Pakistan has received fresh financing of $700 million from the World Bank to support tax reforms, enhance budget transparency and strengthen public financial management, despite limited gains from earlier lending aimed at revenue mobilisation.
According to an announcement by the World Bank’s office in Pakistan, the Board of Executive Directors has approved $700 million in financing under the Pakistan Public Resources for Inclusive Development programme. The package is described as a multi-year, multi-programme initiative designed to support macroeconomic stability and improve service delivery.
Loan documents reveal that the financing—equivalent to around Rs200 billion—will be used for reforms that, critics argue, do not necessarily require foreign borrowing. Of the total amount, $600 million has been allocated to the federal government to reduce reliance on distortive trade taxes and establish a more predictable, evidence-based tax policy framework.
The programme also aims to expand the revenue base by curbing tax expenditures and increasing collections from direct taxes. Additional objectives include rationalising energy subsidies, improving budget transparency, digitising payments and procurement systems, strengthening statistical capacity, and enhancing data-sharing between federal and provincial bureaus of statistics.
This marks the second major World Bank loan in recent years for tax and revenue reforms, an area where previous lending has delivered modest results. Earlier, the Bank approved a $470 million loan under the Pakistan Raises Revenue programme, with progress later assessed by the lender itself as only “moderately satisfactory.”
Despite billions of rupees spent by the federal government on tax reforms, Pakistan’s tax-to-GDP ratio stood at just 10.3% in the last fiscal year. The chairman of the Federal Board of Revenue (FBR) has also informed the prime minister that revenue targets may be missed by more than Rs560 billion in the first half of the current fiscal year.
World Bank documents state that the new financing will support efforts to raise the tax-to-GDP ratio, increase spending on basic health and education, improve school and healthcare infrastructure, and strengthen data systems to track human development and economic indicators.
The World Bank said the multi-year package aligns with Pakistan’s fiscal reforms under the IMF’s Extended Fund Facility and the National Fiscal Pact. Under the broader programme, the Bank plans to provide up to $1.4 billion in total financing, including $600 million for federal initiatives and $100 million for Sindh province.
Under Phase One, the operation will focus on federal fiscal reforms. As part of these efforts, the government has established a new tax policy unit within the Finance Division to develop a medium-term tax policy framework aimed at reducing tax expenditures, improving predictability, increasing compliance and boosting revenues.
However, the government has also retained the FBR’s policy wing, indicating that tax policy formulation may continue to be driven by the tax authority rather than the finance ministry.
The government has further committed to improving public spending efficiency and aligning expenditures with policy priorities, including a review of pension and subsidy outlays. Notably, just days before approval of the World Bank loan, the finance ministry restored multiple pensions for retired government servants, reversing an earlier reform move.
“Pakistan’s path to inclusive and sustainable growth requires mobilising more domestic resources and ensuring they are used efficiently and transparently,” said Bolormaa Amgaabazar, World Bank country director for Pakistan. She said the programme aims to deliver predictable funding for schools and healthcare facilities, fairer tax systems and stronger data for decision-making.
Tobias Akhtar Haque, Lead Country Economist for the World Bank in Pakistan, said strengthening fiscal foundations was critical to restoring macroeconomic stability and improving institutional performance.
In its justification for the loan, the World Bank noted that Pakistan spends less on health and education than regional peers and faces rigid public spending dominated by debt servicing, transfers and subsidies. It added that weak revenue performance has led to recurring fiscal deficits, rising debt and repeated episodes of macroeconomic instability.
However, the Bank did not address concerns over the limited impact of its past fiscal management programmes, even as it continues to extend significant financing to Pakistan for similar reform objectives.
