ISLAMABAD: The World Bank has approved a $1.02 billion package for Pakistan aimed at pushing the last leg of economic reforms before the country enters into an electoral cycle amid concerns over slow pace of implementation of reforms introduced last year.
The package includes $500 million in policy loan that the Washington-based lender would disburse next week, a $100 million credit for a project to reduce flood and drought risks in selected areas of Sindh and $420 million in guarantees for raising loans from international markets.
The amount that Pakistan will receive from the bank is $600 million.
The government had implemented a dozen desperate measures to get the $500 million policy loan, which included converting the State Life Insurance Corporation (SLIC) into a company through a presidential ordinance.
The World Bank, in the next step, would push Pakistan to list SLIC – the insurance giant – on the stock exchange.
Among the key conditions of the $500 million loan, being disbursed under the “Competitiveness and Growth Development Policy Financing”, were improving governance and transparency in the country’s capital markets and creating fiscal space through privatisation, said the documents.
The loan would support selected reforms the government wanted to implement before entering the electoral cycle in 2017.
The general elections are scheduled for June 2018 and it is widely believed that the government would adopt expansionary fiscal policies after the expiry of the International Monetary Fund (IMF) bailout programme in September this year.
This is the third policy loan given for growth and taxation reforms in the last three years. Earlier, the World Bank disbursed $1 billion under the Fiscally Sustainable and Inclusive Growth (FSIG) package, however, the progress on the agreed set of reforms remained below the satisfactory level.
According to an implementation report of the $500 million loan that the World Bank approved in June last year, “The overall implementation of the FSIG-II project remains moderately satisfactory. The project is likely to achieve the development objectives but there have been some implementation challenges in the policy reforms.”
“The privatisation programme, the critical pillar in government’s economic reform agenda, is facing significant headwinds. Tax collection as a percentage of GDP remained below the programme target of 11.5%,” it added.
A handout issued by the Ministry of Finance said Pakistan would use the $420 million guarantees for raising commercial financing up to $1 billion from international markets.
Pakistan would formally sign the financing agreement with the bank on Thursday (today), paving the way for disbursement of $500 million in a single tranche, said the ministry.
“The World Bank’s $420 million guarantees against loans to be raised by Pakistan will improve the terms of foreign loans and free domestic resources for private-sector investment,” stated the lending agency.
The $500 million loan will attract 2% interest rate and the country will return the amount in the next 25 years, including the grace period of five years.
World Bank Country Director for Pakistan Illango Patchamuthu said the Government of Pakistan had made significant progress on stabilising the economy, initiating reforms for revenue mobilisation and drawing in the private sector for spurring growth.
“The country is stepping up efforts through deeper reforms and an accelerated pace of implementation.”
The WB also approved the Sindh Resilience Project worth $100 million aimed at reducing flood and drought risks in selected areas of Sindh and strengthening the province’s capacity to cope with natural disasters.
“The project would contribute to reducing vulnerability and risk through a combination of physical works, strengthening fiscal resilience and institutional development activities.”
An estimated 5 million people, including urban and rural populations, will be directly protected from the frequent river flooding. In addition, an estimated 65,000 people currently exposed to drought and food insecurity will also benefit from the construction of small dams for rain water harvesting and recharging of groundwater aquifers.