Pakistan has requested that the approval of $900 million in budget support loans be expedited by the World Bank and the Asian Infrastructure Investment Bank (AIIB).
By securing the $6 billion in financing needed to reach a staff-level agreement (SLA) with the IMF by next week, the loans are meant to fulfill the requirement.
As soon as Pakistan’s specific requirements are met, negotiations for the second $450 million Resilient Institutions for Sustainable Economy (RISE-II) budget support loan should begin, said Finance Minister Ishaq Dar in a virtual meeting with Martin Raiser, Vice President of the World Bank for South Asia.
The second Program for Affordable Energy (PACE-II), worth $600 million, and the RISE-II loan were previously combined by the World Bank because it was thought that Pakistan’s energy and fiscal sectors were interdependent.
Since then, the lender has tied the approval of the two loans together, noting that Pakistan has largely complied with the requirements for the RISE-II loan but has not yet done so for the PACE-II loan.
Dar also held a virtual meeting with AIIB President, Jin Liqun, and urged him to provide a $450 million loan as part of co-financing of the World Bank package. However, the AIIB has hinted that it may lower the loan tranche to $250 million.
In order to secure a date for a board meeting, Pakistan included the combined loans from the World Bank and AIIB, totaling $900 million, in the $6 billion financing plan it shared with the IMF.
The swift approval of these loans will make Pakistan more appealing to the international lender.
According to the finance ministry, the budget support programmes’ distribution was essential for the IMF agreement and that RISE-II and PACE-II were separate programmes.
By the end of the following week, Pakistan hopes to have SLA, at which point talks about programme loans can begin. Pakistan had to harmonise the General Sales Tax (GST) between the central government and the four federating units in order to be eligible for the RISE-II loan.
As part of the World Bank’s requirements, the government has already eliminated the sales tax on electricity subsidies, reduced general subsidies, and strengthened the debt office. The World Bank’s requirements for the PACE-II loan include a reduction in circular debt.
The PACE-II loan, which has some requirements related to the reopening of the power purchase deals, including the Chinese deals, is said to be the major sticking point, according to sources.
In contrast to the 68 contracts it must reopen in order to comply with PACE-II requirements, Pakistan has only renegotiated about three dozen contracts thus far.
Dar updated the AIIB president on the status of the RISE-II loan conditions and requested that the lender also make a $450 million contribution as part of the original arrangement.
The World Bank was the biggest lender to Pakistan during the crisis after providing a $1.7 billion loan for flood-related projects.
After the meeting, the finance ministry released a statement in which Raiser “especially thanked the Pakistani side for completing the reforms under the RISE programme, which will contribute to ensuring macroeconomic stability in the country.”
If the World Bank agreed to begin negotiations and treat RISE-II separately from the energy sector budget support package, the ministry did not make it clear.
