Islamabad
The Pakistan Institute of Development Economics (PIDE), in collaboration with RASTA (PIDE & Planning Commission Competitive Research Grants), organized a webinar titled “Reform Programs under Policy Loans in the Power Sector and Tax Administration.”
The session featured Dr. Mahmood Khalid and Ms. Afia Malik, Senior Research Economists at PIDE, and was moderated by Dr. Ali Salman, CEO of the Policy Research Institute of Market Economy (PRIME).
Opening the discussion, Dr. Salman stressed the importance of evaluating Pakistan’s reform programs implemented under policy loans from multilateral development partners.
He said that while such loans have long shaped Pakistan’s fiscal and energy reform agenda, their effectiveness and sustainability must now be reassessed through local research and evidence-based dialogue.
Presenting his findings on “Policy Loans for Revenue Mobilization,” Dr. Mahmood Khalid highlighted that Pakistan’s tax-to-GDP ratio declined from 10.1% in 2023 to 9.6% in 2024, against an OECD average of 34%, while interest payments now consume over 75% of total tax revenues. He reviewed key donor-funded programs including TARP (2004–2010), TAGR (2015–2019), and the Pakistan Raises Revenue Project (PRR, 2019–ongoing), noting that despite substantial funding, their outcomes remain limited and short-lived.
Dr. Khalid observed that only 2.4% of Pakistan’s population files tax returns, with 55% of them being nil-filers, and 3.3% of taxpayers contributing 90% of total income tax revenue—reflecting an unsustainably narrow base. He added that while digitization efforts such as Asaan Tax, Maloomat TaxRay, and Track & Trace have improved accessibility, they have not increased compliance. True reform, he argued, requires institutional autonomy, enforcement incentives, and coherent fiscal policy—not merely technological upgrades.
In her presentation on “Policy Loans and Reforms in the Power Sector,” Ms. Afia Malik reviewed four major loan programs since 1994 aimed at restructuring and improving efficiency in Pakistan’s power sector. She explained that while these initiatives sought better governance, financial viability, and private participation, implementation failed to achieve commercial independence or operational efficiency.
Ms. Malik noted that privatization efforts—such as those of KAPCO and K-Electric—produced mixed outcomes, improving corporate governance but not addressing tariff distortions or inefficiencies. She underlined that circular debt, nonexistent before 2006, emerged and grew after reform-driven restructuring, and continues to expand despite repeated debt management plans.
She further pointed out that policy loans encouraged RLNG-based power generation, increasing dependence on imported fuels and production costs. Meanwhile, renewable projects remain underutilized due to weak transmission infrastructure. The unbundling of WAPDA, instead of improving coordination, led to greater fragmentation, higher administrative costs, and weaker regulation. She stressed that tariff structures remain uniform and detached from actual costs, undermining sustainability.
“Despite decades of reforms and billions in financing, the power sector is now more fragmented, inefficient, and costly, with consumers bearing the brunt through higher tariffs and unreliable supply,” she concluded.
Summing up the discussion, Dr. Ali Salman remarked that Pakistan’s repeated reform cycles under donor direction highlight deeper issues of governance and ownership. He called for homegrown, context-specific, and institutionally anchored reforms, emphasizing that sustainable progress demands aligning incentives, strengthening accountability, and building domestic policy capacity rather than depending on externally designed frameworks.
