World Bank approves $500 million loan for Pakistan

The World Bank has restored Pakistan’s budgetary support after four years and approved a policy loan of USD 500 million to help the cash-strapped country mitigate adverse impact of the coronavirus pandemic, according to a media report.

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The World Bank’s board of executive directors on Friday approved a USD 500-million programme to help Pakistan improve access to quality healthcare and education, support economic opportunities for women and strengthen social safety nets as the country braces to limit the impact of the COVID-19 pandemic, the Express Tribune reported, citing a statement by the local office of the Washington-based lending agency.

“Political risks are high because COVID-19 response adds uncertainty to the relations among the federating units,” said the World Bank documents.

The lender warned that elite capture would continue to be challenging with more demand placed for concessions that could erode fiscal space.

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However, it delayed the approval of another USD 500-million loan due to a lack of consensus on the conditions regarding restructuring of Pakistan’s Debt Policy Coordination Office, reforms in state-owned enterprises and enforcement of a new national fiscal framework.

The World Bank country office did not send the second USD 500-million loan request for the Resilient Institutions for Sustainable Economy (RISE) programme for board approval.

The Securing Human Investments to Foster Transformation (SHIFT) programme worth USD 500 million is the first budget support since February 2016.

The World Bank had suspended Pakistan’s budget support loans due to the deterioration in macroeconomic indicators in 2017.

Initially, the size of SHIFT was USD 250 million, which the World Bank decided to double after the COVID-19 outbreak.

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Pakistan will repay the USD 500-million loan in 30 years and it is financed by the World Bank’s concessionary arm – the International Development Association.

Historically, project loans have remained more effective than policy loans as successive governments have failed to fully implement reforms after the disbursement of policy loans, the daily said.

SHIFT would improve the targeted safety net programmes that would benefit 12 million people impacted by the COVID-19 crisis, both at the federal and provincial levels, said the World Bank.

“The global COVID-19 pandemic is impacting day-to-day life in Pakistan – not solely from economic disruptions but also additional stress on public services that jeopardise human capital accumulation,” said World Bank Country Director for Pakistan Illango Patchamuthu.

This programme underscored the criticality of universal healthcare and social protection services that were durable to exogenous shocks such as that Pakistan was facing now, he added.

The World Bank said the SHIFT programme would support three policy reforms aimed at building Pakistan’s workforce and improving social safety net programmes.

“Pakistan’s ability to mitigate the socio-economic impact of COVID-19 depends on how quickly and efficiently social safety net programmes can reach those most in need,” said Cristina Panasco Santos, Task Team Leader for the SHIFT programme.

Owing to the disagreement over certain policy actions, the World Bank once again delayed the approval of RISE loan.

The USD 500-million RISE programme is expected to go to the World Bank board next month, subject to certain amendments to various laws in the budget.

The USD 500-million RISE loan will be aimed at enhancing the policy and institutional framework to improve fiscal management and improve the regulatory framework to foster growth and competitiveness.

As part of the conditions, the World Bank has asked Pakistan to restructure the existing Debt Policy Coordination Office into a single Debt Management Office. The proposed structure will not just be a coordinating entity like the Debt Policy Coordination Office that only advises the finance minister.

Pakistan’s public debt-to-GDP ratio, which stood at 85 per cent at the end of last fiscal year, is now projected to deteriorate further to 90 per cent of gross domestic product (GDP) due to poor performance of the Federal Board of Revenue (FBR) and adverse implications of COVID-19.

The existing Debt Office had been set up under the Fiscal Responsibility and Debt Limitation (FRDL) Act 2005, but its role was largely restricted to coordination and advising the government.

“Macroeconomic risk is high, as the impact of Covid-19 will weaken ongoing stabilisation efforts and medium-term structural reforms and add additional Covid-19-related shocks,” said the SHIFT programme documents.

The World Bank documents underlined that the government had committed to staying the course and would be supported by the World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB) to ensure that.