Pakistan Receives A Loan Of $800 Million From World Bank

In recent news, the World Bank has given its approval for a total loan of $800 million to Pakistan. These funds acquired will be used to finance the country’s budget deficit, and was given after the government accepted certain conditions, such as a rise in electricity prices to bring about a reduction in circular debt, as well as give out target subsidies. The lender made it clear that such measures are likely to lead to an increase in poverty in the country. 

The board of directors of the bank gave their permission to finance two programs in the country. One is the Securing Human Investments to Foster Transformation (SHIFT-II), and the other one being the Pakistan Program for Affordable and Clean Energy (PACE). The total funding for these two programs was going to be $800 million. 

The board of the World Bank allowed the $400 million loans to be given out to PACE, only after the government agreed to accept at least six conditions. These included the reduction in the cost of power generation, shift to clean energy, competitive bidding whenever new power generation projects are started, a decline in circular debt, increasing tariffs by Rs. 1.95 per unit, and the appointment of independent boards in power distribution corporations. This was all revealed through documents released by the World Bank after the approval of the loan to Pakistan.

In a statement, the World Bank added that the PACE loan will be focused on measures that improve and promote the financial viability of the power sector of the country, as well as support its conversion to low-carbon energy. 

PACE focuses on actions that are needed to initiate critical reforms in the power sector, which are targeted towards reducing the costs of power generation and better targeting of tariffs and subsidies for consumers. It also prioritizes the improvement of efficiencies in the distribution of electricity with participation from the private sector. 

Of the six conditions outlined, the first one related to the reduction in costs of power generation in government generation corporations. It also outlined the contribution towards reduced consumer tariffs and pointed to the commitment of the government to equitable treatment across all the categories of power generation. 

The second condition was regarding the competitive bidding for all projects of power generation developed after the loan was received. This would ensure lower electricity costs for consumers in the future, via the National Electricity Policy. Just last week, the Council of Common Interests gave its approval for National Electricity Policy, as it was one of the conditions laid down by the World Bank. 

The third condition related to the transition to renewable energy by 66% by the year 2030. This would be done by adopting a least-cost generation plan (IGCEP). Two of these conditions were accepted by the government, which related to minimizing subsidies and rationalizing electricity prices. The documents released by the World Bank also stated that the Pakistani government will break free from poorly targeted subsidies as well, which only constrain fiscal space.