF Poverty Reduction Growth FacilityIDA International Development Association PRSC Poverty Reduction Support CreditIFC International Finance Corporation PRSP Poverty Reduction Strategy PaperIFIs International Financial Institutions PSO Pakistan State Oil Corporation IMF International Monetary Fund SAC Structural Adjustment CreditIPPs Independent Power Producers SAP Social Action ProgramI-PRSP Interim Poverty Reduction Strategy Paper SBP State Bank of PakistanKESC Karachi Electric Supply Corporation SMEDA Small and Medium Enterprise Development AuthorityLGO Local Government Ordinance SROs Statutory Regulatory OrdersLHW Lady Health Worker UNDP United Nation Development ProgrammeLPG Liquefied Petroleum Gas UNICEF United Nation Children’s FundMDG Millennium Development Goals WAPDA Water and Power Development Authority

Vice President: Mieko Nishimizu, SARVPCountry Director:

Sector Director:John W. Wall, SACPKSadiq Ahmed, SASPR

Sector Manager: Ijaz Nabi, SASPR Task Managers: Manuela Ferro & John Panzer, SASPR

PAKISTANStructural Adjustment Credit II

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 55. Major Factors Affecting Implementation and Outcome 126. Sustainability 137. Bank and Borrower Performance 148. Lessons Learned 169. Partner Comments 1610. Additional Information 19Annex 1. Key Performance Indicators/Log Frame Matrix 20Annex 2. Project Costs and Financing 30Annex 3. Economic Costs and Benefits 31Annex 4. Bank Inputs 32Annex 5. Ratings for Achievement of Objectives/Outputs of Components 33Annex 6. Ratings of Bank and Borrower Performance 34Annex 7. List of Supporting Documents 35

Project ID: P074968 Project Name: Structural Adjustment Credit IITeam Leader: Manuela V. Ferro TL Unit: SASPRICR Type: Core ICR Report Date: June 23, 2003

1. Project Data

Name: Structural Adjustment Credit II L/C/TF Number: IDA-36550Country/Department: PAKISTAN Region: South Asia Regional

Office

Sector/subsector: General industry and trade sector (25%); Power (20%); Oil and gas (20%); Sub-national government administration (20%); Health (15%)

Theme: Other economic management (P); Public expenditure, financial management and procurement (P); Other public sector governance (S); Export development and competitiveness (S); Tax policy and administration (S)

KEY DATESOriginal Revised/Actual

PCD: 01/16/2002 Effective: 06/12/2002Appraisal: 05/07/2002 MTR:Approval: 06/11/2002 Closing: 12/31/2002 12/31/2002

Borrower/Implementing Agency: ISLAMIC REPUBLIC OF PAKISTAN/MINISTRY OF FINANCEOther Partners:

STAFF Current At AppraisalVice President: Mieko Nishimizu Mieko NishimizuCountry Director: John W. Wall John W. WallSector Manager: Ijaz NabiTeam Leader at ICR: Manuela V. Ferro John PanzerICR Primary Author(s): Richard J. Carroll

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: M

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

Background

Pakistan’s annual per capita growth averaged 3 percent in the 1980s, but only 1.2 percent in the 1990s, with little reduction of poverty. Social indicators did not improve commensurately with overall economic growth compared with other countries that had similar incomes and growth rates. Pakistan lagged far behind in child mortality, female literacy, primary enrollment and other social indicators. The 1990s also witnessed a large accumulation of public debt as annual fiscal deficits averaged 6 percent of GDP. At the end of the 1990s, Pakistan faced a financial crisis, domestic tensions, and an unsustainable level of debt with interest payments consuming half of total tax revenue.

A military government came into power in October 1999, and designed a reform program to modernize Pakistan and its institutions. This government learned lessons from the unsuccessful Social Action Program launched in the 1990s. The main lesson that emerged was that if the social gap were to be closed, Pakistan would have to improve economic management and governance to achieve growth and opportunity. To support this effort as well as to revive growth and improve human development and social protection programs, the Bank worked with the Government on specific reforms and provided a US$350 million credit (effective June 13, 2001), which was the first Structural Adjustment Credit (SAC1). Following the first SAC, the IMF Executive Board approved a three-year Poverty Reduction and Growth Facility (PRGF) arrangement (December 6, 2001). The PRGF aimed at increasing the growth potential, improving social outcomes and reducing vulnerability to shocks. The Second Structural Adjustment Credit (SAC2) of US$500 million was effective on June 12, 2002, and supported a deepening of similar areas of reform initiated under SAC1. Because Bank support of the reforms follows a programmatic approach, while this ICR focuses on the core program leading up to the disbursement of this single tranche credit, it also charts continued progress in the follow-on reform program up to the date of the ICR.

Objective

The SAC2 supported the implementation of the Government of Pakistan’s (GOP) Poverty Reduction Strategy (PRS) which had four pillars:

• Engendering Growth: The Government aimed to achieve a 5 percent per year growth rate in order to reduce poverty more rapidly. Measures included (a) addressing the debt problem through fiscal consolidation and building the base for more rapid and stable export growth in the future; (b) increasing revenue mobilization and changing the composition of expenditures to create the fiscal space for social sectors and critical infrastructure; and (c) strengthening the business environment by improving the credibility and stability of government policies, providing a level playing field to all areas of business, removing distortions, reducing the cost of doing business, and implementing power sector reforms to improve efficiency and promote macroeconomic stability.

• Improving Governance: (a) tax administration reforms; (b) devolution of powers to newly established local governments; (c) improved public financial management; and (d) civil service reforms. These measures were aimed at establishing integrity and accountability of state institutions essential to combating poverty.

• Improving Human Development: The priority is to improve the delivery system of basic education,

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preventive health care, and family planning while gradually increasing expenditures as the fiscal space is created through stronger growth, improved tax administration, and continued donor support.

• Improving Social Protection and Employment Opportunities. The approach here is to reduce the vulnerability of the poor by enhancing opportunities through access to credit, redistribution of public lands, implementation of community-based infrastructure programs, and direct cash transfers for the most needy.

SAC2 also supported the program expressed in the Interim Poverty Reduction Strategy (IPRSP) that was discussed by the World Bank and IMF Boards in December 2001. These objectives fit with the Country Assistance Strategy (CAS) for Pakistan as discussed below.

3.2 Revised Objective:

No revisions

3.3 Original Components:

The components were driven by the IPRSP and organized around the main pillars of the GOP reform program:

1. Engendering Growth1.1 Privatization and deregulation for improved business environment1.2 Trade reform1.3 Power sector reform

2. Improving Governance2.1. Efficient and equitable mobilization of resources 2.2. Efficient and accountable use of resources 2.3. Civil service reform 2.4. Devolution

3. Improving Human Development3.1. Policy, fiscal, and monitoring framework3.2. Education3.3. Health

4. Improving Income Generating Opportunities and Social Protection

These components were consistent with the main goal of the Bank Group’s Assistance Strategy for FY2003-2005 which was to support the Government reform program for a transition to a modern Islamic state through a program of analytical services, institutional capacity building, and demand-pull lending. The approach of SAC2 embodied the CAS’ three strategic engagement principles: (i) Strong client pull to reform and selectivity; (ii) A programmatic approach focused on transfer of knowledge and capacity building first, and resources second, in a flexible pursuit of key development outcomes; and (iii) Partnerships and outreach.

Lending. SAC2 followed a programmatic approach, as part of a sequence of similar credits (three are anticipated) and was consistent with the process of long-term reform laid out in the IPRSP. The programmatic approach offered the flexibility to adapt the program to changing circumstances as well as

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the multi-year commitment of a reasonable level of budgetary support in order for fiscal and governance reforms to yield results. The triggers for the Bank’s assistance strategy are based on measurable outcomes derived from the Millenium Development Goals (MDGs).

Non-lending. A comprehensive program of analytical work and other non-lending services supported the Government’s key policy reforms. This program included the Pakistan Country Procurement Assessment (June 2000), Pakistan Reforming Provincial Finances in the Context of Devolution (November 2000), Pakistan Reforming Punjab’s Public Finance and Institutions (August 2001), Pakistan Country Financial Accountability Assessment Part One (September 2001), a joint Bank/IMF technical report on Tax Administration Reforms (August 2001), a Development Policy Review (March 2002), and a Poverty Assessment (June 2002). Ongoing work includes a Public Expenditure Review, Phase 2 of the Financial Accountability Assessment, a Financial Sector Policy Assessment and a survey-based Review of the Investment Climate.

Engendering Growth. The approach of privatizing large companies, eliminating special tax preferences, financial and energy sector restructuring, and promoting competition policies was consistent with the CAS. By targeting these important enterprises and sectors, the SAC2 supported the foundation of long-term growth. Engendering growth was essential to generating resources for improved social services and achieving credibility for the educational program by showing that jobs could be generated for those who stayed in school.

Improving Governance. The reorganization of the Central Board of Revenue (CBR), the right-sizing of the civil service, and increasing the transparency of accounting, auditing and procurement functions are consistent with the CAS goals of improving the efficiency of resource mobilization and expenditures.

