Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The World Bank has agreed to $20bn of new lending to Pakistan over the next decade as the multilateral lender seeks to support the cash-strapped government in undertaking reforms to stabilise the economy.
The move to a 10-year country partnership framework — from short-term adjustment programmes previously — is aimed at shielding the lender’s investments from crisis-hit Pakistan’s political turbulence and incentivising the government to stick to reforms announced in recent months.
“Our new decade-long partnership framework for Pakistan represents a long-term anchor for our joint commitment with the government to address some of the most acute development challenges facing the country,” Najy Benhassine, the World Bank’s Pakistan country director, said in a statement.
The programme will focus on combating malnutrition and improving education, climate change resilience and Pakistan’s debt-laden energy sector, the statement said.
It comes four months after the IMF began disbursing funds from a $7bn, medium-term bailout, which requires the Islamabad to expand its tax net, phase out preferential investment incentives and secure loan rollovers from major bilateral lenders, notably China and Gulf states.
Pakistan suffered one of Asia’s worst economic crises in recent years, teetering on the brink of default in June 2023 as inflation surged above 30 per cent, foreign reserves dwindled and its debt burden absorbed government revenue.
The economy has since returned to growth, expanding 0.92 per cent in the quarter to September, while inflation slowed to 4.1 per cent last month. Central bank reserves have reached $11bn, enough to cover 2.5 months of imports.
Prime Minister Shehbaz Sharif welcomed the World Bank loan as a vote of confidence in his government’s efforts to turn around the economy and restore stability following a contested election last year, in which candidates loyal to jailed former leader Imran Khan won the most seats but were blocked from power, setting off widespread unrest.
“We look forward to strengthening our partnership as we align our efforts for creating lasting opportunities for our people,” Sharif wrote on social media platform X on Wednesday.
He also credited General Asim Munir, the chief of Pakistan’s army staff, among the officials who “have worked day and night to strengthen Pakistan’s foundation for such transformative partnerships”.
The World Bank hopes the financing will spur progress on a range of policies that Sharif’s administration has announced in recent weeks to reform Pakistan’s import-dependent economy and improve resilience to external shocks such as Russia’s invasion of Ukraine and catastrophic flooding in 2022.
These include scrapping popular energy subsidies, reducing import tariffs by up to a third over the next three years and raising income taxes and levies on real estate transactions and agricultural income, a politically sensitive issue.
“The economy is recovering from the recent crisis as the government has launched an ambitious program . . . that [has] the potential to sustain a growth acceleration,” the World Bank wrote in a report last month outlining the partnership framework. But it warned that “past failures have led to a credibility gap that may mute the economic response”.
The lender’s current portfolio in Pakistan includes a commitment of $17bn on 106 projects spanning agriculture, healthcare and energy.
It also stressed the need for “enhanced private sector engagement” and joint financing, pointing to sectors such as water and energy, manufacturing and digital infrastructure.
“Pakistan’s crisis has bottomed out so far, and it has undertaken some difficult fiscal and monetary tightening measures,” said Krisjanis Krustins, an analyst at Fitch Ratings.
“But to make this sustainable over the long term, Pakistan needs serious structural reforms so that the next cycle of growth doesn’t ruin its external balances.”
Source link
