After an earlier $470 million loan meant to raise taxes showed limited results, the World Bank has approved a new $700 million financing package for Pakistan to make the tax system fairer and improve budget transparency. The aim of this funding is to strengthen governance and public financial management rather than support foreign spending.
According to a statement from the World Bank’s office in Pakistan, the Board of Executive Directors approved the $700 million financing under the Pakistan Public Resources for Inclusive Development programme. This is a multi-year initiative designed to support economic stability and improve public services.
Documents show that the World Bank has again provided about $700 million, or nearly Rs200 billion, for reforms that do not require foreign borrowing. Out of this amount, $600 million will go to the federal government to reduce reliance on trade taxes and to create a more predictable, evidence-based tax policy. The funds will also be used to widen the tax base by cutting tax exemptions and increasing income from direct taxes.
The loan will further support reforms such as reducing energy subsidies, increasing budget transparency, digitising payments and procurement systems, improving the quality of national statistics and strengthening data sharing between federal and provincial statistical bodies.
This is the second time the World Bank has approved financing for areas where earlier support showed limited progress. Previously, the lender approved a $470 million loan under the Pakistan Raises Revenue programme, and later described its results as only “moderately satisfactory”.
Despite billions of rupees spent by the government on tax reforms, Pakistan’s tax-to-GDP ratio remained at 10.3 percent last year. The chairman of the Federal Board of Revenue has also told the prime minister that tax collection may fall short by more than Rs560 billion in the first half of the current fiscal year.
World Bank documents say the new package will aim to raise the tax-to-GDP ratio, increase spending on basic health and education, improve school and healthcare facility standards, and strengthen data systems to better track human development and economic progress.
The World Bank said the multi-year programme supports ongoing fiscal reforms linked to the IMF’s Extended Fund Facility and the National Fiscal Pact. Under this framework, total financing could reach $1.4 billion, with $600 million approved for federal programmes and $100 million allocated for Sindh.
In the first phase, the programme will focus on federal fiscal reforms under the National Fiscal Pact. As part of this effort, the government has created a tax policy unit in the Finance Division to review tax policies and develop a medium-term framework aimed at reducing exemptions, improving predictability, increasing taxpayer compliance and boosting revenues.
However, the government has also kept the tax policy wing within the FBR, suggesting that tax policy decisions will continue to be led by the revenue authority rather than fully shifting to the finance ministry.
The government has also pledged to improve public spending efficiency and align expenses with policy priorities, including reviewing pension and subsidy costs. However, just days before the World Bank approved the loan, the finance ministry restored multiple pensions for retired government employees, reversing an earlier reform decision.
World Bank Country Director for Pakistan Bolormaa Amgaabazar said that achieving inclusive and sustainable growth requires Pakistan to raise more domestic revenue and use it efficiently and transparently for public benefit. She said the new programme aims to ensure stable funding for schools and clinics, a fairer tax system, stronger data for decision-making and greater public trust.
World Bank Lead Country Economist Tobias Akhtar Haque said strengthening Pakistan’s fiscal base is critical for economic stability, better results and stronger institutions.
The World Bank told its board that Pakistan spends less on health and education than many regional countries and has a rigid budget dominated by debt payments, transfers and subsidies. It added that weak tax collection has led to repeated deficits, rising debt and economic instability. However, the bank did not address its own limited success, despite providing large sums to support Pakistan’s fiscal management over the years.