Improving Human Development. Increased budget resources for human development and anti-poverty programs, school rehabilitation, teacher training, immunization and lady health care worker programs, and other initiatives conform to the priorities established by the Government in the IPRSP.

Improving Income Generating Opportunities and Social Protection. As part of the program a number of social protection efforts have been strengthened including Zakat, micro-credit, the food support and Kushal programs, which are called for in the IPRSP.

3.4 Revised Components:

No revisions.

3.5 Quality at Entry:

ICR – Satisfactory. The SAC2 objectives were fully consistent with the CAS and the IPRSP. The substantial analytic services helped the reform program respond to priority needs. An important aspect of the quality at entry was the risk assessment. The Program Document cited four main risks: political opposition to reform, lack of continuity, insufficient institutional capacity, and exogenous shocks. Political opposition was viewed as the most immediate risk and was countered by sequencing reforms and a public information campaign that communicated the rationale for unpopular reforms. Continuity risk was countered by the nature of reforms that are difficult to reverse, such as devolution with democratically elected local governments. Consensus was built around the remainder of the reform program. The population had also begun to experience benefits of the program, thus strengthening support.

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Risks of weak implementation capacity were countered by technical assistance support in all components. Exogenous shocks such as a global slowdown, continued military operations in the region, or adverse weather’s impact on agriculture would be dealt with through additional adjustment measures and external financing. In retrospect, the continuity risk may have been underestimated given the changes in government and the lull in reform progress that followed in some areas. It is not clear that much more could have been done to mitigate this risk, other than to postpone the operation until after the election dust had settled. However, there was an even greater risk that such a postponement would have been even more disruptive to the reform process.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:

The achievement of objectives is rated satisfactory. The SAC2 effectively supported the government reform program and made significant progress with respect to its four pillars/objectives: (i) Engendering Growth; (ii) Improving Governance; (iii) Improving Human Development; and (iv) Improving Income Generating Opportunities and Social Protection. The focus of the SAC2 was on the first two pillars which are each rated satisfactory. Pillars (iii) and (iv) were not as central to SAC2 and there are insufficient data to measure outcomes (see below). However, the completion of core and non-core conditions under pillars (iii) and (iv) may imply a satisfactory rating for (iii) and (iv) with no evidence to the contrary. Annex Table 1A summarizes the outcomes from SAC2 from each of the four pillars of the program. The table distinguishes between Pre-Board core conditions and other measures (up to tranche release, approximately July 2001 to June 2002), and the Post Board, or Pre-SAC3 measures, which were the continuation of the reform program (July 2002 until the date of this ICR).

General indicators for the overall program are provided in Table 1. The macroeconomic response to the SAC2 is reflected in more detail in Table 2. Economic growth rebounded from 2.7 percent in 2000/01 to an estimated 5.1 percent in 2002/03, while inflation remained low. The real bright spots in the macro picture are the fiscal and current account improvements. Net public debt fell by almost 10 percentage points of GDP, current accounts improved by $2.4 billion and international reserves more than doubled, now exceeding US$9 billion, equivalent to 6.7 months of imports. Foreign Direct Investment is expected to nearly double in 2003. Net public debt is projected to fall by another 17 percentage points to 68.0 percent of GDP by FY2007.

The SAC2 program’s main development impacts were in four areas: privatization of Pakistan’s largest enterprises, the continuation of financial sector reforms, and the reforms in the oil and gas sectors, all of which fell under the pillar of Engendering Growth (satisfactory performance), and the reorganization of the CBR, which was under the Improving Governance pillar (satisfactory). See details of specific outputs in the following section. If sustained, these measures will substantially improve the ability of the economy to support social development.

While SAC2 supported important measures in Improving Human Development (health and education), there is concern about future progress because the same system that has performed poorly in the past is essentially still in place. There are also no new, comprehensive data since the 2001/02 household survey to measure social impacts (Table 1). Social indicators between the previous household survey 1998/99 and the most recent survey 2001/02 have either worsened slightly (poverty as measured by caloric intake from 30.6 percent to 32.1 percent), improved slightly (infant mortality 85 to 81, gross primary enrollment 71 to 72 percent, pro-poor expenditures 3.4 to 4 percent of GDP), or stayed the same (gross primary female enrollment of 61 percent). Continued Bank dialog will require updated data to support the delivery of

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acceptable quality, social services under the newly devolved government. A Core Welfare Indicators Questionnaire will be launched in September 2003 to update social impact indicators. Provincial SACs have been the main vehicle to pursue improved social service delivery, but federal measures can be improved as well. For example, allocating a greater share of the fiscal space, that has been generated from the reforms, to the social sectors is one important way to pursue poverty reduction at the federal level. Another would be to create additional fiscal space by reducing the budget drain of some of the Government’s top loss-makers, such as the Water and Power Development Authority (WAPDA) and Karachi Electric Supply Corporation (KESC).

Table 1: Expected Outcomes Under the I-PRSP

Areas and Indicators Original (IPRSP)

Provisional/

Latest-a

End-Period-Outcomes (2004)

1. Overalla) GDP growth rateb) Poverty (caloric)

2.7%30.6% (98/99)

5.1% (02/03)32.1%(HIES-01)

5.2%25.3% (2007)

2. Private Sectora) Total private investment (% GDP)b) FDI and privatization (US$)c) Exports (US$)

12.0330 million

9 billion

12.5576 million10.25 billion

13.6%800 million10.5 billion

3. Public Financea) Pro-poor I-PRSP expenditures (% GDP)b) CBR Revenues (% GDP)c) Net public debt (% GDP)d) Public Financial Management

3.4%11.3% 104.4%

Old paper based system with low

reconciliation rate.

4.012.0%85.0%

New accounting model, near 100%

reconciliation

4.2%12.2%84%

Efficient use of modern chart of public

accounts 4. Social Sectorsa) Gross primary enrollment rateb) Gross primary enrollment rate femalec) Infant mortality rate (per 1,000)d) Immunization coveragee) Population growth rate

71% (PIHS 98/99)61% (PIHS 98/99)85 (PIHS 98/99)

49%2.2%

72% (PIHS01/02)61% (PIHS01/02)81 (PIHS01/02)

53% (PIHS01/02)2.1%

80%75%

65 per 1,000 births62%1.8%

a-2002/03 unless otherwise stated.

Table 2: Macroeconomic Indicators 2000/01-2003/04

Indicator2000/01Actual

2001/02Actual

2002/03Rev. Proj.

2003/04Projection

Real GDP Growth-percent 2.7 4.4 5.1 5.3CPI-percent (July-June over previous year) 4.4 2.7 3.7 4.0

Federal Revenues (% of GDP) 17.4 19.0 20.2 17.6Federal Expenditures (% of GDP) 21.4 23.3 21.9 21.1Federal Surplus (Deficit) (% of GDP) -4.1 -4.3 -1.8 -3.5Primary Balance (% of GDP) 2.8 3.7 3.5 1.2Net Public Debt 104.4 95.9 85.0 79.7Current Acct. Balance (% of GDP) -1.9 2.6 5.3 1.5

Gross Int’l Reserves (millions of US$) 1,679 4,330 9,073 10,605Reserve Cover of Imports (Months) 1.7 3.8 6.7 7.3

Source: IMF May 2003.

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4.2 Outputs by components:

This section discusses the main outputs of SAC2 including progress in the follow-on program. Annex Table 1B provides a comprehensive summary of actions categorized as outputs and are divided between the actions taken prior to Board presentation and subsequent actions up to the date of this ICR.

Engendering Growth (Satisfactory Overall)

Privatization, Trade and Banking (Satisfactory). The privatization of Pakistan’s largest enterprises, including KESC, Pakistan Telecommunications Limited (PTCL), Oil and Gas Development Corporation (OGDC), and Habib Bank Limited (HBL) moved forward to the point of expressions of interest and prequalification. HBL, PTCL and KESC bidders, however, did not complete due diligence. In the case of OGDC, expressions of interests were invited last year and only one firm responded. Pakistan State Oil Corporation (PSO) has completed due diligence and has attracted three bidders. The GOP Working Interests transaction was completed and the United Bank Limited (UBL) was privatized.

In trade, the maximum tariff rate was reduced from 35 to 30 percent prior to Board, and from 30 to 25 percent after Board. Strengthening of banking supervision and restructuring for sale were the main financial reforms which the Banking Sector Restructuring Credit (BSRC) also supported. The BSRC also supported further liberalization and competition of financial markets. The SAC2 policy matrix echoed these reforms, but did not make them core conditions as they were already agreed under the BSRC.

