News Analysis |
The World Bank has granted Pakistan an $825 million loan to upgrade the energy and public finance sectors in a country that has long struggled with chronic power shortages and poor fiscal management.
On December 19th, to assist Pakistan in energy and public finance, World Bank’s board of executive directors approved two projects for Pakistan.
World Bank seems content with Pakistan’s encouraging business climate visible through multiple indicators, which prompted the bank to fund the troubled energy and public finances of the economy.
Just over half the loan, $425 million, would be used to modernize the national grid, the World Bank said. “The improved power supply will help meet the unserved demand from consumers and reduce the number and duration of power outages,” Illango Patchamutu, the World Bank, said in a statement.
This project which is termed as the National Transmission Modernization Project-I will modernize the national transmission system to enable new power generation to reach consumers by upgrading, expanding and rehabilitating selected 500kV and 220kV substations and transmission lines.
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Prime Minister Shahid Khaqan Abbasi said recently that 10,000 megawatts had been added to the national system, with another 10,000 megawatts available in the next two years. The work is in process in a number of projects under the CPEC related investment in the power sector. The energy sector is one of the salient features of the long-term Plan (LTP) under CPEC. According to the minister for planning, Ahsan Iqbal, CPEC has addressed the energy crises and almost over half of the 10,000 MW energy added recently to the national grid comes from CPEC.
Pakistan was nominated among the top 10 reformers in the World Bank (WB) Doing Business Indicators 2017. Pakistan’s ranking improved to 144 after previously being ranked 148 out of a total of 190 countries
This assistance of $425 million will facilitate to achieve the next target of 10,000 megawatts. This loan will mature in 21 years and has a grace period of 6-years.
The remaining $400 million was allocated to improve the management of public finances and thus assist the delivery of much-needed health and education services.
According to the World Bank, the $400 million reform bill will address these challenges through the enactment of a robust public finance management law, which will lead to decentralization of payment and empower the front-line service delivery managers.
Moreover, “the program will also focus on strong cash management; timely and comprehensive reporting; improved federal-provincial coordination; timely release of funds; streamlined payroll and pension systems; efficient and transparent procurement, and user-friendly reports for citizen engagement.”
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According to Patchamuthu Ilangovan, “the public financial management challenges undermine the delivery of health and education services to the population”. This new program will help in strengthening the deteriorating public finance in the wake of depleting foreign reserves and twin deficit because of an extraordinary hike in imports due to CPEC related machinery and equipment.
On December 19th, to assist Pakistan in energy and public finance, World Bank’s board of executive directors approved two projects for Pakistan.
Pakistan’s economy grew 5.3 percent in the fiscal year up to June 2017, and the government has set a growth target of around six percent for the current year.
However, economists are wary of Pakistan’s hefty fiscal deficit of around four percent of GDP. Imports of heavy machinery as a started sign of decline, and exports have finally picked up in last few months, however, debt servicing on existing loans has flourished due to extraordinary debt accumulation since 2013.
Pakistan’s public debt has increased from Rs. 14,318 billion in the financial year (FY) 2013 to Rs. 21686 billion by October 2017, as per the data released by State Bank of Pakistan (SBP) on December 18th. It is the increase of a staggering 53.39%. It is the reason why the bulk of the earnings from exports are spent on debt servicing which restrict the use of funds in inclusive development and asset building spending. Resultantly, keeping Pakistan at the mercy of lenders.
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This assistance of $425 million will facilitate to achieve the next target of 10,000 megawatts. This loan will mature in 21 years and has a grace period of 6-years.
A record trade deficit of $15 billion for the first four months of the current financial year has also caused jitters about a potential balance of payments crisis. The value of the rupee has fallen by roughly five percent in recent weeks against the US dollar after consultation with IMF authorities. Pakistan was nominated among the top 10 reformers in the World Bank (WB) Doing Business Indicators 2017.
Pakistan’s ranking improved to 144 after previously being ranked 148 out of a total of 190 countries. According to the last report released in 2017 under Article IV, Pakistan’s leading progress included the enactment of the Secured Transactions Law, the expansion of the electronic platform for trade (WeBOC), digitalization of land records in Punjab, and the electronic data exchange with China and Afghanistan. It also improved in transparency ranking from 143 to 116. However, it remains below the emerging market averages in the World Bank Governance Indicators.
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World Bank seems content with Pakistan’s encouraging business climate visible through multiple indicators, which prompted the bank to fund the troubled energy and public finances of the economy.