The World Bank (WB) has delayed approval of two loans worth $1.1 billion until the next fiscal year for Pakistan, which is contending high external debt and low foreign currency reserves, which could last for only three weeks, according to analysts.
The Washington-based lender’s decisions to withhold approval of the second Resilient Institutions for Sustainable Economy (RISE-II) loan worth $450 million and the second Programme for Affordable Energy (PACE-II) worth $600 million will be a major jolt for the Pakistani government.
“The indicative date for (World Bank) Board discussion of the RISE-II project is fiscal year 2024, which will start on July 1, 2023 and end on June 30, 2024,” a World Bank spokesperson said.
The Shehbaz Sharif-led Pakistani government was hoping to receive an approval for at least $450 million loan in January, which would have unlocked another $450 million from the Asian Infrastructure Investment Bank, which had pegged a $450 million loan with the approval of the WB’s RISE-II.
The Pakistani’s coalition government is already struggling to revive the International Monetary Fund (IMF) programme. PM Shehbaz Sharif had pleaded to the IMF to pause “harsh conditions” to its loans to Pakistan.
Pakistan said it was raising funding pledges of some $9 billion to rebuild livelihoods and infrastructure of nearly 33 million people who were grossly affected by the flash floods at a conference organised by the United Nations in Geneva on January 9. Pakistan needs around $16 billion, half of which will be sourced from different countries and institutions.
The World Bank’s latest decision, however, has created a hole of $1.5 billion against the government’s annual financing plan.
Meanwhile, the World Bank had last week predicted a 2% annual economic growth rate for Pakistan – down by 2 percentage points from its June 2022 estimates – owning to devastating flood, global slowdown and disruptions caused by the Russian-Ukraine war.
The Pakistani daily, Dawn, reported that the World Bank’s Global Economic Prospects report pointed to a “sharp, long-lasting slowdown” with the global growth pegged at 1.7% this year, compared to 3% it had predicted in June 2022.
Pakistan, with low foreign exchange reserves and rising sovereign risk, saw its currency depreciate by 14% between June and December 2022, and its country risk premium rise by 15 percentage points over the same period.
The World Bank also said Pakistan’s consumer price inflation reached 24.5% in December on an annual basis, recently coming off its highest rate since the 1970s.
The South Asian region is anticipated to grow by 5.5% and 5.8% in 2023 and 2024 respectively — slightly 0.3% to 0.7% lower than earlier estimates — mainly because of supporting 6.6% and 6.1% GDP growth in India.
“This pace reflects still robust growth in India, Maldives, and Nepal, offsetting the effects of the floods in Pakistan and the economic and political crises in Afghanistan and Sri Lanka. The deteriorating global environment, however, will weigh on investment in the region,” the report said.
(With inputs from PTI)
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