Mid-term review: World Bank pledges $3.7b in new loans
Highlights risks to the country’s macroeconomic stability.
ISLAMABAD:
Despite deteriorating economic conditions and “high risks” to its operations in Pakistan, the World Bank has announced $3.7 billion in new loans to the government over the next three years.
Budgetary support will continue to be suspended, however, due to Islamabad’s inability to reform the power sector and raise taxes.
The WB office in Islamabad said the decision was taken after a mid-term review of the Country Partnership Strategy, launched in 2010. The WB has also decided to increase the CPS implementation period from three to four years, after Pakistan failed to acquire the promised loans for eight projects, due to foot-dragging on reforms.
“We will continue our strong support to Pakistan, while keeping a keen eye on implementation to ensure that these efforts translate into real results on the ground,” the WB’s Pakistan country director Rachid Benmessaoud told AFP.
The WB will lend almost $3 billion for projects while $750 million has been kept for budgetary support – but its disbursement is linked with the improvement of economic conditions. The WB has also revised its targets regarding the power sector.
The progress report shows that the WB either cancelled or delayed $1.2 billion in projects. However, it transferred $1.1 billion in loans to other programmes, most of them to do with flood assistance. Still, $287 million worth of loans could not be disbursed.
Contrary to Finance Minister Hafeez Shaikh’s recent presentation to President Asif Zardari, in which he claimed that the economy has stabilised, the WB highlighted risks to the macroeconomic stability of Pakistan. It further said that the WB group’s own operations in Pakistan are at high risk.
“The operating environment in Pakistan has become even more daunting and there are high risks across many aspects of World Bank Group (WBG) operations in Pakistan. These include political uncertainty, lacklustre economic performance, natural disasters and security issues”, the report said.
It went on to say that Pakistan’s overall performance has been mixed, with considerable achievements in education and social protection but with little or no progress on increasing revenue mobilisation, expanding power provision and improvements to system efficiency.
The WB report also stated that the combination of a projected current account deficit between external payments and receipts, low financial inflows and significant debt repayments may result in a drawdown of gross reserves with the State Bank. “Thus, overall macroeconomic risks continue to be significant,” it states.
Thus, amid cautions that macroeconomic, political and implementation risks in Pakistan have all increased, the report said that in the event of a significant economic deterioration, the proposed strategy would need to be revisited.
It further said that high fiscal deficits or a fall in exports and remittances due to a global slowdown could result in a more significant economic deterioration.
According to WB handout, the World Bank Group will continue to support Pakistan’s poverty reduction and development agenda with an expected assistance of up to $5.5 billion over the FY 12-14. The amount includes $1.5 billion that the WB wants to lend to the private sector over three years.
In a worrying conclusion for the finance minister, private companies and Pakistanis at large, the World Bank cautioned that almost one-third of the portfolio is at risk due to weaknesses in overall macroeconomic indicators.
Published in The Express Tribune, December 24th, 2011.
Despite deteriorating economic conditions and “high risks” to its operations in Pakistan, the World Bank has announced $3.7 billion in new loans to the government over the next three years.
Budgetary support will continue to be suspended, however, due to Islamabad’s inability to reform the power sector and raise taxes.
The WB office in Islamabad said the decision was taken after a mid-term review of the Country Partnership Strategy, launched in 2010. The WB has also decided to increase the CPS implementation period from three to four years, after Pakistan failed to acquire the promised loans for eight projects, due to foot-dragging on reforms.
“We will continue our strong support to Pakistan, while keeping a keen eye on implementation to ensure that these efforts translate into real results on the ground,” the WB’s Pakistan country director Rachid Benmessaoud told AFP.
The WB will lend almost $3 billion for projects while $750 million has been kept for budgetary support – but its disbursement is linked with the improvement of economic conditions. The WB has also revised its targets regarding the power sector.
The progress report shows that the WB either cancelled or delayed $1.2 billion in projects. However, it transferred $1.1 billion in loans to other programmes, most of them to do with flood assistance. Still, $287 million worth of loans could not be disbursed.
Contrary to Finance Minister Hafeez Shaikh’s recent presentation to President Asif Zardari, in which he claimed that the economy has stabilised, the WB highlighted risks to the macroeconomic stability of Pakistan. It further said that the WB group’s own operations in Pakistan are at high risk.
“The operating environment in Pakistan has become even more daunting and there are high risks across many aspects of World Bank Group (WBG) operations in Pakistan. These include political uncertainty, lacklustre economic performance, natural disasters and security issues”, the report said.
It went on to say that Pakistan’s overall performance has been mixed, with considerable achievements in education and social protection but with little or no progress on increasing revenue mobilisation, expanding power provision and improvements to system efficiency.
The WB report also stated that the combination of a projected current account deficit between external payments and receipts, low financial inflows and significant debt repayments may result in a drawdown of gross reserves with the State Bank. “Thus, overall macroeconomic risks continue to be significant,” it states.
Thus, amid cautions that macroeconomic, political and implementation risks in Pakistan have all increased, the report said that in the event of a significant economic deterioration, the proposed strategy would need to be revisited.
It further said that high fiscal deficits or a fall in exports and remittances due to a global slowdown could result in a more significant economic deterioration.
According to WB handout, the World Bank Group will continue to support Pakistan’s poverty reduction and development agenda with an expected assistance of up to $5.5 billion over the FY 12-14. The amount includes $1.5 billion that the WB wants to lend to the private sector over three years.
In a worrying conclusion for the finance minister, private companies and Pakistanis at large, the World Bank cautioned that almost one-third of the portfolio is at risk due to weaknesses in overall macroeconomic indicators.
Published in The Express Tribune, December 24th, 2011.