Jolt for Pakistan as World Bank defers $1.1 billion loans

The World Bank has deferred its approval of two loans for Pakistan worth $1.1 billion until the next fiscal year pending some steps on the country’s energy debt and tariffs, reported 24NewsHD TV channel.

The funds were to be provided for two projects including Resilient Institutions for Sustainable Economy (RISE-II) and Program for Affordable and Clean Energy (PACE-II).

World Bank was due to give Pakistan $450 million for RISE-II and $600 million for PACE-II. However, it has now deferred the disbursement until the next fiscal year.

The bank also opposed the 1%-3% flood levy on imports to fulfil the financing gap of $32 billion. 

The approval of the loans has been awaited since June last year, a finance ministry source told British news agency, declining to be named as they were not authorised to talk to the media.

“The major issue is the circular debt management plan in the energy sector and tariff revision,” said the source, adding “These actions are pending on our side.”

The South Asian nation of 220 million is still reeling from devastating floods that have led to losses of more than $30 billion. Foreign exchange reserves held by the State Bank of Pakistan fell to $4.3 billion earlier this month, barely enough for three weeks of imports.

Moreover, it has been reported that the funds have been linked to the government lowering the crushing taxes, duties and other fees imposed on imports.

The high fees, duties, taxes and refusal to issue letters of credit have meant that Pakistan’s imports have slowed from $6.431 billion in December 2021, to $4.218 billion in December 2022.
The RISE programme hopes to achieve “fiscal management, promote transparency and private sector growth, and undertake foundational reforms in the energy sector to transition to low-carbon energy,” and the PACE programme sets to “reduce circular debt flow through reducing power generation costs, decarbonising the energy mix, improving efficiency in distribution, and retargeting electricity subsidies,” according to the WB website. 

Both programmes indicate reforms in the energy sectors, and the WB believes that macroeconomic challenges cannot be met unless energy costs are cut. This includes reducing generation costs, creating avenues for solar energy and cutting subsidies in the energy sector. 

The government had hoped to receive the approval of at least $450 million by January 2023, which would have unlocked a further $450 million loan by the Asian Infrastructure Investment Bank (AIIB). 

The government was already facing difficulty securing a financing loan from the International Monetary Fund (IMF), and with such a blow by the WB the government is left with an additional $1.5 billion hole. 

Reports said World Bank expressed its grievances regarding 1%-3% flood levy on imports to raise Rs60 billion to Rs70 billion in additional taxes to cover imports. The flood levy is part of the Rs200 billion budget that the government set to appease the IMF bailout.