As part of the follow-on program, the Committee on Deregulation has carried out a number of additional reforms. It has moved towards rationalization of redundant and out-dated labor laws that hinder business growth and employment by proposing legislation to consolidate labor laws into 6 broad areas (from 101 labor laws covering 10 areas). The Committee has also drafted legislation in three areas, which is in the final stage of vetting by the Ministry for Law, while the remaining three are still awaiting comments from various stakeholders. The outmoded Factories Act 1934 has been reviewed with the aim of removing irritants to businesses. The draft amendments have been circulated to the Ministry of Labor (MOL) and other concerned stakeholders. Comments are pending. The Drug Act 1976, considered to be a deterrent to the healthy development of pharmaceutical industry, has been amended. Based on the recommendations of the Economic Coordination Committee of the Cabinet (ECC), the President approved an Ordinance on Drug Act 2002 (November). Overall the progress in the deregulation agenda has been slower than anticipated. This is largely attributed to the continuous change in project coordinators and weak ownership by the government.

Petroleum and Gas Sector Reform (Highly Satisfactory). Though the achievement record in this component was not perfect, it is arguable that there were more meaningful reforms in the oil and gas sector in the past two years than there were in the previous 50 years. An important accomplishment was the institution of a new Gas Pricing Framework for PPL gas. The PPL well-head price will increase to 50 percent of the Petroleum Policy (Zone-III) well-head price through successive semi-annual adjustments over a period of five years. The PPL well-head price was only 17 percent of the international price before the new price regime was put in place. The more market-based price establishes a link between the cost of exploration and the consumer price. It is encouraging greater investment and exploration in the sector and may help reduce subsidies to certain industries and relatively wealthy consumers, if cost of service becomes the basis for determining sectoral gas tariffs.

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To improve efficiency in the petroleum sector, the Borrower adopted a formula under which retail and ex-refinery prices of all petroleum products were based on international prices and adjusted automatically on a fortnightly basis. This measure was important to generating competition between domestic refineries and imports.

Other non-core actions in the program policy matrix were carried out including the replacement of leaded gas with unleaded gas nationwide. Follow-up actions are proceeding with good progress in bringing the Oil and Gas Development Company Ltd. and Pakistan State Oil to the point of sale.

A serious concern over the gas pricing framework has, however, arisen in the follow-on program. Gas price adjustments have been delayed or skipped during the past year, thus reducing the impact of the continued reform. The Government needs to strengthen this framework by: (a) improving the predictability and credibility of the gas price revision process; (b) rationalizing access to the lifeline rate for domestic consumers to improve its targeting to the poor; and (c) approving a mechanism to include all feedstock gas subsidies to the fertilizer industry in the budget to promote transparency. The lifeline rate which applies to households consuming less than 100 cubic meters of gas per month currently applies to too large a segment of population, accounting for 66 percent of the domestic consumption. The lifeline threshold needs to be reduced (perhaps to 30 cubic meters consumption per month) in order to more efficiently target the poor. There is also progress at OGRA as tariff and licensing rules have been drafted, and OGRA has become operational .

Power Sector Reform (Unsatisfactory). The program achieved a number of positive steps, but the core problem was not remedied. With a view to completing the corporatization of WAPDA’s power wing: (a) the transfer of staff in Basic Pay Scales (BPS) 1-16 from WAPDA to the GENCOs, the NTDC, and the DISCOs, has been completed; (b) valid operating licenses were issued by NEPRA to the DISCOs by end-April 2002, to the GENCOs by end-June 2002, and to NTDC by end-December 2002; and (c) the principles of Supplementary Business Transfer Agreements, providing for the transfer of assets and liabilities, other rights and obligations from WAPDA to the GENCOs, the NTDC the DISCOs and to the residual WAPDA (which is responsible for developing and operating the country's hydropower resources), respectively, were approved by the Borrower.

A financial improvement plan was agreed that set out the measures needed for WAPDA to become financially viable, including a tariff increase of Rs 0.58 per kilowatt hour, and non-tariff adjustments, which would enable WAPDA to achieve, under a reasonable forecast of revenues and expenditures, an overall debt/service coverage ratio of 1.2 by the end of FY 2002/03; and (b) pursuant to such plan, a tariff increase of Rs.0.045 per kilowatt hour on account of the fuel adjustment cost was determined by NEPRA as at end of March 2002, an interim structural tariff increase of Rs. 0.08 per kilowatt hour was notified on May 15, 2002, and a determination on the structural tariff increase of Rs 0.40 per kilowatt hour was issued by NEPRA in July 2002. Following a request by the Government, NEPRA reviewed its determination on the structural tariff increase, and a tariff increase of Rs.0.33 per kilowatt hour was notified on August 13, 2002. In December 2002, NEPRA approved a reduction in electricity tariffs of about Rs.0.13 per kilowatt hour (under the Automatic Fuel Cost Adjustment Formula), to reflect the decline in fuel costs during the first half of FY03. The overall increase in electricity tariffs during FY03 was therefore substantially less than the level agreed under the FIP.

This financial plan has not been successful. The major issues of dealing with WAPDA’s existing debt and the poor collections rates (particularly from public sector consumers) are unremedied. The planned debt-service coverage ratios (e.g., of 1.2 by 2002/03 and 1.5 by 2003/04) will not be achieved in the

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foreseeable future. Despite the progress toward corporatization, the fundamental problem of WAPDA’s financial unviability remains as serious as it was prior to SAC2. WAPDA’s operating losses continue at 25 percent of total costs. The annual cost to the Treasury is Rs.25-30 billion which is equal to WAPDA’s debt service costs, or about 0.6 percent of GDP. The corporatized entities are not functioning autonomously as planned by December 2002 and are unlikely to do so until the end of calendar year 2003. The electricity price increase issued by NEPRA (Fuel Adjustment Surcharge) was scaled back by about 20 percent (49 to 38 paisas/kwh) by the Government which has undermined NEPRA’s role as a regulator of electricity prices.

Improving Governance (Satisfactory Overall)

Resource Mobilization (Satisfactory). The component has had some important impacts, despite some slowdown of progress after the elections. Major reorganization and reform of the CBR was essential to reliable, increased resource mobilization. One of the bright spots of this subcomponent was the medium-term reform strategy and action plan for CBR, aimed at providing for a modern, progressive, effective and credible organization for optimizing revenue by providing quality service and promoting compliance with tax laws. CBR has also increased the transparency and speed of refunds of the General Sales Tax (GST) and duty drawbacks to exporters and such refunds in the first 9 months of FY 2001/02 registered an increase of about 45 percent over such refunds in the corresponding period of fiscal year 2000/01. (Though that was somewhat a case of overshooting because of past errors—now the authorities are scrutinizing refund applications more closely, while still improving the processing time for refunds). The follow on program has slowed in the area of revamping recruitment and training procedures, right-sizing personnel, or establishing monitoring indicators targets to be made public. On the positive side, CBR has established a respectable Large Taxpayer Unit in Karachi (serving 300 large taxpayers and accounting for 12 percent of total revenue) and a Medium Taxpayer Unit (MTU) in Lahore that serves 10,000 taxpayers. The longer term intent to replicate the LTUs and MTUs in other cities as per the follow-on program.

Efficient and Accountable Use of Resources (Satisfactory). SAC2 continued the work of SAC1 in financial management. SAC1 initiated the separation of the accounting and auditing functions and SAC2, with the help of the Project to Improve Financial Reporting and Auditing (PIFRA), is helping establish accounting and auditing capacity at 52 sites through training and computerization for a new accounting system. The reliability and timeliness of fiscal accounts has improved substantially. Reconciliations have improved from almost nil a few years ago to between 50 and 100 percent, with Balochistan reconciliations the lowest and Federal reconcilations the highest. Data over the past year show a small decline in reconciliations, but this drop is a side effect of devolution and the capacity of the Districts to produce accurate accounts. The amount of unidentified expenditures has also fallen from 11 billion to 7 billion rupees or less than 0.2 percent of GDP. SAC2 also supported the strengthening of internal controls through appointment of Chief Financial Officers at the line ministries. Public Accounts Committees were constituted and are expected to review all outstanding audit reports in the near future. FY2003 is the transition year for the new chart of accounts that will move Pakistan into compliance with GFS of the IMF.

The first phase of the Borrower's pay and pension reform scheme for civilian and military personnel was implemented through: (a) the revision of pay scales; and (b) the rationalization of pension benefits. The Borrower’s Procurement Regulatory Authority Ordinance, 2002 (Ordinance No XXII of 2002) was issued, with a view to regulating the procurement of goods, services and works by the public sector (see Procurement Reforms below). The provincial ad hoc Public Accounts Committees opened up their proceedings to the press on the lines of the federal ad hoc Public Accounts Committee.

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Procurement Reforms (Unsatisfactory). The PPRA was established through an Ordinance in May 2002, but is not yet fully operational due to delays in the recruitment of key staff and lack of a permanent premises. PPRA is engaging individual consultants to review and revise the procurement rules and regulations of only four large federal agencies (out of 60 planned) in the first phase. PPRA’s staff consists of a Managing Director (MD) and one Director (Finance & Administration). The MD of PPRA expects that the consultants will submit for approval of PPRA's Board the revised rules and regulations of these four agencies by early July, 2003. The Bank has conveyed its concerns over the need to develop one general set of new rules applicable to all federal agencies, and add-on/supplementary rules for certain agencies based on the unique nature of their procurement. Work on the preparation of the new Procurement Law at the federal level has recently been initiated after a long delay. The Secretary Finance (who chairs the PPRA Board) has submitted for the PPRA's Board for consideration, a first draft of the procurement law which is a modified version of the NWFP Procurement Ordinance that was promulgated last year. The PPRA Board members are expected to provide their comments on the initial draft, after which it will be revised by the Ministry of Finance's lawyer. Given the history of delays, it appears unlikely that the new draft law will be finalized and submitted to the Parliament in this fiscal year.

