For Pakistan $350m Loan World Bank Sets Four Conditions After IMF

The News reported on Wednesday that to get approval for a $350 million loan program, Pakistan has been asked by the World Bank to meet four prior actions during the ongoing fiscal year 2021-22, following the revival of the International Monetary Fund (IMF) stalled program.

Amending the Fiscal Responsibility and Debt Limitation Act (FRDLA) through Parliament and bringing the provinces and center under one General Sales Tax (GST) regime are included in the conditions.

Among the provinces and center the harmonization of GST it the major outstanding issue before the high-profile National Tax Council (NTC). All the concerned parties are making final efforts to reach a consensus on the definition of goods and services, to bring uniformity in laws related to GST, the scope of GST, and tax rates but so far have failed to get the desired results.

For the approval of a $350 million program loan under the Resilient Institutions Strengthening Program (RISE-II), two conditions remaining of prior actions are the recovery of power sector arrears and circular debt removal in line with the Circular Debt Management Plan (CDMP).

The PTI regime has been facing difficulties in moving forward with the harmonization of GST among the federating units and the federation. How government makes the progress on the harmonization of GST is yet to be seen. The domain of the center is the GST on goods, while on services it is under the provincial jurisdiction in line with arrangements of the 1973 Constitution.

Following IMF program revival, Islamabad could avail a Letter of Comfort (LOC) for receiving program loans from multilateral creditors such as the Asian Development Bank (ADB) and the World Bank. When contacted with top officials of the Finance Division said that the government had not requested to increase the loan amount from $350 million to $500 million. In the NTC meeting prior actions will also be discussed, as we are committed to implementing the prior actions, he added. 

Awais Manzur Sumra Additional Secretary External Finance said that at the time of loan negotiations amount of program loans is determined. We are committed to meeting the remaining prior actions. As we have not reached that stage in RISE-II.

Shaukat Tarin Federal Minister for Finance and Revenue on Tuesday Tarin met with World Bank Country Director Najy Benhassine and his team at Finance Division. Secretary Finance with senior officers was also present there, according to an official press statement.

The ongoing World Bank’s projects and programs progress in Pakistan with a focus on RISE-II was reviewed in the meeting and for the timely completion of the program, some prior actions to be met have been discussed.

To reduce the monster of circular debt flow through improving efficiency in distribution, retargeting electricity subsidies, de-carbonizing the energy mix, and reducing power generation costs, Pakistan is also negotiating another program loan from the World Bank which is called Pakistan Program for Affordable and Clean Energy (PACE)–II.

For the PACE-II program, World Bank has committed $600, but an official source told that it might issue $30 million.

Only a $5.7 billion program loan will be approved from the multilateral creditors expected to the government in the current fiscal year after securing a letter of comfort from the IMF.