Pakistan: Second Resilient Institutions for Sustainable Economy (RISE-II) Development Policy Financing

OBJECTIVE

Program Objectives are to enhance the policy and institutional framework to improve fiscal management, and improve the regulatory framework to foster growth and competitiveness.

DESCRIPTION

RISE-II is supported under the COVID-19 Crisis Recovery Facility (the Facility) of the Bank and co-financed with the World Bank (WB) as a Development Policy Financing (DPF) under the WB’s DPF Policy to further key institutional and policy reforms. AIIB co-financed RISE-I with WB in 2020, which was first in the proposed programmatic series to assist the Government of Pakistan (GoP) strengthen its polices for improved macroeconomic management and business competitiveness in the medium term.

The objectives of the second programmatic operation are to strengthen the country’s macroeconomic management and support a more sustained and inclusive growth by mitigating the compounded socioeconomic effects of the COVID-19 pandemic and other exogenous and domestic shocks. The proposed operation will provide external financing to help GoP implement critical policy reforms to accelerate economic recovery and build the foundations for sustainable growth. Specifically, RISE-II seeks to further address key institutional and policy constraints for effective fiscal management and private sector investments to induce economic growth and reduce poverty by (i) enhancing the policy and institutional framework to improve fiscal management, and (ii) improving the regulatory framework to foster growth and competitiveness. Reforms supported by the programmatic series are relevant to current economic challenges and have already contributed to important outcomes of strengthening institutions for fiscal and debt management, broadening tax base and reducing distortions, eliminating trade barriers, and rationalizing power sector subsidies.

ENVIRONMENTAL AND SOCIAL INFORMATION

This Loan will be co-financed with the WB as lead co-financier, and the Program’s Environmental and Social (ES) risks and impacts have been assessed in accordance with the WB’s DPF Policy. AIIB’s Environmental and Social Policy (ESP) was designed to apply to investment projects and has no provisions for its application to DPF operations. Therefore, as permitted by the decision of the AIIB’s Board of Directors set forth in the Decisions to Support the Facility, the DPF Policy will apply to this operation in lieu of AIIB’s ESP. This will ensure a harmonized approach to addressing the ES risks and impacts of the Program.

WB’s DPF Policy requires the WB to determine whether the specific policies supported by a development policy loan are likely to have significant social and poverty consequences (especially on the poor and vulnerable groups) or to cause significant impacts on the country’s environment, forests, and other natural resources. The WB has determined that the policy and institutional reforms supported by this operation are unlikely to have significant adverse poverty and social impacts and some prior actions (PAs) are expected to have positive impacts on gender inclusion and poverty reduction. Most policy reforms supported by this operation are expected to have positive environmental impacts by increasing the budgetary allocations for environmental management and contributing directly to climate change mitigation and adaptation.

PA-9 may lead to adverse environmental effects in the long term, as tariff reforms will increase export opportunities for Small and Medium Enterprises (SMEs) and higher SME production, leading to more industrial pollution, worsening air and water quality, contaminating soils, and illegal industrial urban sprawl. Nevertheless, Pakistan has appropriate legislation, policy guidelines, and institutional mechanisms in place for managing and mitigating environment and natural resources impacts.