Civil Service Reform (Satisfactory). Much of the civil service reform in Pakistan has taken place at the provincial level and has been addressed by provincial reform programs (such as those supported by the Sindh SAC and the NWFP SAC). However, a number of important measures were carried out at the Federal level with the help of SAC2. The first phase of the pay and pension reform scheme for the federal government’s civilian and military personnel has been implemented through (a) the revision of pay scales and (b) the rationalization of pension benefits. As part of this program, the Cabinet approved the establishment of a contributory pension fund for new entrants; and the monetization of a number of allowances into salaries. The first phase of pay and pension reforms was implemented in January 2002. All federal civil servants including military were given new pay scales which restored 75 percent of the lost value after 1994 and also revised pension benefits (lower commutation rates and more actuarially fair commutation factors). The pay reform also reduced the share of monetary allowances from 40 to 27 percent and de-compressed the pay scales. The ratio of the highest to the lowest increased from 1:9.2 to 1:9.9 including all monetary allowances. Though this sub-component earns a satisfactory rating, reversals in recruitment procedures for middle grades have created concerns. The February 2002 decision by the Federal Cabinet to recruit grades 11-16 without involving the Federal Public Service Commission effectively overturned the FPSC Amendment Ordinance (November 17, 2000). This is a setback. However, the decision has not yet been implemented - and there is still an opportunity to shape the details.

In the interest of merit based recruitment, a more autonomous Federal Public Service Commission (FPSC) was given responsibility for recruitment for all middle level and high level professionals. Promotion panels for higher grades are now chaired by the Chairman FPSC and to ensure quality of high grade staff, acceptance to advanced training programs are now subject to entry examinations.

The government continued its program of civil service reforms by right-sizing and improvements in the skill-mix of the federal civil service. These actions were supported by other measures aimed at improving the performance of public servants and reducing corruption. The right-sizing initiative led to some useful reallocation of staff between departments, but no overall change in the skill mix within government. The government has recently launched a comprehensive civil service capacity building program which includes (i) broad-based professional development of middle and high level federal and provincial civil servants, and (ii) capacity building of key economic ministries, departments, and agencies in the forefront of design and implementation of the reform program.

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Improving Human Development (Satisfactory)

Satisfactory. The FY 2001/2002 budget allocations of the Borrower’s federal, provincial, and local governments for human development and pro-poor expenditures under the I-PRSP have been increased, in the aggregate, to Rs.161 billion, or 4 percent of the Gross Domestic Product (GDP). The federal and provincial governments established a clear fiscal framework to finance the district governments and ensure the regular flow of funds.

A National PRSP Implementation Committee was established in the Ministry of Finance (MOF) to oversee the implementation of the anti-poverty strategy as reflected in the I-PRSP, which helped build consensus in support of the full PRSP under preparation, together with a PRSP Secretariat that coordinated the actions directed by the National PRSP Implementation Committee. As part of this process: (a) a national poverty line and methodology have been established; and (b) intermediate health and education outcome indicators have been formulated and evaluated, and an action plan to improve the monitoring tools was developed.

In the area of monitoring and evaluation of the PRSP the government has: (a) completed the action plan and initiated implementation of the program to improve the monitoring of its health and education intermediate outcome indicators; and (b) improved the quarterly analyses of performance in I-PRSP expenditures in conjunction with the provincial governments. As part of the Education Sector Reform Program: (a) additional budgetary resources for education have been directed at the federal, provincial, and local government levels; (b) a National Education Assessment Initiative (NEAS) has been prepared and launching is imminent; and (c) school rehabilitation, teacher training and girls schooling and feeding programs at the federal, provincial, and local government level have been expanded.

As part of the National Health Policy: (a) an Expanded Immunization Program for children has been launched by the Borrower; (b) the Borrower’s Lady Health Workers Program has been strengthened through the appointment of an additional 10,000 Lady Health Workers; (c) the Borrower’s Tuberculosis Control Program has been expanded; and (d) a national strategic HIV/AIDS prevention program has been formulated by the Borrower for imminent launching.

Improving Income Generating Opportunities and Social Protection (Satisfactory)

“Marginally satisfactory” would be a more accurate rating were it available to the ICR. Though this component is one of the four pillars of the reform program, there were no core conditions for SAC2 or core follow-on conditions for a possible SAC3. This pillar consisted mainly of fortifying existing traditional programs such as Zakat and Kushal with additional financing and then monitoring and evaluating the programs. The Bank is not closely following this component and no credible monitoring framework is in place. The other element of this pillar, microcredit, was expanded to 30 districts and the government has moved to strengthen the legal and regulatory environment for micro-finance institutions and expand coverage of existing programs.

4.3 Net Present Value/Economic rate of return:

Not applicable.

4.4 Financial rate of return:

Not applicable.

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4.5 Institutional development impact:

Overall, the institutional development impact of SAC2 to date is modest, but potentially substantial. The privatization and oil and gas sector reforms certainly have had a substantial impact. Through preparations for privatization, the largest economic entities in Pakistan are undergoing a fundamental change in the way business is done. In revenue mobilization and use, major changes are also underway, but not yet fully in place so the impact is modest for now, but, again, potentially substantial. In public service delivery, the impact so far is modest. There is still uncertainty regarding the success of devolution with implementation capacity at the District level still inadequate. The effectiveness of data collection and M&E is still not proven. There is some data showing that enrollment rates are increasing, particularly for girls, but the impact is not yet conclusive. The reorganization of CBR was a substantial change. If the delays in the follow-on actions for CBR can be remedied, major progress in establishing a predictable and reliable mechanism for revenue mobilization will be achieved, which is vital to Pakistan’s business environment. Irregular behavior of the tax authorities, which was one of the top two complaints in a survey of Pakistani businesses, will need to be part of that transformation.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

The main factor outside the control of the Government/Implementing agencies were the political forces at play leading up to the elections in October 2002. The uncertainties with respect to the continuity of the reform program have been mostly, but not fully resolved pending the “settling in” of the new government. The campaign atmosphere complicated the reform program. For example, election promises of low fuel prices make the agreed price adjustment in March higher and more difficult for consumers to bear. The time to constitute a new government and to get new people in place also led to delays in completing some of the key follow-on actions. The strong impact of the October 2002 elections on the reform program has led some to question whether it might have been better to continue the dialog, but postpone SAC2 until after the election when political uncertainty was largely resolved. This issue is addressed as a lesson learned below.

Another external factor was the regional/domestic security situation, which has increased uncertainty and hampered growth. In at least one specific instance, the security situation had a material affect on program implementation. The human resource audit that was to take place in CBR was not carried out formally in part because it was not possible to deploy IT consultants to Pakistan out of security concerns. This delayed implementation of follow-on actions that would be based on the human resource audit.

A third factor was that the international and, to some extent, domestic environment was/is not conducive to the sale of large utilities. The company that was closest to privatization, the Oil and Gas Development Corporation, attracted only one bidder. In the current environment, other large companies such as KESC and Pakistan Telecommunications Company Limited may be difficult to sell. However, there are still worthwhile benefits to corporatization and improvement of the business environment (through tariff and tax reforms, etc.). When the selling environment improves, the corporatization measures are expected to pay off in higher sales prices. A fourth factor was the prolonged drought which led to lower agricultural output and lower growth. The result has been a slower economic recovery and fiscal rebound.

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5.2 Factors generally subject to government control:

The most important positive factor in the success of SAC2 were the champion roles played by the President and the Minister of Finance. Although there were uncertainties following the elections, and the reform momentum slowed, early indications are that the Government’s intentions are to keep on track with the agreed program. The one qualification appears to be the commitment to the financial improvement of WAPDA, which is discussed under the section on Sustainability below.

5.3 Factors generally subject to implementing agency control:

One area at least partially under the control of implementing agencies was the lack of progress in improving collections for electric power. WAPDA has not been able to reduce losses and collections have not improved, remaining at 25 percent. The Government will need to redouble its efforts to institute incentives to increase collections and reduce operational losses.

5.4 Costs and financing:

The total credit amount was SDR 395.2 million (US$500 million equivalent). The entire credit amount was disbursed in a single tranche upon effectiveness (June 12, 2002). The credit was made on standard IDA terms with a term of 35 years, a 10-year grace period, and an IDA service charge of 75 basis points.

