World Bank approves $500m loan
Global lender restores Pakistan's budgetary support after four years
The World Bank country office did not send the second $500m loan request for RISE for board approval. PHOTO: FILE
ISLAMABAD:
The World Bank has restored Pakistan's budgetary support after four years and approved a policy loan of $500 million to help the country mitigate adverse impact of the coronavirus amid heightened macroeconomic and political risks.
"The World Bank's board of executive directors approved Friday a $500-million programme to help Pakistan improve access to quality healthcare and education, support economic opportunities for women and strengthen social safety nets as the country braces to limit the impact of the Covid-19 pandemic," said a statement issued by the local office of the Washington-based lending agency.
"Political risks are high because Covid-19 response adds uncertainty to the relations among the federating units," said the World Bank documents.
The lender warned that elite capture would continue to be challenging with more demand placed for concessions that could erode fiscal space.
However, it delayed the approval of another $500-million loan due to a lack of consensus on the conditions regarding restructuring of Pakistan's Debt Policy Coordination Office, reforms in state-owned enterprises and enforcement of a new national fiscal framework.
The World Bank country office did not send the second $500-million loan request for the Resilient Institutions for Sustainable Economy (RISE) programme for board approval.
The Securing Human Investments to Foster Transformation (SHIFT) programme worth $500 million is the first budget support since February 2016. The World Bank had suspended Pakistan's budget support loans due to the deterioration in macroeconomic indicators in 2017.
Initially, the size of SHIFT was $250 million, which the World Bank decided to double after the Covid-19 outbreak.
Pakistan will repay the $500-million loan in 30 years and it is financed by the World Bank's concessionary arm - the International Development Association.
Historically, project loans have remained more effective than policy loans as successive governments have failed to fully implement reforms after the disbursement of policy loans.
SHIFT would improve the targeted safety net programmes that would benefit 12 million people impacted by the Covid-19 crisis, both at the federal and provincial levels, said the World Bank.
"The global Covid-19 pandemic is impacting day-to-day life in Pakistan - not solely from economic disruptions but also additional stress on public services that jeopardise human capital accumulation," said World Bank Country Director for Pakistan Illango Patchamuthu.
This programme underscored the criticality of universal healthcare and social protection services that were durable to exogenous shocks such as that Pakistan was facing now, he added.
The World Bank said the SHIFT programme would support three policy reforms aimed at building Pakistan's workforce and improving social safety net programmes. "Pakistan's ability to mitigate the socio-economic impact of Covid-19 depends on how quickly and efficiently social safety net programmes can reach those most in need," said Cristina Panasco Santos, Task Team Leader for the SHIFT programme.
RISE delayed again
Owing to the disagreement over certain policy actions, the World Bank once again delayed the approval of RISE loan.
The $500-million RISE programme is expected to go to the World Bank board next month, subject to certain amendments to various laws in the budget.
The $500-million RISE loan will be aimed at enhancing the policy and institutional framework to improve fiscal management and improve the regulatory framework to foster growth and competitiveness.
As part of the conditions, the World Bank has asked Pakistan to restructure the existing Debt Policy Coordination Office into a single Debt Management Office. The proposed structure will not just be a coordinating entity like the Debt Policy Coordination Office that only advises the finance minister.
Pakistan's public debt-to-GDP ratio, which stood at 85% at the end of last fiscal year, is now projected to deteriorate further to 90% of gross domestic product (GDP) due to poor performance of the Federal Board of Revenue (FBR) and adverse implications of Covid-19.
The existing Debt Office had been set up under the Fiscal Responsibility and Debt Limitation (FRDL) Act 2005, but its role was largely restricted to coordination and advising the government.
Heightened risks
"Macroeconomic risk is high, as the impact of Covid-19 will weaken ongoing stabilisation efforts and medium-term structural reforms and add additional Covid-19-related shocks," said the SHIFT programme documents.
The World Bank documents underlined that the government had committed to staying the course and would be supported by the World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB) to ensure that.
"Political risks are high because the Covid-19 response adds uncertainty to the relations among the federating units," stated the World Bank documents.
In addition, elite capture will continue to be challenging with more demand placed for concessions that can erode fiscal space.
It also said institutional capacity risks were substantial because of weak federal-provincial coordination and technical capacity, which may be exacerbated in the context of government's measures to contain the spread of Covid-19.
