World Bank postpones $1.1 billion loan to cash-strapped Pakistan until next fiscal year

ISLAMABAD: In a blow to cash-strapped Pakistan, the World Bank has postponed approval of two loans worth $1.1 billion until next fiscal year, according to a news report.
The Washington-based lender also opposed imposing a flood tax on imports, creating a new hole in an already ambitious $32 billion annual funding plan.
The Bank’s decision to suspend the approval of the second Resilient institutions for a sustainable economy (RISE-II) worth $450 million and the Second Program for Affordable Energy (PACE-II) worth $600 million will be a major shock to the government, The Express Tribune reported.
“The indicative date for the (World Bank’s) Board of Directors’ discussion on the RISE-II project is fiscal year 2024, which will start on July 1, 2023 and end on June 30, 2024,” said a gatekeeper. speak to the newspaper.
Bank documents also showed that the PACE-II loan could be approved in the next fiscal year.
The government hoped to receive approval for at least the $450 million loan in January, which would have unlocked an additional $450 million from the Asian Infrastructure Investment Bank (AIIB) – which had secured a loan of $450 million with World Bank RISE-II endorsement. .
The coalition government was already struggling to revive the program of the International Monetary Fund (IMF). The latest move by the global lender, however, has created a $1.5 billion hole in the government’s annual funding plan.
Just before the IMF bailout relaunched in August last year, the World Bank agreed to increase its lending envelope to cover a $300 million hole. All of this, however, seems to have been lost due to a lack of decision-making by the federal government.
The World Bank spokesperson added that “the preparation of the RISE-II operation is ongoing and the World Bank is working closely with the government for the implementation of the supported reforms”.
For the current fiscal year, the government had hoped to receive $30 billion to $32 billion in foreign funding, but plans now appear unrealistic. The financing plan included loans worth $2.9 billion from the World Bank.
With current foreign exchange reserves standing at just $4.3 billion, Pakistan may not be able to reach June without the support of foreign creditors.
The United Arab Emirates is expected to provide the county with a $1 billion loan and Saudi Arabia is also “studying” the possibility of granting another $2 billion. The government, however, has yet to announce disbursement dates.
Sources told the newspaper that the World Bank has also communicated that it is opposed to the idea of ​​imposing a flood tax of 1% to 3% on imports which the government wants to impose to increase from 60 to 70 billion rupees of additional taxes. and contain imports.
The flood levy is part of the Rs 200 billion budget that the government plans to implement in a bid to revive the derailed scheme.
The World Bank, however, views increased import taxation as a bad policy choice that is discriminatory, distorting and leads to a reduction in the country’s productive capacity.
The lender has communicated its decision to the federal government. As an alternative to imposing an import levy, the government has options such as withdrawing duty exemptions which have been made available to certain groups – these exemptions are protected under the Fifth Schedule to the Customs Law.
The government has long claimed that import duties were imposed to discourage imports. But despite having one of the highest import duty rates in the world, Pakistan’s current account (CAD) deficit remains higher, indicating that these duties have not helped contain imports.
Imposing duties will further increase biases in favor of a domestic industry that has been over-protected and is not inclined to compete globally. The imposition of 3% tariffs on imports will also result in the failure of previous RISE-II policy measures of reducing import taxes.
According to The Express Tribune, the conditions of the RISE-II loan relate to the country’s fiscal and macroeconomic framework, also involving the provinces. The PACE-II loan aims to “reduce the flow of circular debt by reducing electricity generation costs, decarbonizing the energy mix, improving distribution efficiency and retargeting electricity subsidies”, according to the World Bank website.


Leave a Reply

Your email address will not be published. Required fields are marked *