6. Sustainability

6.1 Rationale for sustainability rating:

The sustainability of the SAC2 is rated likely. The GOP has satisfactorily continued its reform program in most areas of fiscal and financial management, civil service, education, health sector, energy pricing, and regulatory reforms and privatization. The Government has continued support of the reform program, despite a number of negative external factors, including the slowed momentum surrounding the elections. Thus, the reform program has proven resistant to political changes, which supports a likely rating for sustainability. The Pakistan Development Forum (PDF), a gathering of senior government officials and donors, took place in May 2003. At the PDF, the Government reiterated its commitment to continued reform and pledged not to backtrack. The Bank, who was represented by the Vice President, was impressed by the expressed commitment to continuity of reforms. Donors also pledged continued support for the program laid out in the draft PRSP. There are other indications that the reform program is likely to remain on track. In June 2003 the federal budget for 2003/04 was approved. The budget aims at accelerating growth, increasing the share of expenditures going to priority I-PRSP programs, and reducing that of defense. The IMF Board approved the Fifth Review under the PRGF in mid June.

The corporatization of Pakistan’s largest entities has improved their ways of doing business, which in itself is a large impact that will be difficult to reverse. It would be much more difficult to reverse if the entities could be fully privatized, however. Oil and gas sector reforms are considered sustainable because consumer prices now more accurately reflect international costs, which is improving Pakistan’s fiscal stance because of savings on subsidies. However, one big test was the scheduled March 2003 fuel price adjustment. This adjustment was delayed and the increase determined by NEPRA was reduced by the Government. This delay raises some concern about sustainability and it will be important to the future of the program that all future fuel prices are fully adjusted and on time. Revenue mobilization measures such as reorganization of CBR are sustainable and will be on track if the delayed human resource audit is completed and leads to performance based pay and right sizing.

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6.2 Transition arrangement to regular operations:

For oil and gas, a further demonstration of sustainability would be the continued liberalization of downstream activities including free competition between refineries and imports, abolishing the freight pool, a predictable and transparent tariff framework at the retail level, and continuing the move to the international well-head price for gas.

Progress on improving WAPDA’s bottom line through improved collections would be very important to sustainability. WAPDA’s current losses are a large budget drain (nearly 5 percent of the overall budget and 1 percent of GDP). The incentive structure to eliminate losses will need to be put in place. A possible SAC3 must address this issue. A new FIP has been submitted which is a step forward in improving WAPDA’s performance.

In the social sectors, the types of reforms supported by the SAC2, such as those promoting sub-national governance require years to achieve, but are also expected to be sustained as a new way of doing business. New systems of accounting and auditing have been operationalized and will promote greater accuracy and compliance. These changes will be deepened and broadened by a planned PIFRA2 which will build accounting and auditing capacity in the remaining 75 District sites. Transparency, and accountability will be ingrained in processes of social service delivery, but these processes will require continued support for at least the two-year remainder of the plan period.

7. Bank and Borrower Performance

Bank7.1 Lending:

Satisfactory. The Bank conducted a sustained policy dialog with the GOP, which resulted in a meaningful reform program beginning with the first SAC and deepened under SAC2. The program was consistent with the national priorities expressed in the IPRSP. The Bank also developed a close and harmonious partnership with the IMF. The IMF PRGF program and the SAC2 Policy Matrix overlapped and complemented each other. The IMF’s fiscal targets, for example, indirectly supported the Bank’s efforts to reduce WAPDA’s losses.

7.2 Supervision:

Satisfactory. The supervision process went smoothly with support from the country office in Islamabad. However, despite the substantial progress made in the follow-on program, the single tranche-quick-disbursing nature of SAC2 did leave the Bank with limited leverage after disbursement. Here again, the IMF played an important role. Through its quarterly review process, it has been able to support the Bank’s program particularly in the banking and power sectors and in tax administration (CBR). The Bank’s reliance on tariff reform was an important element in electricity reform, but needs to further into the institutional measures that will improve WAPDA’s performance, in particular, improving collection rates.

7.3 Overall Bank performance:

As both lending and supervision are satisfactory, overall Bank performance is rated as satisfactory. All Board conditions were fulfilled, despite some negative external factors and uncertainties about the future of

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the program, the reform program is generally on track.

Borrower7.4 Preparation:

Satisfactory. The program developed with the borrower was comprehensive, but realistic. The Government stretched itself in a number of areas including privatization and oil and gas pricing frameworks, but generally did not over extend itself. The one exception is that the GOP might have gone a bit farther in adjusting the power tariff upward, closer to long-run cost, which would have improved WAPDA’s bottom line. The “champion effect’ was evident in the strong move toward privatization and improved governance and accountability. In financial management, there were champions in the Controller General of Accounts and, later, in the Auditor General (formerly the Financial Secretary). The GOP worked intensively in developing the final financial matrix and negotiated a final policy matrix whose scope and timing were in line with reality. Although there had been much analytical work at the national level over many months, once the decision to provide financial resources was made, preparation moved quickly, taking only about six months to reach the Board.

7.5 Government implementation performance:

Satisfactory. The GOP carried out the Board Conditions for a timely tranche release. Though some areas proved difficult in current circumstances, the GOP demonstrated a commitment to reform as exhibited in implementation of most of the follow-on program as well. The GOP often went beyond core conditions to implement a broader reform program and in a number of cases exceeded expectations. The macroeconomic turnaround, evidenced by the reduction in the debt to GDP ratio and the accumulation of reserves was particularly encouraging.

Monitoring and evaluation arrangements were set up as part of the Federal Government’s Poverty Reduction Strategy to track public expenditures, outputs and outcomes. Data reporting, however, must be more systematic and frequent.

7.6 Implementing Agency:

Satisfactory. Though generally satisfactory there was a wide range of performance of IAs. WAPDA did not make the desired efforts to become sustainable and PPRA’s progress in procurement reform was slow and employed a questionable strategy. For example, it might have been better for the review of existing federal procurement rules and the development of new rules to be carried out as a single consolidated assignment through engagement of a single consulting. Instead, PPRA chose to implement the task in phases through hiring of large numbers of individual consultants concurrently, which will strain PPRA's limited existing capacity and may not result in a uniform product. Another area of improvement, would be in revamping the training of CBR elite staff more closely in line with the CBR’s goals of fair and reliable revenue mobilization.

7.7 Overall Borrower performance:

Borrower performance was satisfactory, exceeding expectations in some areas while requiring improvement in other areas as identified.

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8. Lessons Learned

It is better to proceed with a credit to support an ongoing reform program, rather than wait for elections to be held and the aftermath to be resolved. As in the case of the provincial SACs, the Bank faced the choice of proceeding with SAC2 or delaying the credit until after the elections. The Bank made the right choice to follow through with the scheduled credit in order to maintain reform momentum and to deepen the reforms begun under SAC1. Had the credit been delayed the program might have stalled and inertia might have made it difficult to get the reforms moving again.

The broader programs that include a wide range of specific actions are important to empowering reformers against reform resistance. If a program design is less comprehensive with a view to focusing reform efforts on a restricted, priority agenda, then many important changes may be left out and, later, fall through the cracks. Broadening the program with wide ranging commitments spelled out gives leverage to reformers and other donors’ programs.

The Bank may support a very broad program and represent that program in the policy matrix, but may concentrate its energies on a smaller core program. The core of SAC2 was the privatization, oil and gas, power and financial sector reforms, and overhaul of the CBR. Other components, such as agriculture reform and social protection were important, but not the prime focus of SAC2. Agriculture was part of the program, but really the domain of another donor. Health and Education components, while part of the core conditionality, were dealt with more fundamentally in the provincial (Sindh and NWFP) SACs. Realistically, the Bank cannot and should not be expected to monitor all components with the same intensity as the core of the program. A multi-tranche operation would probably not have been advisable, nor effective against backsliding, in the context of a country with a weak implementation track record such as that of Pakistan. With the upcoming elections, a multi-tranche operation might have made more sense as an incentive to keep up reform momentum. However, with Pakistan’s checkered implementation record, it was the smarter move for the Bank to lend on the basis of “track record” (i.e., already completed conditions), as opposed to commitments to carry out reforms in the future. In addition, the IMF was able to play a complementary role in the Bank program by applying pressure through their quarterly review to support key parts of the Bank-supported program that affected Pakistan’s fiscal stance. The Development Credit agreement also contained protections through the bullet repayment clause that the Bank could invoke if the reform program were to go off track.

A “homegrown” program is desirable, but places a greater burden on the donor (the Bank) to verify assumptions on which the program is based. For example, the first FIP for WAPDA was homegrown, but was based on unrealistic assumptions, such as full cost recovery from electric supply to the public sector.

9. Partner Comments

(a) Borrower/implementing agency:

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(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

NA

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Annex 1. Key Performance Indicators/Log Frame Matrix

TABLE A: Key Outcome Performance/Indicators

Outcome Indicator/Matrix Projected in last PSR Actual/Latest Estimate1. Engendering Growth

Pre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

TRADE REFORM

To improve export performance by reducing anti-export bias of trade policy and through institutional reforms.

