ISLAMABAD: The World Bank has approved an assistance of $450 million for Pakistan aimed at providing support for balance of payments and budget financing.
The Washington-based lending agency approved three separate credit facilities in order to support the country’s financial inclusion strategy, expand social safety net and promote tourism in Punjab.
However, the Ministry of Finance’s interest remains in securing the loans to cushion its foreign currency reserves that have started shrinking after the expiry of International Monetary Fund’s loan programme.
Of the $450 million, the World Bank will immediately disburse $300 million as policy credit that will, for the time being, help keep official foreign currency reserves above $17 billion.
The country’s external financing requirements have shot up due to a larger-than-anticipated trade deficit and slowing remittances.
As part of conditions for the $300 million loan, the government approved a new infrastructure finance policy in January and presented a new companies bill in parliament that would set a new system for the small and medium enterprises.
The $450 million loan package will help the poorest and most vulnerable people in Pakistan, according to a statement issued by the local office of the World Bank on Thursday.
It said the initiatives included expanding banking services and financial access, strengthening the social safety net to improve the quality of coverage of those who needed it the most as well as promoting tourism in Punjab.
The Finance for Growth Development Policy is a policy credit of $300 million to support Pakistan’s efforts for promoting a more inclusive and transparent financial sector.
The programme is aimed at providing financial access throughout Pakistan for 50% of adults from the existing level of 16%. It also includes expanding the access to credit to 25% among women by 2020.
One of the ambitious targets under the $300 million loan is doubling the credit facility for small and medium enterprises to 15% in three years. This is the most neglected area as banks are reluctant to extend loans to medium-sized industrial units due to a high ratio of defaults.
The World Bank will also support the government’s policies on enhancing financial inclusion through launching a national digital transaction accounts scheme and modernising the Central Directorate of National Savings.
Emphasis on financial sector
The World Bank said the financial sector transparency was likely to be enhanced by the Benami Transactions Prohibition Bill and conducting a national risk assessment for anti-money laundering and combating terrorism financing.
The Financial Action Task Force – a global body that sets standards for the anti-money laundering regime – is going to assess Pakistan’s compliance with global standards next year.
World Bank Country Director for Pakistan Illango Patchamuthu said despite substantial progress in initial reform programmes and recent developments in the financial sector, there remained an important unfinished reforms agenda as financial access and inclusion was particularly low.
About 100 million adults in Pakistan have no access to formal and regulated financial services, according to the World Bank. This number represents about 5% of the world’s unbanked population.
The World Bank also approved $100 million for the National Social Protection Programme aimed at assisting the government in strengthening the national social safety net system for the poor.
The loan will support the Benazir Income Support Programme in updating the National Socio Economic Registry – a platform to objectively identify the poor for cash transfers and other social programmes, and incentivise improvements in the service delivery systems.
However, independent economists criticise the government’s policy of taking foreign loans for BISP disbursements. They argue this task should be done by using domestic resources.
The World Bank also approved $50 million for the Punjab Tourism for Growth Project. This will strengthen institutions in Punjab, increase private sector participation and improve infrastructure to support the tourism sector.
The credit is given from the International Development Association (IDA), the World Bank Group’s grant and low-interest arm.