WB extends only half of promised loans
ISLAMABAD:
The World Bank lent slightly over half of what it had promised to Pakistan in the last four years due to worsening economic situation and this indicates it may not again meet its promise of extending $6 billion till 2013 with the economy entering a danger zone.
The Washington-based donor agency had committed $8.7 billion to Pakistan from 2006 to 2009. However, the four-year programme could not remain on track and the bank lent $4.4 billion in four years, almost half of the total commitment, reveals the bank documents.
“During the first half of the Country Assistance Strategy period, macroeconomic performance continued to be good. However, the macroeconomic situation deteriorated substantially during the latter half of the CAS period, with increasing inflation, widening fiscal and current accounts and slowing economic growth,” said the documents.
In 2006, Pakistan’s economic health was good due to better external receipts, mainly grants and soft loans, thanks to its services in the war on terror.
The WB provided $1.5 billion in 2006 against the commitment of $1.8 billion. In 2007 when economic conditions had started deteriorating, the WB started pulling its ‘generous hand’ and gave around $1 billion for nine projects against pledges of $2.2 billion. It dropped eight loans of over $1 billion in the areas of poverty reduction, irrigation, transportation and trade.
In 2008, the number of projects dropped increased to 14 and the WB provided just $545 million against a commitment of $2.2 billion. The projects were dropped in the areas of education, health, poverty reduction and trade.
At that time, the WB was pressurising the newly formed democratic government to seek a bailout package from the International Monetary Fund (IMF) by squeezing much-needed dollars to pay international liabilities. In 2008, the Asian Development Bank was the only donor which extended a helping hand and approved a $1.8 billion multi-tranche programme at a time when even Saudi Arabia and China had backed out.
In November 2008, Pakistan had to take refuge under the IMF umbrella which also helped jack up WB lending to $1.3 billion next year. However, in three years, the WB cancelled three major loans of $950 million designed for poverty reduction and to provide budgetary support.
The WB defends its decision to cancel the crucial money at a critical time, saying: “The PRSC (Poverty Reduction Support Credit) series could not be delivered as the government was increasingly distracted by internal political turmoil which sapped reform momentum.”
The WB has approved its new lending programme worth $6 billion spanning over four years from 2010 to 2013 at a time when the economy has entered into the red zone. Despite being in the IMF programme, Pakistan’s economic situation started deteriorating due to inability to ensure fiscal discipline and failure to mobilise revenues by succumbing to the pressure of lobbies. The government has remained unable to increase its revenues to meet the soaring expenditures and the power shortage is crippling the economy too.
The recent floods would have a long-lasting negative impact on the economy. Even before the devastating floods, the government had started an exercise to revise downward the macroeconomic targets. The post-flood conditions would further weaken the fiscal situation. The rehabilitation of millions of affected people would be a gigantic task for the authorities in the backdrop of no additional finances.
The WB has indicated that its new lending programme will “focus more on the longstanding structural problems (like tax revenue mobilisation and power supply) that contributed to the rapid erosion in growth and stability during 2007 and 2008.”
The other indication that dims the chances of full disbursement is that the WB has chalked out a three-year indicative lending programme of $3.63 billion against a four-year commitment of $6 billion. It says “financial year 2013 lending will develop as the Country Partnership Strategy implementation proceeds,” hinting at implementation of “agreed reforms” first.
The World Bank’s support will be for four pillars which are improving economic governance, human development and social protection, improving infrastructure to support growth and improving security and reducing the risk of conflict.
For improvement of governance, the WB has promised $924 million during the first two years. These loans would be extended under the Poverty Reduction Support Credit I, II and III. Interestingly, the PRSC-I has been delayed due to Pakistan’s inability to take certain actions including elimination of electricity subsidies. The programme-II is also scheduled for this year and the third one is for next fiscal.
The WB intends to lend $850 million for the energy sector and $275 million for water and ports. This energy sector lending is again linked to resolution of circular debt, which according to some estimates is over $5 billion, and phasing out of subsidies.