Actions have been taken by CBR to increase the transparency and speed of refunds of GST and duty drawbacks to exporters; and (b) such refunds in the first 9 months of FY02 have registered an increase of about 45% over such refunds in the corresponding period of fiscal year 2000/01.

To reduce the anti-export bias and encourage exports, the maximum tariff rate will have been reduced from 30 percent to 25 percent and the tariff slabs reduced from four to three. (Done)

The Central Board of Revenue would have continued the implementation of its action plan to increase transparency and expediency in the refund of the General Sales Tax and duty drawback to exporters in the context of the broader CBR reforms. New administrative procedures replacing SRO 417 (I)/2000 for GST refunds would have been established. (Done)

To reduce the anti-export bias the government will have eliminated the duties on polyester and other critical inputs used by textile exporters. (Done)

AGRICULTURE SECTOR REFORM The federal and provincial governments will have accelerated the pace of institutional reforms in irrigation to enhance efficiency of water use, reduce subsidies to operation and maintenance, and regulate ground water use. The government will have given priority to the construction of the national drainage system. (on track)

NATURAL GAS SECTOR REFORM

To enhance sector development through tariff reform, privatization, and improved regulatory environment.

A new Gas Pricing Framework for PPL gas has been established, which will bring the PPL well-head price up to, and maintain it at, a level equal to fifty percent (50%) of the well-head price fixed from time to time for the Zone III gas fields as defined in the government’s Petroleum Exploration & Production Policy dated May 1, 2001, through successive semi-annual adjustments over a period of five years; and (b) the first adjustment of PPL gas prices under such Framework has taken place and is reflected in consumer prices.

As a part of the program to develop a sound gas pricing framework: (a) the government will have rationalized access to the lifeline rate for domestic consumers to improve its targeting to the poor; and (b) the Cabinet will have approved a mechanism to include all feedstock gas subsidies to the fertilizer industry in the budget. Implementation to start with the budget for FY04. (Partially done)

As a part of the program to develop a sound gas pricing framework, the government will have established transport and distribution charges policy based on volumetric basis in a manner that encourages efficiency and is not related to guaranteed returns. (Done)

The Oil and Gas Regulatory Authority (OGRA) will have been made operational through the notification of its Tariff and Licensing Rules. (Almost done)

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Outcome Indicator/Matrix Projected in last PSR Actual/Latest Estimate1. Engendering Growth cont.

Pre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

PETROLEUM SECTOR REFORM

To increase efficiency and growth through deregulation, market liberalization, and enhanced competition.

A formula has been adopted by the government under which retail and ex-refinery prices of all petroleum products are based upon international prices and adjusted automatically on a fortnightly basis; and (b) since July 1, 2001, with the exception of the period comprising March 15 to May 15, 2002, all scheduled price adjustments under the formula have taken place.

The import of oil products has been liberalized with refineries and the oil marketing companies authorized to import their requirements directly.

The transport of petroleum products has been deregulated for secondary markets. Prices allowed to differ across some geographical areas.

Subsidies to the refineries are being made transparent and are provided through the national budget.

As a part of the program to improve the quality of petroleum products, unleaded gasoline has been made available throughout seventy percent of the country.

Continued implementation of automatic fortnightly price adjustments of petroleum products in line with international prices. (Done)

To enhance competition and efficiency in the oil sector the government will have: (a) set the ex-refinery prices of all petroleum products on the basis of import (or export) parity prices as ceilings; and (b) as part of this process the government will have reviewed and initiated reforms to phase out the current system of guaranteed returns to the refineries. (Done)

POWER SECTOR REFORM

To establish a competitive electric power system consisting of privately-owned, financially viable, and efficiently operated companies.

With a view to completing the corporatization of WAPDA: (a) the transfer of staff in Basic Pay Scales (BPS) 1-16 from WAPDA to the GENCOs, the NTDC, and the DISCOs, has been completed; (b) valid operating licenses have been issued by NEPRA to the DISCOs; and (c) the principles for Supplementary Business Transfer Agreements, providing for the transfer of assets and liabilities, other rights and obligations from WAPDA to the GENCOs, the NTDC and the DISCOs, respectively, have been approved by the government.

The government will have maintained full adherence to its financial improvement plan for WAPDA and its corporate successors. This would lead to achievement of the financial target of a debt service coverage ratio of 1.2 at the end of FY03, and 1.5 at end FY04. The power sector financing would also be fully consistent with the agreed macroeconomic framework. (Not done)

The transformation of WAPDA’s power wing into autonomous companies under professional management through corporatization will have been completed by end December 2002. As a part of this process: (a) Supplementary Business Transfer Agreements would be implemented; (b) NEPRA would have issued licnese to the GENCOs and the NTDC; and (c) final transfer prices would have been approved. (Almost Done)

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Outcome Indicator/Matrix Projected in last PSR Actual/Latest Estimate2. Improving Governance

Pre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

EFFICIENT AND EQUITABLE MOBILIZATION OF RESOURCES

To improve tax policy and tax administration to increase revenues and improve governance.

A medium-term reform strategy and action plan for CBR has been approved by the government, providing for a modern, progressive, effective and credible organization for optimizing revenue by providing quality service and promoting compliance with tax laws.

The functional reorganization of CBR has been completed as prescribed by the recently approved medium term strategy.

A new Income Tax Ordinance based on self-assessment, minimal exemptions, and simplified and more equitable rates has been promulgated.

To increase the efficiency of the tax system the GST has been extended to agricultural inputs, including fertilizer, and non-essential pharmaceuticals.

To increase the efficiency of the tax system the GST compliance requirements have been extended to all traders with annual turn-over in excess of Rs. 5 million.

Accelerated implementation of the medium term program of CBR reforms. As a part of that program:

CBR will have completed its human resource audit, and based on its recommendations implemented human resource reforms. It will have established new recruitment, performance assessment, training, and promotion procedures, or programs. A new performance-based pay scale will have been approved by government. The rightsizing of personnel will have started. (IT preparation has started)

CBR will have established outcome indicators and targets, as well as a program to measure progress. This information will be shared with the public on a regular basis. (Done)

EFFICIENT AND ACCOUNTABLE USE OF RESOURCES

To strengthen expenditure controls and improve the quality of the expenditure program.

To improve the quality of the public investment program: (a) the Planning Commission’s Chief Economist signs-off on all project appraisals submitted for the approval of the Central Development Working Party the Executive Committee of the National Economic Council; (b) progress reports of project implementation are being prepared on a semi-annual basis; and (c) the public investment program is being prepared as a three-year- rolling plan for a medium term budget framework.

The federal budget for FY02 has been prepared within a medium term budget framework.

The federal and the provincial budgets of Sindh and NWFP for FY03 are being prepared within a medium term budget framework.

To improve the quality and the transparency of the public investment program: (a) the Planning Commission will have prepared summary Project Information Documents of the most important projects in the investment programs and made them available to the public; and (b) make public the semi-annual reports of progress in project implementation. (Done)

The federal budget for FY03 and years beyond will have been prepared under a more detailed medium term budget framework. (Done)

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Outcome Indicator/Matrix Projected in last PSR Actual/Latest EstimatePre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

To improve public financial management through improvements in accounting and audits.

The government has implemented the separation of the audit and accounting functions. The accounting function is now under the purview of the CGA.

The CGA has established a short and medium term program of reforms to improve reconciliation, reduce unidentified expenditures, and strengthen internal controls. Reconciliation of revenues and expenditures are close to 100% in federal government and some provinces.

The CGA has established systems to improve reliability and timeliness of accounts by: (a) eliminating settlement accounts; and (b) requiring daily bank reconciliations.

The federal and provincial governments will have achieved full reconciliation of expenditures and revenues on a quarterly basis. (Almost done, except in Belochistan which as nevertheless improved)

The federal government will have achieved a significant reduction in unidentified expenditures at end FY02 (when compared to FY01) and reduced unidentified expenditures to no more than 0.1% of GDP at the end FY03. (Almost done, having achieved unidentfied expenditures of 0.2% of GDP)

The Proportion of government transactions under new modernized and computerized accounting system will have reached 80% by end FY03 and 100% by end FY05. (In progress with lag)

At the end of FY05, the timeliness and accuracy of federal and provincial accounts will allow for fully on-time reconciled reports. (On track)

To promote efficiency in the use of resources through fiscal transparency and external oversight

The provincial ad hoc Public Accounts Committees have opened up their proceedings to the press.

The federal PAC has completed and made public the review of the 1996/97 Audit Reports and initiated review of the reports for FY00, FY99, and FY98 with a view to clear the backlog in these reviews by end-October 2002.

The FY01 Public Audit Report has been carried in a timely manner, with increased attention to the audit of systemic problems. It has been released and made public in March 2002.

The federal PAC Accounts Committee will have completed the review of all outstanding Audit Reports (FY98, FY 99, and FY 00). (Status uncertain)

Starting with the FY04 All Audit Reports for PIFRA sites will have been submitted to the legislature no later than eight months after the end of a FY starting in FY04, and based on audit reports of FY03, the government will have initiated the tracking and monitoring of cash recoveries mandated by the PAC and of the percentage of Auditor’s General recommendations approved by government. (Future program)

To promote the efficiency in the use of resources through more effective public procurement.

