One of the most critical challenges Pakistan faces today is the need to improve and expand its education system. With important political and demographic changes taking place, greater devolution and strengthened democracy, this is an opportune moment to build a better system. Not only does the purpose of education have to be defined beyond what has been left over from colonial administrative objectives, but a much greater effort has to be invested in developing the skills and talents of the majority of the population. Punjab, Pakistan's largest province, has taken several education reform initiatives to improve education outcomes. However about a quarter of school age children are still not attending school either because they never enrolled or because they dropped out early. Low transition rates to secondary education are of special concern. Moreover, recent assessments have shown that students' knowledge and comprehension of basic subjects remains alarmingly low. Improved learning in schools is therefore another important challenge. Patterns in learning achievement in Punjab indicate the importance of school level factors, implying that a good school could make up for other regional and socio-economic disparities. Better quality schools also attract more students from the poorest families, because when parents expect better returns from education, the time and resources spent on schooling becomes worthwhile. This paper will review the extent to which critical gaps in achievement levels and other educational outcomes have been addressed by past policies and current reform programs.

The Pakistan economy is currently going through a period of much needed structural adjustment focusing on: (i) Reducing fiscal deficits from about 6 to 4 per cent of GDP, which should reduce public sector borrowing and bring down interest rates and inflation; (ii) Reducing tariffs from an average of about 80 per cent in 1993 to about 60 per cent currently and about 45 per cent next year – which while requiring painful adjustments particularly in the industrial sectors, should make Pakistan more competitive in the long term and also benefit consumers; (iii) Reducing the size of the public sector in the economy by privatising nationalised banks, nationalised and public sector industry and public utilities including power, gas and telecommunications, which should increase the efficiency of these sectors. All these measures have implications for employment generation. In the short term they are slowing down the economy and therefore employment creation is not taking place at the earlier higher rates. In the long term they should help stabilise the economy and add significantly to economic growth.