World Bank takes a step back on $1.1bn loan approval

ISLAMABAD: The World Bank (WB) deepens the fiscal crisis by delaying the approval of two loans worth $ 1.1 billion until the next financial year, according to news reports on Wednesday. The bank also opposed the 1%-3% flood levy on imports to fulfil the financing gap of $ 32 billion. 

The lender jolted the 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. 

The RISE programme hopes to achieve “fiscal management, promote transparency and private sector growth, and undertake foundational reforms in the energy sector to transition to low-carbon energy,” and the PACE programme sets to “reduce circular debt flow through reducing power generation costs, decarbonising the energy mix, improving efficiency in distribution, and retargeting electricity subsidies,” according to the WB website. 

Both programmes indicate reforms in the energy sectors, and the WB believes that macroeconomic challenges cannot be met unless energy costs are cut. This includes reducing generation costs, creating avenues for solar energy and cutting subsidies in the energy sector. 

The government had hoped to receive the approval of at least $ 450 million by January 2023, which would have unlocked a further $ 450 million loan by the Asian Infrastructure Investment Bank (AIIB). 

The government was already facing difficulty securing a financing loan from the International Monetary Fund (IMF), and with such a blow by the WB the government is left with an additional $ 1.5 billion hole. 

According to sources, the WB expressed its grievances regarding 1%-3% flood levy on imports to raise Rs 60 billion to Rs 70 billion in additional taxes to cover imports. 

The flood levy is part of the Rs 200 billion budget that the government set to appease the IMF bailout.