The Procurement Regulatory Authority Ordinance [Ordinance No.XXII of 2002] has been issued, with a view to regulating the procurement of goods, services and works by the public sector

During FY04, one third (33%) of the national public procurement (all federal government procurement) will have been carried out under modern rules and regulations. In addition, defense procurement will also have been carried out under these rules. (Almost done)

During FY05, about one half (50%) of the national public procurement (all federal government and autonomous federal agencies) will have been carried out under revised modern rules and regulations a new Procurement Law. In addition defense procurement will also have been carried out under these rules. (On track)

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Outcome Indicator/Matrix Projected in last PSR Actual/Latest EstimatePre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

CIVIL SERVICE REFORM

To improve the performance of the civil service by restoring integrity, autonomy, and adoption of modern personnel and management practices.

The government will have continued with the implementation of its program of civil service reforms by: (a) continued implementation of the Cabinet-approved program to right-size and improve the skill-mix of the federal civil service; (b) carrying out the second phase of pay and pension reforms. As a part of this program the Cabinet will have approved the establishment of a contributory pension fund for new entrants; and the monetization of a number of allowances into salaries. (On track)

The government will have continued the implementation of programs to strengthen merit-based recruitment, and promotions and revamp training programs. (On track)

3. Improving Human Development

POLICY, FISCAL, AND MONITORING FRAMEWORK

Increase the share of pro-poor expenditures with monitoring and evaluation mechanisms to track progress

In the area of monitoring and evaluation of the PRSP the government will have: (a) completed the action plan and initiated implementation of a program to improve the monitoring of its health and education intermediate outcome indicators; and (b) improved the quarterly analyses of performance in I-PRSP expenditures in conjunction with the provincial governments. (On track)

EDUCATION

Increase enrollments, narrow gender gaps, and increase quality of education.

Pursuant to the Education Sector Reform Program: (a) additional budgetary resources for education have been directed at the provincial, territorial and district government levels; (b) a National Education Assessment Initiative has been launched; and (c) school rehabilitation, teacher training and girls schooling and feeding programs at the federal, provincial, and local government level, have been expanded.

HEALTH

Improve the health status of the population through the expansion and improved quality of preventive and public health systems.

Pursuant to the National Health Policy: (a) an Expanded Immunization Program for children has been launched; (b) the Lady Health Workers Program has been strengthened through the appointment of an additional 10,000 Lady Health Workers; (c) the Tuberculosis Control Program has been expanded; and (d) a national strategic HIV/AIDS prevention program has been formulated for imminent launching.

The accelerated implementation of the Expanded Program of Immunization for children will have yielded an increase in the coverage rate of at least 5 percent per year through FY05. (On track)

The government will have launched the implementation of the expanded HIV/AIDS prevention program. (On track)

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TABLE B: Key Output Performance Indicators

Output Indicator/Matrix Projected in last PSR Actual/Latest Estimate1. Engendering Growth

Pre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

PRIVATIZATION AND DEREGULATION FOR IMPROVED BUSINESS ENVIRONMENT

To promote growth by improving the business environment: Increasing consistency and predictability of policies, limiting the opportunities for rent-seeking behavior, and reducing the role of the state in productive activities.

The President has constituted an inter-Ministerial Deregulation Committee chaired by the Minister of Finance to oversee and guide regulatory reforms across sectors. Price and profiteering and hoarding controls on all but two of the sixty-six essential products specified in the Schedule to the government’s Price Control and Prevention of Profiteering and Hoarding Act, 1977 [Act No. XXIX of 1977] have been removed.

Continued implementation of program to grant no new exemptions or special privileges regarding income tax, custom duties, GST, or to impose new regulatory duties. Phasing out of time-bound regulatory import duties and no adoption of new ones except for existing contracts or international commitments.

The privatization of the Sui North LPG Plant has been completed.

The bidding for the privatization of the Saudi-Pak Fertilizer Company and Nine Working Interests in Oil and Gas has been completed.

The government will have brought to the point of sale PakistanTelecommunications Company Limited, United Bank Limited, Karachi Electricity Supply Company, Pakistan State Oil, Oil and Gas Development Corporation, and Faisalabad Electricity Supply Company. (Done, but only PSO close to sale and only one bidder for OGDC).

The Ministerial Committee on Deregulation will have accelerated the implementation of its program by: (a) amending labor laws to encourage employment while protecting worker’s rights; (b) implementing a program to eliminate administrative barriers; and (c) working in conjunction with CBR carried out a comprehensive review of SRO system and implemented an action plan to eliminate unnecessary ones, monitor lapsing of time-bound SROs, and define clear criteria for maintaining required ones. (Mostly done)

Continued implementation of program to grant no new tax or duty exemptions or special privileges regarding income tax, custom duties, or GST. No new regulatory duties to be imposed. Phasing out of time-bound regulatory import duties and no adoption of new ones except for existing contracts or international commitments. Policy changes to be confined to regular and transparent forums, such as the annual budget. (Done)

The government will have issued the Competition Law Ordinance (replacing the Monopoly and Restrictive Trade Practices Act of 1978) to control and eliminate anti-competitive business practices and unfair methods of competition that adversely affect trade and economic development. (Not yet done)

TRADE REFORM To reduce the anti-export bias and encourage exports, the maximum tariff rate has been reduced from 35 percent to 30 percent and the tariff slabs reduced from five to four.

BANKING AND FINANCIAL SECTOR REFORM

Improve sector governance through restructuring, privatization and strengthened banking supervision.

The restructuring of the three nationalized commercial banks has been initiated. Six hundred and fifty branches have been closed and eight thousand staff have taken voluntary retirement.

The restructuring of the three nationalized commercial banks has been initiated. Six hundred and fifty branches have been closed and eight thousand staff have taken voluntary retirement. (Done)

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Output Indicator/Matrix Projected in last PSR Actual/Latest EstimatePre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

As part of the restructuring non-performing financial institutions, the country’s largest non-bank institution –the National Finance Development Corporation has been closed through a merger with the state-owned National Bank of Pakistan.

To strengthen banking system regulations and enhance the quality of monetary policy, the non-core functions of the State Bank of Pakistan (SBP) have been devolved to a newly created SBP Banking Services Corporation.

To improve financial sector governance and strengthen the banking system, the 1997 Loan Recovery Act has been amended to facilitate foreclosure of bank collateral.

The government has divested 10 percent of its shares in the National Bank of Pakistan, and further divested its minority shares of Muslim Commercial Bank from 15 to 9 percent.

As part of the restructuring non-performing financial institutions, the country’s largest non-bank institution –the National Finance Development Corporation has been closed through a merger with the state-owned National Bank of Pakistan. (Done)

To strengthen banking system regulations and enhance the quality of monetary policy, the non-core functions of the State Bank of Pakistan (SBP) have been devolved to a newly created SBP Banking Services Corporation. (Done)

To improve financial sector governance and strengthen the banking system, the 1997 Loan Recovery Act has been amended to facilitate foreclosure of bank collateral. (Done)

The government has divested 10 percent of its shares in the National Bank of Pakistan, and further divested its minority shares of Muslim Commercial Bank from 15 to 9 percent. (Done)

AGRICULTURE SECTOR REFORM The federal and provincial governments have removed all restrictions to inter-district and/or inter-province transport of agriculture commodities including wheat.

The provincial governments have removed all restrictions to the free movement of certified seeds throughout each province.

The government has liberalized the imports and exports of all agriculture products.

The government will have carried out an analysis of existing rural policies with a focus on land markets. (Not yet done)

To promote quality in production and foster exports, the federal and provincial governments will have (a) established a national grading and standardization system for cotton; (b) liberalized the sugar market by eliminating restrictions for the merger and consolidation of sugar mills, and removed zoning requirements for sale/purchase of sugar cane; and (c) reduce the role of government in wheat marketing. (Not yet done)

NATURAL GAS SECTOR REFORM

To enhance sector development through tariff reform, privatization, and improved regulatory environment.

The government has issued an ordinance to establish the Oil and Gas Regulatory Authority.

PETROLEUM SECTOR REFORM

To increase efficiency and growth through deregulation, market liberalization, and enhanced competition.

To protect the environment through adoption of cleaner better quality products.

The privatization of Sui North LPG Plant has been completed.

The bidding for the privatization working interest in nine oil fields has been completed.

The government will have brought to the point of sale the main companies in the sector: Oil and Gas Development Corporation and Pakistan State Oil. (Done)

The government will have developed internationally- accepted standards for petroleum product specifications and will have announced a mandatory time-frame for their adoption. The latter would include the phasing-out of unleaded gasoline, and limits to the sulfur content in diesel to a maximum of 0.5 percent. (Partially done)

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Output Indicator/Matrix Projected in last PSR Actual/Latest EstimatePre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

POWER SECTOR REFORM

To establish a competitive electric power system consisting of privately-owned, financially viable, and efficiently operated companies.

