Pakistan will only get $ 800 million in budget support loans this month, with the two major lenders postponing approval of another billion dollars due to the delay in meeting certain conditions and the deadlock in talks with the International Monetary Fund (IMF).
The World Bank would approve $ 800 million in political loans on June 28 against the original $ 1.5 billion plan, finance ministry sources told the Express Tribune on Monday.
Pakistan and the World Bank negotiated three loans, each valued at $ 500 million, they added.
However, the World Bank postponed the approval of one loan – under the Second Program of Resilient Institutions for a Sustainable Economy (RISE-II) – and reduced the size of two other loans from $ 500 million to $ 400 million each under the Securing Human Investments for Transformation (SHIFT-II) and Clean and Affordable Energy Program (PACE) program, the sources said.
The World Bank decided to reduce the loan amount after Islamabad was unable to meet some of the conditions, the sources said. Likewise, the Asian Development Bank (ADB) has delayed approval of the second tranche of the $ 300 million energy sector reform and financial sustainability program, finance ministry sources said.
The Ministry of Finance did not respond to the request for an official version.
The World Bank’s board is expected to review the second round 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 adapt to the processes required by the government to implement the reforms outlined in the program.”
Responding to another question on reducing the amount of loans, the spokesperson added that the reflected amount had been agreed jointly by the Government of Pakistan and the World Bank.
The delay would not negatively affect the position of Pakistan’s external sector in the short term due to $ 16 billion in gross foreign exchange reserves, although much of this was made up of loans.
However, the rupee came under some pressure on Monday and lost 44 paisa to Rs 156.18 per dollar.
Pakistan has already planned to take out $ 17 billion in foreign loans in the next fiscal year. However, the borrowing plan depends on the country’s ability to stay on the IMF’s program, which was reinstated just three months ago.
Sources said that the protracted talks with the IMF also became a reason for the delay in finalizing the two remaining loans – one by the World Bank and the ADB.
Discussions between Pakistan and the IMF in the context of the sixth review of the program were to be concluded before the budget announcement.
However, there is a deadlock on the issue of imposing additional taxes and increasing electricity prices by an additional 46%. Finance Minister Shaukat Tarin said on Saturday that the sixth review could now be completed by September.
Some of the conditions, which are part of the IMF plan, have also been included in AfDB and World Bank programs. The World Bank set tough conditions such as an increase in electricity tariffs and the introduction of new energy and fiscal policies, which put the government in a difficult position.
Sources said the $ 500 million RISE-II loan was delayed due to lack of progress on conditions such as the issuance of notifications by provincial governments for the adoption of the assessment tables of the Federal Board of Revenue (FBR) apply urban real estate property taxes to maintain the assessment. ratio at 85% of market value.
The signing of performance contracts with the board of directors and management of all power companies is also part of the conditions of the RISE loan.
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 in order to generate a harmonized GST for goods and services across the country.
“The operation (RISE-II) focuses on strengthening fiscal and debt management institutions and intergovernmental arrangements to improve macro-fiscal stability,” the World Bank documents say.
RISE-II also supports reforms aimed at improving the financial sustainability of the electricity sector, through the reduction and eventual 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 nationally harmonized GST, a competitive national tariff policy, an inclusive digital payment system that enables technology companies financial to perform electronic money transactions and a better regulated banking system, according to World Bank.
Posted in The Express Tribune, June 15h, 2021.