Published in The Express Tribune, August 8th, 2010.
The World Bank lent slightly over half of what it had promised to Pakistan in the last four years due to worsening economic situation and this indicates it may not again meet its promise of extending $6 billion till 2013 with the economy entering a danger zone.
The Washington-based donor agency had committed $8.7 billion to Pakistan from 2006 to 2009. However, the four-year programme could not remain on track and the bank lent $4.4 billion in four years, almost half of the total commitment, reveals the bank documents.
“During the first half of the Country Assistance Strategy period, macroeconomic performance continued to be good. However, the macroeconomic situation deteriorated substantially during the latter half of the CAS period, with increasing inflation, widening fiscal and current accounts and slowing economic growth,” said the documents.
In 2006, Pakistan’s economic health was good due to better external receipts, mainly grants and soft loans, thanks to its services in the war on terror.
The WB provided $1.5 billion in 2006 against the commitment of $1.8 billion. In 2007 when economic conditions had started deteriorating, the WB started pulling its ‘generous hand’ and gave around $1 billion for nine projects against pledges of $2.2 billion. It dropped eight loans of over $1 billion in the areas of poverty reduction, irrigation, transportation and trade.
In 2008, the number of projects dropped increased to 14 and the WB provided just $545 million against a commitment of $2.2 billion. The projects were dropped in the areas of education, health, poverty reduction and trade.
At that time, the WB was pressurising the newly formed democratic government to seek a bailout package from the International Monetary Fund (IMF) by squeezing much-needed dollars to pay international liabilities. In 2008, the Asian Development Bank was the only donor which extended a helping hand and approved a $1.8 billion multi-tranche programme at a time when even Saudi Arabia and China had backed out.
In November 2008, Pakistan had to take refuge under the IMF umbrella which also helped jack up WB lending to $1.3 billion next year. However, in three years, the WB cancelled three major loans of $950 million designed for poverty reduction and to provide budgetary support.
The WB defends its decision to cancel the crucial money at a critical time, saying: “The PRSC (Poverty Reduction Support Credit) series could not be delivered as the government was increasingly distracted by internal political turmoil which sapped reform momentum.”
The WB has approved its new lending programme worth $6 billion spanning over four years from 2010 to 2013 at a time when the economy has entered into the red zone. Despite being in the IMF programme, Pakistan’s economic situation started deteriorating due to inability to ensure fiscal discipline and failure to mobilise revenues by succumbing to the pressure of lobbies. The government has remained unable to increase its revenues to meet the soaring expenditures and the power shortage is crippling the economy too.
The recent floods would have a long-lasting negative impact on the economy. Even before the devastating floods, the government had started an exercise to revise downward the macroeconomic targets. The post-flood conditions would further weaken the fiscal situation. The rehabilitation of millions of affected people would be a gigantic task for the authorities in the backdrop of no additional finances.
The WB has indicated that its new lending programme will “focus more on the longstanding structural problems (like tax revenue mobilisation and power supply) that contributed to the rapid erosion in growth and stability during 2007 and 2008.”
The other indication that dims the chances of full disbursement is that the WB has chalked out a three-year indicative lending programme of $3.63 billion against a four-year commitment of $6 billion. It says “financial year 2013 lending will develop as the Country Partnership Strategy implementation proceeds,” hinting at implementation of “agreed reforms” first.
The World Bank’s support will be for four pillars which are improving economic governance, human development and social protection, improving infrastructure to support growth and improving security and reducing the risk of conflict.
For improvement of governance, the WB has promised $924 million during the first two years. These loans would be extended under the Poverty Reduction Support Credit I, II and III. Interestingly, the PRSC-I has been delayed due to Pakistan’s inability to take certain actions including elimination of electricity subsidies. The programme-II is also scheduled for this year and the third one is for next fiscal.
The WB intends to lend $850 million for the energy sector and $275 million for water and ports. This energy sector lending is again linked to resolution of circular debt, which according to some estimates is over $5 billion, and phasing out of subsidies.
Published in The Express Tribune, August 8th, 2010.