Earlier this month, the World Bank (WB) board approved a USD 20 billion loan package for Pakistan. Nonetheless, the framework document indicated that there would be significant challenges to its successful implementation due to political divisions and a deteriorating security situation in the two provinces – Balochistan and Khyber Pakhtunkhwa.
While Pakistan has celebrated the new loan package, many commentators suggest that its implementation may fail. The World Bank has already identified nine risks associated with the USD 20 billion loan facility for Pakistan under the 10-year Country Partnership Framework (CPF), recognizing six of these risks as substantial, including political, governance, and macroeconomic vulnerabilities.
Notably, Pakistan’s struggling economy took a hit last month as the World Bank canceled a USD 500 million loan for a clean energy program. Originally intended to support sustainable energy initiatives, the loan was revoked after Pakistan failed to meet key conditions tied to the agreement, including revisions to power purchase agreements under the China-Pakistan Economic Corridor (CPEC).
Similarly, in November 2024, the International Monetary Fund (IMF) highlighted Pakistan’s tax shortfall and delays in securing foreign loans, among other issues, as challenges in implementing the three-year USD 7 billion program approved in July. Given Pakistan’s poor track record of fulfilling the conditions of various loan packages, there is a consensus that the new World Bank loan will likely encounter delays, revisions, or possible cancellation in the coming months.
In its recent findings, the World Bank noted its experiences from previous Country Partnership Frameworks (CPF) for Pakistan covering the period from 2015 to 2024. It acknowledged that resources should be strategically and selectively allocated with long-term objectives in mind, avoiding narrow, short-term engagements without consistent programming. Furthermore, frequent reversals of reforms have underscored the necessity of utilizing suitable instruments that combine policy reforms with long-term, largely irreversible investments to sustain those reforms.
While the World Bank has proposed a “whole-of-country approach” that includes various federating tiers and sectors, Pakistan faces significant political and governance risks that may impede the program’s implementation and lead to a lack of continuity in policy direction.
The risk of this track record continuing is high. New episodes of heightened political tensions could lead to fiscally unsustainable policy decisions, particularly concerning energy subsidies and tax exemptions. Difficult coordination and often incoherent policy positions between the federal government and the provinces exacerbate these risks.
Moreover, under the current coalition government led by Shehbaz Sharif in Islamabad, the gap between the center and the provinces has significantly deepened. What is more concerning is the increasing involvement of Pakistan’s military establishment in supporting this biased approach, which favors Punjab in reaping the most benefits from the federal government’s policies than border provinces like Balochistan and Khyber Pakhtunkhwa.
In April 2024, the WB’s biannual Pakistan Development Outlook report underscored significant long-term challenges, noting that over 10 million individuals risk falling into poverty amidst sluggish economic growth and soaring inflation. The international financial organization has predicted that Pakistan’s real GDP growth may reach 2.8 percent in the fiscal year 2025.
However, this growth level is insufficient to bring down poverty rates in the country, which increased from 40.2 percent in FY23 to 40.5 percent in FY24. Before approving the new loan program for Pakistan, the WB projected economic growth of just 3.8 percent in 2029, a budget deficit of 6 percent of GDP, and a debt-to-GDP ratio of 73 percent — three key indicators of economic health.In October last year, the World Bank also projected foreign direct investment at a mere 0.6 percent of GDP by 2029.
The CPF for Pakistan (2025-2035) identifies several risks across six areas: macroeconomic, sector strategies and policies, technical design, institutional capacity for implementation and sustainability, fiduciary, environmental and social issues, as well as fragility, conflict, and violence, and risks affecting key stakeholders. Najy Benhassine, World Bank Country Director for Pakistan, expressed his concerns, stating, “Our new decade-long partnership framework for Pakistan serves as a long-term anchor for our joint commitment with the government to tackle some of the most pressing development challenges the country faces: child stunting, learning poverty, its remarkable vulnerability to the impacts of climate change, and the sustainability of its energy sector.”
The WB press statement noted, “Pakistan’s per capita income has long stagnated, while high rates of child mortality, child stunting, fertility, and learning poverty continue to persist. This illustrates decades of underinvestment in health, education, water, sanitation, and other public services.”
Furthermore, the assessment has highlighted a growing fragility, particularly in Balochistan and Khyber Pakhtunkhwa. Violence has escalated in these regions over the past year, intensifying what was once a low-intensity conflict.
These areas face the worst human development, poverty, and economic conditions in Pakistan, especially for women, and operating here will become increasingly challenging due to security risks. The World Bank’s assessment of rising instability in these provinces clearly indicates that international organizations are concerned about the detrimental effects of the ongoing security conflict in Pakistan. As a result, the World Bank may proceed with caution in approving the full amount of the new loan package.
Of the USD 20 billion, the World Bank plans to provide USD 14 billion in concessional loans, with the remaining USD 6 billion offered at relatively higher interest rates. This suggests that the global financial institution lacks confidence in Pakistan’s ability to effectively utilize the loan to alleviate poverty and enhance economic indicators. Like the IMF, the World Bank is also concerned that Pakistan might use the funds to repay Chinese loans or invest in CPEC projects. Amid the declining economy, escalating security instability, and rising political and governance risks, the new World Bank loan program may struggle in the coming months as the 10-year CPF for Pakistan faces significant obstacles in the long term. (Times of Oman)
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