Public sector adjustment project
 Report No: ; Type: Report/Evaluation Memorandum ; Country: Pakistan; Region: South Asia; Sector: Public Sector Management Adjustment;
                                       Major Sector: Public Sector Management; ProjectID: P010447


Pakistan: Public Sector Adjustment Loan/Credit (Loan 3645-PAK and Credit 2542-PAK)

The Implementation Completion Report (ICR) for the Pakistan Public Sector Adjustment Loan/Credit (PSAL, Loan
3645-PAK and Credit 2542-PAK, approved in FY94 for a loan amount of US$150 million and a credit amount of
US$100 million equivalent) was prepared by the South Asia Regional Office. The loan was fully disbursed and
closed on schedule on December 31, 1995. The Japanese Overseas Economic Cooperation Fund provided
cofinancing of US$150 million equivalent. The Borrower's and cofinancier's comments are in Appendices II and
III.

The PSAL was a response to the balance of payments crisis that threatened Pakistan's international reserves in mid-
1993 when a non-partisan caretaker government was appointed. The operation's principal objectives were to: (i)
address public finance issues, including the need to increase revenues and improve expenditure allocation, crucial
for promoting economic and social development; (ii) support government efforts to deregulate the economy and
privatize government enterprises; and (iii) improve private sector competitiveness through trade reform. To achieve
these objectives, the PSAL reform program sought to ensure a sound and sustainable macroeconomic framework; to
restructure public expenditures, improve tax structure and enhance revenues; to privatize public enterprises in
commerce, industry, energy and banking; and to continue trade reform.

Implementation of the PSAL program (by the successor to the caretaker government) was satisfactory in 1993-1994
on both the stabilization and structural reform fronts involving fiscal, foreign exchange and tariff reform, the
liberalization of cotton markets, public investment programming and monitoring, and the promotion of social sector
development. But the program went progressively off-track in 1995, suggesting a return to Pakistan's pattern of
"stop-go" reforms, particularly in the fiscal and trade liberalization areas. These developments and the negative
impact of floods and a cotton virus were reflected in the poorer-than-expected performance of a number of outcome
indicators (including GDP and export growth, government savings, and inflation) during 1995. Institutional
development measures, which involved changing some "rules of the game" but little capacity building, were not
sufficiently "owned" by the government and consequently had minimal impact.

The ICR rates the PSAL outcome as marginally satisfactory, institutional development impact as negligible, and
sustainability as uncertain. OED is in agreement with these ratings. It also rates Bank performance as satisfactory.

A major lesson is that the Bank needs to avoid ambiguity when discussing with governments the critical mass of
actions that need to be taken to jump-start an adjustment program. Another lesson is that adjustment operations that
do not specify compliance standards at the design stage, but assume that they will be identified and negotiated by
supervision missions, need to build in interim reviews and the possibility of corrective actions during
implementation. A third lesson is that policy reform programs, particularly those that significantly affect the way
institutions work, should incorporate measures to strengthen both near-term and longterm implementation capacity.

The ICR is of highly satisfactory quality; it provides good documentation for its findings, demonstrates
conscientious and thorough attempts to draw out the views of counterparts, and clearly sets out the rationale
underlying the ratings. No audit is planned.