World Bank Regional Vice President for South Asia Martin Raiser's Speech at the LUMS University, Lahore, Pakistan

Ladies and Gentlemen, thank you for joining us today. After Islamabad and Karachi, I am very happy to be in Lahore today, as part of our series of events to launch the World Bank policy notes on key reform priorities a new government should address. These Notes have been the object, over the past months, of many consultations across the country - including in Punjab - as part of our Reforms for a Brighter Future initiative. I would like to thank the Pakistan Institute for Development Economics (PIDE) for partnering with us on this initiative, and the Lahore University of Management Sciences for hosting us today. The engagement of so many around the country has been amazing. Many thanks to everyone who has contributed.

This is a critical moment for Pakistan as you are facing one of the worst economic crises of the country's history. It follows the catastrophic floods that hit last year, which were a sad reminder of how exposed Pakistan is to climate change. In the background, a silent human capital crisis is weighing heavily on Pakistan's development, particularly so in some of the poorest districts in South Punjab.

We are convinced there is a feasible path out of this crisis. This is what these policy notes describe. My team has subtitled the Brighter Future initiative "Time to decide". With elections coming at the Federal and Provincial levels, it is indeed time to decide. Many countries have used crises as an opportunity to embark on fundamental reforms. Will Pakistan use or loose this opportunity?

I would like to make the case in favor. Many people our team talked to over the past two months are tired of the stop and go cycles of half-hearted reforms that are just enough for the country to muddle through, but that offer no long-term perspective of improvement. There seems to be a growing recognition that deep changes are needed.

The stakes are high. Indeed, it is striking to see how far Pakistan has fallen behind. In my first development class at the LSE in 1988, Pakistan was still held up as an example for strong human and economic development in the region, with the second highest cumulative increase in per capita incomes since independence after Sri Lanka. Now it is second to the bottom in per capita incomes and has education and health outcomes comparable to much poorer countries in sub-Saharan Africa. It also lags in many other dimensions behind regional peers.

Will the sense of crisis galvanize a sustained reform effort this time? The reform agenda is not new. Indeed, five years ago in the Pakistan@100 report, we advocated for similar measures to the ones I am presenting today. But after an initial drive, the reform effort petered out.

When I ask people why this is, I am told because there are strong vested interests resisting reforms. During the consultations for this report, we heard about elite capture and political opportunism as major impediments. But we also heard many, including the growing young population in the cities, who ask for real change. There may be political dividends to those who understand their aspirations. And of course we know that when there is political will, Pakistan's authorities can act decisively, as they did during COVID for example.

Today, we want to focus on a major public health challenge that, we believe, has had insufficient attention for too long. That is the need to address the country's high child stunting rates. This issue is part of a "silent" human capital crisis that hurts Pakistan. One that rarely makes the headlines, even if it affects the majority of the population today, and undermines Pakistan's future potential.

Forty percent of children under five suffer from stunted growth. The rates exceed fifty percent in some of the poorest districts of Punjab, and even sixty percent in rural Sindh. These are shocking statistics and compare to rates we find in much poorer countries. It means that a large part of the country's population is not reaching their physical and cognitive potential. As you will hear shortly, the root causes lie in lack of access to clean water and sanitation, lack of birth spacing, poor nutrition and insufficient access to health services. We know that the environment and unhygienic living conditions many mothers and children are exposed to in the first 1000 days from conception, are a major cause.

Recent research, including in Pakistan, shows that there needs to be a different approach to this issue. For too long, programs have focused almost exclusively on nutrition interventions. While nutrition is important, it is clearly not sufficient. This explains why, despite a dramatic decline in poverty between 2000 and 2018, stunting rates have stayed pretty much the same. It also explains why they have not even declined in urban areas, where people are on average better off.

Sadly, the impacts of stunting continues through a person's life, limiting cognitive abilities and increasing susceptibility to disease. And the disadvantage is intergenerational. Mothers who are stunted are at much higher risk of giving birth to children who are stunted.

So - we need a different approach, one that recognizes the multisectoral nature of the issue covering water and sanitation infrastructure, health and nutrition facilities, and behavioral change.

A new, multisectoral approach requires political mobilization across all levels of governments, especially at the local level, in each Tehsil. It also requires coordinating interventions in sectors that rarely work together. This is not easy, but countries like Indonesia, Peru and others have shown that rapid progress is possible. We estimate that in Pakistan, these coordinated and targeted interventions, and with additional investments of maybe 1 percent of GDP per year, stunting rates could fall by half in a decade or so.

One percent of GDP every year is a significant investment for a country that raises only 9 percent of GDP in revenues. Yet, we believe money is not a binding constraint. The policy notes we present to you today contain a detailed analysis of Pakistan's tax and spending policies. This shows that just tax exemptions and the losses of state-owned enterprises consume public resources four times higher than what would be needed to address stunting. And the social and economic returns would be huge.

Now, I am happy to say that with the Government of Punjab, we are now starting to implement this new approach, bringing all required interventions together at the Tehsil level. Yesterday, I visited our flood housing reconstruction project in Sindh, where a similar spatial "convergence" of government interventions is emerging. These examples I hope will allow us to generate evidence and build the consensus necessary to take action at scale across the country.

There are of course other aspects of Pakistan's human development crisis, such as insufficient schooling and learning outcomes. Combined with stunting, these human capital shortcomings mean that the productivity of Pakistan's large and growing workforce is only 41 percent of what it could be, were Pakistan's youth, and especially girls, to reach their full potential. If the country just caught up in human capital with its peers, its GDP per capita could be one third higher by 2047. Let me also say that Pakistan's high fertility rate - related to girls dropping out of school early - means Pakistan has not yet benefited from the demographic window of opportunity.

Now, let me also be clear about one thing. World Bank finance alone is never going to be more than a small part of the solution. To address Pakistan's human development crisis, we need a national effort to at least double spending on health and education to around 5 percent of GDP. For reference, that would be just the same level India spends today. Some commentators have suggested the World Bank should make all its programs conditional on the government committing to this. I have a different view: we know from development that conditionality ultimately only works if there is ownership - and that comes from people asking for change. The evidence we present today is meant to help you do that.

The policy notes contain detailed analysis on other aspects of Pakistan's social and economic crisis. This includes low levels of productivity growth in industry and agriculture, a largely closed and uncompetitive economy, a costly energy sector that is a drain on the budget rather than an engine for development, and the hugely inefficient use of the country's limited water resources. We argue for interlinked reforms in fiscal and tax policy, the trade and investment regime, agricultural and energy policies - and we look at the potential of digital technologies and the role of local governments in improving public service delivery. At the heart of a sustained reform process, we think, is a change in the relationship between citizens, businesses and the state, where trust is rebuilt and accountability strengthened.

Let me come to a close. Pakistan's crisis is serious, and our view is that muddling through would be risky. There are no buffers left for another stop-and-go cycle. Pakistan risks losing the support of its talented youth at a time when its young population could be its biggest asset.

We hope to have offered some ideas on how Pakistan can use this moment as an opportunity for real change. I particularly look forward to the specific discussion on stunting today.

I can assure you, the World Bank will continue to support the people of Pakistan on their journey towards prosperity.

Thank you very much!

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