WB suspends support loans for Pakistan

ISLAMABAD: The World Bank (WB) has suspended programme loans/budgetary support for Pakistan owing to deteriorating macroeconomic indicators; however, the Washington based lender will continue providing project loans to Islamabad, it is learnt. 

“Last month, the WB team conveyed Pakistani authorities that they cannot provide programme loans/budgetary support because of macroeconomic indicators,” sources from the World Bank based in Washington confirmed to The News here on Sunday.

The WB, they said, linked provision of programme lending with letter of comfort (LoC) from the IMF.  The IMF used to gauge the economic health of the country on the basis of macroeconomic indicators, so it seemed that dark clouds had started hovering around Islamabad for luring them for entering into another bailout package from the IMF. 

Pakistan’s foreign currency reserves had started depleting in the wake of rising current account deficit, and it had already evaporated around $4.5b in last few months after saying goodbye to the IMF. Now, the reserves held by the SBP stood at $14.7b and around $4b forward booking the net reserves were just over $10b which could hardly meet three months import bill requirements. 

When contacted a top official at the Finance Division on Sunday evening, he said that the WB did not formally convey about halting programme loan for Pakistan.  He said that Islamabad had not yet made any request for the programme loan. He also said that Pakistan and the IMF would hold post programme monitoring (PPM) within this calendar year, but its exact schedule and venue was not yet finalised. 

The WB provides its assistance in shape of IDA and IBRD, and Finance Minister Ishaq Dar had to struggle a lot for restoring IBRD lending as it provided on the basis of certain performance criteria. Now, again this lending was halted for the time being till Pakistan improves its economic indicators by raising foreign currency reserves level in months ahead.

After disqualification from the IBRD, now Pakistan will be able to borrow through the IDA only in accordance with its allocated quota and additional borrowing in shape of IBRD will remain suspended until the country improves its macroeconomic indicators.

In the WB’s latest report on Pakistan, the Bank stated that since coming to power in 2013, the Government of Pakistan implemented an ambitious economic reform programme. As a result, external and internal macroeconomic balances improved markedly, and the country made strides in important agendas, such as taxation, the energy sector and the business environment. 

As the government completed four years in office, there are concerns that progress is stalling. The first half of FY17 suggests deteriorating internal and external balances. Privatisation efforts have stalled, which has also affected the broader reform efforts in the electricity sector, with the resurgence of circular debt.

Reforms in areas that require collaboration between federal and provincial governments remain challenging. Reform momentum will need to continue to maintain macroeconomic stability and accelerate growth.

However, the Finance Ministry spokesman stated that the current account deficit reached $2.6b (0.76 percent of the GDP) in July-August FY 2018, from $1.3b (0.42 percent of the GDP) in last year. On MoM basis, the external account position is showing an improvement and CA improved by 73 percent during August 2017 over July 2017 on account of better exports, remittances and FDI growth. 

Exports: Exports started showing positive results during FY2018 due to several initiatives for the promotion and facilitation of exports, such as mark-up rates has been reduced on Export Re-finance Facility (ERF) from 8.4 percent to 3.0 percent. Prime Minister’s package of Rs180b is also aiding the export sector. During Jul-Aug FY2018, exports posted a significant growth of 17.9 per cent and on MoM basis 14.3 per cent in August 2017.

Remittances: During July-August FY2018, overseas Pakistani workers remitted $3.496b as compared to$ 3.089b received during the same period in the preceding year, which is higher by 13.18 per cent.

FDI: FDI amounted to $2.411b during FY2017 compared to $2.305b during same period last year, posting a growth of 4.6 per cent. During July-August, FY2018, FDI posted a significant growth of 154.9 per cent which bodes well for the balance of payment, the spokesman concluded.