The World Bank has canceled $500-600 million in loans to Pakistan due to its failure to meet key conditions like revising power purchase agreements under the China-Pakistan Economic Corridor (CPEC).
The World Bank also confirmed it will not provide any new budget support loans for Pakistan in the current fiscal year. This has seriously dented the government’s expectations of receiving $2 billion in new loans in FY25, reported ExpressTribune.
The canceled loan was part of the Affordable and Clean Energy (PACE-II) program which the World Bank had initially agreed to support with $500 million. This was later increased to $600 million to help bridge Pakistan’s external financing gap. Although the first tranche of $400 million was released in June 2021, Pakistan was unable to meet the conditions attached to the second tranche, particularly negotiations with Independent Power Producers (IPPs), including Chinese power plants under CPEC.
The World Bank has stated that Pakistan’s slower-than-expected progress in implementing energy sector reforms led to a shift in lending strategy.
The Bank also emphasized ongoing efforts to improve efficiency in power distribution through the Electricity Distribution Efficiency Improvement Project and technical assistance for private sector participation in power distribution companies (DISCOs). However, the lender confirmed that no new budget support loans are planned for Pakistan during the current fiscal year.
This development may further strain Pakistan’s finances, as the government had anticipated $2 billion in loans from the World Bank this year. To date, only $349 million has been disbursed, or about 18 percent of the planned funding.
The cancellation is also significant because the circular debt has ballooned to Rs. 2.393 trillion, well beyond targets set by both the International Monetary Fund (IMF) and the World Bank. Such problems have made it more difficult for Pakistan to bridge its $2.5 billion external financing gap for the current fiscal year.
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These clowns who depend upon loans to bridge the deficit make promises to lenders which they can’t possibly keep.