Published in The Express Tribune, May 23rd, 2020.
The World Bank has restored Pakistan's budgetary support after four years and approved a policy loan of $500 million to help the country mitigate adverse impact of the coronavirus amid heightened macroeconomic and political risks.
"The World Bank's board of executive directors approved Friday a $500-million programme to help Pakistan improve access to quality healthcare and education, support economic opportunities for women and strengthen social safety nets as the country braces to limit the impact of the Covid-19 pandemic," said a statement issued by the local office of the Washington-based lending agency.
"Political risks are high because Covid-19 response adds uncertainty to the relations among the federating units," said the World Bank documents.
The lender warned that elite capture would continue to be challenging with more demand placed for concessions that could erode fiscal space.
However, it delayed the approval of another $500-million loan due to a lack of consensus on the conditions regarding restructuring of Pakistan's Debt Policy Coordination Office, reforms in state-owned enterprises and enforcement of a new national fiscal framework.
The World Bank country office did not send the second $500-million loan request for the Resilient Institutions for Sustainable Economy (RISE) programme for board approval.
The Securing Human Investments to Foster Transformation (SHIFT) programme worth $500 million is the first budget support since February 2016. The World Bank had suspended Pakistan's budget support loans due to the deterioration in macroeconomic indicators in 2017.
Initially, the size of SHIFT was $250 million, which the World Bank decided to double after the Covid-19 outbreak.
Pakistan will repay the $500-million loan in 30 years and it is financed by the World Bank's concessionary arm - the International Development Association.
Historically, project loans have remained more effective than policy loans as successive governments have failed to fully implement reforms after the disbursement of policy loans.
SHIFT would improve the targeted safety net programmes that would benefit 12 million people impacted by the Covid-19 crisis, both at the federal and provincial levels, said the World Bank.
"The global Covid-19 pandemic is impacting day-to-day life in Pakistan - not solely from economic disruptions but also additional stress on public services that jeopardise human capital accumulation," said World Bank Country Director for Pakistan Illango Patchamuthu.
This programme underscored the criticality of universal healthcare and social protection services that were durable to exogenous shocks such as that Pakistan was facing now, he added.
The World Bank said the SHIFT programme would support three policy reforms aimed at building Pakistan's workforce and improving social safety net programmes. "Pakistan's ability to mitigate the socio-economic impact of Covid-19 depends on how quickly and efficiently social safety net programmes can reach those most in need," said Cristina Panasco Santos, Task Team Leader for the SHIFT programme.
RISE delayed again
Owing to the disagreement over certain policy actions, the World Bank once again delayed the approval of RISE loan.
The $500-million RISE programme is expected to go to the World Bank board next month, subject to certain amendments to various laws in the budget.
The $500-million RISE loan will be aimed at enhancing the policy and institutional framework to improve fiscal management and improve the regulatory framework to foster growth and competitiveness.
As part of the conditions, the World Bank has asked Pakistan to restructure the existing Debt Policy Coordination Office into a single Debt Management Office. The proposed structure will not just be a coordinating entity like the Debt Policy Coordination Office that only advises the finance minister.
Pakistan's public debt-to-GDP ratio, which stood at 85% at the end of last fiscal year, is now projected to deteriorate further to 90% of gross domestic product (GDP) due to poor performance of the Federal Board of Revenue (FBR) and adverse implications of Covid-19.
The existing Debt Office had been set up under the Fiscal Responsibility and Debt Limitation (FRDL) Act 2005, but its role was largely restricted to coordination and advising the government.
Heightened risks
"Macroeconomic risk is high, as the impact of Covid-19 will weaken ongoing stabilisation efforts and medium-term structural reforms and add additional Covid-19-related shocks," said the SHIFT programme documents.
The World Bank documents underlined that the government had committed to staying the course and would be supported by the World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB) to ensure that.
"Political risks are high because the Covid-19 response adds uncertainty to the relations among the federating units," stated the World Bank documents.
In addition, elite capture will continue to be challenging with more demand placed for concessions that can erode fiscal space.
It also said institutional capacity risks were substantial because of weak federal-provincial coordination and technical capacity, which may be exacerbated in the context of government's measures to contain the spread of Covid-19.
Published in The Express Tribune, May 23rd, 2020.