Pakistan will get only $800 million in budget support loans this month as the two largest lenders have postponed approval of another $1 billion due to delay in meeting some conditions and deadlock in talks with the International Monetary Fund (IMF).
The World Bank would approve $800 million in policy loans on June 28 against the original plan of $1.5 billion, sources in the Ministry of Finance told The Express Tribune on Monday.
Pakistan and the World Bank had negotiated three loans, each valuing at $500 million, they added.
However, the World Bank postponed the approval of one loan - under the second Resilient Institutions for Sustainable Economy (RISE-II) programme - and reduced the size of other two loans from $500 million to $400 million each under the Securing Human Investments to Foster Transformation (SHIFT-II) programme and the Programme for Affordable and Clean Energy (PACE), said the sources.
The World Bank decided to cut the loan amount after Islamabad could not fulfill some of the conditions, the sources said. Similarly, the Asian Development Bank (ADB) has delayed the approval of second tranche of the $300 million Energy Sector Reforms and Financial Sustainability programme, finance ministry sources said.
The Ministry of Finance did not respond to the request for official version.
The World Bank board is scheduled to consider the second series of SHIFT and PACE on June 28, a spokesperson for the bank’s local office confirmed to The Express Tribune.
The spokesperson said that “RISE-2 has been delayed to accommodate the processes required by the government to implement the reforms outlined in the programme.”
Responding to another question on reducing the size of loans, the spokeswoman added that the amount reflected had been agreed jointly by the government of Pakistan and the World Bank.
The delay would not adversely affect Pakistan’s external sector position in the short term due to $16 billion in gross foreign exchange reserves, although they have been largely built by taking loans.
However, the rupee came under some pressure on Monday and lost 44 paisa to Rs156.18 to a dollar.
Pakistan has already planned to take $17 billion in foreign loans in the next fiscal year. However, the borrowing plan hinges on the country’s ability to remain in the IMF programme, which has been restored just three months ago.
Sources said that prolonged talks with the IMF also became a reason for the delay in finalising the remaining two loans - one each by the World Bank and the ADB.
Pakistan-IMF talks under the sixth programme review were scheduled to conclude before the announcement of the budget.
However, there is a deadlock over the issue of imposing more taxes and an increase in electricity prices by another 46%. Finance Minister Shaukat Tarin said on Saturday that the sixth review might now conclude by September.
Some of the conditions, which are part of the IMF plan, have also been included in the ADB and World Bank programmes. The World Bank has set tough conditions such as an increase in electricity tariffs and the introduction of new power and tax policies, which has put the government in a tight spot.
Sources said that the $500 million RISE-II loan got delayed due to a lack of progress on conditions like issuance of notifications by provincial governments for adopting the Federal Board of Revenue (FBR) valuation tables applicable to the urban immovable property taxes to keep the assessment ratio at 85% of market value.
The signing of performance contracts with the board and management of all power companies is also part of the RISE loan conditions.
There is also a condition that the federal and provincial finance departments should issue implementing regulations following the approval of common general sales tax (GST) laws passed by the federal and provincial assemblies to generate a harmonised GST for goods and services across the country.
“The (RISE-II) operation focuses on strengthening fiscal and debt management institutions and inter-governmental arrangements to improve macro-fiscal stability,” said the World Bank documents.
RISE-II also supports reforms to improve the financial viability of the power sector, through the reduction and ultimate elimination of the sector’s circular debt, which were initiated under RISE-I.
It further aims to improve the investment climate through the implementation of a nationwide harmonised GST, a competitive national tariff policy, an inclusive digital payment system that allows fintech companies to undertake electronic money operations, and a better-regulated banking system, according to the World Bank.
Published in The Express Tribune, June 15h, 2021.