World Bank approves $825m loan for Pakistan

The programme aims to enhance national power transmission system, health and education service

ISLAMABAD: The World Bank has approved a loan package of $825 million for improving Pakistan’s public finance management by introducing a new law and upgrading the country’s dilapidated power transmission system to support new generation in the sector.

But the Washington-based lender has pegged the disbursement of $400 million loan for Public Finance Management with the introduction of a new law in the Parliament, highlighting adverse implications of growing dependency on the lenders on the country’s public policies. The Board of Directors of the WB also approved $425 million loan for National Transmission Modernisation Project-I.

The $425 million loan has been obtained on commercial terms that will be returned over a period of 21 years, including a grace period of six years. The PFM reform programme is financed by the International Development Association, the World Bank’s fund for the poor, with a maturity of 25 years, including a grace period of five years.

The $425 million loan will be utilised to modernise the national transmission system by ehabilitating selected 500kV and 220kV substations and transmission lines. The existing transmission system has the capacity to dispatch about 15,000–17,000 megawatts of electricity safely, which is substantially below the generation constrained peak load of over 20,000 MW, according to the WB.



It said that system reliability has deteriorated substantially, resulting in several instances of major system collapse in recent years, which appear to be increasing in frequency and severity.

With a substantial volume of new generation now coming online, the strengthening of the transmission and distribution systems is critical, said Illango Patchamuthu, the WB Country Director for Pakistan.

The project having a total cost of $562 million will improve supply reliability and lower losses in the transmission network. The government will also contribute $137 million.

The WB said that Pakistan’s plan to expand power generation during 2017–2022 was beginning to bear fruit. To address the gap between electricity demand and supply, the government has plans to increase generation capacity by 30,000 MW by 2022. There has been progress in securing the $36 billion required for this expansion, including funds for power system investments planned under the China-Pakistan Economic Corridor, it added.

Pakistan had also availed $800 million loan from the Asian Development Bank for improving the transmission system but its implementation was marred by delays.



Public Finance

The lender also approved $400 million loan for improving the current legal regime of Public Finance Management. The Public financial management inefficiencies contribute to Pakistan’s weak performance in health and education sector, and despite a substantial increase, financial resources fail to reach clinics and schools on time, said the WB.

The $400 million Public Financial Management reform programme will address these challenges through the enactment of a robust public finance management law, which will lead to decentralisation of payment and empower the front-line service delivery managers, it added.

The programme will also focus on strong cash management; timely and comprehensive reporting; improved federal-provincial coordination; timely release of funds; streamlined payroll and pension systems; efficient and transparent procurement, and user-friendly reports for citizen engagement.

The WB pegged disbursement of the $400-million loan to the approval of the draft Public Finance Management Bill 2017 from the National Assembly. The releases will be linked with the initiation of the process to get the bill approved.

The WB has found serious flaws in the current public finance management system that it wants to correct through a billion-dollar programme.

The WB stated that budgeting, accounting, reporting and auditing rules and procedures require revisions to align the government’s financial management system with medium-term budgets, electronic fund transfers and requirements due to a shift in responsibilities after the 18th Amendment in the Constitution.

It further noted that there was no linkage between approved budget and procurement plans with inefficiencies in procurement systems and processes that result in project implementation delays. There is also a need for improved and timely service delivery in pension payments to prevent and detect unlawful pension payments on time.