A financial improvement plan has been agreed between the Borrower and WAPDA, setting out the measures needed for WAPDA, the GENCOs, NTDC and the DISCOs to become financially viable, including tariff and non-tariff adjustments which will enable WAPDA, the GENCOs, NTDC and the DISCOs to achieve, under a reasonable forecast of revenues and expenditures, an overall debt/service coverage ratio of 1.2 by the end of FY03; and (b) pursuant to such plan, a tariff increase of Rs. 0.045 per kilowatt hour on account of the fuel adjustment cost determined by NEPRA as at end of March 2002, together with an interim structural tariff increase of Rs. 0.08 per kilowatt hour has been introduced effective May 15, 2002.

The government will have brought KESC, FESCO and JAMCO to the point of sale in FY03 and started implementation of the follow-up plan to further private sector participation in distribution and generation—including privatization of remaining DISCOs and GENCOs. (Mostly done)

The government will have announced a strategy and initiated the implementation of a phased program towards the introduction of a competitive wholesale electricity market. (Not done)

NEPRA will have completed the regulatory framework by issuing regulations and guidelines pertaining to, but not limited to, performance standards, revised system for the automatic fuel adjustment clause, and introduction of multi-year tariffs. (Partially done)

2. Improving GovernanceEFFICIENT AND EQUITABLE MOBILIZATION OF RESOURCES

To improve tax policy and tax administration to increase revenues and improve governance.

CBR will have initiated the implementation of an information technology based system of tax assessment and audit. (Not done)

A Large Tax Payer Unit will have been established in Karachi and then extended to other large commercial centers. (Done in Karachi)

CIVIL SERVICE REFORM

To improve the performance of the civil service by restoring integrity, autonomy, and adoption of modern personnel and management practices.

To improve performance and reduce corruption the Civil Service Act has been amended to enable the government to prematurely retire civil servants who are found to be inefficient and have completed 20 years of service.

To improve the quality and performance of higher level staff, examination requirements have been established as a prerequisite for promotions (to grades 17, 19 and 20).

The government has implemented initial phase of right-sizing program of the Federal Secretariat by eliminating vacant posts and placing redundant personnel in a surplus pool.

The first phase of the pay and pension reform scheme for the federal government’s civilian and military personnel has been implemented through: (a) the revision of pay scales; and (b) the rationalization of pension benefits.

The provincial and district governments will have defined arrangements for transferring responsibilities for staff recruitment and personnel management from the provinces to the district level. (Partially done)

A strategy to strengthen the professionalism of the civil service in key areas of economic and financial management will have been agreed and implementation started by creation of Economist Cadre. (Partially done)

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Output Indicator/Matrix Projected in last PSR Actual/Latest EstimatePre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

DEVOLUTION

Implement devolution to improve governance in service delivery

The Local Government Ordinances to reconstruct and regulate local governments were promulgated on August 2001 in each of the four provinces.

The local government s have started their functions with their own budget under transition arrangements with the provincial governments.

The government will have carried through with the continued implementation of programs of capacity building with special focus on establishing clear budgetary procedures and improved financial management. (Partially done)

Provincial Finance Awards (one per province) defining rules for inter-governmental fiscal relations will have been established. (Partially done)

The local government will have started preparing and implementing their own budgets from FY03. (Partially done)The federal, provincial, and district governments will have agreed and defined measurable indicators to monitor the performance of local governments and their effectiveness in service delivery. (Not yet done)

3. Improving Human Development

POLICY, FISCAL, AND MONITORING FRAMEWORK

Increase the share of pro-poor expenditures with monitoring and evaluation mechanisms to track progress

The FY02 budget allocations of the federal, provincial, and local governments for human development and pro-poor expenditures under the I-PRSP have been increased, in the aggregate, to Rs. 164 billion or 4.4% of GDP.

A National PRSP Implementation Committee has been established in the Borrower’s Ministry of Finance (MOF) to oversee the implementation of the Borrower’s anti-poverty strategy as reflected in the I-PRSP and to help build consensus in support of the full PRSP under preparation, together with a PRSP Secretariat to coordinate the actions directed by the National PRSP Implementation Committee, and as part of this process: (a) a national poverty line and methodology have been established; and (b) intermediate health and education outcome indicators have been formulated and are being evaluated, with a view to preparing an action plan not later than September 2002 to improve the monitoring tools established therefore.

The government has established as a part of the I-PRSP an expenditure tracking mechanism for pro-poor (or I-PRSP expenditures). Quarterly expenditure reports are being prepared and disseminated to the public.

The federal and provincial governments will have established a clear fiscal framework to finance the district governments and ensure the regular flow of funds. (Partially done)

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Output Indicator/Matrix Projected in last PSR Actual/Latest EstimatePre-Board (SAC2 conditions in bold) Post-Board (SAC3 conditions in bold)

EDUCATION

Increase enrollments, narrow gender gaps, and increase quality of education.

The consolidated budget allocations of the federal, provincial, and district government budgets for education have increased to Rs 72.5 billion or 2.0 percent of GDP.

To increase public financing of private education, the federal government has approved a new charter for the National Education Foundation.

The Cabinet has approved a national strategy to promote private sector participation in education.

The consolidated federal, provincial, and district governments budgets would have increased the share of education expenditures in FY04 in line with recommendations from Public Expenditure Review and costing of reforms under the PRSP. (Done)

The government will have expanded public-private partnerships through restructuring of the National Education Foundation. (Partially done)

The government will have established a system for collecting reliable data, including outcome-based indicators, at the national, provincial and district levels. (Partially done)

Continued implementation of the Education Reform Strategy and monitoring of education outcomes. (Partially done)The government will have completed the development of the National Education Assessment Initiative at the federal and provincial level. The first assessment will have been conducted in FY05. (On track)

HEALTH

Improve the health status of the population through the expansion and improved quality of preventive and public health systems.

The consolidated federal, provincial, and district governments budgets will have increased the share of health and population expenditures in the FY04 in line with recommendations from Public Expenditure Review and costing of reforms under the PRSP. (Not verified)

The government will have hired about 10,000 new Lady Health Workers per year to reach its target of 78,000 workers in FY03 and 100,00 workers reaching 100 million women and children by FY05. (Partially done)

Continued implementation of the National Health Policy and monitoring of health outcomes. (On track)

SOCIAL PROTECTION

To help reduce poverty, develop human capital, and reduce gender imbalances through more active public policies.

To develop the government’s capacity to prepare and implement these policies.

The financing of the off-budget Zakat program has been increased from Rs. 8 billion to Rs. 10 billion to reach more than 2 million beneficiaries.

The government has initiated the monitoring and evaluation of the Food Support Program through third party surveys. The first survey has been conducted on a pilot basis by the University of Punjab.

The Pakistan Kushal program has been strengthened and it s budget allocation increased to Rs. 15 billion or about 12 percent of the country’s public investment program.

The -credit program of the Micro-Credit Bank has been strengthened. Branches have been expanded to 30 (out of 100) districts.

The government will have established monitoring and evaluation system for Zakat and strengthened the monitoring system for the Food Support Program. Expansion of program based on lessons learned from evaluation. (Not done)

The government will have established monitoring and evaluation systems for the Kushal program. Expansion of program based on lessons learned from evaluation. (Not done)

The government will have strengthened the legal and regulatory environment for micro-finance institutions and expansion of coverage of successful existing programs. (Not done)

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ millionBOP/Budget Support 500.00 500.00 100

Total Baseline Cost 500.00 500.00 Physical Contingencies 100

Total Project Costs 500.00 500.00Total Financing Required 500.00 500.00

Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

IDA Govt. CoF. IDA Govt. CoF. IDA Govt. CoF.BOP/Budget 500.00 500.00 100.0

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Annex 3. Economic Costs and Benefits

Not Applicable.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/PreparationDecember 2001- 2 Economists S SMarch 2002 1 Financial Mgmt. Specialist

1 Education Specialist1 Health Specialist2 Power Specialist

Appraisal/NegotiationApril 2002 - 3 Economists S SMay 2002 1 Financial Mgmt. Specialist

1 Education Specialist1 Health Specialist2 Power Specialist

SupervisionSeptember 2002-May 2003

4 Economists S S

1 Education Specialist1 Financial Mgmt. Specialist1 Education Specialist1 Health Specialist2 Power Specialist

ICRDecember 2002 - May 2003

2 Economists S S

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 47.79 256.9Appraisal/Negotiation (included above) (included above)SupervisionICR 1.73 19.1Total 49.52 *276

*Includes labor, travel and other costs.

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

Program Document For a Proposed Credit in the Amount of SDR395.2 million (US$500 million equivalent) to the Islamic Republic of Pakistan for a Second Structural Adjustment Credit, May 15, 2002.

Development Credit Agreement June 12, 2002.

Memorandum of the President on a Country Assistance Strategy for the Islamic Republic of Pakistan, June 24, 2002.

Project Status Reports from supervision missions (Project File)

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