Dar urges release of $900m loans

The two loans are critical to achieve staff-level agreement with IMF

ISLAMABAD:

Pakistan, on Friday, requested two multilateral financial institutions to fast-track the approval of $900 million budget support loans aimed at fulfilling the condition of arranging the $6 billion financing at the earliest to reach a staff-level agreement (SLA) with the International Monetary Fund (IMF) by next week.

In a virtual meeting with the World Bank Vice President for South Asia, Martin Raiser, Finance Minister Ishaq Dar stressed that the negotiations for the $450 million worth second Resilient Institutions for Sustainable Economy (RISE-II) budget support loan should start now since Pakistan has met its particular conditions.

Earlier, the World Bank had clubbed the RISE-II with the second Programme for Affordable Energy (PACE-II) worth $600 million, as it believed that the viability of Pakistan’s energy and fiscal sectors was interlinked.

The Washington-based lender has clubbed the approval of the two loans that deal with conditions in the power and fiscal sectors. Pakistan has met most of the conditions of the fiscal sector-related RISE-II loan but has yet to meet some of the conditions of the energy sector-related PACE-II loan.

Separately, Dar also held a virtual meeting with Asian Infrastructure Investment Bank (AIIB) President, Jin Liqun, and urged him to provide a $450 million loan as part of co-financing of the World Bank package.

Recently, the AIIB hinted that it may lower the loan tranche to $250 million, said sources.

According to a news statement issued by the finance ministry after the meeting, “The finance minister informed the World Bank vice president about the completion of the World Bank-supported reforms, especially those supported under the RISE-II programme, under which major reforms like harmonisation of GST have been achieved.”

“Raiser especially thanked the Pakistani side for completing the reforms under the RISE programme, which will contribute to ensuring macroeconomic stability in the country,” said the statement.

The ministry did not
clarify whether the World
Bank agreed to start negotiations and treat RISE-II separately
from the energy sector budget support package.

Pakistan has included the combined loans from the World Bank and AIIB worth $900 million in the $6 billion financing plan it has shared with the IMF to secure a board meeting date. The early approval of these loans will strengthen Pakistan’s case in the eyes of the global lender.

Pakistan hopes to secure SLA by next week. Once SLA with the IMF is reached, only then can some programme loan negotiations start.

The finance ministry is of the view that the RISE-II and PACE-II were distinct programmes and the disbursement of budget support programmes was critical for the IMF deal.

Pakistan had hoped to secure the $900 million loan by November last year but due to a delay in finalising the deal with the IMF the other multilateral institutions also withheld their approvals.

Dar highlighted to the World Bank VP that since the prior actions for RISE-II have been completed, its disbursement should be confirmed to the IMF at the earliest, said sources.

The World Bank had also provided a $1.7 billion loan for flood-related projects, making it the largest lender to Pakistan during the crisis.

To qualify for the RISE-II loan Pakistan was trying to harmonise the General Sales Tax (GST) between the centre and the four federating units and has already crossed many of the hurdles. Early this month, the National Tax Council also approved the rules for the Place of Provision Supply of Services by the provinces with effect from May 1.

The government has already withdrawn sales tax on electricity subsidies, reduced general subsidies and strengthened the debt office as part of the World Bank conditions. The reduction of circular debt is also part of the World Bank conditions for the PACE-II loan.

Sources said, however, that the elephant in the room was the PACE-II loan which has some conditions related to the reopening of the power purchase deals, including the Chinese deals.

So far, Pakistan has renegotiated about three-dozen deals –far lower than around 68 deals that it has to reopen as part of the PACE-II conditions.

Sources said that Dar also virtually reached out to AIIB’s president and sought his active financial support to reach SLA with the IMF.

Dar informed the AIIB president about the progress made on the RISE-II loan conditions and requested the lender to also contribute $450 million as part of its original plan, said the sources.

AIIB has already provided a $500 million loan as co-financing to the Asian Development Bank.

 

Published in The Express Tribune, April 15^th, 2023.

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