ISLAMABAD: The Pakistan Institute of Development Economics (PIDE), in collaboration with RASTA (PIDE & Planning Commission Competitive Research Grants), hosted a webinar titled “Reform Programs under Policy Loans in the Power Sector and Tax Administration.”
The session brought together policy experts to critically examine the outcomes of reform programs financed through policy loans from multilateral development partners in Pakistan’s tax and power sectors. The event featured Dr. Mahmood Khalid and Ms. Afia Malik, Senior Research Economists at PIDE, while Dr. Ali Salman, CEO of the Policy Research Institute of Market Economy (PRIME), moderated the session.
Opening the discussion, Dr. Ali Salman emphasized the importance of evaluating Pakistan’s reform programs through local research and evidence-based dialogue. He noted that while policy loans have shaped the country’s fiscal and energy reform agenda for decades, their effectiveness and long-term sustainability require critical reassessment.
Presenting his research on revenue mobilization, Dr. Mahmood Khalid highlighted that Pakistan’s tax-to-GDP ratio declined from 10.1 percent in 2023 to 9.6 percent in 2024, compared to the OECD average of 34 percent. He pointed out that interest payments now consume over 75 percent of total tax revenues, leaving limited fiscal space for development.
Reviewing major donor-funded tax initiatives, including TARP (2004–2010), TAGR (2015–2019), and the Pakistan Raises Revenue Project (PRR, 2019–ongoing), he observed that despite substantial funding, outcomes have been limited and short-lived. He revealed that only 2.4 percent of the population files tax returns, 55 percent of filers are nil-filers, and 3.3 percent of taxpayers contribute 90 percent of total income tax revenue, reflecting a narrow tax base.
He added that while digitization initiatives such as Asaan Tax, Maloomat TaxRay, and Track & Trace have improved accessibility, they have not significantly enhanced compliance. He stressed that sustainable reform requires institutional autonomy, enforcement incentives, and coherent fiscal policies, rather than relying solely on technology upgrades.
Ms. Afia Malik analyzed four major loan programs implemented since 1994 to restructure and improve the power sector. She explained that although these loans targeted governance enhancement, financial viability, and private sector participation, their implementation failed to achieve commercial independence or efficiency.
Privatization efforts, such as those of KAPCO and K-Electric, produced mixed results, with improvements in corporate governance offset by persistent inefficiencies and tariff distortions. She highlighted that circular debt, which was nonexistent before 2006, emerged after these reforms and continues to grow despite repeated debt management plans.
She further noted that policy loans encouraged the introduction of RLNG-based power plants, increasing dependence on imported fuels and raising production costs. While renewable projects were financed, many remain underutilized due to inadequate transmission infrastructure. The unbundling of WAPDA into multiple entities led to fragmentation, higher administrative costs, and weak regulatory oversight. Tariff design remains outdated, uniform across regions, and disconnected from actual costs, undermining sector sustainability.
She concluded that despite decades of reforms and billions in financing, the power sector has become more fragmented, inefficient, and costly, with consumers facing higher tariffs and unreliable supply.
Summing up the discussion, Dr. Ali Salman said that Pakistan’s repeated reform cycles under donor guidance point to deeper governance and ownership challenges.
He called for reforms that are homegrown, context-specific, and institutionally anchored, emphasizing that sustainable progress depends on aligning incentives, strengthening accountability, and building domestic policy capacity rather than relying on externally designed frameworks.
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