Pakistan’s decision to swallow the bitter pill of a tough IMF programme to unlock assistance from other international lenders is not proving feasible as the World Bank delayed the approval of a $1 billion loan until Islamabad implements conditions in the energy and taxation areas.
The two development policy credits, each worth $500 million, were expected to be approved by the Board of Directors of the Washington-based lending agency before the end of this calendar year, according to sources in the Ministry of Finance. These credit lines were named Jobs and Growth programme and Power Sector Reforms programme.
Unlike project loans that are disbursed over the project’s lifespan, these policy credits are disbursed upfront in a single tranche to strengthen the borrowers’ reserves and provide an amount for covering the budget deficit.
Officials said that the government had initially estimated to receive these two loans in December in a hope to strengthen the fast dwindling foreign currency reserves of the State Bank of Pakistan that have plunged to $4.299 billion lately – insufficient to finance one month’s import bill.
The massive dip in foreign currency reserves, despite IMF’s payout, has panicked both Pakistan and the IMF, the officials added.
While signing the $6.7 billion programme, both the IMF and Pakistan had estimated receiving an additional $6 billion to $8 billion from the World Bank, the Asian Development Bank, the Islamic Development Bank and other bilateral donors over a period of three years.
After the premature termination of the 2008 IMF programme in 2010, international donors had stopped giving Pakistan programme loans as well.
The officials said World Bank has conditioned the approval with steep reforms in the Federal Board of Revenue, revamping of Planning Commission (PC) and power sector-specific reforms. The Jobs and Growth package of $500 million was linked with taxation and reforms in the PC, they added.
The government has already started back-peddling on taxation reforms, which has made its case weaker.
The major obstacle was in the power sector whether the World Bank, unlike the past, stretched the conditions as wide as corporatisation of power generation and distribution companies and restructuring of National Electric Power Regulatory Authority, officials said. The government will also have to show tangible results on the condition of eliminating causes of the circular debt that has again piled up, despite the government paying Rs480 billion in June this year.
Officials explained that the World Bank would not be satisfied with only increasing the electricity prices, as it has sought reduction in lines losses and improvement in recovery. The recovery of electricity bills was again on the decline, in spite of an increase in power tariffs, they revealed.
The World Bank country office did not comment for this article.
According to a senior functionary, the World Bank management would take the case to the Board only after the conditions were met.
When contacted, the spokesman for the Finance Ministry, Rana Assad Amin, said that both the Pakistan government and the World bank were in the process of finalising the policy matrix for these two loans. The policy matrix carries all the conditions that borrowers have to implement before the approval of the loan.
Amin, who is also an adviser to the finance ministry, hoped that all the arrangements could be finalised in the first quarter of the next year and the government was now expecting to receive the loan in April next year. He said reforms attached to these loans were in line with the IMF programme.
Published in The Express Tribune, November 2nd, 2013.
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